The Impact of Medicines Do more, feel better, live longer Annual Report 2002 www.gsk.com Mission Our global quest is to improve the quality of human life by enabling people to do more, feel better and live longer. Our Spirit We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency. Strategic Intent We want to become the indisputable leader in our industry. GlaxoSmithKline plc is an English public limited company. Its shares are listed on the London Stock Exchange and the New York Stock Exchange. GlaxoSmithKline plc acquired Glaxo Wellcome plc and SmithKline Beecham plc on 27th December 2000 by way of a scheme of arrangement for the merger of the two companies which became effective on 27th December 2000. This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December 2002. It comprises in a single document the Annual Report of the company in accordance with United Kingdom requirements and the Annual Report on Form 20-F to the Securities and Exchange Commission in the United States of America. A summary report on the year, the Annual Review 2002, intended for the investor not needing the full detail of the Annual Report, is produced as a separate document. The Annual Review includes the joint statement by the Chairman and the Chief Executive Officer, a summary review of operations, summary financial statements and a summary remuneration report. The Annual Review is issued to all shareholders. The Annual Report is issued to shareholders who have elected to receive it. Both documents are available on GlaxoSmithKline’s corporate website – at www.gsk.com. Website GlaxoSmithKline’s website, www.gsk.com gives additional information on the Group. Information made available on the website does not constitute part of this Annual Report. GlaxoSmithKline 01 GlaxoSmithKline plc Annual Report for the year ended 31st December 2002 Contents Report of the Directors 02 Financial summary 03 Joint statement by the Chairman and the Chief Executive Officer 05 Description of business 31 Corporate governance 39 Remuneration report 51 Operating and financial review and prospects 73 Financial statements 74 Directors’ statements of responsibility 75 Independent Auditors’ report 76 Consolidated statement of profit and loss 76 Consolidated statement of total recognised gains and losses 78 Consolidated statement of cash flow 80 Consolidated balance sheet 80 Reconciliation of movements in equity shareholders’ funds 81 Company balance sheet 82 Notes to the financial statements 142 Financial record 151 Investor information 152 Shareholder return 153 Shareholder information 154 Share capital 156 Taxation information for shareholders 157 Cross reference to Form 20-F 158 Glossary of terms The Annual Report was approved by the Board 159 Index of Directors on 10th March 2003 and published on 28th March 2003. Contact details 02 GlaxoSmithKline Financial summary 2001 2002 (restated) Increase Statutory results £m £m £% CER% Sales 21,212 20,489 4 7 Trading profit 5,662 4,697 21 26 Profit before taxation 5,506 4,517 22 28 Earnings/Net income 3,915 3,053 28 35 Basic earnings per share 66.2p 50.3p 32 38 Dividends per share 40.0p 39.0p Merger, restructuring and disposal of subsidiaries Trading profit (1,032) (1,356) Profit before taxation (1,011) (1,652) Earnings/Net income (712) (1,330) Business performance Sales 21,212 20,489 4 7 Trading profit 6,694 6,053 11 15 Profit before taxation 6,517 6,169 6 11 Adjusted earnings/Net income 4,627 4,383 6 11 Adjusted earnings per share 78.3p 72.3p 8 13 Business performance, which is the primary performance measure used by management, is presented after excluding merger items, integration and restructuring costs and the disposal of businesses. Management believes that exclusion of these non-recurring items provides a better comparison of business performance for the periods presented. Statutory results include these non-recurring items. This information is provided as a supplement to that included in the consolidated statement of profit and loss on pages 76 and 77 prepared in accordance with UK GAAP. The Group, as a multinational business, operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in sterling, are therefore affected by movements in exchange rates between sterling and overseas currencies. The Group uses the average exchange rates prevailing during the year to translate the results of overseas companies into sterling. The currencies which most influence these translations are the US dollar, the Euro and the Japanese Yen. During 2002 average sterling exchange rates were stronger against the US dollar and the Japanese Yen by four per cent and seven per cent, respectively, and weaker against the Euro by one per cent, compared with 2001. In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in sterling had remained unchanged from those used in the previous year. The discussion in this report is therefore in terms of CER unless otherwise stated. £% represents growth at actual exchange rates. CER% represents growth at constant exchange rates. During 2002 FRS 19 ‘Deferred tax’ has been implemented by the Group. This FRS requires deferred tax to be accounted for on a full provision basis, rather than a partial provision basis as in 2001 and earlier years. This change has been accounted for as a prior year adjustment and comparative information has been restated as necessary. Cautionary statement regarding forward-looking statements The Group's reports filed with the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group's current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors including those in this document could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’ on pages 64 and 65 of this Annual Report. GlaxoSmithKline 03 Joint statement by the Chairman and the Chief Executive Officer New product growth drives commercial strength The success of our new products is providing the fuel for future growth, with new products now representing 27 per cent of total pharmaceutical sales, up 36 per cent in 2002. Sales of Seretide/Advair for asthma, now our second largest product, continued to grow impressively, up 96 per cent to £1.6 billion. We recently launched Avandamet for type 2 diabetes and Avodart for benign prostatic hyperplasia, as well as important line extensions of Augmentin and Paxil. During 2003-2004 we look forward to launching 12 new compounds and line extensions. These include Levitra, a new treatment for erectile dysfunction, which we are co- promoting with Bayer, and Wellbutrin XL, a new and improved version of our successful anti-depressant. Creating the most productive R&D organisation At the outset of the merger we rethought the way R&D was The purpose of GlaxoSmithKline is to deliver carried out at GlaxoSmithKline, with the aim of creating the most productive R&D organisation in the industry. We established six medicines that have a positive impact on the quality therapeutically focused Centres of Excellence for Drug Discovery of human life. We have chosen this fundamental and (CEDDs). The CEDDs are nimble and entrepreneurial with the range challenging objective as the theme of this year’s of skills and scale of resources required to drive mid-stage Annual Review. development projects through to their key decision point, proof of concept, before large-scale phase III clinical trials. We are pleased to report that 2002 was a year of significant After two years of activity by the new R&D organisation, we are progress in establishing GlaxoSmithKline as one of the world’s seeing significant progress as we advance our promising early stage leading pharmaceutical companies. We achieved strong financial pipeline of pharmaceutical products through clinical development. results in 2002, despite the entry of generic competition in the GlaxoSmithKline has 123 projects in clinical development, of which USA to Augmentin, one of our major products. 61 are new chemical entities in a number of therapy areas, and 23 Our progress stems from the Group’s key strengths: a broadly new vaccines. The number of new chemical entities starting phase based product portfolio, strong financial capability and a promising II clinical trials has more than doubled since the merger. We are early stage pipeline of products.