Table of Contents
As filed with the Securities and Exchange Commission on March 4, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-15170
GlaxoSmithKline plc
(Exact name of Registrant as specified in its charter)
England
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
980 Great West Road, Brentford, Middlesex TW8 9GS England
(Address of principal executive offices)
(Address of principal executive offices)
Victoria Whyte
Company Secretary
GlaxoSmithKline plc
980 Great West Road
Company Secretary
GlaxoSmithKline plc
980 Great West Road
Brentford, TW8 9GS
England
+44 20 8047 5000
England
+44 20 8047 5000
company.secretary@gsk.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange On Which Registered | |
American Depositary Shares, each representing
2 Ordinary Shares, Par value 25 pence
|
New York Stock Exchange | |
4.850% Notes due 2013
|
New York Stock Exchange | |
|
5.650% Notes due 2018
|
New York Stock Exchange | |
6.375% Notes due 2038
|
New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of class)
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of class)
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common
stock as of the close of the period covered by the annual report.
Ordinary Shares of Par value 25 pence each |
5,196,264,019 | |||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
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o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial
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Table of Contents
Contents
Business review
This discusses our financial and non-financial activities, resources, development and performance
during 2010 and outlines the factors, including the trends and the principal risks and
uncertainties, which are likely to affect future development.
Governance and remuneration
This discusses our management structures and governance procedures. It also sets out the
remuneration policies operated for our Directors and Corporate Executive Team members.
Financial statements
The financial statements provide a summary of the Group’s financial performance throughout 2010 and
its position as at 31st December 2010. The consolidated financial statements are prepared in
accordance with IFRS as adopted by the European Union and also IFRS as issued by the International
Accounting Standards Board.
Shareholder information
This includes the full product development pipeline and discusses shareholder return in the form of
dividends and share price movements.
Underlying sales growth excludes pandemic products, Avandia and Valtrex. See page 21.
CER%
represents growth at constant exchange rates. Sterling % or £% represents growth at actual
exchange rates. See page 21.
The calculation of results before major restructuring is described in Note 1 to the financial
statements, ‘Presentation of the financial statements’.
GSK Annual Report 2010
Table of Contents
01
We exist to improve the
quality of human life by
enabling people to do more,
feel better and live longer.
quality of human life by
enabling people to do more,
feel better and live longer.
| We work by respecting people, maintaining our focus on the patient and consumer whilst operating with both integrity and transparency. |
| We are looking to deliver shareholder value through growth of a diversified and global business, by delivering more products of value, simplifying our operating model and by running our business responsibly. |
| What follows is our report to shareholders for 2010. |
Notice regarding limitations on Director Liability under English Law
Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of
statements in and omissions from the Report of the Directors contained on pages 8 to 101. Under
English law the Directors would be liable to the company, but not to any third party, if the Report
of the Directors contains errors as a result of recklessness or knowing misstatement or dishonest
concealment of a material fact, but would not otherwise be liable.
Report of the Directors
Pages 8 to 101 inclusive comprise the Report of the Directors that has been drawn up and presented
in accordance with and in reliance upon English company law and the liabilities of the Directors
in connection with that report shall be subject to the limitations and restrictions provided by
such law.
Website
Notwithstanding the references we make in this Annual Report to GlaxoSmithKline’s website, none of
the information made available on the website constitutes part of this Annual Report or shall be
deemed to be incorporated by reference herein.
Cautionary statement regarding forward-looking statements
The Group’s reports filed with or furnished to 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 53 to 57 of this Annual Report.
GSK Annual Report 2010
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02
GSK at a glance
We are one of the world’s leading
research-based pharmaceutical and
healthcare companies. We are
committed to improving the quality
of human life by enabling people
to do more, feel better and live longer.
research-based pharmaceutical and
healthcare companies. We are
committed to improving the quality
of human life by enabling people
to do more, feel better and live longer.
How we do it
GSK has focused its business on the delivery of three strategic priorities, which aim to
increase growth, reduce risk and improve GSK’s long-term financial performance:
| • | Grow a diversified global business | |
| • | Deliver more products of value | |
| • | Simplify GSK’s operating model |
Where we do it
GSK is a global organisation with offices in over 100 countries and major research centres in
the UK, USA, Belgium and China. Our shares are listed on the London and New York Stock Exchanges
and our corporate head office is in Brentford, UK.
Our 2010 numbers
£28.4bn
|
32.1p | |
Turnover
|
Earnings per share | |
53.9p
|
65p | |
Earnings per share before major restructuring |
Dividend per share |
Group sales
| Research & development | Consumer Healthcare | |||||
c.30 |
£3.96bn | 20% | No.1 | |||
A peer-leading pipeline |
In 2010, we spent £3.96bn | Growth of Horlicks | Sensodyne has been the | |||
with around 30 late-stage |
in R&D before major | in India in 2010. | world’s fastest growing | |||
assets. |
restructuring, or 14% | toothpaste brand over | ||||
| of our total sales. | the last 5 years. | |||||
| We are one of the world’s | ||||||
| biggest investors in R&D and are | ||||||
| the biggest private sector funder | ||||||
| of R&D in the UK. | ||||||
10 |
14% | c.1bn | 2 | |||
10 new compounds and |
We are committed to | Units of Lucozade, Ribena | New Consumer Healthcare | |||
vaccines starting phase III |
improving returns in R&D, | and Horlicks manufactured | Research and Innovation | |||
clinical trials since the start |
aiming to increase our | in the UK every year. | centres opened in China | |||
of 2010. |
estimated return | and India. | ||||
| on investment in | ||||||
| this area to 14%. | ||||||
| Vaccines | Emerging markets | |||||
1.4bn |
24% | |||||
Doses of our vaccines |
Of total GSK turnover from | |||||
supplied to 179 countries |
emerging markets, by the broader | |||||
around the world in 2010. |
definition (Pharmaceutical and | |||||
| Consumer Healthcare turnover | ||||||
| in all markets excluding USA, | ||||||
| Western Europe, Canada, Japan, | ||||||
| Australia and New Zealand). | ||||||
GSK Annual Report 2010
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03
96,500 |
5% | 3 | ||
Employees. |
Share of world | Leading presence in | ||
| pharmaceutical market. | Consumer Healthcare | |||
| (Source: IMS Health) | global categories: OTC, | |||
| Oral Care, Nutritionals. |
GSK’s business model
A balanced, synergistic business, with multiple growth drivers
supporting a core pharmaceutical R&D operation.
Responsible business
Malaria vaccine
Potentially the first malaria vaccine with phase III trials ongoing
in 7 African countries.
300 million
Commitment to supply 300m doses of Synflorix at a reduced price to developing countries over the
next decade through the AMC financing mechanism.
5-year commitment
To treat school age children in Africa at risk of intestinal worms.
Leader
GSK ranked first in both Access to Medicine Indexes in 2008 and 2010.
2050
Target date for value chain, from raw materials to product disposal, to be carbon neutral.
| |
GSK Annual Report 2010
Table of Contents
04
Chairman & CEO summary
Dear Shareholder
Over the last two and a half years we have been implementing a strategy to transform our
business model to address the significant challenges our industry faces as payers search for ever
more cost-effective healthcare, and demand escalates for new and better medicines. This is being
done with the direct aim of enhancing returns to our shareholders and improving the lives of
patients and consumers.
To achieve this we have substantially re-engineered GSK’s business through major restructuring and
a more rigorous approach to capital allocation. The effects of these changes in 2010 were masked to
some degree by specific events. Reported sales, for example, were impacted by generic competition
to Valtrex, and reduced sales from Avandia and pandemic related products. Meanwhile earnings were
impacted by the significant charge we took to help resolve long-standing legal matters. This belies
the good progress we have made to execute our strategy and which is evident in diversified
underlying sales growth and the increasing potential of our pipeline. We believe GSK is becoming a
more balanced, synergistic business with a lower risk profile and the option for significant
potential upside from the pipeline.
GSK is also a business built on strong values and a deep commitment to operating with integrity. In
2010 we have taken further steps to make our company more responsive, more flexible and more open
to society’s expectations.
Increasing returns to shareholders
In 2010 we were able to fund returns to shareholders, bolt-on acquisitions and the significant
increase in legal settlements whilst reducing net debt by £0.6 billion.
Adjusted 2010 net cash inflow before legal matters was £8.8 billion, up 9%. Cash outflow for legal
settlements was £2 billion.
GSK remains financially very strong. We increased our dividend by 7% to 65p in 2010 and our
priority is to deliver further growth in the dividend. Since 2005, dividends have increased each
year with average growth of 8% over the five-year period. We have also started a new long-term
share buy-back programme to enhance returns to shareholders, with buy-backs of £1-2 billion
expected in 2011.
Table of Contents
05
Chairman & CEO summary
Continuing focus on return on investment
Our drive for change, and to improve returns on investment through restructuring and effective
capital allocation, continued to make progress during the year.
Reinvestment of costs saved through our restructuring programme has enabled us to diversify and
strengthen GSK’s sales base. To date, £1.7 billion of cost has been extracted from the business and
we are on track to deliver £2.2 billion of annual savings by 2012.
We have taken cost out from lower returning activities and reinvested it in key growth areas such
as Emerging Markets, Vaccines and Consumer Healthcare. 2010 reported sales for these businesses
were up 22%, 15% and 5% respectively.
This is helping to reduce GSK’s dependency on sales of products generated in ‘white pills/western
markets’.† Sales from these markets and products have decreased from 40% in 2007, to 25% in 2010.
Over time, this should help to reduce the adverse impact of patent expirations on the Group.
Delivering diversified underlying sales growth
In 2010, reported sales fell 1%, impacted by the continued effect of generic competition to
Valtrex, the rapid loss of sales of Avandia following regulatory decisions in the Autumn and a
difficult comparison with the prior year which included significant sales of pandemic products.
However, underlying sales growth (sales excluding these 3 factors) was up 4.5%. This growth was
achieved despite the ongoing impacts of US healthcare reform and EU government austerity measures
and is testament to the strength of the rest of our portfolio.
In 2011, we expect underlying sales momentum to continue and translate into sustainable reported
growth in 2012.
Increasing pipeline potential
Reforming R&D to improve returns on investment has been a key element of the strategy we are
implementing. We saw further evidence that this strategy is making progress during 2010.
GSK now has a peer-leading portfolio of around 30 opportunities in phase III and registration. This
portfolio is diverse with 5 biopharmaceuticals and 5 vaccines in addition to NCEs. It is also
highly innovative with more than 20 assets not currently available for any indication. One such
asset – Benlysta – is potentially the first new treatment for lupus in 50 years and is currently
being considered for approval by regulators in the USA and Europe.
Importantly, we are delivering sustained progress, with 10 NCEs and new vaccines entering phase III
since the start of 2010. By the end of 2012, we expect phase III data on around 15 assets,
including potential new treatments for type 1 and 2 diabetes, several rare diseases and multiple
cancer types.
We have made fundamental changes to how we allocate our R&D expenditure, directing it to our late
stage pipeline; reducing cost and risk through externalising parts of early-stage discovery;
dismantling infrastructure; and terminating development in areas with low financial and scientific
return. Our target remains to deliver a rate of return for GSK’s R&D of around 14%. We are the only
pharmaceutical company to have explicitly set such a challenging target.
Operating a values-based business with integrity
Continuing to run our business in a responsible way is also central to the changes we have made at
GSK.
In 2010, we continued progress in our significant commitment to work on neglected tropical
diseases. Our candidate malaria vaccine is progressing through phase III trials in Africa. If all
goes well, this will be the first ever vaccine against malaria, with the potential to save the
lives of millions of children and infants in Africa. We also announced that we will donate enough
of our albendazole medicine to protect all school-aged children in Africa against intestinal worms.
Intestinal worms cause more ill health in school-aged children than any other infection, so this
will have a major positive health impact.
Improving the environmental sustainability of our business is also a priority and we have launched
a new set of ambitious targets. Our goal is to reduce the environmental impact of our whole value
chain, from raw materials to product disposal, and to be carbon neutral by 2050.
We are continuing to work towards resolving a number of long-standing legal matters. There is no
doubt that the scale of legal provisioning that has been required is significant. However, we
continue to believe that it is in the Group’s best interests to resolve this inherent
unpredictability and reduce GSK’s overall litigation exposure.
These legal cases underline just how important it is for us to be led by our values in everything
we do.
Changes to the Board
In September we announced that Julian Heslop will retire as CFO at the end of March and be
replaced by Simon Dingemans, who joined the company as CFO-designate in January 2011.
We would
like to thank Julian for his dedicated service to GSK as CFO and a member of the Board over
the last six years – his integrity, diligence and outstanding technical ability have ensured that
GSK has remained financially strong during a period of significant economic turmoil. Simon’s
appointment as CFO will bring valuable new experience and capability to support us in implementing
our strategy.
Conclusion
There is no doubt that our operating environment remains challenging and that the pharmaceutical
industry is undergoing a period of intense change. However we believe that GSK is well placed to
succeed in this environment.
Our journey to create a more balanced, synergistic business with increasing pipeline potential is
progressing well and in accomplishing this we would like to recognise the significant contribution
of our employees and our many partners. We remain confident that we can generate increased value
for shareholders as well as deliver better outcomes to patients and consumers.
|
 |
|
Sir Christopher Gent
|
Andrew Witty | |
Chairman
|
Chief Executive Officer |
| † | See page 21. |
GSK Annual Report 2010
Table of Contents
 |
06
Discover the world of GSK
| |
GSK Annual Report 2010
Table of Contents
07
Our strategy
Since 2008, we have focused our business around the delivery of three strategic priorities,
which aim to increase growth, reduce risk and improve our long-term financial performance:
Grow a diversified global business
We are diversifying our business to create a more balanced product portfolio and move away
from a reliance on traditional ‘white pills/western markets’*. Sales generated from these markets
and products have decreased from 40% in 2007, to 25% in 2010. Over time this should help to reduce
the adverse impact of patent expirations on the Group.
We expect to generate future sales growth by strengthening our core pharmaceuticals business and
supplementing it with increased investment in growth areas such as Emerging Markets, vaccines,
Japan, dermatology and Consumer Healthcare. Sales in Emerging Markets were up 22%, vaccines up 15%,
Japan up 14%, dermatology up 6% (on a pro-forma basis excluding 2010 acquisitions) and Consumer
Healthcare up 5% for 2010.
Deliver more products of value
With the aim of sustaining an industry-leading pipeline of products that deliver value for
healthcare providers, we have been focusing on improving rates of return and delivering the best
science in our R&D organisation. This has required a multi-faceted approach. For example we have
increased the level of externalisation of our research, taken difficult decisions around pipeline
progressions and focused on disease areas where we believe the prospects for successful
registration and launch of differentiated medicines are greater.
We have one of the largest and most diverse development pipelines in the industry with
approximately 30 late-stage assets. The vast majority of these programmes address unmet medical
need and importantly nearly two-thirds are new chemical entities or new vaccines.
Simplifying the operating model
As our business continues to change shape, it is essential that we transform the operating
model to reduce complexities, improve efficiencies and reduce cost. Through our global
restructuring programme, we have removed £1.7 billion of cost since 2008 and are on track to
deliver our target of £2.2 billion of annual savings by 2012. These savings have been extracted
from our developed country sales and marketing, support functions, R&D and manufacturing
infrastructure and reinvested in higher returning activities such as Emerging Markets, vaccines and
Consumer Healthcare.
Outlook
Whilst our operating environment remains challenging, we have made significant progress
through restructuring and a rigorous returns-based approach to capital allocation. We expect
underlying sales momentum (sales excluding Valtrex, Avandia and pandemic related products) to
continue in 2011 and to translate into reported growth in 2012 at constant exchange rates, despite
further anticipated pricing reductions in the USA and Europe.
The US
patent for compositions containing the combination of active substances in Seretide/ Advair
expired during 2010, but various patents over the Diskus
delivery device exist in the USA for a number of
years up to 2016. The outlook for the timing and impact of entry of ‘follow-on’ competition is
uncertain. GSK has not been notified of any acceptance by the US FDA of an application for a
‘follow-on’ product that refers to Seretide/Advair and contains the same active ingredients (as
would be expected to precede the introduction of such a product), and is not able to predict when
this may occur or when any such ‘follow-on’ product may enter the US market. Other products may
experience generic competition in advance of the stated patent expiry as a result of settlement of
patent proceedings. See Note 44, ‘Legal proceedings’, pages 178 to 185.
GSK has a peer-leading development pipeline, with over 20 assets not currently on the market for
any indication. By the end of 2012, we expect Phase III data on around 15 additional assets.
With
improvements in our net debt position, we are increasing returns to shareholders. We increased
GSK’s dividend in 2010 and our priority is to deliver further growth in the dividend. We also have
commenced a new long-term share buy-back programme.
We remain confident that we can generate increased value for shareholders as well as deliver
better outcomes to patients and consumers.
| * | See page 21. |
Our plans
| • | Drive growth in the pharmaceutical business in our core markets | |
| • | Fulfil the potential of Emerging Markets | |
| • | Expand our business in Japan | |
| • | Build our leadership in dermatology | |
| • | Grow the Vaccines and Consumer Healthcare businesses |
Our plans
| • | Focus on the best science | |
| • | Diversify through externalisation | |
| • | Re-personalise R&D | |
| • | Focus on return on investment |
Our plans
| • | Evolve our commercial model | |
| • | Re-shape manufacturing | |
| • | Streamline our processes | |
| • | Reduce working capital |
GSK Annual Report 2010
Table of Contents
08
2010 performance overview
Our strategies
|
Our measures | Our progress in 2010 | ||
We have focused the business around the
delivery of three strategic priorities.
|
We use a number of measures to
track our progress against the strategic priorities
over the medium to long term. These include the
following: |
We made good progress during the year, with a number of notable successes: | ||
Grow a diversified global business Broadening and balancing our portfolio and moving away from a reliance on ‘white pills/western markets’.† |
• Performance of core Pharmaceuticals and vaccines businesses
|
• Excluding pandemic products, Avandia and Valtrex, underlying pharmaceutical (including vaccines) sales* were £21.1 billion and grew 4% in the year. |
||
• Diversification of sales
|
• Sales from ‘white pills/western markets’† fell from 40% of turnover in 2007 to 25% in 2010 |
|||
• Contribution of Emerging Markets to our overall sales and growth
|
• Sales in our Emerging Markets pharmaceutical business grew by 22% to more than £3.6 billion and now represent 15% of pharmaceutical turnover. |
|||
• Growth of Consumer Healthcare business
|
• Sales in our Consumer Healthcare business grew by 5% to £5.0 billion and now represent 17.6% of Group turnover. |
|||
• Build our leadership position in dermatology
|
• Dermatology sales grew on a pro-forma basis (excluding 2010 acquisitions) by approximately 6% to nearly £1.1 billion, representing nearly 4% of Group turnover. |
|||
• Expansion of Japanese business
|
• Sales in GSK Japan grew 14% to nearly £2.0 billion. |
|||
• We received approvals for four new compounds. |
||||
• Build biopharmaceutical portfolio
|
• Arzerra recorded sales of £26 million on its first full year on the US market and was launched in Europe. Benlysta filed for approval in both the USA and Europe. |
|||
Deliver more products of value Transforming R&D to ensure we not only deliver the current pipeline but are also able to sustain the flow of products for years to come. |
• Contribution to sales of new products
|
• New products launched since 2007 (excluding flu pandemic vaccines) grew 36% and contributed 7% of pharmaceutical sales in 2010. |
||
• Number of reimbursable product approvals and filings
|
• We received six product approvals in the USA and EU since the start of 2010 |
|||
• Seven assets are currently filed with regulators. |
||||
• Sustaining late-stage pipeline
|
• We maintained around 30 assets in phase III and registration, with ten new chemical entities and new vaccines entering phase III since the start of 2010. |
|||
• Enhanced R&D productivity and increased externalisation for Drug Discovery
|
• Our objective is to increase our estimated rate of return for R&D from around 11% to 14%. |
|||
• During 2010 we signed eight new collaborations to increase the external nature of our discovery, giving 54 external discovery engines to complement our 38 Discovery
Performance Units. |
||||
Simplifying the operating model Simplifying our operating model to ensure that it is fit for purpose and able to support our business in the most cost efficient way. |
• Delivery of major restructuring programme
|
• We have achieved annual cost savings of £1.7 billion and remain on track to reach £2.2 billion of annualised savings by 2012. |
||
• Reduce working capital. |
• Working capital reduced by £1.3 billion in 2010 (including £600 million of cash from lower pandemic receivables). |
| * | The calculation of underlying sales growth is described on page 21. |
| † | See page 21. |
Table of Contents
09
2010 performance overview
Key performance indicators
| ‡ | This index includes Abbott Labs, Amgen, AstraZeneca, Bristol Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Novartis, Pfizer, Roche Holdings and Sanofi-Aventis. | |
| o | Reflects £4bn legal charge. | |
| # | The calculation of CER growth is described on page 21. | |
| * | The calculation of results before major restructuring is described in Note 1 to the financial statements, ‘Presentation of the financial statements’. | |
| + | The calculation of free cash flow is described on page 44. |
In 2010, reported sales were down 1% but underlying sales growth (sales excluding pandemic
products, Avandia and Valtrex) was 4.5%.
Earnings per share in 2010 was adversely impacted by legal costs of £4,001 million (2009 – £591
million). Excluding legal costs, EPS before major restructuring was 120.7 pence, 11% down on 2009.
The reduced level of free cash flow in 2010 reflected the higher legal settlements in the
year. Free cash flow before legal settlements was
£6,533 million (2009 – £5,508 million).
GSK Annual Report 2010
Table of Contents
10
Research and development
Research and development – Pharmaceuticals
GSK R&D has built one of the strongest, broadest pipelines of potential new medicines in the
industry. We believe the pipeline has the potential to deliver value to patients and payers and
improve rates of financial return on our R&D investment. Appropriately progressing our pipeline
products safely and efficiently to deliver innovative new medicines for patients is the primary
goal of our R&D function.
The development of new products typically is a long, expensive and uncertain process, and it is not
possible to predict which compounds in development will succeed or fail. The risks inherent in the
R&D process are described more fully in the ‘Risk factors’ section, under ‘Risk that R&D will not
deliver commercially successful new products’.
GSK allocates its R&D investment with reference to the potential returns available from its target
therapeutic markets and the technical and commercial risks associated with products in the
pipeline. Those factors are reviewed at each phase of the development process and are central in
the decision to proceed to the next stage. Costs incurred at each stage are carefully managed to
maximise the likely future return consistent with the Group’s overall objective of increasing its
IRR from its R&D activities from its current level, estimated in 2009 to be around 11%, to 14%.
The returns generated are, however, primarily determined by the eventual commercial impact of new
products as they achieve regulatory approval and are launched.
This projected rate of return includes products launched from 1st January 2007 and compounds in
phases IIb and III of the development process. The calculation is based on actual sales from 2007
to 2009 and forecast sales for the relevant products up to 2030, adjusted to reflect expected
failure rates, which are broadly in line with standard industry failure rates. The cost base used
in this calculation comprises an estimate of attributable R&D costs and actual and projected
milestone payments where appropriate. Estimated profit margins, capital investment and working
capital requirements are factored into the calculation, based on our historical performance.
Details of the full product development pipeline, made up of both pharmaceutical and vaccine
assets, are set out on pages 197 to 200 and the performance of marketed products
is discussed in detail under ‘Financial review 2010’ on pages 34 to 40.
Discovering potential medicines
Our early stage R&D (drug discovery) seeks to identify the biological targets involved with the
development of diseases, and then to create small molecules or biopharmaceuticals that interact
with these disease targets. The wealth of scientific discoveries in recent years has made it
essential that we are highly selective in where we invest our drug discovery resources; focusing
resources on those areas most likely to deliver significant medical advances and returns on
investment.
We conducted a re-evaluation of the advances and discoveries in global biomedical science. This led
us to exit areas of research we judged unlikely to provide sufficient scientific and therefore
financial returns. We have also tried to create an entrepreneurial environment in drug discovery
pursuing the best scientific opportunities whether internal or external. We created Discovery
Performance Units (DPUs), which are groups of between 5-70 scientists, with each group focusing on
one particular disease or pathway and responsible for driving discovery and development of
potential new medicines through to early stage clinical trials (up to the completion of Phase IIa).
There are now nearly 40 DPUs.
Each DPU develops a business plan with specific deliverables and investment covering multiple
years. The plans also include areas of opportunity for collaborations with external organisations
that could enhance a DPU’s deliverables and return. These can include collaborations with large and
small companies and academia. Our internal R&D expertise gives us a strong basis in identifying and
forming these collaborations, which in drug discovery are typically in-licensing or option-based
collaborations.
The Discovery Investment Board (DIB) reviews the business plans of each DPU. The DIB is responsible
for revising the plans, identifying areas for improvement and monitoring DPU delivery against
agreed targets and investment. Membership of the DIB comprises senior R&D and commercial management
and external individuals with relevant expertise including life science investment experience and
understanding of payer perspectives. It is chaired by the SVP of Medicines Discovery and
Development.
No individual DPU has annual expenditure of more than 10% of the total annual R&D expenditure.
Delivering these medicines to patients
A compound that advances into late-stage development (typically after Phase lla) will undergo much
larger scale studies in humans to investigate its efficacy and
safety further. At the same time, we
work at optimising both the compound’s physical properties and its formulation so that it can be
produced and delivered efficiently and in sufficient quantities through the manufacturing process.
We then convert the results of these activities into a regulatory file for submission to regulatory
agencies.
Medicines Development Teams (MDTs) are small units of six to ten people who have responsibility for
a compound through the later stages of development to filing with the regulatory agencies. There
are around 30 assets in late-stage development, comprising more than 50 individual projects.
GSK also actively seeks out opportunities to add products to its late-stage portfolio through
relationships with other companies. For late-stage assets, these typically take the form of
in-licensing or co-promotion arrangements and are most likely to be aligned to existing areas of
therapy expertise or investment.
The Product Management Board (PMB), assesses the technical, commercial and investment case for each
project to progress in development. The PMB is co-chaired by the Chairman, R&D and the President,
North America Pharmaceuticals, and includes the heads of each pharmaceutical region and global
manufacturing.
Projects are reviewed by the PMB at certain key decision points: ‘Commit to Medicine Development’,
‘Commit to Phase III’ and ‘Commit to File and Launch’. Funding is generally allocated up to the
next key decision point, typically between two and four years ahead. The PMB also carries out an
annual late-stage funding review, where investment in all projects is reviewed, adjusted if
necessary and prioritised.
No individual late-stage project has incurred annual expenditure of more than 10% of the total
annual R&D expenditure.
Governance
R&D decisions are overseen by a number of boards. The oversight of strategic issues and overall
budget management across R&D is owned by the R&D Executive team (RADEX). DIB and PMB control
investment decisions in early and late stage R&D as described above.
The Scientific Advisory Board (SAB) is chaired by the SVP Medicines Discovery and Development and
includes a number of external scientific experts. The SAB reviews and challenges the science
underlying development programmes and provides advice on related issues to the PMB at the key
investment points.
GSK Annual Report 2010
Table of Contents
11
Research and development
GSK’s Chief Medical Officer, as Chair of the Global Safety Board, is ultimately accountable for
oversight of all major decisions regarding patient safety. The Global Safety Board is responsible
internally for approving pivotal studies and investigating any issues related to patient safety
arising during the development programme and post-launch. Information from GSK clinical trials is
widely and easily available.
Diseases of the developing world
Continued investment in research into diseases of the developing world is essential if there
is to be a long-term improvement in the health of people who live in these regions. As part of our
response to this challenge, we operate a drug discovery unit based at Tres Cantos (Spain), which
focuses on malaria and tuberculosis. We are adapting our business model to pursue an open
innovation strategy for R&D for diseases of the developing world. Elements of this new approach
include: being more open with our intellectual property; being more open with our resources; and
being more open with our data and compounds. Additional R&D sites in the USA and the UK are focused
on the development of new medicines to treat HIV/AIDS and drug resistant bacteria, while vaccine
research is conducted in Rixensart (Belgium).
Through these R&D efforts, we are addressing the prevention and treatment of all three of the World
Health Organization’s (WHO) priority infectious diseases.
Vaccines R&D
We are active in the fields of vaccine research, development and production and have a
portfolio of over 30 vaccines approved for marketing. We have over 1,600 scientists devoted to
discovering innovative vaccines that contribute to the health and well-being of people of all
generations around the world. The discovery and development of a new vaccine is a complex process
requiring long-term investment and, with more than 20 vaccines in development, we have one of the
strongest vaccine pipelines in the industry. Traditionally vaccines have been used to ward off
illness; our vaccine division is working now to develop immunotherapeutics aimed at educating the
patient’s immune system to identify and attack cancer cells in a highly specific manner.
Vaccine discovery involves many collaborations with academia and the biotech industry to identify
new vaccine antigens which are then expressed in yeast, bacteria or mammalian cells and purified to
a very high level. This is followed by formulation of the clinical lots of the vaccine. This may
involve mixing antigens with selected GSK novel proprietary adjuvant systems, which are
combinations of selected adjuvants designed to elicit the most appropriate immune response to a
specific antigen. The right combination of antigen and adjuvant system can help the body mobilise
the most effective immunological pathway, which is designed to provide maximum protection against
specific diseases in targeted populations.
Once formulated, the candidate vaccine is evaluated from a safety and efficacy perspective through
the different phases of preclinical testing, then through the clinical trials involving healthy
individuals. These will range from safety analysis in a small group of volunteers in phase I, dose
adjustment and proof of concept in phase II, to large-scale safety and efficacy analysis in phase
III. The results obtained during clinical trials and data regarding the development of a quality
and large-scale production process and facilities are then combined into a regulatory file which is
submitted to the authorities in the countries where the vaccine will be made available.
The Biologicals Scientific Committee (BSC) defines the overall R&D and new product licensing
strategy for our vaccines business. It is chaired by the Biologicals President and includes heads
of our vaccines R&D, disease areas, clinical, epidemiology, business development and other
departments as members. The BSC assesses high potential vaccine in-licensing opportunities, decides
on exploratory projects and in-licensing opportunities and also endorses target product profiles
before the start of early vaccine projects. In addition the BSC aligns R&D, clinical and commercial
plans for early projects and is responsible for prioritising exploratory, research and early
vaccine projects.
The Development Review Committee (DRC) oversees the late development vaccine portfolio including
strategy, project prioritisation and resource allocation. The DRC is chaired by the head of Global
Vaccine Development and its membership includes the heads of clinical research, global industrial
operations, global commercial centre of excellence, R&D, industrialisation and medical.
After launch, post marketing studies are set up to assess vaccination programmes and to monitor
vaccine safety.
In 2010 two distinct R&D groups were formed for vaccines to provide specific focus for
prophylactics and for our Antigen Specific Cancer Immunotherapeutic (ASCI) portfolio. A new Global
Vaccine Development organisation was created pulling together our clinical and late development R&D
organisations. It has allowed us to give a clear focus to projects through Vaccine Development
Leaders who have overall responsibility for the development of a particular project.
Animals and research
For ethical, regulatory and scientific reasons, research using animals remains a small but
vital part of research and development of new medicines and vaccines. We only use animals where
there is no alternative and constantly strive to reduce the numbers used. We are committed to
maintaining high standards for the humane care and treatment of all laboratory animals and
undertake internal and external review to assure these standards.
The vast majority of the experimental methods do not use animals. We are actively engaged in
research to develop and validate more tests that either avoid the use of animals or reduce the
numbers needed. When animals are used, all due measures are taken to prevent or minimise pain and
distress.
We understand that use of animals for research purposes commands a high level of public interest.
Our statement on ‘The care and ethical use of animals in research’, our views on use of non-human
primates and details of our voluntary decision not to use great apes (chimpanzees), together with
further information and reports, are available.
Research and development – Consumer Healthcare
The continuous creation and development of innovative products keeps our brands relevant,
vibrant and valuable. Our portfolio spans three major categories: OTC medicines, Oral healthcare
and Nutritional healthcare. For our major brands, dedicated R&D teams, including regulatory,
partner with and work alongside their commercial brand team colleagues in office-free hub
environments that foster collaboration and fast decision-making. Hubs have quickly become a
preferred way of working at our Innovation Centres in Weybridge, UK, and Parsippany, USA, and we
have expanded this model to China and India.
We have a full and diverse product development pipeline. Our key late stage projects include novel
technologies, new combinations and superior formulations.
GSK Annual Report 2010
Table of Contents
12
Pipeline summary
We have a full and diverse product development pipeline. All our projects
comprising new chemical entities, biological entities or vaccines, new combinations
and new indications for existing compounds that are in Phase III, have been filed
for approval or have been recently approved are highlighted here. The most advanced
status is shown and includes 2010 and 2011 approvals in the USA and EU.
10
|
6 | 5 | ||
assets moved into
|
approvals in USA | assets terminated | ||
Phase III
|
or EU | from Phase III development | ||
IPX066†, for Parkinson’s
disease 1120212†, a MEK inhibitor, for metastatic melanoma 2118436, a BRaf inhibitor, for metastatic melanoma 573719 + vilanterol†, a combination drug for COPD 1605786†, for Crohn’s disease Zoster vaccine, for the prevention of shingles 2402968†, for Duchenne muscular dystrophy migalastat HCI†, for Fabry disease 1349572†, an integrase inhibitor, for HIV and as a fixed dose combination with Epzicom/Kivexa 2696273†, for adenosine deaminase severe combined immune deficiency |
Tyverb/Tykerb, for first line therapy for hormone receptor positive breast cancer (USA/EU) Arzerra, for refractory chronic lymphocytic leukaemia (EU) Revolade/Promacta, for idiopathic thrombocytopaenic purpura (EU) Duodart/Jalyn, a fixed dose combination drug for benign prostatic hyperplasia (USA/EU) Votrient, for renal cell cancer (EU) Prolia, for post- menopausal osteoporosis (EU) |
Avandamet XR, for type 2 diabetes Avandia + statin, for type 2 diabetes almorexant, for primary insomnia New generation flu, for influenza prophylaxis Simplirix, for genital herpes prophylaxis. |
† In-licence or other alliance relationship with a third party
Key:
Phase III
Large comparative study (compound versus placebo and/or established treatment) in patients to
establish clinical benefit and safety.
Filed
Following successful Phase III trials, we file the product for approval by the regulatory
authorities.
Approval
Only when approval is granted can we begin to market the medicine or vaccine.
Our full
pipeline is on pages 197 to 200.
GSK Annual Report 2010
Table of Contents
13
Pipeline summary
| Therapeutic area | Compound | Indication | Phase III | Filed | Approved | |||||
Biopharmaceuticals
|
albiglutide† | type 2 diabetes | l | |||||||
| Arzerra† | chronic lymphocytic leukaemia, first line therapy and use in relapsed patients | l | ||||||||
| Arzerra† | diffuse large B cell lymphoma (relapsed patients) | l | ||||||||
| Arzerra† | follicular lymphoma (refractory & relapsed patients) | l | ||||||||
| otelixizumab† | type 1 diabetes | l | ||||||||
| Benlysta† | systemic lupus erythematosus | l | ||||||||
| denosumab† | bone metastatic disease | l | ||||||||
| Arzerra† | chronic lymphocytic leukaemia (refractory patients) | l | ||||||||
| Prolia† | hormone ablative/chemotherapy bone loss in prostate cancer patients | l | ||||||||
| Prolia† | postmenopausal osteoporosis | l | ||||||||
Cardiovascular
& metabolic
|
darapladib† | atherosclerosis | l | |||||||
Infectious
diseases
|
Relenza† | treatment of influenza | l | |||||||
Neurosciences
|
IPX066† | Parkinson’s disease | l | |||||||
| Horizant† | restless legs syndrome | l | ||||||||
| Trobalt/Potiga (retigabine/ezogabine)† | epilepsy – partial seizures | l | ||||||||
Oncology
|
1120212† | metastatic melanoma | l | |||||||
| 2118436 | metastatic melanoma | l | ||||||||
| Votrient | ovarian cancer, maintenance therapy | l | ||||||||
| Revolade/Promacta† | chronic liver disease induced thrombocytopaenia | l | ||||||||
| Revolade/Promacta† | hepatitis C induced thrombocytopaenia | l | ||||||||
| Tyverb/Tykerb | breast cancer, adjuvant therapy | l | ||||||||
| Tyverb/Tykerb | gastric cancer | l | ||||||||
| Tyverb/Tykerb | head & neck squamous cell carcinoma (resectable disease) | l | ||||||||
| Votrient | renal cell cancer, adjuvant therapy | l | ||||||||
| Votrient | sarcoma | l | ||||||||
| Votrient + Tyverb/Tykerb | inflammatory breast cancer | l | ||||||||
| Avodart | reduction in the risk of prostate cancer | l | ||||||||
| Duodart/Jalyn | benign prostatic hyperplasia -fixed dose combination | l | ||||||||
| Revolade/Promacta† | idiopathic thrombocytopaenic purpura | l | ||||||||
| Tyverb/Tykerb | breast cancer, first line therapy | l | ||||||||
| Votrient | renal cell cancer | l | ||||||||
Respiratory
&
|
573719 | COPD | l | |||||||
immuno-inflammation
|
573719 + vilanterol† | COPD | l | |||||||
| vilanterol (642444)† | COPD | l | ||||||||
| 1605786 (CCX282)† | Crohn’s disease | l | ||||||||
| Relovair (vilanterol† + 685698) |
asthma | l | ||||||||
| Relovair (vilanterol + 685698) |
COPD | l | ||||||||
Paediatric vaccines
|
Mosquirix | malaria prophylaxis (plasmodium falciparum) | l | |||||||
| Nimenrix (MenACWY-TT) | neisseria meningitis groups A, C, W & Y disease prophylaxis | l | ||||||||
| MenHibrix (Hib-MenCY-TT) | neisseria meningitis groups C & Y & haemophilus influenzae type b disease prophylaxis | l | ||||||||
Other vaccines
|
Flu vaccine | seasonal influenza prophylaxis | l | |||||||
| Zoster | herpes zoster prevention | l | ||||||||
| Flu (pre-) pandemic | pre-pandemic & pandemic influenza prophylaxis | l | ||||||||
| Pumarix | pandemic influenza prophylaxis | l | ||||||||
Antigen Specific Cancer
|
MAGE-A3 | treatment of melanoma | l | |||||||
Immunotherapeutic (ASCI)
|
MAGE-A3 | treatment of non-small cell lung cancer | l | |||||||
Rare diseases
|
2402968† | Duchenne muscular dystrophy | l | |||||||
| 2696273† | adenosine deaminase severe combined immune deficiency |
l | ||||||||
| migalastat HCI† | Fabry disease | l | ||||||||
Dermatology
|
tazarotene foam | acne vulgaris | l | |||||||
| Duac low dose | acne vulgaris | l | ||||||||
| calcipotriene | mild to moderate plaque psoriasis | l | ||||||||
| itraconazole tablets | onychomycosis | l | ||||||||
| Veltin | acne vulgaris | l | ||||||||
HIV
|
1349572† | HIV infections | l | |||||||
| 1349572† + abacavir sulphate + lamivudine |
HIV infections | l | ||||||||
† In-licence or other alliance relationship with a third party
GSK Annual Report 2010
Table of Contents
14
Products, competition and intellectual property
Pharmaceutical products
Our principal pharmaceutical products are currently directed to nine main therapeutic areas.
A description of the products is on pages 15 to 16 and an analysis of sales by therapeutic area, is
on page 35.
Competition
Our principal pharmaceutical competitors range from small to large pharmaceutical companies
often with substantial resources. Some of these companies are:
| • | Abbott Laboratories | |
| • | Amgen | |
| • | AstraZeneca | |
| • | Bristol-Myers Squibb | |
| • | Eli Lilly | |
| • | Johnson & Johnson | |
| • | Merck | |
| • | Novartis | |
| • | Pfizer | |
| • | Roche Holdings | |
| • | Sanofi-Aventis |
Pharmaceuticals may be subject to competition from other products during the period of patent
protection and, once off patent, from generic versions. The manufacturers of generic products
typically do not incur significant research and development or education and marketing development
costs and consequently are able to offer their products at considerably lower prices than the
branded competitors. As a research and development based company we will normally seek to achieve a
sufficiently high profit margin and sales volume during the period of patent protection to repay
the original investment, which is generally substantial, and to generate profits and fund research
for the future. Competition from generic products generally occurs as patents in major markets
expire. Increasingly patent challenges are made prior to patent expiry, claiming that the innovator
patent is not valid and/or that it is not infringed by the generic product. Following the loss of
patent protection, generic products rapidly capture a large share of the market, particularly in
the USA.
We believe that remaining competitive is dependent upon the discovery and development of new
products that deliver value to healthcare providers and improved outcomes for patients, together
with effective marketing of existing products.
Within the pharmaceutical industry, the introduction of new products and processes by our
competitors may affect pricing or result in changing patterns of product use. There is no assurance
that products will not become outmoded, notwithstanding patent or trademark protection. In
addition, increased government and other pressures for physicians and patients to use generic
pharmaceuticals, rather than brand-name medicines, may increase competition for products.
Intellectual property
Intellectual property is a key business asset for our company, and the effective legal
protection of our intellectual property (via patents, trademarks, registered designs, copyrights
and domain name registrations) is critical in ensuring a reasonable return on investment in R&D.
Trademarks
All of GSK’s commercial
products are protected by registered trademarks in major markets.
There may be local variations, for example, in the USA the trademark
Advair covers the same product sold in the EU as
Seretide.
Trademark protection may generally be extended as long as the
trademark is used by renewing it when necessary. GSK’s
trademarks are important for maintaining the brand identity of its
products. GSK enforces its trademark rights to prevent infringements.
Patents
It is our policy to try to obtain patents on commercially important, protectable inventions
discovered or developed through our R&D activities. Patent protection for new active ingredients is
available in major markets and patents can also be obtained for new drug formulations,
manufacturing processes, medical uses and devices for administering products. Although we may
obtain patents for our products, this does not prevent them from being challenged before they
expire. Further, the grant of a patent does not mean that the issued patent will necessarily be
held valid and enforceable by a court. If a court determines that a patent we hold is invalid, non
infringed or unenforceable, it will not protect the market from third party entry prior to patent
expiry. Significant litigation concerning such challenges is summarised in Note 44 to the
financial statements, ‘Legal proceedings’.
The life of a patent in most countries is 20 years from the filing date. However the long
development time for pharmaceutical products may result in a substantial amount of this patent life
being used up before launch. In some markets (including the USA and Europe) it is possible to have
some of this lost time restored and this leads to variations in the amount of patent life actually
available for each product we market. Further, certain countries provide a period of data or market
exclusivity that prevents a third party company from relying on our clinical trial data to enter
the market with its copy for the period of exclusivity.
The patent expiry dates for our significant products are in the following table. Dates provided are
for expiry of patents in the USA and major European markets on the active ingredient, unless
otherwise indicated, and include extensions of patent term, including for paediatric use in the
USA, where available. The patents on vaccines relate to vaccine
compositions.
GSK Annual Report 2010
Table of Contents
15
Products, competition and intellectual property
Pharmaceutical products
| USA | EU | |||||||||
| Products | Compounds | Indication(s) | Major | Patent expiry dates | ||||||
| competitor brands | USA | EU | ||||||||
| Respiratory | ||||||||||
Veramyst
|
fluticasone furoate | rhinitis | Nasacort | 2021 | 2023 | |||||
Flixotide/Flovent
|
fluticasone propionate | asthma/COPD | Qvar, Singulair | expired (compound) 2011-2016 (Diskus device) 2013-2025 (HFA-device/ formulation) |
expired (compound) expired (Diskus device) 2012-2017 (HFA-device/ formulation) |
|||||
Seretide/Advair*
|
salmeterol xinafoat/ fluticasone propionate | asthma/COPD | Singulair, Symbicort, Spiriva, Asmanex, Pulmicort, Foster |
expired (combination) 2011-2016 (Diskus device) 2013-2025 (HFA-device/ formulation) |
20131 (combination) expired (Diskus device) 2012-2017 (HFA-device/ formulation) |
|||||
Serevent
|
salmeterol xinafoate | asthma/COPD | Foradil, Spiriva | expired (compound) 2011-2016 (Diskus device) NA |
expired (compound) expired (Diskus device) 2012-2019 (HFA-device/ formulation) |
|||||
| Anti-virals | ||||||||||
Relenza
|
zanamivir | influenza | Tamiflu | 2013 | 2014 | |||||
Valtrex
|
valaciclovir | genital herpes, coldsores, shingles | Famvir | expired | expired | |||||
Zeffix/Epivir-HBV
|
lamivudine | chronic hepatitis B | Hepsera | 2013 (use) |
2012 (use) |
|||||
| Central nervous system | ||||||||||
Lamictal
|
lamotrigine | epilepsy, bipolar disorder | Keppra, Dilantin | expired | expired | |||||
Imigran/lmitrex
|
sumatriptan | migraine | Zomig, Maxalt, Relpax | expired | expired | |||||
Requip
|
ropinirole | Parkinson’s disease, restless legs syndrome | Mirapex | expired | expired | |||||
Requip XL
|
ropinirole | Parkinson’s disease | Mirapex | 2012† (formulation) |
2011 (use) |
|||||
Seroxat/Paxil
|
paroxetine | depression, various anxiety disorders |
Effexor, Cymbalta, Lexapro |
expired | expired | |||||
Treximet
|
sumatriptan and naproxen | migraine | Zomig, Maxalt, Relpax | 20171 (combination and use) |
NA | |||||
Wellbutrin SR
|
bupropion | depression | Effexor, Cymbalta, Lexapro | expired | expired | |||||
| Cardiovascular and urogenital | ||||||||||
Arixtra
|
fondaparinux | deep vein thrombosis, pulmonary embolism | Lovenox, Fragmin Innohep |
expired | expired | |||||
Avodart
|
dutasteride | benign prostatic hyperplasia | Proscar, Flomax, finasteride | 20151 | 2017 | |||||
Coreg CR
|
carvedilol phosphate | mild-to-severe heart failure, hypertension, left ventricular dysfunction post MI |
Toprol XL | 2016† (formulation) |
NA | |||||
Fraxiparine
|
nadroparin | deep vein thrombosis, pulmonary embolism |
Lovenox, Fragmin Innohep |
expired | expired | |||||
Lovaza
|
omega-3 acid ethyl esters | very high triglycerides | Tricor | 20171 (formulation) |
NA | |||||
| * | See Outlook on page 7 for details of uncertainty on the timing of follow-on competition. | |
| † | Generic competition possible in 2011. |
GSK Annual Report 2010
Table of Contents
16
Products, competition and intellectual property
Pharmaceutical products
| USA | EU | |||||||||
| Products | Compounds | Indication(s) | Major | Patent expiry dates | ||||||
| competitor brands | USA | EU | ||||||||
| Anti-bacterials | ||||||||||
Augmentin
|
amoxicillin/clavulanate | common bacterial potassium infections |
generic products | expired | expired | |||||
| Oncology | ||||||||||
Arzerra
|
ofatumumab | refractory chronic lymphocytic leukaemia | MabThera/Rituxan | pending | pending | |||||
Hycamtin
|
topotecan | ovarian cancer, small cell lung cancer, cervical cancer |
Doxil, Gemzar | expired | 2011 | |||||
Promacta/Revolade
|
eltrombopag | idiopathic thrombocytopenic purpura |
Nplate | 2021 | 2021 | |||||
Tykerb/Tyverb
|
lapatanib | advanced and metastatic breast cancer in HER2 positive patients |
Herceptin | 2020 | 2023 | |||||
Votrient
|
pazopanib | metastatic renal cell carcinoma | Sutent, Nexavar, Afinitor | 2021 | 2021 | |||||
| Vaccines | ||||||||||
Boostrix
|
diphtheria, tetanus, acellular pertussis |
booster vaccination | Adacel | 2017 | 2017 | |||||
Infanrix/Pediarix
|
diphtheria, tetanus, pertussis, polio, hepatitis B (HepB), inactivated antigens |
diphtheria, tetanus, pertussis, polio, hepatitis B (HepB), |
Pentacel, Pediacel, Pentaxim, Pentavac |
2017 | 2014 | |||||
Cervarix
|
HPV 16 & 18 virus like particles (VLPs), AS04 adjuvant (MPL + aluminium hydroxide) |
human papilloma virus type 16 & 18 |
Gardasil (Silgard) | 2020 | 2020 | |||||
Fluarix
|
split inactivated influenza virus subtypes A and type B antigens |
seasonal influenza | Vaxigrip, Mutagrip, Fluzone, Influvac, Aggripal, Fluad |
2022 | 2022 | |||||
FluLaval
|
split inactivated influenza virus subtypes A and type B antigens |
seasonal influenza | Vaxigrip, Mutagrip, Fluzone, Influvac, Aggripal, Fluad |
none | none | |||||
Pandemrix
|
derived split inactivated influenza virus antigen, A503 adjuvant |
A(H1N1)v2009 influenza prophylaxis |
Focetria, Celvapan, emerflu | 2014 | 2014 | |||||
Prepandrix
|
derived split inactivated influenza virus antigen, A503 adjuvant |
influenza prophylaxis | Aflunov | 2014 | 2014 | |||||
Synflorix
|
conjugated pneumococcal polysaccharide |
invasive pneumococcal disease |
Prevenar (Prevnar) | NA | 2021 | |||||
| HIV | ||||||||||
Combivir
|
lamivudine and zidovudine | HIV/AIDS | Truvada, Atripla | 20121 (combination) |
2013 (combination) |
|||||
Epivir
|
lamivudine | HIV/AIDS | Truvada, Atripla | expired | expired | |||||
Epzicom/Kivexa
|
lamivudine and abacavir | HIV/AIDS | Truvada, Atripla | 2016 (combination) |
2016 (combination) |
|||||
Lexiva
|
fosamprenavir | HIV/AIDS | Prezista, Kaletra, Reyataz | 2017 | 2019 | |||||
Selzentry
|
maraviroc | HIV/AIDS | Isentress, Intelence, Prezista | 2021 | 2021 | |||||
Trizivir
|
lamivudine, zidovudine and abacavir | HIV/AIDS | Truvada, Atripla | 2016 (combination) |
2016 (combination) |
|||||
| 1 | See Note 44 to the financial statements, ‘Legal proceedings’ |
GSK Annual Report 2010
Table of Contents
17
Products, competition and intellectual property
Consumer Healthcare products
| Brand | Products | Application | Markets | Competition | ||||
| Oral healthcare | ||||||||
Aquafresh
|
toothpastes, toothbrushes, mouthwashes | prevention of caries, gum disease and bad breath |
global | Colgate-Palmolive’s Colgate, Procter & Gamble’s Crest | ||||
Sensodyne
|
toothpastes, toothbrushes | prevention of dental sensitivity |
global | Colgate-Palmolive sensitivity toothpastes | ||||
Biotene
|
mouthwash, gel | treat dry mouth | many markets | none | ||||
Polident Poligrip Corega |
denture adhesive, denture cleanser |
to improve comfort of fitted dentures and to clean dentures | global | Fixodent | ||||
| OTC medicines | ||||||||
Panadol
|
tablets, capulets, infant drops | paracetamol-based treatment of headache and joint pain, fever, cold symptoms |
global, except USA | Nurofen | ||||
NicoDerm, NiQuitin CQ, and Nicabate. Also Nicorette (USA only) |
gum, patch, mini lozenge, original lozenge |
treatment of nicotine withdrawal as an aid to quitting smoking |
global | Novartis’ Nicotinell, retailers’ own brands |
||||
| Nutritional healthcare | ||||||||
Lucozade
|
energy and sports drinks | energy and hydration | UK, Ireland, some other markets |
various sports drinks | ||||
Horlicks
|
malted, milk-based drinks and foods |
nutrition | UK, Ireland, India | Ovaltine, Milo | ||||
Ribena
|
blackcurrant juice-based drink | vitamin C-delivering health drink |
UK, Ireland, some other markets |
Robinsons | ||||
Consumer Healthcare competition
GSK holds leading positions in all its key consumer product areas. Worldwide it is
the second largest in OTC medicines and the third largest in Oral healthcare. In
Nutritional healthcare it holds the leading position in the UK, Ireland and India.
The environment in which the Consumer Healthcare business operates has become ever more
challenging:
| • | consumers are demanding better quality, better value and improved performance | |
| • | retailers have consolidated and globalised which has strengthened their negotiation power | |
| • | cycle times for innovation have reduced. |
The main competitors include the major international companies Colgate-Palmolive, Johnson &
Johnson, Procter & Gamble, Unilever and Pfizer. In addition, there are many other smaller
companies that compete with GSK in certain markets.
The major competitor products in OTC medicines are:
| • | in the USA: Metamucil (laxative), Pepcid (indigestion) and private label smoking control products | |
| • | in the UK: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and Nicorette and Nicotinell (smoking control treatments). |
In Oral healthcare the major competitors are Colgate-Palmolive’s Colgate and Procter & Gamble’s
Crest.
In Nutritional healthcare the major competitors to Horlicks are Ovaltine and Milo malted food
and chocolate drinks. Competitors to Ribena are primarily local fruit juice products, while
Lucozade competes with other energy drinks.
GSK Annual Report 2010
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18
Regulation
Regulation – Pharmaceuticals
Region and country-specific laws and regulations are major factors in determining whether a
product may be successfully developed and approved. They define the information needed to evaluate
the safety and efficacy of pharmaceutical products, as well as governing their testing, approval,
manufacturing, labelling and marketing. There is an increasing level of co-operation and exchange
of information among the major regulatory authorities encompassing development plans, data to
support product registration, post-marketing safety information and inspections.
Although the evaluation of benefit and risk continue to be paramount considerations for the
approval of a new drug in the USA, there is enhanced focus by the FDA on the safety of medicines
from approval through the post-marketing phase of the product. In 2010 the FDA announced four
strategic priorities for the next five years: advance regulatory science and innovation, strengthen
the safety and integrity of the global supply chain, strengthen compliance and enforcement
activities to support public health; and address the unmet public health needs of special
populations. We will be engaged in these key areas of interest.
In Europe, new regulations aimed at strengthening the safety monitoring of medicines have now been
agreed by EU legislators and will be implemented from 2011. Discussions continue on draft
legislation on improving citizens’ access to reliable information on medicines, and on
strengthening EU laws to protect citizens from the threats posed by fake medicines. The European
Medicines Agency (EMA) and the Heads of National Medicines Agencies (HMA) both published five-year
strategic plans during 2010; these were aimed mainly at strengthening the operation of the existing
EU regulatory network. The EU Commission published a report on the operation of the EMA in
preparation for a potential legislative proposal for changes to the regulatory framework by 2014,
and also continued with its review of the regulation of Clinical Trials in Europe – this review is
expected to conclude in 2012.
The regulatory environment in Emerging Markets and Asia-Pacific continues to evolve, with a number
of countries continuing to develop their regulatory review systems. We actively participate in a
number of specific regional and national regulatory initiatives, which provide opportunities for
meaningful scientific and regulatory dialogue between industry, agencies and other stakeholders. We
continue to include broader sets of patient populations from a number of these countries in
medicine development programmes in order to increase global patient access to new innovative
medicines, and optimise regulatory approvals.
Regulation – Consumer Healthcare
The consumer healthcare industry is subject to national regulation comparable to that for
prescription medicines for the testing, approval, manufacturing, labelling and marketing of
products. High standards of technical appraisal frequently involve a lengthy approval process
before a new product may be launched.
GSK Consumer Healthcare continues to gain centralised regulatory approvals for over-the-counter
products. Since the 2009 history-making first for the OTC industry when the European Medicines
Agency granted centralised approval of the weight loss medicine alli which has now been granted
approval in more than 50 countries; a line extension chewable product has also been granted
centralised approval. Additionally, GSK Consumer Healthcare has embraced the principle of
centralised applications and has achieved GSK’s first pan-Gulf Cooperation Council approvals for
alli and Niquitin in 2010, permitting launch across all seven markets of the Gulf region.
Value for money
Payers around the world are concerned about the cost of healthcare and the pricing of
medicines. The requirement to satisfy healthcare purchasers on value for money is becoming an
additional hurdle for product acceptance over and above the regulatory tests of safety, efficacy
and quality.
Price controls
In many countries the prices of pharmaceutical products are controlled by law. Governments
may also influence prices through their control of national healthcare organisations, which may
bear a large part of the cost of supplying medicines to consumers.
Recent government healthcare reforms in countries such as France, Spain and Germany may restrict
pricing and reimbursement.
Currently in the USA, there are no government price controls over private sector purchases, but
federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to be
eligible for reimbursement under several state and federal healthcare programmes. In 2010, the US
President and Congress passed the Affordable Care Act (ACA) to reform the US healthcare system to
drive down cost, improve quality and increase access to millions of Americans without health
insurance. These reforms have the potential to create positive changes in the US healthcare system
and expand access to our products. However, the ACA also increased prescribed rebates under
government-run programmes and changed the balance between private and public sector purchases.
Despite passage of the ACA, the pressure to control healthcare costs will continue into 2011 and
beyond. Issues such as cross-border trade, the acceleration of generics to market, comparative
effectiveness research, and pharmaceutical pricing will continue to be part of the ongoing
healthare debate in the USA. Fortunately, we are positioned to be a constructive contributor to
these debates since there has been increased recognition that chronic disease is the primary driver
of healthcare spending and pharmaceutical products deliver important interventions that help hold
down healthcare costs.
GSK Annual Report 2010
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19
Manufacturing and supply
GSK’s manufacturing covers Pharmaceutical, Consumer
Healthcare and Vaccines.
Pharmaceutical Global Manufacturing and Supply (GMS)
More than 27,000 people work in GMS across our network
of 77 sites in 32 countries. GMS supports the
commercial ambition of GSK by delivering quality
medicines and consumer products to patients and
customers around the world.
The scale of manufacturing in GSK is huge, with the
manufacture of over 4 billion packs per year in 28,000
different presentations (including tablets,
creams/ointments, inhalers, injections, liquids and
steriles), which are then supplied to over 150 markets.
Over £4.1 billion was spent by GMS on production in
2010.
GMS operates a procurement operation on behalf of the
Group. We spend over £2 billion annually with external
suppliers, purchasing active ingredients, chemical
intermediates, packaging components and part-finished
and finished products.
During 2010, as our internal customers sought every
opportunity to grow their businesses, we focused on the
cost-competitive supply of quality product to meet their
ambitions. We worked diligently to leverage our network of
sites and contractors to give us built-in flexibility to
sustain future growth and adapt to emerging commercial
business models. In an increasingly rigorous external
regulatory environment, we have continued to leverage
technology in support of process understanding, control,
and capability.
Our Pharmaceutical Launch and Global Supply sites work
closely with R&D’s development teams to ensure that the
right technical competencies are in place to support rapid
and successful new product introduction. These sites serve
as the focal point for developing and introducing new
secondary manufacturing technologies. The Primary supply
sites in our Pharmaceutical Launch and Global Supply
division supply high quality, competitively priced bulk
actives and focus on improvements in primary technologies
and processes. The sites in our Antibiotics and Emerging
Markets supply division focus on manufacturing products in
the late stage of their life cycle, allowing GSK to
compete more effectively in all its markets.
Consumer Healthcare manufacturing
Most of Consumer Healthcare Manufacturing is also
managed by GMS apart from our Coleford site which is
managed directly by Nutritional healthcare.
Our Consumer Healthcare sites deliver high-quality,
competitively priced products and support rapid new
product introduction in a highly innovative and
competitive business.
New technologies have become a fundamental platform for
driving innovation, lowering costs and providing
flexibility in operations.
We are continuously improving and embedding new ways of
working that are simplifying the business and achieving
greater efficiencies. It is our focus on customer
service, including support for new product launches, our
strong compliance culture, our commitment to health,
safety and the environment, and our commitment to
developing our people that have delivered strong results
for GSK even as the external environment has become more
demanding.
Vaccine manufacturing
Vaccine manufacturing, which is managed separately from
GMS, is an integral part of the Biologicals business, and
is particularly complex as it requires the use of
innovative technologies and living micro-organisms.
Comprehensive quality assurance and quality control
procedures are in place to ensure the vaccine’s quality
and safety. Due to their biological nature, individual
health authorities may subject vaccines to a second
control to guarantee the highest quality standards.
GMS supports GSK’s commercial ambition to deliver quality
medicines and consumer healthcare products to patients
and consumers around the world.
GSK Annual Report 2010
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20
World market – pharmaceuticals
The global recession caused by the international financial crisis continued to impact the
world’s economies during 2010. Although many countries and industry sectors saw some improvement
over 2009, significant growth remained elusive and the recovery was fragile at best.
Following its 22% rise in 2009, the FTSE 100 Index achieved more modest gains in 2010, at 9%. In
the USA, the Dow Jones Industrial Average rose by 11%. Stock exchanges across Europe recorded mixed
performances, with the 16% rise in Germany contrasting with losses of 17% and 13% in Spain and
Italy respectively. In Asia, the Chinese stock market posted an annual decline of almost 15% and
the Nikkei in Japan one of 3%.
The debt crisis in Greece spread to other economies such as Spain, Portugal, Italy, Ireland and
Romania. As we moved towards the end of the year, many governments introduced austerity measures to
complement the fiscal stimulus initiatives of 2009. These cuts, which in some cases were both
severe and rapid, were implemented across education, healthcare and other public services. Each
government took a different approach to healthcare with specific pricing cuts being applied to
selected medicines and vaccines. These measures affected the pharmaceutical industry to varying
degrees depending on each company’s exposure to the areas impacted. At the same time, 2010 also saw
the implementation of healthcare reform in the USA with associated discounts and price cuts for the
pharmaceutical industry.
Global pharmaceutical sales in 2010 were £476 billion, compared with £468 billion in 2009.
| World market by | Value | % of | ||||||
| geographic region | £bn | total | ||||||
USA |
194 | 41 | ||||||
Europe |
129 | 27 | ||||||
Rest of World |
153 | 32 | ||||||
Emerging markets |
67 | 14 | ||||||
Asia Pacific |
20 | 4 | ||||||
Japan |
52 | 11 | ||||||
Canada |
13 | 3 | ||||||
Total |
476 | 100 | ||||||
Market growth on a CER basis was USA
4.2%, Europe 3% and Rest of World 8.2%.
| World market – | Value | % of | ||||||
| top six therapeutic classes | £bn | total | ||||||
Central nervous system |
76 | 16 | ||||||
Cardiovascular |
69 | 15 | ||||||
Antineoplastic/lmmunomodulatory |
63 | 13 | ||||||
Alimentary tract and metabolic |
57 | 12 | ||||||
Anti-infectives (bacterial, viral and fungal) excluding vaccines |
49 | 10 | ||||||
Respiratory |
33 | 7 | ||||||
(Note: data based on 12 months to 30th September 2010)
Data for market share and market growth rates are GSK estimates based on the most recent data
from independent external sources including IMS Health, and where appropriate, are valued in
Sterling at relevant exchange rates.
GSK Annual Report 2010
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21
GSK sales performance
GSK delivered underlying sales growth (excluding pandemic related products, Avandia and Valtrex)
for 2010 of 4.5% despite the ongoing impacts of EU government austerity measures and US healthcare
reform which reduced sales by approximately £380 million.
Commentary on GSK’s segmental sales performance uses the performance measures set out below.
Underlying sales growth
Underlying sales growth excludes the sales of pandemic products, Avandia and Valtrex. Management
believes this measure assists shareholders in gaining a clearer understanding of the Group’s sales
performance and prospects because of the size and nature of the loss of sales from these products.
A reconciliation to Group and pharmaceutical turnover is as follows:
| 2010 | 2009 | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Group turnover |
28,392 | 28,368 | (1.2 | ) | ||||||||
Avandia, Valtrex and pandemic products |
(2,285 | ) | (3,668 | ) | ||||||||
Underlying Group turnover |
26,107 | 24,700 | 4.5 | |||||||||
| 2010 | 2009 | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Pharmaceutical turnover |
23,382 | 23,694 | (2 | ) | ||||||||
Avandia, Valtrex and pandemic products |
(2,285 | ) | (3,668 | ) | ||||||||
Underlying pharmaceutical turnover |
21,097 | 20,026 | 4 | |||||||||
Sales of these products by segment were:
| Emerging | Asia Pacific/ | Other trading | ||||||||||||||||||||||
| 2010 | USA | Europe | Markets | Japan | and unallocated | Total | ||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Pandemic products |
44 | 494 | 227 | 462 | 86 | 1,313 | ||||||||||||||||||
Avandia |
237 | 88 | 42 | 24 | 49 | 440 | ||||||||||||||||||
Valtrex |
252 | 68 | 28 | 176 | 8 | 532 | ||||||||||||||||||
| Emerging | Asia Pacific/ | Other trading | ||||||||||||||||||||||
| 2009 | USA | Europe | Markets | Japan | and unallocated | Total | ||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Pandemic products |
324 | 737 | 89 | 331 | 122 | 1,603 | ||||||||||||||||||
Avandia |
425 | 171 | 76 | 41 | 58 | 771 | ||||||||||||||||||
Valtrex |
942 | 160 | 26 | 152 | 14 | 1,294 | ||||||||||||||||||
White pills/western markets
White pills/western markets refers to sales of tablets and simple injectables (excluding
biopharmaceuticals and vaccines) in North America and Europe.
CER growth
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. CER% represents growth at constant exchange rates. £% represents
growth at actual exchange rates.
All commentaries in this Report are presented in terms of CER unless otherwise stated.
GSK Annual Report 2010
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22
US pharmaceuticals segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
7,648 | 8,578 | (11 | ) | ||||||||
Operating profit |
5,043 | 5,933 | (16 | ) | ||||||||
We are emerging from a period of significant patent expirations, and are making good progress to
transform our US business model and operations to meet current and future challenges.
Sales in the USA were down 11% to £7.6 billion, primarily due to the impact of generic competition
to Valtrex, a significant reduction in sales of pandemic related products and lower sales of
Avandia. Underlying sales (excluding pandemic related products, Avandia and Valtrex) were up 3% in
the USA during the year despite the discontinuation of GSK’s promotion of Boniva, the sale of
Wellbutrin XL and the impact of US healthcare reform across the product range. Underlying growth
was driven by strong performances from a number of our promoted medicines, including Flovent (up
8%), Ventolin (up 16%), Boostrix (up 51%), Avodart (up 5%), Lovaza (up 17%) and our oncology
products (up 13%). New products launched since 2007 (excluding flu pandemic vaccines) grew 29% and
contributed 8% of 2010 sales.
The reduced turnover was partially offset by lower SG&A costs reflecting savings from the
restructuring programme and a receipt for the exclusive promotion rights to Boniva for 2010.
Operating profit declined by 16%.
In the USA, the healthcare market is changing radically and rapidly.
A significant proportion of healthcare costs continue to be paid by federal and local governments.
Large pharmacy benefit managers and health plans dominate the private
market. Physicians are consolidating their practices into medical centers, group practices and
integrated delivery networks. Hospitals are consolidating too, with 500 fewer now than there were
just three years ago. Payers are demanding higher quality care with lower costs and are
increasingly linking reimbursement with improved health outcomes.
Implementation of landmark healthcare reform legislation in the USA also began during the year. As
a result, in January 2010, Medicaid drug rebates increased from 15% to 23% and were extended to
include Medicaid managed care plans and new formulations of existing products. Also in January,
eligibility for certain government drug pricing programs was expanded to include additional
hospitals and health centers.
In response to these evolving market conditions, we are making fundamental changes to our US
operations to ensure that we deliver the value our customers – patients, healthcare providers and
payers – demand. These changes are enabling us to more effectively meet customer needs and
expectations, better deploy our resources and support an evolving, more specialised product
portfolio. For example, the majority of our US pharmaceuticals sales representatives now have
either customer-centred or portfolio-focused responsibilities, rather than product specific
responsibilities. These changes have enabled us to increase the productivity of our sales force
while reducing its size by approximately 25% since 2008. Most importantly, our new customer-centric
model aligns with our customers’ desire to work with us as a business-to-business partner.
We have been making continued efforts to change the company’s model to improve levels of openness
and transparency. For example in 2008, we voluntarily stopped all corporate political
contributions, and in 2009, we became the first company to report voluntarily payments to
healthcare professionals in the USA on a named, individual basis for speaking and consulting
services.
In 2011 the US business is implementing a new system for evaluating and compensating our
professional sales representatives. Under the new programme, bonuses to sales representatives who
work directly with customers will no longer be based on achievement of individual sales targets.
Instead, they will be assessed on scientific and business knowledge, feedback from customers in
their region, including demonstration of the company’s values, and overall performance of the
business unit they support. This programme will be fully implemented in July 2011.
Consistent with our values of integrity and transparency, we have also sharpened the focus of our
support for continuing medical education (CME). For example, we implemented a system where we limit
grant applications to approximately 20 academic medical centres and national-level professional
medical associations. All CME providers that we support must be directly accredited by a recognised
accrediting body, and we now only fund CME by not-for-profit providers.
Although the US healthcare and business environment is challenging, it also presents opportunities
for companies that can deliver truly innovative medicines to the market. Since 2007, we have
launched more than 20 new products in the US market. In 2011, we look forward to a regulatory
decision on Benlysta, which if approved will be the first new treatment for Lupus in the last 50
years. Overall we believe the improvements we are making to our cost structure and how we operate
are enabling us to compete more effectively in the evolving marketplace.
Our Research Triangle Park campus in North Carolina, USA, is a home to a number of business
functions.
GSK Annual Report 2010
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23
Europe pharmaceuticals segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
6,548 | 7,087 | (6 | ) | ||||||||
Operating profit |
3,744 | 3,993 | (4 | ) | ||||||||
Our European pharmaceutical business delivered solid performance in 2010, despite significant
government led austerity measures and price cuts.
Although reported sales were down 6% to £6.5 billion, underlying performance (excluding pandemic
related products, Avandia and Valtrex) was flat. This was a creditable performance as it includes
approximately £150 million sales impact from government price cuts. It was driven by the
introduction of new products and growth from other products in our portfolio. Despite likely
continued government pricing pressure in 2011, this strong product portfolio gives us confidence in
future performance of this business.
We introduced five new products in 2010. A particular highlight was Duodart, our treatment
combination of Avodart and tamsulosin for benign prostatic hyperplasia. Other recently introduced
brands such as Avamys, Requip Modutab, Tyverb, Volibris and Wellbutrin all achieved double digit
growth.
Our major product, Seretide for asthma and COPD, while impacted by the price cuts, achieved sales
of £1.6 billion, up 2% whilst maintaining its leadership position in the respiratory market. We
continue to bring the benefits of this product to more patients across Europe. Our portfolio of
vaccines also contributed to growth with Synflorix, a pneumococcal conjugate vaccine, winning
several national tenders and increasing sales by 38% to £43 million.
To manage our operating costs, the business has also delivered improvements in efficiency. Close
control of our operating expenses delivered savings in excess of 10% and our programme to reduce
the diversity of cartons, labels and leaflets used across our range of medicines delivered further
savings. As part of this initiative we will reduce 35 different formats of tablet blister packs to
just 3 by 2013.
An 11% reduction in SG&A costs, reflecting savings from the restructuring programme, helped to
limit the decline in operating profit to 4%.
Our commitment to work with communities across Europe to support greater access and to build trust
with stakeholders continues. An example is a project in Bulgaria to promote awareness for vaccines
among vulnerable ethnic minority groups through collaboration between the health mediators, general
practitioners and the representatives of the regional health inspectorates. The initiative
facilitates the access of these groups to the national healthcare system, focusing on prevention
and health awareness. A particular benefit from this work in 2010 was an improved rate of
immunisation in this group which in turn reduced the impact from an outbreak of measles.
As we enter 2011, the continuing pressure on cost and the change to a value-based medicine approach
(where in addition to demonstration of safety and efficacy, governments or their agencies assess
medicines for the value they deliver to their healthcare system) makes the development of effective
dialogue with governments, regulators and payers across Europe absolutely vital. Within our
business we continue to place emphasis on being able to demonstrate the cost effectiveness of GSK
products and to deliver new medicines and vaccines that address unmet medical need and also have
demonstrable value. Much of our work is targeted on building evidence on the cost effectiveness of
our medicines when compared to current treatments. For example, in the UK we have agreed an
innovative pricing agreement with the National Institute for Clinical Excellence (NICE) for our
advanced kidney cancer medicine, Votrient. If Votrient is not as effective as sunitinib, the
current standard of care, in the comparative trials which are currently underway, we have offered a
future financial rebate.
GSK Annual Report 2010
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Emerging Markets pharmaceuticals segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
3,556 | 2,895 | 22 | |||||||||
Operating profit |
1,271 | 948 | 31 | |||||||||
Our Emerging Markets pharmaceutical business continues to perform very strongly with sales up
22% to £3.6 billion in 2010. Underlying growth in these markets (excluding pandemic related
products, Avandia and Valtrex) was 20%. This is the second consecutive year following the
introduction of GSK’s strategic initiatives that the Emerging Markets business has outgrown
pharmaceutical market growth in this region, estimated at 15%.
We delivered particularly strong performances in Latin America which grew 44% and in China and the
CIS, which grew 21% and 20% respectively. In addition, we produced growth across all three sectors
of the Emerging Markets business – Innovative brands (new patent protected products), Classic
brands (non-patent protected) and Vaccines.
Our Innovative brands business showed consistent performance in 2010, with sales growth of 16% to
approximately £1.1 billion. Sales of respiratory medicine, Seretide, were over £300 million, and
grew 16%, with particularly strong performances in key markets including China.
Our Classic brands business also continues to go from strength to strength with sales growth of 18%
to £1.6 billion, including continued double-digit growth of Augmentin after 30 years on the market.
Vaccine sales were up 38% to £927 million, with pandemic flu products and pneumococcal vaccine
Synflorix performing particularly well. Excluding pandemic flu vaccines, sales grew 14%.
Turnover by main business sector
Emerging Markets pharmaceuticals operating profit increased by 31% on a turnover increase of 22%,
reflecting strong Synflorix and pandemic vaccine sales, together with the benefit of acquisitions,
partially offset by increased SG&A investment across the region.
Operational highlights for the year include a number of new strategic alliances. We strengthened
our footprint in key emerging markets through a number of business acquisitions, including
Laboratorios Phoenix, a leading Argentinian Classic brands business. A number of vaccine production
alliances were also concluded during the year including an alliance with JSC Binnopharm, a Russian
pharmaceutical manufacturer, to enable the local secondary manufacture of a number of key GSK
vaccines in Russia.
We continue to introduce flexible pricing strategies. The work is at an early stage, however the
results of some of our initiatives so far are promising. For example, we significantly reduced
prices of some of GSK’s newest and most innovative products, including Avodart, Avamys and
Cervarix, with the aim of increasing affordability and volumes sold in middle income countries.
For the least developed countries (LDCs), last year we established a new Developing Countries and
Market Access business unit. This new unit has a dedicated focus on expanding access to our
medicines and vaccines to more of the 700 million people who live in the world’s poorest countries.
It has the added benefit of helping us build sustainable GSK businesses in those parts of the
developing world where we currently have little or no presence. It is responsible for implementing
our pricing policy where we are capping the prices of our patented medicines in LDCs to 25% of the
Western price, and reinvesting 20% of our profits from medicines sold in these countries back into
the same countries’ healthcare infrastructure.
During the year, we were also pleased to announce the signing of the Advance Market Commitment
(AMC) for pneumococcal vaccines with the Global Alliance for
Vaccines and
Immunisation (GAVI), providing 300 million doses of Synflorix over 10 years
at a reduced price, to protect children in the poorest countries across the world against invasive
pneumococcal disease.
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Asia Pacific/Japan pharmaceuticals segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
3,102 | 2,628 | 9 | |||||||||
Operating profit |
1,730 | 1,352 | 15 | |||||||||
In 2010, sales in Asia Pacific grew 1% to £1.1 billion. Excluding the sales of pandemic
related products, Avandia and Valtrex, underlying growth in Asia Pacific was 8% which benefitted
from the acquisitions of Stiefel’s dermatology portfolio and UCB’s Asian business. Strong
performances were also delivered from Avamys (up 80%), Tykerb (up 20%), Seretide (up 5%) and
vaccines (up 8% excluding flu pandemic).
Operating
profit for Asia Pacific improved 4% to £0.5 billion, reflecting
improved sales of Synflorix and Cervarix and the
favourable impact of product mix on cost of goods, partially offset
by lower sales of Relenza.
The middle income countries in the Asia Pacific region have been at the centre of GSK’s flexible
pricing initiatives. For example as part of our innovative pricing model, monthly sales of our
Cervarix vaccine have increased by approximately six times in the Philippines following a 60% price
reduction. Similarly, in Indonesia and Vietnam we have introduced equivalent pricing strategies for
this vaccine which has resulted in a more than six-fold increase in the number of women vaccinated.
Cervarix is now the number one human papillomavirus vaccine in South East Asia, with Malaysia
securing the region’s first ever tender for the product during the year. Synflorix is also growing
well, delivering sales of £12 million.
The year also saw important strategic alliances signed with major local pharmaceutical companies
including Dong-A in South Korea and Savipharm in Vietnam.
Japanese pipeline potential
| 1 | Includes 4 New Chemical Entities | |
| 2 | Includes New Chemical Entities, line extensions, new promotions or re-formulations |
GSK Japan delivered another very strong year, with sales up 14% to £1,959 million. Underlying
sales growth, excluding pandemic products, Valtrex and Avandia, was 6%. This growth was driven
primarily by Adoair (Seretide/Advair), up 17%, and contributions from newly launched products such
as Cervarix, Avolve/Avodart and Xyzal, partially offset
by a Paxil sales decline of 11%, and
declines in the mature respiratory products Flixotide/Flovent down 18%, and Serevent, down 26%,
which in part reflected biennial price reductions.
Our vaccine franchise has become an important pillar for the company in Japan. Arepanrix became one
of only two flu vaccines ever allowed for import into Japan when it received regulatory approval in
January 2010. Cervarix has had a strong launch in Japan with 2010 sales of £57 million. The product
was also recognised as one of the three vaccines that would receive public funding from the
Japanese government from 2011 onwards.
Operating
profit for Japan increased by 20% to £1.2 billion, reflecting
higher Cervarix and pandemic vaccine sales and the
favourable impact of product mix on cost of goods, partially offset by
lower sales of Relenza.
During the year, GSK Japan received approvals for six compounds, including Revolade and Xyzal, and
one new indication, Botox for spasticity. In addition, oral pulmonary arterial hypertension
treatment, Volibris, was launched during the year.
GSK Japan established a rare diseases development centre in April 2010 to accelerate delivery of
medicines for rare diseases for which treatment is not yet available. As part of this initiative,
GSK increased investment in Japan by investing in Japan Chemical Research, a company with leading
technology to manufacture bio-pharmaceuticals.
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26
ViiV Healthcare segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
1,556 | 1,605 | (3 | ) | ||||||||
Operating profit |
851 | 1,071 | (21 | ) | ||||||||
ViiV Healthcare celebrated its first anniversary in November 2010. The business was established by
GSK and Pfizer as an independent company focused on delivering advances in clinical outcomes and
enhancing the quality of life for people living with HIV. The company’s unique structure and wide
portfolio of 10 available medicines, provides financial stability and the investment capital
required to take a sustainable, long-term view of the HIV market.
Overall, sales of HIV products by ViiV Healthcare were down 3% to £1.6 billion in 2010. Sales of
former Pfizer products Celsentri/ Selzentry and Viracept (combined sales of £118 million) and
growth from Epzicom/Kivexa (up 1% to £555 million) partially offset reductions in the sales from
other established HIV products including Trizivir (down 28% to £144 million), Combivir (down 16% to
£363 million), Lexiva/Telzir (down 12% to £155 million) and Epivir (down 12% to £115 million) which
continue to be impacted by uptake of newer alternative products.
Strong growth for Celsentri/Selzentry compared with 2009 was supported by the wide acceptance of
genotypic testing across Europe, increasing first-line use in the USA and country launches in
Poland, Romania, Australia, Japan and Mexico. Upward trends in Epzicom/Kivexa sales reflected the
role of nucleoside reverse transcriptase inhibitors (NRTIs) as a mainstay of treatment in HIV. As
part of the strategic focus on International markets (all countries excluding Europe and North
America), ViiV Healthcare established new independent local operating companies in several
important geographies and opened regional hubs in Asia Pacific, CIS and Latin America in 2010. As a
result, revenue in the International region grew by 22%.
ViiV Healthcare operating profits decreased 21% primarily as a result of US healthcare reform and
higher SG&A and R&D costs partially offset by a one-time royalty settlement. The higher SG&A costs
were primarily due to the amortisation of acquired intangible assets.
2010 also saw great progress in building a late-stage pipeline. In October, Shionogi-ViiV
Healthcare announced the start of their Phase III development programme for the novel integrase
inhibitor S/GSK1349572 (‘572), with a further Phase III trial for fixed dose combination ‘572-Tri
(‘572+Epzicom/Kivexa) initiated in February 2011.
ViiV Healthcare is committed to supporting the communities most affected by the HIV epidemic. One
way the company does this is by developing innovative approaches to improve access to medicines.
For example, in July 2010, ViiV Healthcare was the first company to make its entire current and
future anti-retroviral portfolio available to generic manufacturers through royalty-free voluntary
licences. These cover all of the least developed, low income countries and sub-Saharan Africa, the
69 countries where 80% of people with HIV live. Similarly, the not-for-profit pricing policy has
been expanded to these 69 countries. During the year, ViiV Healthcare also launched the Positive
Action Southern Initiative in the USA to reduce healthcare disparities among communities with the
greatest needs.
Improving paediatric care of HIV
In 2010, as part of its commitment to address major unmet needs in HIV, ViiV Healthcare formed key
partnerships with the Elizabeth Glaser Pediatric AIDS Foundation and amFAR to improve care of
paediatric HIV and prevent mother to child transmission (MTCT) of the virus, which is the fourth
Millennium Development Goal. The Positive Action for Children Fund gave more than £3 million to
community projects to support mothers and children affected by HIV and to prevent MTCT. A further
request for proposals at the end of the year expanded the Fund’s reach and scope.
GSK Annual Report 2010
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27
Consumer Healthcare segment review
| 2009 | ||||||||||||
| 2010 | (restated) | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Turnover |
5,010 | 4,674 | 5 | |||||||||
Operating profit |
1,043 | 931 | 8 | |||||||||
Consumer Healthcare sales grew 5% to £5 billion in 2010,
significantly ahead of Consumer Healthcare market growth estimated
to be approximately 2%. We delivered growth in all of the three
categories in which we operate – Oral healthcare (up 6%),
Over-the-Counter (OTC) Medicines (up 3%) and Nutritional healthcare
(up 9%).
Europe sales were level with last year with sales of £2.0 billion
as growth in Oral healthcare and Nutritional healthcare was offset
by a decline in OTC sales. The business in the USA grew 1% to £1.0
billion, led by Oral healthcare.
Growth was particularly strong in the rest of the world which grew
13% to £2.0 billion. In the Indian sub-continent we continued to
deliver new innovations for the Horlicks brand while launching three
‘Priority’ brands – Lucozade, Sensodyne and Breathe Right,
resulting in combined sales growth of 20%. In China, we delivered
sales growth of 20% through expanded consumer availability for
Fenbid, Contac and Bactroban, strong uptake from newly launched
Lucozade and continued good performance from other products
including Sensodyne, Breathe Right and denture care brands. To
accelerate research and innovation in these key emerging markets, we
opened an Oral Healthcare Research Centre in Gurgaon, India, and an
Innovation Centre in Beijing, China. The Middle East, Africa and
Pakistan markets together delivered sales growth of 18%, largely
through strong Panadol and Eno sales growth. South America grew
sales by 16%, also led by strong Panadol and Eno consumption, with
lower growth in Japan and Australia/New Zealand of 4% and 6%,
respectively.
Oral healthcare grew 6% to £1.6 billion, led by a strong
performance from Sensodyne, which continued as the fastest-growing
toothpaste in the world, a position it has held for the last 5
years. This is a remarkable record for a brand in its 50th year.
Following our 2010 launch in India, we now market Sensodyne in 124
countries. However, Aquafresh sales declined slightly. Biotene,
the dry mouth treatment acquired in 2008, grew strongly.
OTC medicines recorded sales of £2.5 billion, up 3%. A good
performance from smoking control products was helped by the new tax
on tobacco in Japan and substantial sales in Brazil for a
government-funded smoking cessation initiative. In addition to
supplying products for Brazil’s initiative, we have provided
training on smoking cessation to 1,400 clinics across the country.
Panadol, the leading paracetamol analgesic outside the USA,
delivered strong sales growth, helped by the roll-out of Panadol
Advance with Optizorb technology that dissolves five times faster
than regular paracetamol tablets.
Dermatology products grew 8% to £256 million but respiratory tract
products declined 6% to £380 million.
Nutritional healthcare grew 9% to £952 million, led by Horlicks,
with more modest growth from Ribena and Lucozade.
Operating profit increased 8% on a turnover increase of 5%,
reflecting efficiencies of scale in SG&A costs, which grew more
slowly than sales.
During the year, we opened a new bottle manufacturing plant at our
Coleford, UK factory for Nutritional Healthcare, enabling us to
mould Lucozade and Ribena bottles, formulate the drinks and fill
the bottles, all at one plant. The bottle-forming facility moulds 1
billion PET bottles per year from plastic chips. This investment
eliminates over 2,400 road-haulage trips of more than 110 miles
from our former bottle supplier.
We recently announced our intention to accelerate growth and focus
our Consumer Healthcare business around a portfolio of ‘Priority’
brands and the emerging markets. These two dimensions represent
around 90% of our current Consumer Healthcare sales base. We intend
to divest the remaining 10% of sales (£500 million) which mostly
consist of European and American non-core OTC brands. Our aim is to
divest these products by late 2011, subject to interest and
realising appropriate value for shareholders. We expect to use the
proceeds to fund increased returns to shareholders.
Finally, as part of our objective to deliver a sustainable business
the largest array of solar panels in North America now powers our
regional distribution centre in York, Pennsylvania. Almost 11,000
door-sized solar panels cover a rooftop that is equivalent to eight
football fields, generating 3,400,000 kWhr per year. This solar
array will eliminate nearly 1,800 tonnes of carbon dioxide emissions
per year, a load on the environment that would take 15,000 mature
trees to absorb.
11,000 solar panels cover the rooftop of GSK’s Consumer Healthcare
regional distribution centre in York, Pennsylvania
GSK Annual Report 2010
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28
Pharmaceutical research and development review
In 2010, Group R&D expenditure before major restructuring was £3,964 million
(2009 – £3,951 million) representing 14.0% of total turnover (2009 – 13.9%). The company expects R&D costs
before major restructuring as a percentage of turnover to remain around 14% in 2011.
We are delivering sustained asset progression with 10 new chemical entities and new vaccines
entering Phase III since the start of 2010. Seven assets are filed with regulators or pending
filing. Five projects have been terminated from Phase III development, as listed on page 12, because of
adverse trial results or feedback from regulators. By the end of 2012, we expect Phase III data on around 15 additional assets,
including treatments for type 1 and type 2 diabetes, rare diseases and multiple
cancer types.
Our pharmaceuticals R&D segment comprises R&D activities for the pharmaceuticals business,
excluding vaccines, Consumer Healthcare and other local and central costs. The table below analyses
the Group R&D expenditure by these categories.
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Pharmaceuticals - direct project costs |
1,432 | 1,489 | 1,209 | |||||||||
(excl.
vaccines) - indirect costs |
959 | 1,056 | 844 | |||||||||
- unallocated costs |
563 | 474 | 490 | |||||||||
Pharmaceuticals R&D |
2,954 | 3,019 | 2,543 | |||||||||
In-market pharmaceutical development |
147 | 81 | 40 | |||||||||
Vaccines |
533 | 524 | 369 | |||||||||
Corporate and other costs |
172 | 177 | 304 | |||||||||
| 3,806 | 3,801 | 3,256 | ||||||||||
Consumer Healthcare |
158 | 150 | 114 | |||||||||
R&D before major restructuring |
3,964 | 3,951 | 3,370 | |||||||||
Major restructuring |
493 | 155 | 170 | |||||||||
Total R&D |
4,457 | 4,106 | 3,540 | |||||||||
The proportion of pharmaceuticals R&D investment made in the late-stage portfolio continues
to grow from 56% of the direct and indirect costs in 2006 to 61% in 2010.
Sales of new pharmaceutical products launched since 2007 (excluding pandemic flu vaccines) grew by
36% to £1,727 million in 2010 and represented 7% of total pharmaceutical sales.
| 2010 | 2009 | Growth | ||||||||||
| £m | £m | CER% | ||||||||||
Veramyst |
193 | 142 | 33 | |||||||||
Cervarix |
242 | 187 | 26 | |||||||||
Coreg CR |
157 | 161 | (3 | ) | ||||||||
Lamictal XR |
68 | 18 | >100 | |||||||||
Requip XL |
148 | 123 | 22 | |||||||||
Rotarix |
235 | 282 | (18 | ) | ||||||||
Synflorix |
221 | 73 | >100 | |||||||||
Treximet |
56 | 55 | 2 | |||||||||
Tykerb |
227 | 169 | 34 | |||||||||
Others |
180 | 52 | >100 | |||||||||
| 1,727 | 1,262 | 36 | ||||||||||
Investment and pipeline progress in 2010
Globally,
over 13,000 people work in R&D, with many of these based in
our major R&D centres in the UK, USA, Belgium and China.
Over 11,000 people work in pharmaceuticals R&D. In the course of 2010 we managed over
150 projects with trials in humans.
Focusing on returns in pharmaceutical R&D
We have been making fundamental changes to how we allocate our pharmaceutical R&D investment:
terminating development in areas with low scientific and financial return; dismantling
infrastructure; reducing cost and risk through externalising parts of early-stage discovery and
directing investment to our late stage pipeline. Progress in 2010 included:
| • | In early 2010, we announced our intention to cease discovery research into certain areas of neurology, such as pain and depression, and instead concentrate activities in neurodegenerative and neuroinflammatory diseases where we feel the prospects for successful registration and launch of differentiated medicines are greater. This change led us to exit five R&D centres. In two of the largest of these – Verona, Italy and Zagreb, Croatia – the operations were transferred to external groups thereby preserving the majority of jobs. |
| • | We have successfully out-licensed and spun off some of the early stage neurology assets in the UK through deals with Convergence Pharmaceuticals and Proximagen Group. |
| • | Through these changes and other actions we have achieved a reduction in our footprint of 29% since 2006. |
| • | We continue to increase the external nature of our discovery activities. During 2010 we signed eight new collaborations to access novel discovery, giving us a total of 54 external discovery engines to complement our 38 DPUs. |
| • | We have streamlined the resourcing of our clinical trials contract research organisations, reducing this from over 100 to just two suppliers. While this provides savings in terms of economies of scale, it will also ensure consistency and rigour in clinical trials around the globe. |
| • | We combined our Molecular Discovery Research (MDR) and Preclinical Development (PCD) in 2010 to create an end-to-end scientific and technical platform supporting the discovery and development efforts. The remit of this group remains to create the materials and knowledge that enable our R&D to take ideas, generate hypotheses and test them in preclinical and clinical settings and ultimately launch new medicines. |
Other developments in pharmaceutical R&D
GSK Rare Diseases was created in 2010 to enable us to focus on this specialised area of drug
discovery and development. Opportunities in new treatments for rare diseases are growing as
increased scientific (including genetic) understanding allows researchers to identify which rare
diseases are most likely to respond to therapeutic intervention. We signed two significant new rare
disease alliances this year: with Amicus, for the treatment of Fabry disease, and Fondazione
Telethon to research and develop novel stem-cell derived treatments to address rare genetic
disorders, using gene therapy carried out on a patient’s own stem cells. These new agreements
demonstrate our approach to seeking out innovative medicines that add value for both patients and
payers.
This year, we also made progress on our commitment to encourage new research into neglected
tropical diseases. Our research centre in Tres Cantos, Spain, released the results of our year-long
screening of more than two million compounds in GSK’s chemical library to seek out those that could
inhibit the malaria parasite, P. falciparum. We have made all of this data publically available
online. More than 80% of the 13,500 molecule structures released are proprietary to GSK, and
therefore the information released is entirely new to the research community.
GSK Annual Report 2010
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29
Responsible business
Creating a successful and sustainable business is about more than financial results. We
place great importance not just on what we achieve but on how we achieve it. Running a
responsible, values-based business is embedded in our strategy
We are working hard to build a culture in which our decisions are guided by our values:
| • | Commit to transparency |
| • | Show respect for people |
| • | Always demonstrate the highest integrity in our conduct |
| • | Be patient focused. |
We know that the research and development, manufacture and sale of our products can raise ethical
issues, and we aim to be open about how we tackle them. We understand how important it is to
communicate with our stakeholders, seeking to understand their views and being transparent about
any setbacks we have experienced as well as the progress we have made.
For example, our commitment to putting patients first means we are focusing on improving access to
our medicines and vaccines for all patients irrespective of where they live and their ability to
pay. We believe this is the right thing to do and that it will contribute to sustainable business
growth.
Ultimately we believe that responsible business is good for society and good for GSK. It helps us
to operate efficiently, to gain the trust of our stakeholders, to create the products that patients
and healthcare payers really need and to foster the right conditions for expansion of our business.
Our 2010
Corporate Responsibility Report (CR Report) will be published on 21st March 2011.
Our Principles
Our principles sum up our approach to responsible business and are underpinned by our values.
They provide guidance for employees on the standards to which GSK is committed.
Access to medicines
We will continue to research and develop medicines to treat diseases of the developing world. We
will find sustainable ways to improve access to medicines for disadvantaged people, and will seek
partnerships to support this activity. Read more on page 30.
Standards of ethical conduct
We expect employees to meet high ethical standards in all aspects of our business, by conducting
our activities with honesty and integrity, adhering to our corporate responsibility principles, and
complying with applicable laws and regulations. Read more on page 33.
Research and innovation
In undertaking our research and in innovating we may explore and apply new technologies and will
constructively engage stakeholders on any concerns that may arise. We will ensure that our products
are subject to rigorous scientific evaluation and testing for safety, effectiveness and quality. We
will comply with or exceed all regulations and legal standards applicable to the research and
development of our products. Read more on page 11.
Products and customers
We will promote our products in line with high ethical, medical and scientific standards and will
comply with all applicable laws and regulations. Read more on page 18.
Caring for the environment
We will operate in an environmentally responsible manner through systematic management of our
environmental impacts, measurement of our performance and setting challenging performance targets.
We will improve the efficiency of all our activities to minimise material and energy use and waste
generated. We aim to find opportunities to use renewable materials and to recycle our waste. Read
more on page 32.
Employment practices
We will treat our employees with respect and dignity, encourage diversity and ensure fair treatment
through all phases of employment. We will provide a safe and healthy working environment, support
employees to perform to their full potential and take responsibility for the performance and
reputation of the business. Read more on page 33.
Human rights
We are committed to upholding the UN Universal Declaration of Human Rights, the OECD guidelines for
Multi-National Enterprises and the core labour standards set out by the International Labour
Organization. We expect the same standards of our suppliers, contractors and business partners
working on GSK’s behalf. Read more in our CR Report.
Leadership and advocacy
We will establish our own challenging standards in corporate responsibility, appropriate to the
complexities and specific needs of our business, building on external guidelines and experience. We
will share best practice and seek to influence others, while remaining competitive in order to
sustain our business. Read more in our CR Report.
Engagement with stakeholders
We want to understand the concerns of those with an interest in corporate responsibility issues. We
will engage with a range of stakeholders and will communicate openly about how we are addressing CR
issues, in ways that aim to meet the needs of different groups while allowing us to pursue
legitimate business goals. Read more in our CR Report.
Community investment
We will make a positive contribution to the communities in which we operate, and will invest in
health and education programmes and partnerships that aim to bring sustainable improvements to
under-served people in the developed and developing world. Read more on page 30.
GSK Annual Report 2010
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Improving access to medicines
Access to healthcare in the developing world
There are no easy solutions to the challenge of providing sustainable access to healthcare in
developing countries. Poverty is the single biggest barrier. In many countries people do not have
enough food, access to a clean water supply, hospitals or clinics in which to receive treatment and
healthcare professionals to care for them.
We are committed to playing a full part in addressing the healthcare challenges of the developing
world by taking an innovative, responsible and, above all, sustainable approach. GSK is making a
vital contribution to developing country healthcare through action in a number of areas including:
preferential pricing of our anti-retrovirals; tiered pricing of our vaccines and medicines;
investing in R&D that targets diseases particularly affecting
the developing world (see page 11);
being flexible with our IP; pursuing an open innovation strategy; community investment activities
and partnerships that foster effective healthcare and capacity
building (see page 31); and seeking
innovative partnerships and solutions. We cover our contribution to improving access to medicines
extensively in our Corporate Responsibility Report.
We were a clear leader in both Access to Medicines (ATM) Indexes published by the ATM Foundation in
2008 and 2010. We will continue to build on our product, pricing and partnership commitments to
help improve healthcare in the developing world. In 2010 we further expanded our commitments to the
UN defined list of Least Developed Countries (LDCs) by establishing a Developing Countries and
Market Access operating unit with a focus on the LDCs to broaden patient access to GSK medicines
and to help build our presence in other developing countries.
While much has been achieved, a significant increase in resources from the global community is
still needed to support R&D and to provide access to the resultant medicines and vaccines.
Sustainable progress will only be made if the significant barriers that stand in the way of better
access to healthcare are tackled as a shared responsibility by all
sectors of global society – governments, international agencies, charities, academic institutions, the pharmaceutical industry
and others.
Access to medicines in the developed world
Programmes in the USA
We are working to provide access to medicines for people with limited financial resources and
without prescription medicine insurance.
For uninsured Americans who do not qualify for Medicare or Medicaid, GSK and ten other
pharmaceutical companies created Together Rx Access, a programme for qualified individuals offering
reductions in the pharmacy cost on more than 300 medicines. In addition, GSK offers several patient
assistance programmes to help low-income or uninsured Americans have access to GSK’s oncology and
specialty products, vaccines and prescription drugs. GSK’s patient assistance programmes provided
products to over 452,000 patients during 2010.
Programmes in other countries
We have also introduced Orange Cards providing discounts on certain GSK prescription medicines for
eligible patients in a number of other countries. The nature of the discounts varies between
countries and the ways in which the healthcare systems operate.
Our work with communities
We invest in community partnership programmes that seek to improve access to medicines and
healthcare to improve the lives of people across the world. We aim to make a real difference to
these communities by working with our partners to find innovative solutions to healthcare
challenges. We believe that business has an important role to play in society and we strive to
leverage our resources in a way that delivers shared value to our communities and business. We
partner with and support organisations whose goals and objectives reflect our mission of improving
the quality of human life.
Our global community investment in 2010 was £222 million. This compares with £163 million in 2009
on a like-for-like basis. This increase is due to expansion of our US patient assistance programme,
scale up of our donation of albendazole for the lymphatic filariasis (LF) programme, a donation of
H1N1 vaccine to the World Health Organization, plus increased grants for HIV and AIDS and the 20%
reinvestment initiative for LDCs. Our 2010 giving comprised product donations of £147 million, cash
giving of £53 million, in-kind donations of £4 million plus costs of £18 million to manage and
deliver community programmes in almost 100 countries. The product donations include £100 million
for GSK’s patient assistance programmes, £17 million worth of albendazole for the LF programme and
£9 million for humanitarian product donations. Since 2008 our product donations have been valued at
cost (average cost of goods) rather than wholesale price (WAC) as this is a more accurate
reflection of the cost to GSK. We believe we are the first pharmaceutical company to adopt this
practice. For comparative purposes the total value of donations in 2010 using WAC for products
would be £564 million compared with £467 million in 2009.
We do not operate a single charitable foundation for our community investment programmes, but
have a number of country-based foundations and their 2010 grants are included in the investment
total.
Our cash giving was targeted primarily at health and education initiatives as follows:
Global health programmes
In developing countries millions of people continue to suffer and die from preventable or
treatable diseases. Our global health programmes are designed to improve health and quality of life
for people in these communities through provision of medicines, education and advocacy, and
investment in disease prevention and healthcare infrastructure. Our global programmes are long-term
commitments and designed to be scaleable, replicable and sustainable.
By working in partnership, with NGOs and leading health organisations, we believe it is possible to
achieve significant and long-lasting improvements in healthcare. This section highlights our major
health programmes.
GSK Annual Report 2010
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Eliminating lymphatic filariasis (LF)
Our effort to eliminate LF, one of the world’s most disabling diseases, continued in close
partnership with the governments of countries where the disease is endemic, the World Health
Organization and over 40 partner organisations. As a founding partner and leader in this effort, we
are committed to donating as much of the anti-parasitic drug albendazole as required to reach the
one billion people at risk in over 80 countries. In 2010, 556 million albendazole treatments were
donated to 26 countries. We have donated almost two billion albendazole treatments since the global
elimination programme started in 2000.
Positive Action on HIV/AIDS
When Positive Action was created in 1992 it was the first pharmaceutical company programme of its
kind to support communities affected by HIV and AIDS. Now under the auspices of ViiV Healthcare,
the new HIV-focused company, the programme targets its funds towards community-focused projects
that reach those most affected by HIV, particularly in marginalised or vulnerable populations.
Positive Action works with these communities to enable them to tackle stigma and discrimination, to
test innovations in education, care and treatment and to deliver greater involvement of those
living with HIV. Our Positive Action for Children Fund launched in 2009 to make £50 million
available over 10 years to help prevent mother-to-child transmission of HIV and to support orphans
and vulnerable children. It supported 12 projects in 2010. At the end of 2010, the latest call for
proposals was made broadening the reach and scope of its response for babies and children affected
by HIV.
The GlaxoSmithKline African Malaria Partnership
The African Malaria Partnership is our programme to alleviate the mortality and suffering malaria
brings to affected communities in Africa. In 2010 four new malaria grants were awarded for
community programmes to provide health education to affected populations and to train community
health workers. The partnerships are: Save the Children (UK) in Kenya; Family Health International
in Ghana; African Medical and Research Foundation (AMREF) in Tanzania; and Planned Parenthood
Federation of Nigeria.
Humanitarian product donations
Working with our non-profit partners, AmeriCares, Direct Relief International, MAP International,
Interchurch Medical Assistance and Project HOPE, we supported humanitarian relief efforts and
community healthcare in over 90 countries.
We responded to the healthcare needs of the many communities affected by disasters, including the
devastating earthquake that struck Haiti in January 2010, GSK donated supplies of medicines valued
at over £1 million. Included in these shipments were significant volumes of antibiotics as well as
respiratory and diabetes treatments. Our consumer division provided a range of products, including
toothpastes, antacids, pain relievers and vitamins. During the cholera outbreak we responded to a
further specific request for antibiotics and donated £250,000 to the British Red Cross to support
the deployment of a mass sanitation unit serving more than 50,000 people living in temporary relief
camps. Following the earthquake in Chile, in response to an urgent request we supplied 95,000 doses
of Hepatitis A vaccine, antibiotics and more than 6,000 dental hygiene kits.
In Pakistan we provided medicines from local stocks for the thousands of people affected by the
flooding. We also made cash donations amounting to £170,000, including a contribution to the World
Food Programme to support emergency food supply.
The total value of our international humanitarian product donations was £9 million at average
cost.
Local programmes
We support communities in the many different markets in which we operate. Our programmes are
designed to fit local circumstances and cultures and aligned with an overall goal of supporting
access to medicines and healthcare. Local community priorities vary from community to community and
population to population, but there are often common challenges to address, whether in terms of a
particular health need or the human or institutional capacity required to effectively tackle those
needs.
In the UK, we contributed £5.4 million in 2010 to our continuing programme of charitable activities
supporting over 80 organisations in health, medical research, science education, the arts and the
environment. This included the UK IMPACT awards scheme which provides small charities with grants
and consulting support for their work in addressing the health needs of local communities.
Programmes in North America at a national and local level focused on improving public education in
the areas of science and mathematics, and increasing access to healthcare for children and the
homeless. GSK’s IMPACT Awards recognise organisations that have significantly improved the health
of their local communities in Philadelphia and in Research Triangle Park, North Carolina. Total
funding for our North American programmes was $18 million.
In Argentina the Pro Mujer programme works with low-income women who do not have access to
affordable financial services or healthcare and provides access to small loans to set up their own
businesses as well as training and affordable healthcare services.
GSK returned the CommunityMark for excellence in community investment.
Employee involvement
Our employees are encouraged to contribute to their local communities through employee volunteering
schemes. Support includes employee time, cash donations to charities where employees volunteer and
matching gift programmes.
Through the US GSK Matching Gift Program, we matched 12,000 employee gifts at a value of $3 million
in 2010 plus over $1 million to the United Way campaign. GSK’s GIVE programme provided grants of
over $367,000 to 365 organisations where US employees volunteered and £205,000 to 150 UK-based
non-profit organisations via the GSK Making a Difference programme.
In 2009, our Group-wide volunteer initiative was launched to give every GSK employee one paid day
off each year to volunteer for a good cause. In 2010 this continued with employees supporting a
wide range of charities and projects including work in local schools, shelters for the homeless,
community gardens, nursing homes and aiding communities affected by natural disasters.
The GSK PULSE Volunteer Partnership launched in 2009 enables GSK employees to make a difference to
communities and patients in need around the world. Volunteers work full-time with one of our
partner non-profit or non-governmental organisations (NGOs). Through this experience, volunteers
address a clear NGO need, while developing their own leadership capabilities. During 2009 and 2010,
PULSE deployed 116 volunteers in 33 countries to work with 42 NGOs. Volunteers continue to receive
their full GSK salary during their three to six month assignment. In 2010, this figure, along with
the operating costs for managing the programme, represented a total in-kind donation of £2.4
million.
GSK Annual Report 2010
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32
Environmental sustainability
We are committed to integrating environmental sustainability into our business, especially
conserving resources and addressing climate change. We see this as an opportunity as well as a
responsibility.
Strategy and plans
We revised our environmental sustainability strategy in 2010, building on the strategy originally
introduced in 2001. The new strategy recognises our impacts across the entire value chain, from raw
materials to the disposal of our products. Our objective is to benefit the environment, engage
employees in tackling key issues and benefit GSK financially-potentially saving £100 million a
year by 2020 through reduced energy, materials and distribution costs.
Analysis of GSK’s impacts shows that we need to concentrate in three main areas:
| • | carbon dioxide and other emissions that contribute to climate change |
| • | water use |
| • | environmental stewardship, which covers the use of materials, generation of waste and pollution. |
We have set ambitious goals for key impacts, including a 25% reduction in our carbon footprint, a
20% reduction in water use across the value chain and zero waste to landfill, all by 2020. The
targets are detailed in our Corporate Responsibility report.
Climate change and energy
Our long-term vision is for our entire value chain to be carbon neutral by 2050. This very
ambitious target means that there will be no net greenhouse gas emissions from manufacturing,
distributing, using and disposing of our products, including sourcing raw materials.
We need to act beyond our own operations because 40% of our carbon footprint stems from our supply
chain and a further 40% derives from propellants when customers use our inhalers. This was
confirmed by a global carbon footprint review of our entire value chain, carried out for the first
time in 2010.
GSK’s carbon footprint (million tonne CO2e per annum)
We met our goal of eliminating the use of chlorofluorocarbons (CFCs) in our products by the end of
2010. This has reduced greenhouse emissions associated with our inhaler products from 24 million
tonnes of carbon dioxide equivalents in 1998 to approximately 4.7 million tonnes in 2010. We have
research programmes under way to find ways to further reduce the impacts from these products.
In 2010 we reduced energy consumption for operations and transport by 5.5% and greenhouse gas
emissions by 5.8% relative to sales. The cumulative reduction for 2006-2010 is 9.1% for energy and
10.7% for emissions. This is below our target of 20%, mainly because progress was slow in the early
years of the five-year period.
A central fund to finance energy saving projects has accelerated progress since 2007. In 2010 we
completed 188 projects, which will avoid around 52,000 tonnes of greenhouse gas emissions a year.
We are also increasing investment in on-site generation of renewable energy, supported by a
renewable energy fund created in 2010. GSK Consumer Healthcare installed North America’s largest
roof mounted solar photo voltaic system at its regional distribution centre in York, Pennsylvania.
It will save nearly 1,800 tonnes of carbon dioxide emissions per year.
GSK’s global operations were certified to Carbon Trust Standard in 2010, the first company to
achieve this recognition of excellence in carbon management for all global operations.
Water
Water is a particularly important natural resource, and we recognise that GSK can play a positive
role in managing it more sustainably. We endorsed the United Nations CEO Water Mandate in 2009.
In 2010 we reduced water consumption by almost 500 million litres despite significant business
growth in our vaccines manufacturing business. Net water consumption fell by 1.6% per £1 of sales,
a cumulative reduction of 15.7% since 2006, exceeding our target of 10%.
We also exceeded our targets for improving the quality of waste water.
Environmental stewardship
We aim to use materials efficiently and safely, minimising waste and pollution and avoiding harm
to people and the environment.
Increasing the efficiency with which we use materials is a priority. Our long-term aspiration is to
achieve 5% mass efficiency by 2020 for new pharmaceutical products transferred from R&D to
manufacturing. This is about five times the typical level in the pharmaceutical industry and will
reduce input materials and waste by 80%. The average mass efficiency for new products during the
2006-2010 period has reached 3.3%.
Improvements in the efficiency of solvent use also reduced the amount of volatile organics
released to air by 12.8% per £1 of sales in 2010, cumulatively 35.8% since 2006.
Packaging provides further opportunities to conserve resources and in 2010 we began to implement
the sustainable packaging strategy developed in 2009. We also began to update our green packaging
guide for designers and managers. In 2010, the US American Institute of Chemical Engineers
presented its Industrial Practice Award in Sustainable Engineering to our operational
sustainability team for its work embedding sustainability into R&D and manufacturing.
Environmental management
We manage environmental issues (as well as occupational health and safety) using a management
system aligned with recognised international standards. Each business is accountable for its own
sustainability plans and performance. Our central audit group includes environmental issues in its
routine audits of our sites and business processes. We are working increasingly closely with
suppliers and contract manufacturers to reduce environmental impacts from the supply chain.
GSK Annual Report 2010
Table of Contents
33
Ethical conduct
We are committed to creating a strong ethical culture at GSK. We do this by emphasising our
values, developing robust policies, recruiting and engaging the right people and equipping them
with the information they need to make ethical decisions. Putting patients first is the core
principle of being an ethical pharmaceutical company.
Our Code of Conduct sets out fundamental standards for all employees. It is supported by the
Employee Guide to Business Conduct which helps employees make ethical decisions and emphasises
GSK’s key values:
| • | Commit to transparency |
| • | Show respect for people |
| • | Always demonstrate the highest integrity in your conduct |
| • | Be patient focused. |
We stress our commitment to performance with integrity. This means that all employees must
understand our values and what we stand for as well as the policies and procedures that underpin
our approach.
Our internal compliance systems are designed to identify and address breaches of our codes and
reinforce GSK’s values. There is continual external pressure to enhance these systems and our
compliance oversight and audits are helping to drive this change. We fully investigate suspected
breaches and take appropriate disciplinary action, including dismissal where appropriate.
In 2010 we reviewed and strengthened our approach to preventing, detecting and addressing bribery
and corruption. We launched a dedicated anti-bribery and corruption unit which will ensure we take
a consistent approach across GSK and strengthens our monitoring capability.
Also, we introduced a Third Party Code of Conduct which applies to all GSK suppliers. This sets out
the standards we expect suppliers to meet and covers ethical conduct; labour practices,
environmental, health and safety standards; and management. To help suppliers understand how to
interact appropriately with GSK staff, the Code includes key principles from our Employee Guide to
Business Conduct such as our policy on receiving gifts.
Our due diligence process for potential acquisitions takes account of ethical risks and we
integrate our ethics and compliance requirements as standard practice in newly acquired businesses.
We seek to enter into joint ventures with organisations that share our values.
Our employees
Recruitment, talent management and leadership develoment
In 2010, like every year, recruiting, retaining and developing our employees were critical to
enhancing and sustaining our performance and reputation. Proactive talent acquisition initiatives
underpin our ability to attract specialist and leadership talent externally. Our assessment process
is aligned to a core set of competencies, of which ethics and integrity are central.
We need good succession plans, not just for senior roles but for all our critical positions across
the organisation. We maintain a robust leadership strategy to identify and develop our highly
skilled leadership cadre and use a systematic, disciplined approach to leadership development,
providing tools and programmes to help leaders master skills needed to meet customer, employee and
investor expectations. In 2010, we provided training to nearly 8,000 GSK leaders worldwide and also
developed new programmes for future senior leaders and senior executives.
Performance and reward
The performance and development planning process means employees have business-aligned objectives
and behavioural goals. Our reward systems are geared to promote high performance and help to
attract and retain the best people. Performance-based pay, bonuses and share-based equity plans
align employee interests with business targets.
Communication and employee involvement
Our communication channels are designed to keep employees informed, engaged and involved in
activities across all areas of our organisation. We encourage two-way, open and honest
communication with employees, and in 2010 we launched a new updated global intranet portal,
ConnectGSK.
Feedback and monitoring mechanisms are part of every major communication event, and Q&A and
feedback facilities are a core feature of our web communications channels. In 2010 we also
introduced ‘Idea Engine’, an online tool which allows employees to submit ideas and
recommendations.
As our business evolves, there will be changes that affect employees and we remain committed to
consulting on these changes via a number of internal consultation forums and discussions with the
European Employee Consultation Forum and similar bodies in countries where this is national
practice.
Employee numbers by region
Inclusion and diversity
We are committed to employment policies free from discrimination against existing or potential
employees on the grounds of race, colour, religion or belief, gender, sexual orientation, gender
identity or expression, age, national origin, genetic make-up, disability or chronic health
conditions. GSK is committed to offering people with disabilities access to the full range of
recruitment and career opportunities. Every effort is made to retain and support employees who
become disabled while working at GSK. For more details on diversity measures, see our Corporate
Responsibility Report.
Healthy and safe high performance
To meet our mission and strategy, Employee Health and Performance initiatives focus on the health
factors that enable employees to perform at the highest level by sustaining energy and engagement.
The programmes developed to deliver this health strategy range from the traditional – such as
immunisations, smoking control and weight management – to cutting-edge programmes in the areas of
team and personal resilience, ergonomics and Energy for Performance. These programmes, available in
many languages, are designed to address the root causes of excessive work pressure and low energy
and engagement at work and at home. They are complemented by our commitment to flexible thinking
about the way we deliver our work that enables employees to do their best work in an environment
that helps them integrate their work and personal lives. For more details on the scope and impact
of these programmes, see our Corporate Responsibility Report.
GSK Annual Report 2010
Table of Contents
34
Financial review 2010
Pharmaceutical turnover
All growth rates included in the review of turnover are at constant exchange rates (CER)
unless otherwise stated. The calculation of underlying turnover is described on page 21. Sterling
growth rates may be found in the tables of pharmaceutical turnover by therapeutic areas on page 35
and by geographic segment below.
Pharmaceutical turnover declined 2% to £23.4 billion. Excluding pandemic products, Avandia and
Valtrex, underlying turnover increased by 4%.
Segmental analysis
The turnover reported in the table below represents sales invoiced by GSK’s local entity to
its customers in the local market plus co-promotion income within each market.
| 2010 | 2009 | Growth* | ||||||||||||||
| £m | £m | CER% | £% | |||||||||||||
USA |
7,648 | 8,578 | (11 | ) | (11 | ) | ||||||||||
Europe |
6,548 | 7,087 | (6 | ) | (8 | ) | ||||||||||
Emerging Markets |
3,556 | 2,895 | 22 | 23 | ||||||||||||
Asia Pacific/Japan |
3,102 | 2,628 | 9 | 18 | ||||||||||||
ViiV
Healthcare |
1,566 | 1,605 | (3 | ) | (2 | ) | ||||||||||
Other |
962 | 901 | (1 | ) | 7 | |||||||||||
| 23,382 | 23,694 | (2 | ) | (1 | ) | |||||||||||
| * | CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given on pages 188 to 192. |
Sales in the USA declined 11% to £7.6 billion, primarily due to generic competition to
Valtrex, a significant reduction in sales of pandemic related products and lower sales of Avandia.
Excluding these products, underlying turnover grew 3%, despite the discontinuation of GSK’s
promotion of Boniva, the sale of Wellbutrin XL in May 2009, and the impact of US healthcare reform
across the product range. New products (excluding pandemic vaccines)
launched since 2007 grew 29%
and contributed 8% of 2010 sales.
Europe pharmaceuticals sales declined 6% to £6.5 billion, primarily due to the impact of a
significant reduction in sales of pandemic related products, generic competition to Valtrex and
lower sales of Avandia. Excluding these products, underlying sales were flat, reflecting the impact
of government austerity measures.
Emerging Markets pharmaceutical sales grew 22% to £3.6 billion, with strong growth across most
product categories and also helped by pandemic related product sales of £227 million (2009 – £89
million). Asia Pacific/Japan pharmaceutical sales grew 9% to £3.1 billion. Excluding pandemic
related products, Valtrex and Avandia, underlying sales grew 20% in Emerging Markets and 7% in Asia
Pacific/Japan.
Pharmaceutical turnover by therapeutic area
Pharmaceutical turnover declined by 2% in 2010 as the impact of generic competition to
Valtrex, lower Avandia and pandemic product sales was partly offset by growth of key products such
as Seretide/Advair, Avamys/Veramyst, Avodart, Lovaza, Tyverb/Tykerb, Ventolin and the vaccines
franchise.
Respiratory
Respiratory sales increased 3% to £7.2 billion.
Seretide/Advair sales grew 2% to £5.1 billion, with strong growth in Japan, up 17% to £246 million
and Emerging Markets, up 16% to £328 million. Sales in the USA were level at £2.6 billion and grew
2% in Europe to £1.6 billion.
Several other respiratory products delivered growth including Avamys/Veramyst, up 33% to £193
million, Ventolin, up 8% to £522 million and Flovent, up 2% to £804 million.
Anti-virals
Anti-virals decreased 56% to £1.1 billion.
Relenza sales were £121 million (2009 – £720 million), down 84%, against the previous year where
significant government pandemic orders were received. Valtrex sales declined 60% to £532 million
reflecting generic competition in the USA and Europe.
Central nervous system (CNS)
CNS sales decreased 8% to £1.8 billion.
The majority of GSK’s CNS franchise is impacted by generic competition in the USA. The Wellbutrin
decline of 39% primarily reflected the sale of Wellbutrin XL in the USA to Biovail in the second
quarter of 2009.
Cardiovascular and urogenital
Cardiovascular and urogenital sales increased 11% to £2.6 billion, reflecting continued strong
growth of key products such as Arixtra, up 19% to £301 million, Avodart, up 18% to £629 million,
and Lovaza, up 17% to £530 million.
Metabolic
Metabolic sales decreased 44% to £0.7 billion.
Avandia product sales declined by 44% to £440 million. On 23rd September 2010 the European
Medicines Agency suspended marketing authorisation for all rosiglitazone containing products,
including Avandia, and the US Food and Drug Administration announced additional measures to ensure
the benefits of Avandia continue to outweigh its risks, including a Risk Evaluation and Mitigation
Strategy (REMS) programme. As a result, GSK expects global sales of rosiglitazone containing
products, including Avandia, to be minimal in the future.
Oncology and emesis
Oncology and emesis sales increased 9% to £0.7 billion.
Tyverb/Tykerb, up 34% to £227 million, grew strongly in all segments. Newly launched oncology
products Votrient, Arzerra and Promacta delivered sales of £38 million, £31 million and £31
million, respectively.
Vaccines
Total vaccine sales grew 15% to £4.3 billion, including £1.2 billion of pandemic vaccine sales
(2009 – £883 million). Excluding flu pandemic vaccine sales, growth was 10%. Several new vaccines
contributed to this growth including Synflorix, more than doubling to £221 million, Boostrix, up
29% to £181 million and Cervarix, up 26% to £242 million. Sales of Hepatitis vaccines grew 7% to
£720 million, Infanrix/Pediarix grew 8% to £700 million and seasonal flu sales grew 14% to £241
million. Rotarix sales were down 18% to £235 million, as the product continues to recover market
share lost following its temporary suspension from several markets earlier in the year.
Dermatologicals
Dermatology sales were £1.1 billion, including heritage GSK products and those acquired through
business acquisitions, principally Stiefel in July 2009. The estimated sales growth in 2010 for the
business on a pro-forma basis, excluding 2010 acquisitions, was approximately 6%. In addition,
GSK’s heritage consumer dermatology portfolio, reported within Consumer Healthcare, contributed
sales of £256 million, up 8%.
GSK Annual Report 2010
Table of Contents
35
Financial review 2010
Pharmaceutical turnover by therapeutic area 2010
| Total | USA | Europe | Emerging Markets | Rest of World | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Therapeutic area/ | 2010 | 2009 | Growth | 2010 | Growth | 2010 | Growth | 2010 | Growth | 2010 | Growth | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| major products | £m | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | ||||||||||||||||||||||||||||||||||||||||||||||||
Respiratory |
7,238 | 6,977 | 3 | 4 | 3,394 | 1 | 2 | 2,149 | – | (2 | ) | 616 | 19 | 21 | 1,079 | 4 | 14 | |||||||||||||||||||||||||||||||||||||||||||||||
Avamys/Veramyst |
193 | 142 | 33 | 36 | 69 | – | 1 | 56 | 27 | 24 | 31 | >100 | >100 | 37 | 94 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
164 | 171 | (5 | ) | (4 | ) | 37 | 37 | 37 | 40 | (7 | ) | (7 | ) | 39 | 11 | 11 | 48 | (30 | ) | (27 | ) | ||||||||||||||||||||||||||||||||||||||||||
Flixotide/Flovent |
804 | 775 | 2 | 4 | 431 | 8 | 9 | 159 | (9 | ) | (11 | ) | 48 | 38 | 41 | 166 | (10 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Seretide/Advair |
5,139 | 4,977 | 2 | 3 | 2,604 | – | – | 1,601 | 2 | – | 328 | 16 | 19 | 606 | 10 | 21 | ||||||||||||||||||||||||||||||||||||||||||||||||
Serevent |
201 | 236 | (16 | ) | (15 | ) | 64 | (12 | ) | (12 | ) | 98 | (16 | ) | (16 | ) | 2 | (33 | ) | (33 | ) | 37 | (23 | ) | (16 | ) | ||||||||||||||||||||||||||||||||||||||
Ventolin |
522 | 477 | 8 | 9 | 179 | 16 | 17 | 142 | (3 | ) | (5 | ) | 112 | 19 | 20 | 89 | (2 | ) | 10 | |||||||||||||||||||||||||||||||||||||||||||||
Zyrtec |
82 | 75 | 4 | 9 | – | – | – | – | – | – | 14 | – | – | 68 | 5 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||
Anti-virals |
1,086 | 2,416 | (56 | ) | (55 | ) | 370 | (68 | ) | (68 | ) | 109 | (73 | ) | (73 | ) | 223 | (3 | ) | (1 | ) | 384 | (44 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||||||
Hepsera |
128 | 114 | 6 | 12 | – | – | – | 1 | – | – | 58 | 10 | 14 | 69 | 2 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||
Relenza |
121 | 720 | (84 | ) | (83 | ) | 43 | (69 | ) | (69 | ) | 6 | (97 | ) | (97 | ) | 1 | (97 | ) | (97 | ) | 71 | (80 | ) | (79 | ) | ||||||||||||||||||||||||||||||||||||||
Valtrex |
532 | 1,294 | (60 | ) | (59 | ) | 252 | (73 | ) | (73 | ) | 68 | (56 | ) | (58 | ) | 28 | 8 | 8 | 184 | 2 | 11 | ||||||||||||||||||||||||||||||||||||||||||
Zeffix |
233 | 217 | 4 | 7 | 13 | (24 | ) | (24 | ) | 26 | (10 | ) | (10 | ) | 136 | 17 | 18 | 58 | (5 | ) | 4 | |||||||||||||||||||||||||||||||||||||||||||
Central nervous |
1,753 | 1,870 | (8 | ) | (6 | ) | 505 | (23 | ) | (22 | ) | 540 | (4 | ) | (6 | ) | 223 | 17 | 17 | 485 | (2 | ) | 7 | |||||||||||||||||||||||||||||||||||||||||
system |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Imigran/Imitrex |
212 | 266 | (21 | ) | (20 | ) | 75 | (39 | ) | (39 | ) | 85 | (10 | ) | (11 | ) | 5 | – | – | 47 | 2 | 12 | ||||||||||||||||||||||||||||||||||||||||||
Lamictal |
504 | 500 | 1 | 1 | 257 | (4 | ) | (4 | ) | 143 | (6 | ) | (7 | ) | 57 | 23 | 19 | 47 | 42 | 52 | ||||||||||||||||||||||||||||||||||||||||||||
Requip |
233 | 209 | 11 | 11 | 44 | 69 | 69 | 137 | 2 | (1 | ) | 3 | 50 | 50 | 49 | 2 | 14 | |||||||||||||||||||||||||||||||||||||||||||||||
Seroxat/Paxil |
482 | 523 | (12 | ) | (8 | ) | 27 | (36 | ) | (36 | ) | 82 | (15 | ) | (17 | ) | 73 | (3 | ) | (4 | ) | 300 | (9 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||
Treximet |
56 | 55 | 2 | 2 | 55 | 2 | – | – | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Wellbutrin |
81 | 132 | (39 | ) | (39 | ) | 24 | (73 | ) | (73 | ) | 39 | 33 | 30 | 13 | 30 | 30 | 5 | (25 | ) | 25 | |||||||||||||||||||||||||||||||||||||||||||
Cardiovascular |
2,570 | 2,298 | 11 | 12 | 1,571 | 10 | 11 | 610 | 7 | 5 | 134 | 25 | 24 | 255 | 23 | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||
and urogenital |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Arixtra |
301 | 254 | 19 | 19 | 177 | 25 | 26 | 99 | 8 | 4 | 10 | 43 | 43 | 15 | 18 | 36 | ||||||||||||||||||||||||||||||||||||||||||||||||
Avodart |
629 | 530 | 18 | 19 | 337 | 5 | 6 | 175 | 22 | 18 | 33 | 50 | 50 | 84 | 90 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Coreg |
171 | 172 | (1 | ) | (1 | ) | 170 | (1 | ) | (1 | ) | – | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||
Fraxiparine |
222 | 229 | (2 | ) | (3 | ) | – | – | – | 154 | (9 | ) | (11 | ) | 55 | 29 | 31 | 13 | (7 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||||||||
Lovaza |
530 | 450 | 17 | 18 | 528 | 17 | 18 | – | – | – | – | – | – | 2 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Vesicare |
114 | 104 | 9 | 10 | 113 | 8 | 9 | – | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Volibris |
46 | 19 | >100 | >100 | – | – | – | 40 | >100 | >100 | 1 | – | – | 5 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Metabolic |
678 | 1,181 | (44 | ) | (43 | ) | 238 | (59 | ) | (59 | ) | 166 | (38 | ) | (40 | ) | 91 | (24 | ) | (24 | ) | 183 | (17 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||
Avandia products |
440 | 771 | (44 | ) | (43 | ) | 237 | (45 | ) | (44 | ) | 88 | (48 | ) | (49 | ) | 42 | (43 | ) | (45 | ) | 73 | (32 | ) | (26 | ) | ||||||||||||||||||||||||||||||||||||||
Bonviva/Boniva |
78 | 255 | (69 | ) | (69 | ) | – | (100 | ) | (100 | ) | 64 | (26 | ) | (28 | ) | 2 | – | – | 12 | 22 | 33 | ||||||||||||||||||||||||||||||||||||||||||
Anti-bacterials |
1,396 | 1,457 | (4 | ) | (4 | ) | 75 | (28 | ) | (27 | ) | 536 | (14 | ) | (16 | ) | 609 | 10 | 10 | 176 | 1 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Augmentin |
625 | 667 | (6 | ) | (6 | ) | 11 | (76 | ) | (76 | ) | 240 | (17 | ) | (19 | ) | 291 | 15 | 14 | 83 | 10 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Oncology and |
688 | 629 | 9 | 9 | 350 | 13 | 14 | 201 | 1 | (1 | ) | 62 | 7 | 9 | 75 | 17 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||
emesis |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Arzerra |
31 | 3 | >100 | >100 | 26 | >100 | >100 | 4 | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Hycamtin |
144 | 172 | (16 | ) | (16 | ) | 83 | (17 | ) | (17 | ) | 48 | (17 | ) | (19 | ) | 7 | 17 | 17 | 6 | (14 | ) | (14 | ) | ||||||||||||||||||||||||||||||||||||||||
Promacta |
31 | 13 | >100 | >100 | 25 | 92 | 92 | 5 | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
227 | 169 | 34 | 34 | 70 | 28 | 30 | 94 | 28 | 25 | 30 | 36 | 36 | 33 | 72 | 83 | ||||||||||||||||||||||||||||||||||||||||||||||||
Votrient |
38 | 1 | >100 | >100 | 33 | >100 | >100 | 4 | – | – | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Vaccines |
4,326 | 3,706 | 15 | 17 | 763 | (7 | ) | (6 | ) | 1,681 | (2 | ) | (4 | ) | 927 | 38 | 39 | 955 | 85 | 100 | ||||||||||||||||||||||||||||||||||||||||||||
Boostrix |
181 | 139 | 29 | 30 | 110 | 51 | 51 | 43 | 10 | 8 | 9 | 29 | 29 | 19 | (16 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Cervarix |
242 | 187 | 26 | 29 | 13 | >100 | >100 | 116 | (14 | ) | (16 | ) | 25 | 4 | 9 | 88 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
241 | 211 | 14 | 14 | 110 | 51 | 51 | 63 | (8 | ) | (11 | ) | 40 | (5 | ) | (5 | ) | 28 | – | 12 | ||||||||||||||||||||||||||||||||||||||||||||
Flu Pandemic |
1,192 | 883 | 31 | 35 | 1 | (99 | ) | (99 | ) | 488 | (6 | ) | (7 | ) | 226 | >100 | >100 | 477 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||||||||
Hepatitis |
720 | 665 | 7 | 8 | 307 | 19 | 19 | 242 | (6 | ) | (8 | ) | 88 | 8 | 10 | 83 | 15 | 26 | ||||||||||||||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
700 | 649 | 8 | 8 | 146 | 8 | 9 | 429 | 8 | 6 | 50 | 13 | 11 | 75 | 3 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||||
Rotarix |
235 | 282 | (18 | ) | (17 | ) | 74 | (4 | ) | (3 | ) | 38 | (28 | ) | (28 | ) | 102 | (22 | ) | (21 | ) | 21 | (17 | ) | (13 | ) | ||||||||||||||||||||||||||||||||||||||
Synflorix |
221 | 73 | >100 | >100 | – | – | – | 43 | 38 | 34 | 149 | >100 | >100 | 29 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dermatologicals |
1,087 | 707 | 51 | 54 | 358 | 70 | 70 | 246 | 48 | 45 | 286 | 52 | 56 | 197 | 26 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||||
Bactroban |
119 | 123 | (3 | ) | (3 | ) | 51 | (14 | ) | (14 | ) | 27 | 8 | 4 | 28 | 7 | 4 | 13 | – | 18 | ||||||||||||||||||||||||||||||||||||||||||||
Dermovate |
74 | – | – | – | – | – | – | 19 | – | – | 30 | – | – | 25 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Duac |
116 | 46 | >100 | >100 | 67 | >100 | >100 | 23 | >100 | >100 | 11 | >100 | >100 | 15 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Soriatane |
71 | 28 | >100 | >100 | 71 | >100 | >100 | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Zovirax |
152 | 129 | 15 | 18 | 53 | >100 | >100 | 27 | (10 | ) | (10 | ) | 26 | 9 | 13 | 46 | (14 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other |
994 | 848 | 16 | 17 | 24 | 53 | 41 | 310 | 9 | 6 | 385 | 37 | 38 | 275 | – | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 21,816 | 22,089 | (2 | ) | (1 | ) | 7,648 | (11 | ) | (11 | ) | 6,548 | (6 | ) | (8 | ) | 3,556 | 22 | 23 | 4,064 | 6 | 15 | |||||||||||||||||||||||||||||||||||||||||||
ViiV Healthcare
(HIV) |
1,566 | 1,605 | (3 | ) | (2 | ) | 660 | (8 | ) | (8 | ) | 585 | (5 | ) | (8 | ) | 146 | 35 | 39 | 175 | 7 | 16 | ||||||||||||||||||||||||||||||||||||||||||
Combivir |
363 | 425 | (16 | ) | (15 | ) | 143 | (24 | ) | (24 | ) | 117 | (21 | ) | (23 | ) | 63 | 22 | 29 | 40 | (3 | ) | 5 | |||||||||||||||||||||||||||||||||||||||||
Epivir |
115 | 129 | (12 | ) | (11 | ) | 40 | (17 | ) | (17 | ) | 37 | (22 | ) | (24 | ) | 18 | 31 | 38 | 20 | – | 5 | ||||||||||||||||||||||||||||||||||||||||||
Epzicom/Kivexa |
555 | 546 | 1 | 2 | 210 | (7 | ) | (6 | ) | 245 | 3 | – | 29 | 38 | 38 | 71 | 14 | 22 | ||||||||||||||||||||||||||||||||||||||||||||||
Lexiva |
155 | 178 | (12 | ) | (13 | ) | 80 | (19 | ) | (19 | ) | 51 | (15 | ) | (18 | ) | 13 | 86 | 86 | 11 | – | 10 | ||||||||||||||||||||||||||||||||||||||||||
Selzentry |
80 | 1 | >100 | >100 | 34 | – | – | 41 | >100 | >100 | 2 | – | – | 3 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
Trizivir |
144 | 201 | (28 | ) | (28 | ) | 73 | (30 | ) | (30 | ) | 60 | (26 | ) | (27 | ) | 4 | (43 | ) | (43 | ) | 7 | (13 | ) | (13 | ) | ||||||||||||||||||||||||||||||||||||||
| 23,382 | 23,694 | (2 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CER% represents growth at constant exchange rates. £% represents growth at actual exchange
rates. Turnover by quarter is given in the financial record on pages 194 to 198.
GSK Annual Report 2010
Table of Contents
36
Financial review 2010
ViiV Healthcare (HIV)
Sales of HIV products by ViiV Healthcare were down 3% to £1.6 billion. Sales of the former
Pfizer products Selzentry and Viracept, with combined sales of £118 million and growth from
Epzicom/Kivexa, up 1% to £555 million, were offset by reductions in the sales from other HIV
products including Trizivir, down 28% to £144 million, Combivir, down 16% to £363 million and
Epivir, down 12% to £115 million.
Consumer Healthcare turnover
| % of | 2010 | 2009 | Growth* | |||||||||||||||||
| total | £m | £m | CER% | £% | ||||||||||||||||
Over-the-counter |
||||||||||||||||||||
medicines |
49 | 2,456 | 2,339 | 3 | 5 | |||||||||||||||
Oral healthcare |
32 | 1,602 | 1,484 | 6 | 8 | |||||||||||||||
Nutritional healthcare |
19 | 952 | 851 | 9 | 12 | |||||||||||||||
| 100 | 5,010 | 4,674 | 5 | 7 | ||||||||||||||||
| * | CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given on page 199. |
Total Consumer Healthcare sales were up 5% to £5.0 billion, significantly exceeding market
growth estimated by GSK to be approximately 2%. Sales in the Rest of World grew 13% to £2.0
billion, driven by strong growth in India and China, which grew by 19% and 18%, respectively.
Europe sales were level with last year with sales of £2.0 billion and the business in the USA grew
1% to £1.0 billion.
OTC medicines
OTC product sales grew 3% to £2.4 billion in 2010, driven by sales of Panadol, nicotine
replacement therapy products and dermatology products, partly offset by lower respiratory
tract products and lower sales of alli.
Oral healthcare
Sales of Oral healthcare products rose 6% to £1.6 billion. Sensodyne performed strongly and
denture care sales also grew. Sales of Aquafresh declined slightly.
Nutritional healthcare
Nutritional healthcare sales grew 9% to £1.0 billion, driven by the strong performance of
Horlicks and growth in Lucozade sales.
Results before major restructuring and total results
In October 2007 the Board approved the implementation of a detailed formal plan for, and GSK
announced, a significant new Operational Excellence restructuring programme. A second formal plan,
representing a significant expansion of the Operational Excellence programme, was approved by the
Board and announced in February 2009. A further expansion was approved by the Board and announced
in February 2010.
The restructuring programme, comprising these detailed formal plans, covers all areas of GSK’s
business, including manufacturing, selling, R&D and infrastructure. With an estimated total cost of
approximately £4.5 billion, the expanded programme is expected to deliver annual pre-tax savings of
approximately £2.2 billion by the time it is substantially complete in 2012. Approximately 75% of
these costs were incurred by 31st December 2010, and approximately 20% are expected to be incurred
in 2011 with the balance in 2012. In total, approximately 75% of these costs are expected to be
cash expenditures and 25% are expected to be accounting write-downs.
Uncertainties exist over the exact amount and timing of cash outflows, as a result of potential
future exchange rate fluctuations and as many elements of the restructuring programme are subject
to employee consultation procedures, making it difficult to predict with precision when these
procedures will be completed. However, the majority of the remaining cash payments are expected to
be made in 2011. Given the extent and cost of the Operational Excellence restructuring programme,
management believes it has a material impact on GSK’s operating results and on the manner in which
GSK’s business is conducted. GSK presents the restructuring costs incurred solely as a direct
result of the Operational Excellence restructuring programme, which in 2010 amounted to £1,242
million before tax (2009 – £764 million), in a separate column in the income statement titled
‘Major restructuring’.
In addition to the restructuring costs of the Operational Excellence programme, the major
restructuring column in the income statement includes restructuring costs incurred solely as a
direct result of any restructuring programmes that follow, and relate to, material acquisitions
where the operations of the acquired business overlap extensively with GSK’s existing operations.
The restructuring activities that follow, and relate to, such acquisitions are of the same nature
as those undertaken under the Operational Excellence programme and are also carried out following a
detailed formal plan. Management therefore considers it appropriate to present the costs of these
restructuring activities in the same manner. The restructuring costs incurred in 2010 as a direct
result of the acquisition of Stiefel Laboratories, Inc. in July 2009, were £103 million (2009 – £71
million). The restructuring costs incurred as a direct result of the acquisition of Reliant
Pharmaceuticals Inc., the only other acquisition since October 2007 that meets the criteria set out
above, were all charged and paid in 2008.
GSK Annual Report 2010
Table of Contents
37
Financial review 2010
The Group’s results before the costs of the Operational Excellence programme and
acquisition-related restructuring programmes meeting the criteria described above are also
presented in a separate column in the income statement and are described as ‘Results before major
restructuring’. This presentation, which GSK intends to apply consistently to future major
restructuring programmes that have a material impact on GSK’s operating results and on the manner
in which GSK’s business is conducted, has been adopted to show clearly the Group’s results both
before and after the costs of these restructuring programmes. Management believes that this
presentation assists shareholders in gaining a clearer understanding of the Group’s financial
performance and in making projections of future financial performance, as results that include
such costs, by virtue of their size and nature, have limited comparative value. This presentation
is also consistent with the way management assesses the Group’s financial performance.
Only the restructuring costs incurred solely as a direct result of the Operational Excellence
programme and the restructuring programmes following the Reliant and Stiefel acquisitions have
been reported in the major restructuring column in the income statement. These restructuring costs
principally have arisen from impairments to property, plant and equipment and the termination of
the employment contracts of staff made redundant as part of the restructuring activities. As set
out in Note 7 to the financial statements, ‘Major restructuring programme’, asset impairments and
staff redundancies together accounted for £753 million of the £1,348 million restructuring costs
incurred in 2010 and reported in the major restructuring column.
Any restructuring costs that do not arise solely as a direct result of the Operational Excellence
programme and restructuring programmes following, and relating to, acquisitions meeting the
criteria described above continue to be reported in operating expenses within results before major
restructuring. These costs included restructuring costs related to
minor acquisitions and £5
million of income in 2010 (2009 – £4 million cost) that related to restructuring activity initiated
before the commencement of the Operational Excellence programme. None of this restructuring
activity had a material impact on GSK’s operating results or on the manner in which its business
is conducted.
The remaining costs of £595 million in 2010 arose from miscellaneous expenditures incurred solely
as a direct result of the restructuring programmes, including the termination of leases,
accelerated depreciation, site closure costs and consultancy and project management fees. No costs
arising from GSK’s ongoing operating activities have been reported in the major restructuring
column.
During the anticipated duration of the Operational Excellence programme, GSK does not currently
expect to incur any material restructuring costs except those related to that programme and
acquisitions meeting the criteria described above. If any further, unanticipated material
restructuring costs were to arise during this period, GSK would expect to include them also in
the major restructuring column.
GSK’s operating profit, profit before taxation, taxation and profit for the year are discussed
below in terms of both total results, which include major restructuring costs, and results before
major restructuring.
Operating profit – total results
Total results include restructuring costs related to the Operational Excellence programme
and the acquisitions of Reliant and Stiefel.
| 2010 | 2009 | Growth | ||||||||||||||||||||||
| £m | % | £m | % | CER% | £% | |||||||||||||||||||
Turnover |
28,392 | 100 | 28,368 | 100 | (1 | ) | – | |||||||||||||||||
Cost of sales |
(7,592 | ) | (26.7 | ) | (7,380 | ) | (26.0 | ) | 3 | 3 | ||||||||||||||
Selling, general and administration |
(13,053 | ) | (46.0 | ) | (9,592 | ) | (33.8 | ) | 36 | 36 | ||||||||||||||
Research and
development |
(4,457 | ) | (15.7 | ) | (4,106 | ) | (14.4 | ) | 8 | 9 | ||||||||||||||
Other operating
income |
493 | 1.7 | 1,135 | 3.9 | ||||||||||||||||||||
Operating profit |
3,783 | 13.3 | 8,425 | 29.7 | (59 | ) | (55 | ) | ||||||||||||||||
Cost of sales
Cost of sales increased to 26.7% of turnover (2009 – 26.0%) reflecting the impact of generic
competition to higher margin products in the USA (principally Valtrex), lower Avandia sales, US
healthcare reforms and European austerity price cuts, and inventory and other asset write-downs,
partially offset by savings from the Operational Excellence programme and lower restructuring
costs of £187 million (2009 – £285 million).
Selling, general and administration
SG&A costs as a percentage of turnover increased by 12.2 percentage points to 46.0%.
Excluding legal costs of £4,001 million (2009 – £591 million), SG&A costs were 31.9% of turnover
(2009 – 31.7%). The increase of 0.2 percentage points reflected a 1% Sterling (1% CER) increase in
SG&A on a flat sterling turnover growth. SG&A included
restructuring costs of £665 million (2009 – £392 million), investment in growth markets and the full year impact of the acquisition of Stiefel
partly offset by operational excellence savings in the USA and Europe and lower exchange losses on
inter-company transactions. Advertising and promotion declined 1%, selling and distribution
increased 1% and general and administration excluding legal increased 2%.
Research and development
R&D expenditure was 15.7% of total turnover (2009 – 14.4%) reflecting an increase in
expenditure of 9% sterling (8% CER) on a flat sterling turnover growth. This included
restructuring costs of £493 million (2009 – £155 million), ViiV
Healthcare
R&D investments and lower
intangible asset impairments of £126 million (2009 – £167 million) and savings from the
Operational Excellence programme. In addition, the comparison to prior year was unfavourably
impacted by the one-off recognition of a recoverable balance in 2009.
Other operating income
Other operating income was £493 million (2009 – £1,135 million) primarily reflecting royalty
income of £296 million (2009 – £296 million), income from the transfer to Genentech of the
exclusive promotion rights to Boniva in the USA, and asset disposals of £134 million (2009 – £875
million), partially offset by equity investment impairments of £65 million (2009 – £135 million).
The 2009 income included the disposal of Wellbutrin XL, various asset disposals to Aspen
Pharmacare, a royalty dispute settlement gain of £78 million and the accounting gain of £296
million on the creation of ViiV Healthcare.
GSK Annual Report 2010
Table of Contents
38
Financial review 2010
Operating profit – total results
Operating profit after restructuring charges of £1,345 million (2009 – £832 million) for the
year ended 31st December 2010 was £3,783 million, a decrease of 59% CER (a decrease of 55% in
sterling terms) compared with 2009. Excluding legal costs of £4,001 million (2009 – £591 million),
operating profit was £7,784 million an 18% decline in CER terms (14% in sterling terms)
principally reflecting a 1% decline in turnover, higher cost of sales, higher R&D expenditure and
lower other operating income.
Profit before taxation – total results
Net finance costs
| 2010 | 2009 | |||||||
| Finance income | £m | £m | ||||||
Interest and other finance income |
102 | 67 | ||||||
Unwinding of discounts on assets |
1 | 2 | ||||||
Fair value adjustments and hedges |
13 | 1 | ||||||
| 116 | 70 | |||||||
Finance costs
|
||||||||
Interest costs |
(767 | ) | (770 | ) | ||||
Unwinding of discounts on liabilities |
(18 | ) | (11 | ) | ||||
Fair value adjustments and hedges |
(21 | ) | (2 | ) | ||||
Other finance expense |
(25 | ) | – | |||||
| (831 | ) | (783 | ) | |||||
Profit on disposal of interest in associates
Profit on disposal of interest in associates was £8 million (2009 – £115 million). The 2009
profit arose from the sale of 5.7 million Quest shares. Subsequent to the 2010 year-end the Group
sold its entire shareholding in Quest, which will give rise to a pre-tax profit on disposal of
associates in 2011 of approximately £600 million (£250 million after tax).
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £81 million (2009 – £64 million) arose
principally from the Group’s holding in Quest.
Profit before taxation – total results
Taking account of net finance costs, the profit on disposal of interest in associates and
the share of profits of associates, total profit before taxation was £3,157 million compared with
£7,891 million in 2009, a 64% CER decline and a 60% sterling decline.
Operating profit – results before major restructuring
The results before major restructuring are set out below:
| 2010 | 2009 | Growth | ||||||||||||||||||||||
| £m | % | £m | % | CER% | £% | |||||||||||||||||||
Turnover |
28,392 | 100 | 28,368 | 100 | (1 | ) | – | |||||||||||||||||
Cost of sales |
(7,405 | ) | (26.1 | ) | (7,095 | ) | (25.0 | ) | 4 | 4 | ||||||||||||||
Selling, general and administration |
(12,388 | ) | (43.6 | ) | (9,200 | ) | (32.4 | ) | 35 | 35 | ||||||||||||||
Research and
development |
(3,964 | ) | (14.0 | ) | (3,951 | ) | (13.9 | ) | – | – | ||||||||||||||
Other operating
income |
493 | 1.8 | 1,135 | 3.9 | ||||||||||||||||||||
Operating profit |
5,128 | 18.1 | 9,257 | 32.6 | (48 | ) | (45 | ) | ||||||||||||||||
GSK Annual
Report 2010
Cost of sales
Cost of sales increased to 26.1% of turnover (2009 – 25.0%) reflecting the impact of
generic competition to higher margin products in the USA (principally Valtrex), lower Avandia
sales, US healthcare reforms and European austerity price cuts, and inventory and other asset
write-downs, partially offset by savings from the Operational Excellence programme. The
company expects cost of sales as a percentage of turnover in 2011 to remain around 26%.
Selling, general and administration
SG&A costs as a percentage of turnover increased by 11.2 percentage points to 43.6%,
primarily reflecting higher legal charges of £4,001 million
(2009 – £591 million). See Note 29 to the financial
statements ‘other provisions’ for further details.
Excluding legal costs SG&A costs were 29.5% of turnover (2009 – 30.3%). The decrease of 0.8
percentage points reflected a 3% Sterling (2% CER) decline in expenditure compared with prior year
on a flat sterling turnover growth. The decline in expenditure reflected operational excellence
savings in the USA and Europe and lower exchange losses on inter-company transactions, partially
offset by investment in growth markets and the full year impact of the acquisition of Stiefel.
Advertising and promotion declined 1%, selling and distribution declined 4% and general and
administration excluding legal declined 1%. Collectively these items accounted for a 2% decline in
total SG&A. The company expects SG&A costs excluding legal charges to be around 30.5% of turnover
in 2011.
Research and development
R&D expenditure was 14.0% of total turnover (2009 – 13.9%) reflecting flat expenditure on a
flat sterling turnover growth. This included savings from the Operational Excellence programme,
lower intangible asset impairments of £126 million (2009 – £167 million) and higher ViiV Healthcare R&D
investment. The comparison to prior year was unfavourably impacted by the one-off recognition of a
recoverable balance in 2009. The company expects R&D costs as a
percentage of turnover to remain around 14% in 2011.
Other operating income
Other operating income was £493 million (2009 – £1,135 million) primarily reflecting royalty
income of £296 million (2009 – £296 million), income from the transfer to Genentech of the
exclusive promotion rights to Boniva in the USA, and asset disposals of £134 million (2009 – £875
million), partially offset by equity investment impairments of
£65 million (2009 – £135 million).
The 2009 income included the disposal of Wellbutrin XL, various asset disposals to Aspen
Pharmacare, a royalty dispute settlement gain of £78 million and the accounting gain of £296
million on the creation of ViiV Healthcare. In 2011, the company expects other operating income to
be around £600 million, excluding the profit arising on the proposed Consumer Healthcare
divestments of non-core OTC brands.
Table of Contents
39
Financial review 2010
Operating profit – results before major restructuring
Operating profit before major restructuring for the year ended 31st December 2010 was £5,128
million, a 48% decline in CER terms (a decrease of 45% in sterling terms). Excluding legal costs of
£4,001 million (2009 — £591 million), operating profit was £9,129 million, an 11% decline in CER
terms (a decrease of 7% in sterling terms) principally reflecting a 1% decline in turnover, higher
cost of sales, higher R&D expenditure and lower other operating income partly offset by reduced
SG&A costs. Operating profit margin excluding legal costs and other operating income was 30.4% in
2010. The company expects the operating profit margin excluding legal costs and other operating
income to be around 1 percentage point lower in 2011.
Profit before taxation – results before major restructuring
Net finance costs
| Finance income | 2010 | 2009 | ||||||
| £m | £m | |||||||
Interest and other income |
102 | 67 | ||||||
Unwinding of discounts on assets |
1 | 2 | ||||||
Fair value adjustments and hedges |
13 | 1 | ||||||
| 116 | 70 | |||||||
Finance costs |
||||||||
Interest costs |
(767 | ) | (770 | ) | ||||
Unwinding of discounts on liabilities |
(15 | ) | (8 | ) | ||||
Fair value adjustments and hedges |
(21 | ) | (2 | ) | ||||
Other finance expense |
(25 | ) | – | |||||
| (828 | ) | (780 | ) | |||||
Net
interest payable for the year was to 712 million (2009 –
£710 million) and the company expects a similar change in
2011.
Profit on disposal of interest in associate
Profit on disposal of interest in associates was £8 million (2009 –£115 million). The 2009 profit
arose from the sale of 5.7 million Quest shares. Subsequent to the 2010 year-end, GSK sold its
entire shareholding in Quest, which will give rise to a pre-tax profit on disposal of associates of
approximately £600 million (£250 million after tax).
Share of after tax profits of associates and joint ventures
The share of after tax
profits of associates of £81 million (2009 – £64 million) arose principally
from the Group’s holding in Quest Diagnostics Inc.
Profit before taxation – results before major restructuring
Taking account of net finance costs, the profit on disposal of interests in associates and the
share of profits of associates, profit before tax before major restructuring was £4,505 million
compared with £8,726 million in 2009, a 52% CER decline and a 48% decline in sterling terms.
Taxation
charge
| 2010 | 2009 | |||||||
| £m | £m | |||||||
UK corporation tax at the UK statutory rate |
82 | 600 | ||||||
Less double taxation relief |
(156 | ) | (183 | ) | ||||
| (74 | ) | 417 | ||||||
Overseas taxation |
1,496 | 1,997 | ||||||
Current taxation |
1,422 | 2,414 | ||||||
Deferred taxation |
(118 | ) | (192 | ) | ||||
Taxation on total profits |
1,304 | 2,222 | ||||||
The lower tax charge for 2010 reflects higher legal charges of £4 billion (2009 – £0.6
billion).
The charge for taxation on total profits amounted to £1,304 million and represented an effective
tax rate of 41.3% (2009 – 28.2%).
The charge for taxation on profit before major restructuring charges amounted to £1,544 million and
represented an effective tax rate of 34.3% (2009 – 28.0%). GSK currently expects a tax
rate
on 2011 profits excluding the
profit on the disposal of the Quest shareholding
of around 27%. However, the tax due on the profit realised on the disposal of the
shareholding in Quest will increase the overall tax rate for 2011 to around 29.5%. This excludes
the effect of any tax that may arise on the proposed Consumer Healthcare divestments of non-core
brands.
GSK continues to believe that it has made adequate provision for the liabilities likely to arise
from open assessments. The ultimate liability for such matters may vary from the amounts provided
and is dependent upon the outcome of litigation proceedings and negotiations with the relevant tax
authorities.
Profit for the year
| 2010 | 2009 | Growth | ||||||||||||||
| £m | £m | CER% | £% | |||||||||||||
Total profit after taxation for the year |
1,853 | 5,669 | (71 | ) | (67 | ) | ||||||||||
Total profit attributable to shareholders |
1,634 | 5,531 | (75 | ) | (70 | ) | ||||||||||
Basic earnings per share (pence) |
32.1 | p | 109.1 | p | (75 | ) | (71 | ) | ||||||||
Basic earnings per ADS (US$) |
$1.00 | $3.40 | ||||||||||||||
Results before major restructuring profit after taxation for the year |
2,961 | 6,283 | (56 | ) | (53 | ) | ||||||||||
Results before major restructuring
profit attributable to shareholders |
2,742 | 6,145 | (59 | ) | (55 | ) | ||||||||||
Adjusted earnings per share (pence) |
53.9 | p | 121.2 | p | (59 | ) | (56 | ) | ||||||||
Adjusted earnings per ADS (US$) |
$1.67 | $3.78 | ||||||||||||||
Weighted average number of shares (millions) |
5,085 | 5,069 | ||||||||||||||
Diluted total earnings per share (pence) |
31.9 | p | 108.2 | p | ||||||||||||
Diluted total earnings per ADS (US$) |
$0.99 | $3.38 | ||||||||||||||
Diluted weighted average number of shares (millions) |
5,129 | 5,108 | ||||||||||||||
Total results including restructuring costs produced a basic EPS of 32.1p compared with 109.1p in
2009. This was a 75% decline in CER terms and a 71% decline in sterling terms. Excluding major
restructuring costs, EPS was 53.9p compared with 121.2p. This was a 59% decline at CER and a 56%
decrease in sterling terms. The 3 percentage point currency benefit arose from the weakness of
Sterling against most major international currencies compared with last year, partly offset by the
strengthening of Sterling against the Euro.
Dividend
The Board has declared a fourth interim dividend of 19 pence per share resulting in a dividend for
the year of 65 pence, a 4 pence increase on the 61 pence per share for 2009. The equivalent interim
dividend receivable by ADR holders is 61.5296 cents per ADS based on an exchange rate of
£1/$1.6192. The ex-dividend date was 9th February 2011, with a record date of 11th February 2011
and a payment date of 7th April 2011.
GSK Annual Report 2010
Table of Contents
40
Financial review 2010
Critical accounting policies
The consolidated financial statements are prepared in accordance with IFRS, as adopted for use in
the European Union, and also with IFRS as issued by the IASB, following the accounting policies
approved by the Board and described in Note 2 to the financial statements, ‘Accounting principles
and policies’. Management is required to make estimates and assumptions that affect the amounts of
assets, liabilities, revenue and expenses reported in the financial statements. Actual amounts and
results could differ from those estimates.
The critical accounting policies adopted relate to the following areas:
| • | Turnover | |
| • | Taxation | |
| • | Legal and other disputes | |
| • | Property, plant & equipment | |
| • | Goodwill | |
| • | Other intangible assets | |
| • | Pensions and other post-employment benefits. |
Information on the judgements and estimates made in these areas is given in Note 3 to the financial
statements, ‘Key accounting judgements and estimates’.
In respect of the Turnover accounting policy, the Group’s largest business is US pharmaceuticals,
and the US market has the most complex arrangements for rebates, discounts and allowances. The
following briefly describes the nature of the arrangements in existence in the Group’s US
pharmaceuticals business:
| • | GSK has arrangements with certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Accruals for estimating chargebacks are calculated based on the terms of each agreement, historical experience and product growth rates | |
| • | Customer rebates are offered to key managed care and group purchasing organisations (GPO) and other direct and indirect customers. These arrangements require the customer to achieve certain performance targets relating to the value of product purchased, formulary status or pre-determined market shares relative to competitors. The accrual for customer rebates is estimated based on the specific terms in each agreement, historical experience and product growth rates | |
| • | The US Medicaid programme is a state-administered programme providing assistance to certain poor and vulnerable patients. In 1990, the Medicaid Drug Rebate Program was established to reduce state and federal expenditure on prescription drugs. In 2010, the Patient and Affordable Care Act became law. GSK participates by providing rebates to states. Accruals for Medicaid rebates are calculated based on the specific terms of individual state agreements using a combination of historical experience, product and population growth, anticipated price increases and the impact of contracting strategies | |
| • | Cash discounts are offered to customers to encourage prompt payment. These are accrued for at the time of invoicing and adjusted subsequently to reflect actual experience | |
| • | Where there is historical experience of customer returns, GSK records an accrual for estimated sales returns by applying historical experience of customer returns to the amounts invoiced, together with market related information such as stock levels at wholesalers, anticipated price increases and competitor activity. |
A reconciliation of gross turnover to net turnover for the US pharmaceuticals business is as
follows:
| 2009 | 2008 | |||||||||||||||||||||||
| 2010 | (restated) | (restated) | ||||||||||||||||||||||
| £m | % | £m | % | £m | % | |||||||||||||||||||
Gross turnover |
10,802 | 100 | 11,674 | 100 | 10,782 | 100 | ||||||||||||||||||
Chargebacks |
(993 | ) | 9 | (1,124 | ) | 10 | (836 | ) | 8 | |||||||||||||||
Managed care, Medicare
Part D and GPO rebates |
(894 | ) | 8 | (907 | ) | 8 | (756 | ) | 7 | |||||||||||||||
US government and
state programmes |
(742 | ) | 7 | (542 | ) | 5 | (470 | ) | 4 | |||||||||||||||
Cash discounts |
(193 | ) | 2 | (200 | ) | 2 | (191 | ) | 1 | |||||||||||||||
Customer returns |
(179 | ) | 1 | (172 | ) | 1 | (118 | ) | 1 | |||||||||||||||
Prior year adjustments |
38 | – | 24 | – | 35 | – | ||||||||||||||||||
Other items |
(191 | ) | 2 | (175 | ) | 1 | (192 | ) | 2 | |||||||||||||||
Total deductions |
(3,154 | ) | 29 | (3,096 | ) | 27 | (2,528 | ) | 23 | |||||||||||||||
Net turnover |
7,648 | 71 | 8,578 | 73 | 8,254 | 77 | ||||||||||||||||||
Information relating to 2009 and 2008 has been restated following changes to the segmental
reporting, as set out in Note 6 to the financial statements, ‘Segment information’.
Rebates given under US government and state programmes have increased in the year as a result of
the US healthcare reform amendments. The additional expense arising from the new legislation
include Managed Medicaid Sales being discounted at Fee-for-Service rates, an increase to the Basic
Medicaid Rebate, a new definition of Average Manufacturers Price and incremental Consumer Price
Index penalty on line extensions.
The total accruals for rebates, discounts, allowances and returns in the US pharmaceuticals
business were as follows:
| At 31st | ||||||||
| At 31st | December | |||||||
| December | 2009 | |||||||
| 2010 | (restated) | |||||||
| £m | £m | |||||||
Chargebacks |
50 | 41 | ||||||
Managed care, Medicare Part D and GPO rebates |
422 | 426 | ||||||
US government and state programmes |
445 | 322 | ||||||
Cash discounts |
21 | 20 | ||||||
Customer returns |
254 | 192 | ||||||
Other |
28 | 26 | ||||||
Total |
1,220 | 1,027 | ||||||
The accrual for rebates to US government and state programmes has increased as a result of the US
healthcare reform implemented during 2010.
A monthly process is operated to monitor inventory levels at wholesalers for any abnormal
movements. This process uses gross sales volumes, prescription volumes based on third party data
sources and information received from key wholesalers. The aim of this is to maintain inventories
at a consistent level from year to year based on the pattern of consumption.
On this basis, US pharmaceutical inventory levels at wholesalers and in other distribution channels
at 31st December 2010 were estimated to amount to approximately one month of turnover. This
calculation uses third party information, the accuracy of which cannot be totally verified, but is
believed to be sufficiently reliable for this purpose.
GSK Annual Report 2010
Table of Contents
41
Financial position and resources
Financial position
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Assets |
||||||||
Non-current assets |
||||||||
Property, plant and equipment |
9,045 | 9,374 | ||||||
Goodwill |
3,606 | 3,361 | ||||||
Other intangible assets |
8,532 | 8,183 | ||||||
Investments in associates and joint ventures |
1,081 | 895 | ||||||
Other investments |
711 | 454 | ||||||
Deferred tax assets |
2,566 | 2,374 | ||||||
Derivative financial instruments |
97 | 68 | ||||||
Other non-current assets |
556 | 583 | ||||||
Total non-current assets |
26,194 | 25,292 | ||||||
Current assets |
||||||||
Inventories |
3,837 | 4,064 | ||||||
Current tax recoverable |
56 | 58 | ||||||
Trade and other receivables |
5,793 | 6,492 | ||||||
Derivative financial instruments |
93 | 129 | ||||||
Liquid investments |
184 | 268 | ||||||
Cash and cash equivalents |
6,057 | 6,545 | ||||||
Assets held for sale |
16 | 14 | ||||||
Total current assets |
16,036 | 17,570 | ||||||
Total assets |
42,230 | 42,862 | ||||||
Liabilities |
||||||||
Current liabilities |
||||||||
Short-term borrowings |
(291 | ) | (1,471 | ) | ||||
Trade and other payables |
(6,888 | ) | (6,772 | ) | ||||
Derivative financial instruments |
(188 | ) | (168 | ) | ||||
Current tax payable |
(1,047 | ) | (1,451 | ) | ||||
Short-term provisions |
(4,380 | ) | (2,256 | ) | ||||
Total current liabilities |
(12,794 | ) | (12,118 | ) | ||||
Non-current liabilities |
||||||||
Long-term borrowings |
(14,809 | ) | (14,786 | ) | ||||
Deferred tax liabilities |
(707 | ) | (645 | ) | ||||
Pensions and other post-employment benefits |
(2,672 | ) | (2,981 | ) | ||||
Other provisions |
(904 | ) | (985 | ) | ||||
Derivative financial instruments |
(5 | ) | – | |||||
Other non-current liabilities |
(594 | ) | (605 | ) | ||||
Total non-current liabilities |
(19,691 | ) | (20,002 | ) | ||||
Total liabilities |
(32,485 | ) | (32,120 | ) | ||||
Net assets |
9,745 | 10,742 | ||||||
Equity |
||||||||
Share capital |
1,418 | 1,416 | ||||||
Share premium account |
1,428 | 1,368 | ||||||
Retained earnings |
4,779 | 6,321 | ||||||
Other reserves |
1,262 | 900 | ||||||
Shareholders’ equity |
8,887 | 10,005 | ||||||
Non-controlling interests |
858 | 737 | ||||||
Total equity |
9,745 | 10,742 | ||||||
Property, plant and equipment
GSK’s business is science-based, technology-intensive and highly regulated by governmental
authorities. The Group allocates significant financial resources to the renewal and maintenance of
its property, plant and equipment to minimise risks of interruption of production and to achieve
compliance with regulatory standards. A number of its processes use chemicals and hazardous
materials.
The total cost of the Group’s property, plant and equipment at 31st December 2010 was £18,895
million, with a net book value of £9,045 million. Of this, land and buildings represented £3,729
million, plant and equipment £3,144 million and assets in construction £2,172 million. In 2010, GSK
invested £1,038 million in new and renewal property, plant and equipment. This is mainly related to
a large number of projects for the renewal, improvement and expansion of facilities at various
worldwide sites. Property is mainly held freehold. New investment is financed from Group liquid
resources. At 31st December 2010, GSK had capital contractual commitments for future expenditure of
£377 million and operating lease commitments of £415 million. GSK believes that its facilities are
adequate for its current needs.
The Group observes stringent procedures and uses specialist skills to manage environmental risks
from these activities. Environmental issues, sometimes dating from operations now modified or
discontinued, are reported under ‘Environmental sustainability’ on page 32 and in Note 44 to the
financial statements, ‘Legal proceedings’.
Goodwill
Goodwill has increased during the year from £3,361 million at 31st December 2009 to £3,606
million. The increase primarily reflects the goodwill arising on the acquisition of
Laboratorios Phoenix S.A.I.C.yF. of £72 million and the impact of a strengthening of overseas
currencies.
Other intangible assets
Other intangible assets include the cost of intangibles acquired from third parties and computer
software. The net book value of other intangible assets as at 31st December 2010 was £8,532 million
(2009 – £8,183 million). The increase in 2010 reflects additions of £252 million through business
combinations, and currency movements, partly offset by the amortisation and impairment of existing
intangibles.
Investments
GSK held investments, including associates and joint ventures, with a carrying value at 31st
December 2010 of £1,792 million (2009 – £1,349 million). The market value at 31st December 2010 was
£2,688 million (2009 – £2,225 million). The largest of these investments are in two associates:
Quest Diagnostics Inc., which had a book value at 31st December 2010 of £494 million (2009 – £410
million) and Aspen Pharmacare Holdings Limited which had a book value at 31st December 2010 of £397
million (2009 – £372 million). The investments include equity stakes in companies where the Group
has research collaborations, which provide access to biotechnology developments of potential
interest and interests in companies that arise from business divestments.
Derivative financial instruments: assets
GSK had both non-current and current derivative financial instruments held at fair value of £190
million (2009 – £197 million). The small decrease
primarily reflects a decrease in net investment hedging volumes.
GSK Annual Report 2010
Table of Contents
42
Financial position and resources
Inventories
Inventory of £3,837 million has decreased by £227 million during the year. The decrease reflects
initiatives to reduce manufacturing cycle times and reduce stockholding days through more
efficient use of inventory throughout the supply chain.
Trade and other receivables
Trade and other receivables of £5,793 million have decreased from
2009 reflecting the recovery of significant levels of H1N1 debt during the year and specific
actions taken to reduce overdue and other receivables as part of a Group initiative to reduce
working capital. These reductions were partly offset by a strengthening of year-end foreign
exchange rates.
Derivative financial instruments: liabilities
GSK held current and non-current derivative financial instruments held at fair value of £193
million (2009 – £168 million current) relating primarily to hedging exchange on translation of
currency assets on consolidation. The small increase reflects marginally higher currency volatility
on the Euro, US dollar and Yen.
Trade and other payables
Trade and other payables amounting to £6,888 million have increased from 2009, reflecting working
capital initiatives to extend supplier terms towards the Group’s 60-day term objective and a
strengthening of year-end foreign exchange rates.
Provisions
The Group carried deferred tax provisions and other short-term and non-current provisions of £5,991
million at 31st December 2010 (2009 – £3,886 million) in respect of estimated future liabilities,
of which £4,000 million (2009 – £2,020 million) related to legal and other disputes. Provision has
been made for legal and other disputes, indemnified disposal liabilities and the costs of
restructuring programmes to the extent that at the balance sheet date a legal or constructive
obligation existed and could be reliably estimated.
Pensions and other post-employment benefits
The Group accounts for pension and other post-employment arrangements in accordance with IAS 19.
The deficits, net of surpluses before allowing for deferred taxation were £1,224 million (2009 –
£1,745 million) on pension arrangements and £1,425 million (2009 – £1,213 million) on unfunded
post-employment liabilities. The pension liabilities decreased following an increase in asset
values in the UK and the USA, deficit reduction contributions by the company and a decrease in the
long-term inflation rate, partly offset by reductions in the rate used to discount UK pension
liabilities from 5.7% to 5.5% and the rate used to discount US pension liabilities from 5.75% to
5.2%.
In
December 2010, the UK scheme purchased an insurance contract, that
will guarantee payment of specified pensioner liabilities. This contract was valued at £0.7
billion at 31st December 2010.
Net debt
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Cash, cash equivalents and liquid investments |
6,241 | 6,813 | ||||||
Borrowings – repayable within one year |
(291 | ) | (1,471 | ) | ||||
Borrowings – repayable after one year |
(14,809 | ) | (14,786 | ) | ||||
Net debt |
(8,859 | ) | (9,444 | ) | ||||
Net debt decreased by £585 million due to the free cash flow generated by the company
exceeding the amounts paid in dividends to shareholders and invested in new businesses.
Movements in net debt
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Net debt at beginning of year |
(9,444 | ) | (10,173 | ) | ||||
(Decrease)/increase in cash and bank overdrafts |
(642 | ) | 1,054 | |||||
Cash inflow from liquid investments |
(91 | ) | (87 | ) | ||||
Net increase in long-term loans |
– | (1,358 | ) | |||||
Net repayment of short-term loans |
1,290 | 102 | ||||||
Debt of subsidiary undertakings acquired |
(20 | ) | (9 | ) | ||||
Exchange movements |
61 | 1,041 | ||||||
Other movements |
(13 | ) | (14 | ) | ||||
Net debt at end of year |
(8,859 | ) | (9,444 | ) | ||||
Total equity
A summary of the movements in equity is set out below.
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Total equity at beginning of year |
10,742 | 8,318 | ||||||
Total comprehensive income for the year |
2,086 | 4,996 | ||||||
Dividends to shareholders |
(3,205 | ) | (3,003 | ) | ||||
Ordinary Shares issued |
62 | 43 | ||||||
Changes in
non-controlling interests |
– | 338 | ||||||
Put option over non-controlling interest |
– | (2 | ) | |||||
Consideration received for shares transferred by ESOP Trusts |
17 | 13 | ||||||
Ordinary Shares acquired by ESOP Trusts |
(16 | ) | (57 | ) | ||||
Share-based incentive plans |
175 | 171 | ||||||
Tax on share-based incentive plans |
2 | 14 | ||||||
Distributions to non-controlling interests |
(118 | ) | (89 | ) | ||||
Total equity at end of year |
9,745 | 10,742 | ||||||
At 31st December 2010, total equity had decreased from £10,742 million at 31st December 2009 to
£9,745 million. The decrease arose principally from the increased provision for legal charges
in the year.
Share purchases
In 2010, the Employee Share Ownership Plan (ESOP) Trusts acquired £16 million of shares in GSK plc
(2009 – £57 million). Shares are held by the Trusts to satisfy future exercises of options and
awards under the Group share option and award schemes. A proportion of the shares held by the
Trusts are in respect of awards where the rules of the scheme require GSK to satisfy exercises
through market purchases rather than the issue of new shares. The shares held by the Trusts are
matched to options and awards granted.
At 31st December 2010, the ESOP Trusts held 105 million (2009 – 118 million) GSK shares against the
future exercise of share options and share awards. The carrying value of £845 million (2009 –
£1,138 million) has been deducted from other reserves. The market value of these shares was £1,308
million (2009 – £1,554 million).
GSK Annual Report 2010
Table of Contents
43
Financial position and resources
GSK did not purchase any of its own shares in 2010 (2009 – £nil). On 3rd February 2011, GSK
announced that the company intends to repurchase £1-2 billion of shares in 2011, depending on
market conditions and other factors. The exact amount and timing of future purchases after 2011, and whether the
shares will be held as Treasury shares or be cancelled, will be determined by the company and is
dependent on market conditions and other factors. At 31st December 2010, GSK held 474.2 million
shares as Treasury shares (2009 – 474.2 million shares), at a cost of £6,286 million (2009 – £6,286
million), which has been deducted from retained earnings.
No shares were purchased in the period 1st January 2011 to 3rd February 2011. In the period 4th
February 2011 to 24th February 2011 10.4 million shares
were purchased at a cost of £123.4 million.
Commitments and contingent liabilities
Financial commitments are summarised in Note 39 to the financial statements, ‘Commitments’. Other
contingent liabilities and obligations in respect of short and long-term debt are set out in Note
31 to the financial statements, ‘Contingent liabilities’ and Note 32 to the financial statements,
‘Net debt’.
Amounts provided for pensions and post-retirement benefits are set out in Note 28 to the financial
statements, ‘Pensions and other post-employment benefits’. Amounts provided for restructuring
programmes and legal, environmental and other disputes are set out in Note 29 to the financial
statements, ‘Other provisions’.
Contractual obligations and commitments
The following table sets out the Group’s contractual obligations and commitments at 31st December
2010 as they fall due for payment.
| Total | Under 1 yr | 1-3 yrs | 3-5 yrs | 5 yrs+ | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Loans |
14,997 | 259 | 4,158 | 2,407 | 8,173 | |||||||||||||||
Interest on loans |
10,312 | 755 | 1,394 | 1,097 | 7,066 | |||||||||||||||
Finance lease obligations |
103 | 32 | 45 | 18 | 8 | |||||||||||||||
Finance lease charges |
16 | 5 | 8 | 3 | – | |||||||||||||||
Operating lease commitments |
415 | 123 | 119 | 57 | 116 | |||||||||||||||
Intangible assets |
11,762 | 720 | 1,626 | 2,150 | 7,266 | |||||||||||||||
Property, plant & equipment |
380 | 278 | 95 | 7 | – | |||||||||||||||
Business combinations |
285 | 253 | 12 | 20 | – | |||||||||||||||
Investments |
37 | 16 | – | 21 | – | |||||||||||||||
Purchase commitments |
1,127 | 239 | 314 | 293 | 281 | |||||||||||||||
Pensions |
1,095 | 365 | 730 | – | – | |||||||||||||||
Other commitments |
242 | 110 | 78 | 49 | 5 | |||||||||||||||
Total |
40,771 | 3,155 | 8,579 | 6,122 | 22,915 | |||||||||||||||
Commitments in respect of loans and future interest payable on loans are disclosed before taking
into account the effect of derivatives. The Group has entered into a number of research
collaborations to develop new compounds with other pharmaceutical companies. The terms of these
arrangements can include upfront fees, equity investments, loans and commitments to fund specified
levels of research. In addition, the Group will often agree to make further payments if future
‘milestones’ are achieved. As some of these agreements relate to compounds in the early stages of
development, milestone payments will continue for a number of years if the compounds move
successfully through the development process. Generally the closer the product is to marketing
approval the greater the possibility of success. The amounts shown above within intangible assets
represent the maximum that would be paid if all milestones were
achieved, and include £8.6 billion of which
relates to externalised projects in the discovery portfolio. A number of new commitments were made
in 2010 under licensing and other agreements, including arrangements with Amicus Therapeutics Inc.,
Amplimmune Inc., Apeiron Biologics AG, Fondazione Telethon, Isis Pharmaceuticals Inc. and Shionogi
& Co. Limited.
In 2009, GSK reached an agreement with the trustees of the UK pension schemes to make additional
contributions over a five year period, to eliminate the pension deficit identified at the 31st
December 2008 actuarial funding valuation. The table above shows this commitment but excludes the
normal ongoing annual funding requirement of approximately £130 million. For further information on
pension obligations, see Note 28 to the financial statements, ‘Pensions and other post-employment
benefits’.
Contingent liabilities
The following table sets out contingent liabilities, comprising discounted bills, performance
guarantees, letters of credit and other items arising in the normal course of business, and when
they are expected to expire.
| Total | Under 1 yr | 1-3 yrs | 3-5 yrs | 5 yrs+ | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Guarantees |
110 | 64 | 1 | 1 | 44 | |||||||||||||||
Other contingent liabilities |
55 | 22 | 10 | 1 | 22 | |||||||||||||||
Total |
165 | 86 | 11 | 2 | 66 | |||||||||||||||
In the normal course of business, GSK has provided various indemnification guarantees in respect of
business disposals in which legal and other disputes have subsequently arisen. A provision is made
where an outflow of resources is considered probable and a reasonable estimate can be made of the
likely outcome of the dispute and this is included in Note 29 to the financial statements, ‘Other
provisions’.
It is the Group’s policy to provide for the settlement costs of asserted claims and environmental
disputes when an outflow of resources is considered probable and a reliable estimate may be made.
Prior to this point no liability is recorded. Legal and environmental costs are discussed in ‘Risk
factors’ on pages 53 to 57 and Note 44 to the financial statements, ‘Legal proceedings’. GSK
continues to believe that it has made adequate provision for the liabilities likely to arise from
open taxation assessments. The ultimate liability for such matters may vary significantly from
amounts provided and is dependent upon the outcome of litigation proceedings and negotiations with
the relevant tax authorities. This is discussed further in Note 14 to
the financial statements, ‘Taxation’.
GSK Annual Report 2010
Table of Contents
44
Financial position and resources
Cash flow
A summary of the consolidated cash flow is set out below.
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Net cash inflow from operating activities |
6,797 | 7,841 | ||||||
Net cash outflow from investing activities |
(1,868 | ) | (4,013 | ) | ||||
Net cash outflow from financing activities |
(5,571 | ) | (2,774 | ) | ||||
(Decrease)/increase in cash and bank overdrafts |
(642 | ) | 1,054 | |||||
Exchange adjustments |
81 | (158 | ) | |||||
Cash and bank overdrafts at beginning of year |
6,368 | 5,472 | ||||||
Cash and bank overdrafts at end of year |
5,807 | 6,368 | ||||||
Cash and bank overdrafts at end of year
comprise: |
||||||||
Cash and cash equivalents |
6,057 | 6,545 | ||||||
Overdrafts |
(250 | ) | (177 | ) | ||||
| 5,807 | 6,368 | |||||||
The net cash inflow from operating activities after taxation paid was £6,797 million, a decrease of
£1,044 million over 2009 reflecting higher legal settlements in the year partly offset by a net
working capital reduction.
The net cash outflow from investing activities was £1,868 million, a decrease of £2,145 million
which primarily reflected lower business purchases during 2010 of £354 million. In 2009 business
purchases were £2,792 million primarily Stiefel Laboratories, Inc. In addition purchases of
property, plant and equipment were lower by £404 million in 2010.
Free cash flow
Free cash flow is the amount of cash generated by the business after meeting its obligations for
interest, tax and dividends paid to non-controlling interests, and after capital expenditure on
non-current tangible and intangible assets.
Free cash flow was adversely impacted by legal settlements of £2,047 million (2009 – £254 million).
Free cash flow excluding legal settlements was £6,533 million in 2010, compared with £5,508 million
in 2009, the improvement reflecting the reduction in working capital and lower expenditure on
property, plant & equipment.
Free cash flow is used by GSK’s management for planning and reporting purposes and in discussions
with and presentations to investment analysts and rating agencies. GSK’s free cash flow measure is
not defined in IFRS. This measure may not be directly comparable with similarly described measures
used by other companies. A reconciliation of net cash inflow from operating activities, which is
the closest equivalent IFRS measure, to free cash flow is shown below.
Reconciliation of free cash flow
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Net cash inflow from operating activities |
6,797 | 7,841 | ||||||
Purchase of property, plant and equipment |
(1,014 | ) | (1,418 | ) | ||||
Purchase of non-current intangible assets |
(621 | ) | (455 | ) | ||||
Disposal of property, plant and equipment |
92 | 48 | ||||||
Interest paid |
(775 | ) | (780 | ) | ||||
Interest received |
107 | 90 | ||||||
Dividends received from joint ventures and associated undertaking |
18 | 17 | ||||||
Distributions to
non-controlling interests |
(118 | ) | (89 | ) | ||||
Free cash flow |
4,486 | 5,254 | ||||||
Investment appraisal
GSK has a formal process for assessing potential investment proposals in order to ensure decisions
are aligned with the Group’s overall strategy. This process includes an analysis of the impact of
the project on earnings, its return on invested capital and an assessment of the return based on
discounted cash flows. The discount rate used to perform financial analysis is decided internally,
to allow determination of the extent to which investments cover the Group’s cost of capital. For
specific investments the discount rate may be adjusted to take into account country or other risk
weightings.
Capital expenditure and financial investment
Cash payments for tangible and intangible fixed assets amounted to £1,635 million (2009 – £1,873
million). Disposals realised £218 million (2009 – £404 million). Cash payments to acquire equity
investments of £279 million (2009 – £154 million) were made in the year and sales of equity
investments realised £27 million (2009 – £59 million).
Future cash flow
The Group expects that future operating cash flow will be sufficient to fund its operating and debt
service costs, to satisfy normal levels of capital expenditure, to meet obligations under existing
licensing agreements, to meet the expenditure arising from the major restructuring programmes (the
precise timing of which is uncertain) outlined in Note 7 to the financial statements, ‘Major
restructuring programmes’ and to meet other routine outflows
including tax and dividends, subject to the ‘Risk factors’ discussed on pages 53 to 57. GSK may
from time to time have additional demands for finance, such as for
acquisitions and share repurchases. It has access to
other sources of liquidity from short and long-term capital markets and banks and other financial
institutions, in addition to the cash flow from operations, for such needs.
GSK Annual Report 2010
Table of Contents
45
Financial position and resources
Payment policies
Group companies are responsible for monitoring and managing their working capital. The terms of
sales collections and supplier payments reflect local commercial practice.
In the UK, the company and each of its UK subsidiaries have policies to ensure that suppliers
are paid on time. In particular, the UK companies seek:
| • | to settle terms of payment with suppliers when agreeing the terms of the transaction | |
| • | to ensure that suppliers are made aware of the agreed terms of payment | |
| • | to abide by the terms of payment. |
The policy permits arrangements for accelerated payment to small suppliers.
Payment performance
At 31st December 2010, the average number of days’ payable outstanding represented by trade
payables of the parent company was nil (2009 – nil) and in respect of the company and its UK
subsidiaries in aggregate was 50 days (2009 – 44 days).
Treasury policies
GSK reports in Sterling and pays dividends out of Sterling profits. The role of Corporate Treasury
is to manage and monitor our external and internal funding requirements and financial risks in
support of our strategic objectives. Treasury activities are governed by policies and procedures
approved by the Board of Directors, most recently on 7th October 2010.
A Treasury Management Group (TMG) chaired by our Chief Financial Officer, meets on a monthly basis
to review treasury activities. Its members receive management information relating to treasury
activities.
Capital management
GSK operates on a global basis, primarily through subsidiary companies established in the markets
in which we trade. With significant levels of patent or trademark protection, our products compete
largely on product efficacy or differentiation rather than on price. Selling margins are sufficient
to cover normal operating costs and our operations are cash generative.
Operating cash flow is used to fund investment in research and development of new products. It is
also used to make the routine outflows of capital expenditure, tax, dividends, repayment of
maturing debt and, to the extent determined by the Board, share repurchases. In 2011, as part of a
new long-term share buy-back programme and depending on market conditions and other factors, we
expect to re-purchase £1-2 billion of shares.
Our policy is to borrow centrally using a variety of capital market issues and borrowing facilities
to meet anticipated funding requirements.
These borrowings, together with cash generated from operations, are on-lent, contributed as equity
to certain subsidiaries or used to pay dividends and make acquisitions. GSK did not make any share
repurchases in 2010.
For further details see Note 41 to the financial statements ‘Financial instruments and related
disclosures’.
Liquidity
As at 31st December 2010, our cash and liquid investments were held as follows:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Bank balances and deposits |
5,660 | 5,206 | ||||||
US Treasury and Treasury repo only money market funds |
360 | 1,305 | ||||||
Corporate debt instruments |
10 | 10 | ||||||
Government securities |
211 | 292 | ||||||
| 6,241 | 6,813 | |||||||
Our centrally managed cash reserves amounted to £3.0 billion at 31st December 2010, all available
within 3 months. This excludes £0.9 billion centrally managed cash held by ViiV Healthcare, an 85%
owned subsidiary. We also had $3.9 billion of undrawn committed facilities. As at that date we had
short term overdrafts and loans repayable within one year of £259 million. We had net debt of £8.9
billion at 31st December 2010. The table below summarises cash and gross debt after the effects of
hedging.
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Cash and liquid investments |
6,241 | 6,813 | ||||||
Gross debt – fixed |
(13,740 | ) | (13,706 | ) | ||||
– floating |
(1,358 | ) | (2,550 | ) | ||||
– non-interest bearing |
(2 | ) | (1 | ) | ||||
Net debt |
(8,859 | ) | (9,444 | ) | ||||
We manage our net borrowing requirements through a portfolio of long-term borrowings, including
bonds, together with short-term finance under a $10 billion commercial paper programme and $3.9
billion of committed facilities. The facilities were last renewed in October 2010. We consider this
level of committed facilities to be adequate given current liquidity requirements. For further
information on these facilities, see Note 32 to the financial statements, ‘Net debt’. We also
benefit from strong positive cash flow from operating units.
We have a European Medium Term Note programme of £15 billion. At 31st December 2010, we had £8.3
billion of notes in issue under this programme. We also have a US shelf registration statement. At
31st December 2010, we had $10.1 billion (£6.5 billion) of notes in issue under this programme. The
TMG monitors the cash flow forecast on a monthly basis.
The long-term borrowings mature at dates between 2012 and 2042. Our long-term debt ratings have
remained stable since February 2008. Currently we are rated A+ stable outlook by Standard and
Poor’s and A1 stable outlook by Moody’s Investors Service ‘Moody’s’. Our short-term debt ratings
are A-1 and P-1 with Standard and Poor’s and Moody’s respectively.
GSK Annual Report 2010
Table of Contents
46
Financial position and resources
Maturity profile of gross debt
Treasury operations
The objective of treasury activity is to manage the post-tax net cost or income of financial
operations to the benefit of earnings. Corporate Treasury does not operate as a profit centre. We
use a variety of financial instruments to finance our operations and derivative financial
instruments to manage market risks from these operations. These derivatives, principally comprising
forward foreign currency contracts, interest rate and currency swaps, are used to swap borrowings
and liquid assets into our required currencies and to manage exposure to funding risks from changes
in foreign exchange and interest rates.
We do not hold or issue derivatives for speculative purposes. Our treasury policies specifically
prohibit such activity. All transactions in financial instruments are undertaken to manage the
risks arising from underlying business activities, not for speculation.
Foreign exchange management
Foreign currency transaction exposures arising on internal and external trade flows are not hedged.
The exposure of overseas operating subsidiaries to transaction risk is minimised by matching local
currency income with local currency costs.
For this purpose, our internal trading transactions are matched centrally and we manage
inter-company payment terms to reduce foreign currency risk. Exceptional foreign currency cash flows
are hedged selectively under the management of Corporate Treasury.
We manage the cash surpluses or borrowing requirements of subsidiary companies centrally using
forward contracts to hedge future repayments back into the originating currency.
We seek to denominate borrowings in the currencies of our principal assets and cash flows. These
are primarily denominated in US dollars, Euros and Sterling. Certain borrowings can be swapped into
other currencies as required.
Borrowings denominated in, or swapped into, foreign currencies that match investments in our
overseas assets may be treated as a hedge against the relevant assets. Forward contracts are also
used in major currencies to reduce our exposure to our investment in overseas Group assets (see
‘Net Investment Hedges’ section of Note 41 for further details). The TMG reviews the ratio of
borrowings to assets for major currencies.
Interest rate risk management
The policy on interest rate risk management limits the amount of floating rate interest payments to
a prescribed percentage of trading profit.
We use a series of interest rate swaps to re-denominate one of our external borrowings into the
interest rate coupon required by GSK. The duration of this swap matches the duration of the
principal instrument. Interest rate derivative instruments are accounted for as fair value or cash
flow hedges of the relevant assets or liabilities.
Counterparty risk management
Our policy on counterparty risk management is to work with a select group of relationship banks.
Global counterparty limits are assigned to each of GSK’s banking and investment counterparties
based on long-term credit ratings from Moody’s and Standard and Poor’s. Corporate Treasury’s usage
of these limits is monitored daily by a Corporate Compliance Officer (CCO) who operates
independently of Corporate Treasury. Any breach of these limits is reported to the CFO immediately.
The CCO also monitors the credit rating of these counterparties and, when changes in ratings occur,
notifies Corporate Treasury so that changes can be made to investment levels or authority limits as
appropriate. A full counterparty analysis is presented to the TMG annually for approval.
Financial assets and liabilities
An analysis of net debt is given in Note 32 to the financial statements, ‘Net debt’. An analysis of
financial assets and liabilities at carrying value and fair value is given in Note 41 to the
financial statements, ‘Financial instruments and related disclosures’.
We continue to benefit from strong positive cash flow from operating activities. Our net debt
has decreased in the year to 31st December 2010, reflecting the benefits of our ongoing
restructuring programme and the success of our working capital initiatives.
The financial assets and liabilities at 31st December 2010 are representative of our treasury
policies and strategies approved by the Board of Directors, most recently on 7th October 2010. In
2010, GSK did not raise any debt in the Capital Markets or make any share repurchases.
GSK Annual Report 2010
Table of Contents
47
Financial review 2009
In accordance with US SEC disclosure requirements, the following discussion compares results for
the year to 31st December 2009 with the results for the year to 31st December 2008.
Financial information and the discussion that follows is presented on the basis that GSK was
organised and managed in 2009.
Exchange
The currencies that most influence the Group’s results remain the US dollar, the Euro and the
Japanese Yen.
During 2009, average Sterling exchange rates were weaker against the US Dollar, the Euro and the
Yen compared with 2008. 2009 year-end Sterling exchange rates were stronger against all three
currencies compared with those at 31st December 2008.
Pharmaceutical turnover
All growth rates included in the review of turnover are at constant exchange rates (CER) unless
otherwise stated. Sterling growth rates may be found in the tables of pharmaceutical turnover by
therapeutic areas on page 48 and by geographic region on page 49.
Pharmaceutical turnover grew 2% to £23.7 billion. Pharmaceuticals growth was helped by sales of
pandemic products. On a regional basis, the USA declined 13% reflecting continued erosion of
several products due to generic competition. Strong performances were delivered in Europe, up 9%),
Emerging Markets, up 20% and Asia Pacific/Japan, up 16%. The sales contribution of Stiefel, which
was acquired on 22nd July 2009, totalled £248 million.
Pharmaceutical turnover by therapeutic area
GSK turnover grew by 2% in 2009 as the impact of US generic competition to a range of GSK’s
products, lower Avandia sales and a declining HIV business was more than offset by strong growth of
key products such as Seretide/Advair, Avodart, Lovaza, Relenza and the vaccines franchise including
the H1N1 pandemic vaccine.
Respiratory
Respiratory sales increased 5% to £7.0 billion.
Seretide/Advair grew 5% to £5.0 billion, with especially strong growth in Emerging Markets, up 21%
to £276 million and Japan, up 79% to £195 million. Ventolin sales grew 26% to £477 million, driven
by its performance in the USA where sales more than doubled to £153 million. Veramyst sales rose
72% to £142 million.
Anti-virals
Anti-virals increased 12% to £4.2 billion.
Relenza sales were £720 million in 2009 (2008 – £57 million) reflecting the successful capacity
expansion to meet government orders across the world and a strong retail performance in Japan of
£191 million. Sales of Valtrex declined 8% to £1.3 billion as a result of generic competition to
the product in the USA which began in November 2009.
Sales of HIV medicines totalled £1.6 billion, down 7% for the year. Epzicom sales grew 8% to £546
million but this was more than offset by declines across the rest of the portfolio. ViiV
Healthcare, the specialist HIV company established by GSK and Pfizer, was officially launched on
3rd November 2009.
CNS
CNS sales decreased 44% to £1.9 billion.
The majority of GSK’s CNS franchise is impacted by generic competition in the USA. The Wellbutrin
decline of 67% primarily reflected the sale of Wellbutrin XL in the USA to Biovail in the second
quarter of 2009.
Cardiovascular and urogenital
Cardiovascular and urogenital sales increased 8% to £2.3 billion.
Continued strong growth of key products such as Arixtra, up 29% to £254 million, Avodart, up 16% to
£530 million, and Lovaza, up 31% to £450 million, were partly offset by generic competition to
Coreg.
Metabolic
Metabolic sales decreased 14% to £1.2 billion.
Sales of Avandia, down 16% to £771 million, continued to decline across all regions.
Bonviva/Boniva sales declined in the USA by 16% but grew in Europe and the Rest of the World.
Oncology and emesis
Oncology and emesis sales increased 10% to £0.6 billion.
Tyverb/Tykerb, up 45% to £169 million, grew strongly in Europe and the Rest of World following
product approvals gained during 2008. Zofran declined 11% as a result of generic competition.
Vaccines
Vaccine sales increased 30% to £3.7 billion.
Pandemic vaccine sales of £883 million were recorded during the year, most of which were
delivered in the fourth quarter, as GSK partnered with governments to respond to the H1N1
pandemic.
Sales of
GSK’s new Synflorix vaccine totalled £73 million, reflecting launches in several markets
and the beginning of shipments to the Brazilian Government as part of the 10-year, $1.5 billion
agreement signed in August 2009. Other strong contributors to growth for the year included
Boostrix, up 73% to £139 million, Cervarix, up 38% to £187 million and Rotarix, up 50% to £282
million. Partially offsetting these performances, sales of
Infanrix/Pediarix fell 15% to £649
million, primarily as a result of the continued impact of increased competition in the DTPa sector
in the USA. Hepatitis vaccines sales also fell 11% to £665 million in part due to a competitor
product returning to the US market.
GSK Annual Report 2010
Table of Contents
48
Financial review 2009
Pharmaceutical turnover by therapeutic area 2009
| Total | USA | Europe | Rest of World | |||||||||||||||||||||||||||||||||||||||||||||||||
| Therapeutic area/ | 2009 | 2008 | Growth | 2009 | Growth | 2009 | Growth | 2009 | Growth | |||||||||||||||||||||||||||||||||||||||||||
| major products | £m | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||||
Respiratory |
6,977 | 5,817 | 5 | 20 | 3,323 | 3 | 22 | 2,201 | 3 | 11 | 1,453 | 14 | 30 | |||||||||||||||||||||||||||||||||||||||
Avamys/Veramyst |
142 | 72 | 72 | 97 | 68 | 2 | 21 | 45 | >100 | >100 | 29 | >100 | >100 | |||||||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
171 | 186 | (20 | ) | (8 | ) | 27 | (56 | ) | (48 | ) | 43 | (21 | ) | (17 | ) | 101 | 2 | 23 | |||||||||||||||||||||||||||||||||
Flixotide/Flovent |
775 | 677 | – | 14 | 396 | 5 | 25 | 178 | (4 | ) | 2 | 201 | (6 | ) | 9 | |||||||||||||||||||||||||||||||||||||
Seretide/Advair |
4,977 | 4,137 | 5 | 20 | 2,592 | 1 | 20 | 1,609 | 5 | 14 | 776 | 23 | 39 | |||||||||||||||||||||||||||||||||||||||
Serevent |
236 | 263 | (19 | ) | (10 | ) | 73 | (14 | ) | 1 | 116 | (18 | ) | (15 | ) | 47 | (31 | ) | (15 | ) | ||||||||||||||||||||||||||||||||
Ventolin |
477 | 339 | 26 | 41 | 153 | >100 | >100 | 150 | 1 | 9 | 174 | 2 | 12 | |||||||||||||||||||||||||||||||||||||||
Zyrtec |
75 | 38 | 58 | 97 | – | – | – | – | – | – | 75 | 58 | 97 | |||||||||||||||||||||||||||||||||||||||
Anti-virals |
4,150 | 3,206 | 12 | 29 | 1,897 | – | 19 | 1,074 | 16 | 26 | 1,179 | 32 | 56 | |||||||||||||||||||||||||||||||||||||||
HIV |
1,605 | 1,513 | (7 | ) | 6 | 716 | (6 | ) | 12 | 635 | (10 | ) | – | 254 | (3 | ) | 7 | |||||||||||||||||||||||||||||||||||
Agenerase, Lexiva |
178 | 160 | (4 | ) | 11 | 99 | 1 | 19 | 62 | (8 | ) | 2 | 17 | (13 | ) | 6 | ||||||||||||||||||||||||||||||||||||
Combivir |
425 | 433 | (13 | ) | (2 | ) | 187 | (12 | ) | 4 | 151 | (17 | ) | (9 | ) | 87 | (7 | ) | – | |||||||||||||||||||||||||||||||||
Epivir |
129 | 139 | (19 | ) | (7 | ) | 48 | (13 | ) | 2 | 49 | (24 | ) | (16 | ) | 32 | (18 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
Epzicom/Kivexa |
546 | 442 | 8 | 24 | 223 | 6 | 25 | 244 | 6 | 17 | 79 | 25 | 44 | |||||||||||||||||||||||||||||||||||||||
Trizivir |
201 | 212 | (17 | ) | (5 | ) | 104 | (17 | ) | (2 | ) | 82 | (21 | ) | (11 | ) | 15 | – | 7 | |||||||||||||||||||||||||||||||||
Ziagen |
105 | 106 | (13 | ) | (1 | ) | 51 | (4 | ) | 13 | 35 | (14 | ) | (3 | ) | 19 | (28 | ) | (24 | ) | ||||||||||||||||||||||||||||||||
Valtrex |
1,294 | 1,195 | (8 | ) | 8 | 942 | (9 | ) | 8 | 160 | – | 11 | 192 | (13 | ) | 6 | ||||||||||||||||||||||||||||||||||||
Relenza |
720 | 57 | >100 | >100 | 137 | >100 | >100 | 212 | >100 | >100 | 371 | >100 | >100 | |||||||||||||||||||||||||||||||||||||||
Zeffix |
217 | 188 | (1 | ) | 15 | 17 | (7 | ) | 13 | 29 | (4 | ) | 7 | 171 | – | 17 | ||||||||||||||||||||||||||||||||||||
Central nervous system |
1,870 | 2,897 | (44 | ) | (35 | ) | 651 | (69 | ) | (64 | ) | 574 | (7 | ) | 2 | 645 | 4 | 25 | ||||||||||||||||||||||||||||||||||
Imigran/lmitrex |
266 | 687 | (65 | ) | (61 | ) | 123 | (79 | ) | (78 | ) | 96 | (8 | ) | – | 47 | (2 | ) | 15 | |||||||||||||||||||||||||||||||||
Lamictal |
500 | 926 | (53 | ) | (46 | ) | 267 | (68 | ) | (62 | ) | 154 | (4 | ) | 5 | 79 | 6 | 16 | ||||||||||||||||||||||||||||||||||
Requip |
209 | 266 | (30 | ) | (21 | ) | 26 | (78 | ) | (75 | ) | 138 | (5 | ) | 4 | 45 | 16 | 45 | ||||||||||||||||||||||||||||||||||
Requip XL |
123 | 43 | >100 | >100 | 32 | >100 | >100 | 89 | >100 | >100 | 2 | – | – | |||||||||||||||||||||||||||||||||||||||
Seroxat/Paxil |
523 | 514 | (15 | ) | 2 | 42 | (51 | ) | (47 | ) | 99 | (21 | ) | (14 | ) | 382 | (5 | ) | 19 | |||||||||||||||||||||||||||||||||
Treximet |
55 | 25 | 88 | >100 | 55 | 84 | >100 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
Wellbutrin, Wellbutrin XL |
132 | 342 | (67 | ) | (61 | ) | 88 | (76 | ) | (72 | ) | 30 | 50 | 67 | 14 | (7 | ) | – | ||||||||||||||||||||||||||||||||||
Cardiovascular and urogenital |
2,298 | 1,847 | 8 | 24 | 1,415 | 8 | 28 | 583 | 3 | 14 | 300 | 18 | 32 | |||||||||||||||||||||||||||||||||||||||
Arixtra |
254 | 170 | 29 | 49 | 141 | 35 | 60 | 95 | 18 | 34 | 18 | 55 | 64 | |||||||||||||||||||||||||||||||||||||||
Avodart |
530 | 399 | 16 | 33 | 319 | 11 | 32 | 148 | 13 | 25 | 63 | 51 | 62 | |||||||||||||||||||||||||||||||||||||||
Coreg |
172 | 203 | (29 | ) | (15 | ) | 171 | (28 | ) | (15 | ) | – | – | – | 1 | (67 | ) | (67 | ) | |||||||||||||||||||||||||||||||||
Fraxiparine |
229 | 226 | (7 | ) | 1 | – | – | – | 173 | (10 | ) | (3 | ) | 56 | 6 | 17 | ||||||||||||||||||||||||||||||||||||
Levitra |
75 | 60 | 7 | 25 | 70 | 4 | 23 | 4 | 33 | 33 | 1 | – | – | |||||||||||||||||||||||||||||||||||||||
Lovaza |
450 | 290 | 31 | 55 | 448 | 31 | 55 | – | – | – | 2 | 100 | 100 | |||||||||||||||||||||||||||||||||||||||
Vesicare |
104 | 71 | 24 | 46 | 104 | 24 | 46 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
Volibris |
19 | 2 | >100 | >100 | – | – | – | 18 | >100 | >100 | 1 | – | – | |||||||||||||||||||||||||||||||||||||||
Metabolic |
1,181 | 1,191 | (14 | ) | (1 | ) | 581 | (17 | ) | (2 | ) | 275 | (15 | ) | (6 | ) | 325 | (8 | ) | 6 | ||||||||||||||||||||||||||||||||
Avandia products |
771 | 805 | (16 | ) | (4 | ) | 425 | (17 | ) | (2 | ) | 171 | (21 | ) | (14 | ) | 175 | (9 | ) | 1 | ||||||||||||||||||||||||||||||||
Avandia |
462 | 512 | (21 | ) | (10 | ) | 276 | (22 | ) | (8 | ) | 67 | (24 | ) | (18 | ) | 119 | (18 | ) | (9 | ) | |||||||||||||||||||||||||||||||
Avandamet |
268 | 256 | (8 | ) | 5 | 122 | (6 | ) | 12 | 99 | (19 | ) | (11 | ) | 47 | 19 | 31 | |||||||||||||||||||||||||||||||||||
Bonviva/Boniva |
255 | 237 | (7 | ) | 8 | 155 | (16 | ) | (1 | ) | 89 | 7 | 20 | 11 | 57 | 57 | ||||||||||||||||||||||||||||||||||||
Anti-bacterials |
1,592 | 1,429 | 2 | 11 | 173 | (16 | ) | (1 | ) | 662 | (4 | ) | 4 | 757 | 13 | 22 | ||||||||||||||||||||||||||||||||||||
Augmentin |
667 | 587 | 4 | 14 | 45 | (22 | ) | (8 | ) | 295 | – | 8 | 327 | 14 | 23 | |||||||||||||||||||||||||||||||||||||
Oncology and emesis |
629 | 496 | 10 | 27 | 308 | 7 | 27 | 204 | 10 | 21 | 117 | 23 | 39 | |||||||||||||||||||||||||||||||||||||||
Hycamtin |
172 | 140 | 7 | 23 | 100 | 4 | 23 | 59 | 10 | 20 | 13 | 20 | 30 | |||||||||||||||||||||||||||||||||||||||
Promacta |
13 | – | – | – | 13 | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
169 | 102 | 45 | 66 | 54 | (4 | ) | 15 | 75 | 62 | 79 | 40 | >100 | >100 | ||||||||||||||||||||||||||||||||||||||
Zofran |
109 | 110 | (11 | ) | (1 | ) | 9 | >100 | >100 | 52 | (24 | ) | (17 | ) | 48 | (5 | ) | 9 | ||||||||||||||||||||||||||||||||||
Vaccines |
3,706 | 2,539 | 30 | 46 | 815 | 9 | 30 | 1,744 | 37 | 51 | 1,147 | 37 | 52 | |||||||||||||||||||||||||||||||||||||||
Boostrix |
139 | 70 | 73 | 99 | 73 | 77 | >100 | 40 | 38 | 54 | 26 | >100 | >100 | |||||||||||||||||||||||||||||||||||||||
Cervarix |
187 | 125 | 38 | 50 | 4 | – | – | 138 | 23 | 33 | 45 | 100 | >100 | |||||||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
211 | 215 | (13 | ) | (2 | ) | 73 | (27 | ) | (14 | ) | 71 | (18 | ) | (9 | ) | 67 | 17 | 29 | |||||||||||||||||||||||||||||||||
Flu pandemic |
883 | 66 | >100 | >100 | 187 | >100 | >100 | 525 | >100 | >100 | 171 | >100 | >100 | |||||||||||||||||||||||||||||||||||||||
Hepatitis (Engerix/ |
665 | 665 | (11 | ) | – | 257 | (21 | ) | (7 | ) | 262 | (8 | ) | – | 146 | 2 | 15 | |||||||||||||||||||||||||||||||||||
Fendrix, Havrix, Twinrix) |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
649 | 682 | (15 | ) | (5 | ) | 134 | (47 | ) | (37 | ) | 406 | (3 | ) | 8 | 109 | 5 | 17 | ||||||||||||||||||||||||||||||||||
Rotarix |
282 | 167 | 50 | 69 | 76 | >100 | >100 | 53 | 14 | 23 | 153 | 33 | 49 | |||||||||||||||||||||||||||||||||||||||
Synflorix |
73 | – | – | – | – | – | – | 32 | – | – | 41 | – | – | |||||||||||||||||||||||||||||||||||||||
Other |
1,063 | 959 | 1 | 11 | 17 | – | 6 | 364 | 7 | 13 | 662 | (2 | ) | 10 | ||||||||||||||||||||||||||||||||||||||
| 23,446 | 20,381 | 1 | 15 | 9,180 | (13 | ) | 3 | 7,681 | 9 | 18 | 6,585 | 16 | 32 | |||||||||||||||||||||||||||||||||||||||
Stiefel products |
248 | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||
| 23,714 | 2 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||||||
CER% represents growth at constant exchange rates. £% represents growth at actual exchange
rates.
GSK Annual Report 2010
Table of Contents
49
Financial review 2009
Regional analysis
The turnover reported in the table below represents sales invoiced by GSK’s local entity to its
customers in the local market plus
co-promotion income within each market.
co-promotion income within each market.
| 2009 | 2008 | Growth* | ||||||||||||||
| £m | £m | CER% | £% | |||||||||||||
USA |
9,180 | 8,894 | (13 | ) | 3 | |||||||||||
Europe |
7,681 | 6,483 | 9 | 18 | ||||||||||||
Emerging Markets |
2,973 | 2,290 | 20 | 30 | ||||||||||||
Asia Pacific/Japan |
2,700 | 1,918 | 16 | 41 | ||||||||||||
Other
trading‡ |
1,180 | 796 | 29 | 46 | ||||||||||||
| 23,714 | 20,381 | 2 | 16 | |||||||||||||
| * | CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. | |
| ‡ | Including Stiefel |
USA
Sales in the USA declined 13% to £9.2 billion, principally reflecting continued decline of Avandia
(down 22%), competition to Infanrix/Pediarix (down 47%), a return to market of a competitor to the
Hepatitis franchise (down 21%) and generic competition to significant products such as Lamictal
(down 68%), Imigran (down 79%), Valtrex (down 9%), Requip (down 78%) and Coreg (down 28%). In
addition, Wellbutrin XL (down 82%), was sold to Biovail in Q2 2009. These declines were partly
offset by significant sales of Relenza and pandemic vaccines, a doubling of Ventolin sales, good
growth of Lovaza (up 31%) and contributions from recently launched products such as Boostrix and
Rotarix.
Europe
Sales in Europe increased 9% to £7.7 billion with continued growth of Seretide and Relenza and
particularly strong vaccines growth, driven by pandemic vaccine, offsetting the impact of generic
competition to a number of products and continued price cuts from governments across the region.
Emerging Markets
Sales in Emerging Markets increased 20% to £3.0 billion with strong growth across the region and
all therapeutic areas, helped by the acquisitions of the UCB and BMS businesses in different
countries of the region.
Asia Pacific/Japan
Sales in Asia Pacific/Japan grew 16% to £2.7 billion reflecting continued Seretide/Advair growth,
strong Relenza sales, particularly to the retail market in Japan, and strong vaccines growth.
Consumer Healthcare turnover
| % of | 2009 | 2008 | Growth* | |||||||||||||||||
| total | £m | £m | CER% | £% | ||||||||||||||||
Over-the-counter
medicines |
50 | 2,319 | 1,935 | 8 | 21 | |||||||||||||||
alli |
203 | 75 | >100 | >100 | ||||||||||||||||
Breathe Right |
92 | 81 | (1 | ) | 14 | |||||||||||||||
Cold sore franchise |
96 | 89 | (3 | ) | 8 | |||||||||||||||
Nicotine replacement therapy |
339 | 299 | (1 | ) | 13 | |||||||||||||||
Panadol franchise |
393 | 324 | 10 | 21 | ||||||||||||||||
Tums |
106 | 91 | (1 | ) | 16 | |||||||||||||||
Oral healthcare |
32 | 1,484 | 1,240 | 7 | 20 | |||||||||||||||
Aquafresh franchise |
496 | 452 | (1 | ) | 10 | |||||||||||||||
Biotene |
26 | 1 | >100 | >100 | ||||||||||||||||
Denture care |
336 | 271 | 8 | 24 | ||||||||||||||||
Sensodyne franchise |
457 | 363 | 13 | 26 | ||||||||||||||||
Nutritional healthcare |
18 | 851 | 796 | 3 | 7 | |||||||||||||||
Lucozade |
376 | 382 | (3 | ) | (2 | ) | ||||||||||||||
Horlicks |
255 | 204 | 17 | 25 | ||||||||||||||||
Ribena |
160 | 161 | (4 | ) | (1 | ) | ||||||||||||||
| 100 | 4,654 | 3,971 | 7 | 18 | ||||||||||||||||
| * | CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. |
Total Consumer Healthcare sales for the year rose 7% to £4.7 billion, with growth in all
regions and categories.
OTC medicines
OTC product sales grew 8% to £2.3 billion in 2009, driven by sales of Panadol (up 10% to £393
million) and alli, which more than doubled to £203 million, as a result of launches throughout
Europe which began in April 2009. Sales of nicotine replacement therapy products declined by 1%.
Oral healthcare
Sales of Oral healthcare products rose 7% to £1.5 billion. Sensodyne performed strongly with sales
up 13% to £457 million. Denture care sales grew 8% to £336 million. Sales of Aquafresh declined 1%, as a reduction in the US ‘white trays’ market offset growth of 5% in the US Aquafresh toothpaste
brands, which were helped by the launch of the new iso-active product.
Nutritional healthcare
Nutritional healthcare sales grew 3% to £0.9 billion, driven by the very strong performance of
Horlicks (up 17% to £255 million) partly offset by a decline in Lucozade sales (down 3% to £376
million) which was impacted by lower sales in the ‘impulse’ market of the UK market.
GSK Annual Report 2010
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50
Financial review 2009
Results before major restructuring and total results
In October 2007, GSK announced a significant new Operational Excellence restructuring programme. A
second formal plan, representing a significant expansion of the Operational Excellence programme,
was approved by the Board and announced in February 2009.
In addition to the costs of the Operational Excellence programme, the major restructuring column in
the income statement includes restructuring costs incurred solely as a direct result of any
restructuring programmes that follow, and relate to, material acquisitions where the operations of
the acquired business overlap extensively with GSK’s existing operations.
The
acquisition of Stiefel Laboratories, Inc. in July 2009 was the only acquisition that meets the
criteria set out above. This is the only acquisition in 2009 where the costs incurred as a
direct result of a related restructuring programme has been included in the major restructuring
column. The restructuring costs expected to be incurred as a direct result of this acquisition are
estimated to be approximately £205 million, of which £71 million was charged in 2009. The
restructuring costs incurred as a direct result of the acquisition of Reliant Pharmaceuticals Inc.,
the only other acquisition since October 2007 that meets the criteria set out above, were all
charged and paid in 2008.
Only the restructuring costs incurred solely as a direct result of the Operational Excellence
programme and the restructuring programmes following the Reliant and Stiefel acquisitions have been
reported in the major restructuring column in the income statement. As set out in Note 7 to the
financial statements, ‘Major restructuring programme’, asset impairments and staff redundancies
together accounted for £574 million of the £835 million restructuring costs incurred in 2009. The
remaining costs of £261 million in 2009 arose from miscellaneous expenditures incurred solely as a
direct result of the restructuring programmes. No costs arising from GSK’s ongoing operating
activities have been reported in the major restructuring column.
For the
latest position on Results before major restructuring and total
results see Results before major
restructuring and total results in the 2010 Financial review on page 36.
GSK’s operating profit, profit before taxation, taxation and profit for the year are discussed
below in terms of both total results, which include major restructuring costs, and results before
major restructuring.
Operating profit – total results
Total results include restructuring costs related to the Operational Excellence programme and the
acquisitions of Reliant and Stiefel.
| 2009 | 2008 | Growth | ||||||||||||||||||||||
| £m | % | £m | % | CER% | £% | |||||||||||||||||||
Turnover |
28,368 | 100 | 24,352 | 100 | 3 | 16 | ||||||||||||||||||
Cost of sales |
(7,380 | ) | (26.0 | ) | (6,415 | ) | (26.3 | ) | 6 | 15 | ||||||||||||||
Selling, general and administration |
(9,592 | ) | (33.8 | ) | (7,656 | ) | (31.4 | ) | 6 | 25 | ||||||||||||||
Research and development |
(4,106 | ) | (14.4 | ) | (3,681 | ) | (15.2 | ) | 1 | 12 | ||||||||||||||
Other operating income |
1,135 | 3.9 | 541 | 2.2 | ||||||||||||||||||||
Operating profit |
8,425 | 29.7 | 7,141 | 29.3 | 4 | 18 | ||||||||||||||||||
Cost of sales
Cost of sales as a percentage of turnover reduced marginally to 26.0% of turnover (2008 – 26.3%),
principally reflecting the impact of generic competition to higher margin products in the USA and
changes to the product mix, offset by benefits from the restructuring programme and lower
restructuring costs of £285 million
(2008 – £639 million).
(2008 – £639 million).
Selling, general and administration
SG&A costs as a percentage of turnover increased by 2.4 percentage points to 33.8%. This included
full year legal charges of £591 million (2008 – £611 million) and charges related to the major
restructuring programme of £392 million (2008 – £304 million). Excluding legal and restructuring
costs, SG&A costs were 30.3% of turnover (2008 – 27.7%). This reflected investment in growth
markets, the acquisition of Stiefel, increased pension costs, the donation of H1N1 product to WHO
and exchange losses on inter-company transactions (compared with exchange gains last year),
partially offset by the benefits of the current restructuring programme.
Research and development
R&D expenditure was 14.4% (2008 – 15.2%) of total turnover, which included £167 million of
intangible asset write-offs (2008 – £85 million) partially offset by lower charges relating to the
major restructuring programme of £155 million (2008 – £175 million) and a provision release due to
reassessment of a receivable balance. Increased investment in vaccines R&D and late stage
pharmaceutical R&D were broadly offset by savings from the restructuring programme.
Other operating income
Other operating income was £1,135 million including gains from asset disposals of £579 million
(2008 – £293 million) primarily reflecting the disposal of Wellbutrin XL and various assets to
Aspen Pharmacare, royalty income of £296 million (2008 – £307 million), a royalty dispute
settlement gain of £78 million, and a one-time accounting gain of £296 million on the creation of
ViiV Healthcare, partially offset by equity investment impairments of £135 million.
Operating profit–total results
Total operating profit for the year was £8,425 million, an increase of 4% CER and 18% in Sterling
terms, compared with 2008. The operating profit margin
increased 0.4 percentage points reflecting higher other operating income and broadly flat R&D
expenditure, partially offset by increases in cost of sales and SG&A.
GSK Annual Report 2010
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51
Financial review 2009
Profit before taxation – total results
Net finance costs
| Finance income | 2009 | 2008 | ||||||
| £m | £m | |||||||
Interest and other finance income |
67 | 321 | ||||||
Unwinding of discounts on assets |
2 | 1 | ||||||
Fair value adjustments and hedges |
1 | (9 | ) | |||||
| 70 | 313 | |||||||
Finance costs |
||||||||
Interest costs |
(770 | ) | (829 | ) | ||||
Unwinding of discounts on liabilities |
(11 | ) | (16 | ) | ||||
Fair value adjustments and hedges |
(2 | ) | 2 | |||||
| (783 | ) | (843 | ) | |||||
Profit on disposal of interest in associate
Profit on disposal of interest in associate was £115 million as 5.7 million shares from the Group’s
holding in Quest Diagnostics Inc. were sold in the first quarter of 2009.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £64 million (2008 – £48 million) arises principally
from the Group’s holding in Quest.
Profit before taxation – total results
Taking account of net finance costs, the profit on disposal of interest in associates and the share
of profits of associates, total profit before taxation was £7,891 million compared with £6,659
million in 2008, a 4% CER increase and a 19% sterling increase.
Operating profit – results before major restructuring
The results before major restructuring are set out below:
| 2009 | 2008 | Growth | ||||||||||||||||||||||
| £m | % | £m | % | CER% | £% | |||||||||||||||||||
Turnover |
28,368 | 100 | 24,352 | 100 | 3 | 16 | ||||||||||||||||||
Cost of sales |
(7,095 | ) | (25.0 | ) | (5,776 | ) | (23.7 | ) | 13 | 23 | ||||||||||||||
Selling, general and administration |
(9,200 | ) | (32.4 | ) | (7,352 | ) | (30.2 | ) | 6 | 25 | ||||||||||||||
Research and development |
(3,951 | ) | (13.9 | ) | (3,506 | ) | (14.4 | ) | 2 | 13 | ||||||||||||||
Other operating income |
1,135 | 3.9 | 541 | 2.2 | ||||||||||||||||||||
Operating profit |
9,257 | 32.6 | 8,259 | 33.9 | (1 | ) | 12 | |||||||||||||||||
Cost of sales
Cost of sales increased to 25.0% of turnover (2008 – 23.7%), principally reflecting the impact of
generic competition to higher margin products in the USA and changes to the product mix, partly
offset by benefits from the restructuring programme.
Selling, general and administration
SG&A costs as a percentage of turnover increased by 2.2 percentage points to 32.4%, including full
year legal charges of £591 million. The increase reflected investment in growth markets, the
acquisition of Stiefel, increased pension costs, the donation of H1N1 product to WHO and exchange
losses on inter-company transactions (compared with exchange gains last year), partially offset by
the benefits of the current restructuring programme.
Research and development
R&D expenditure was 13.9% (2008 – 14.4%) of total turnover, which included £167 million of
intangible asset write-offs (2008 – £85 million) partially offset by a provision release due to
reassessment of a receivable balance. Increased investment in vaccines R&D and late-stage
pharmaceutical R&D were broadly offset by savings from the restructuring programme.
Other operating income
Other operating income was £1,135 million including gains from asset disposals of £579 million
(2008 – £293 million) primarily reflecting the disposal of Wellbutrin XL and various assets to
Aspen Pharmacare, royalty income of £296 million (2008 – £307 million), a royalty dispute
settlement gain of £78 million, and a one-time accounting gain of £296 million on the creation of
ViiV Healthcare, partially offset by equity investment impairments of £135 million. In 2009 other
operating income and profit on disposal of associates amounted to £1,250 million.
Operating profit – results before major restructuring
Operating profit before major restructuring for the year was £9,257 million, a 1% CER decline, but
up 12% in Sterling terms, compared with 2008. The operating profit margin was 32.6% compared with a
2008 margin of 33.9%. The decline in margin was primarily due to generic competition in the USA
which impacted cost of goods and increased investment to support the Group’s diversification
strategy which impacted SG&A, partly offset by a higher level of other operating income.
Further information on operating profit before major restructuring is provided in Note 6, ‘Segment
information’.
GSK Annual Report 2010
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52
Financial review 2009
Profit before taxation – results before major restructuring
Net finance costs
| Finance income | 2009 | 2008 | ||||||
| £m | £m | |||||||
Interest and other income |
67 | 321 | ||||||
Unwinding of discounts on assets |
2 | 1 | ||||||
Fair value adjustments and hedges |
1 | (9 | ) | |||||
| 70 | 313 | |||||||
Finance costs |
||||||||
Interest costs |
(770 | ) | (829 | ) | ||||
Unwinding of discounts on liabilities |
(8 | ) | (11 | ) | ||||
Fair value adjustments and hedges |
(2 | ) | 2 | |||||
| (780 | ) | (838 | ) | |||||
Profit on disposal of interest in associate
Profit on disposal of interests in associates was £115 million as 5.7 million Quest shares were
sold in the first quarter of 2009.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £64 million (2008 – £48 million) arises principally
from the Group’s holding in Quest Diagnostics Inc.
Profit before taxation – results before major restructuring
Taking account of net finance costs, the profit on disposal of interests in associates and the
share of profits of associates, profit before tax before major restructuring was £8,726 million
compared with £7,782 million in 2008, a 1% CER decline but 12% increase in sterling terms.
Taxation
| 2009 | 2008 | |||||||
| £m | £m | |||||||
UK corporation tax |
417 | 289 | ||||||
Overseas taxation |
1,997 | 1,589 | ||||||
Current taxation |
2,414 | 1,878 | ||||||
Deferred taxation |
(192 | ) | 69 | |||||
Taxation on total profits |
2,222 | 1,947 | ||||||
The charge for taxation on total profits amounted to £2,222 million and represented an effective
tax rate of 28.2% (2008 – 29.2%). The charge for taxation on profit before major restructuring
charges amounting to £2,443 million represents an effective tax rate of 28.0% (2008 – 28.7%). The
Group’s balance sheet at 31st December 2009 included a tax payable liability of £1,451 million and
a tax recoverable asset of £58 million.
On 19th November 2009 the IRS conceded all asserted tax deficiencies and penalties arising from its
reclassification of an inter-company financing arrangement from debt to equity resulting in no
additional tax cost to GSK.
For the latest position on Taxation see ‘Taxation’ in the Financial review on page 39.
Profit for the year
| 2009 | 2008 | Growth | ||||||||||||||
| £m | £m | CER% | £% | |||||||||||||
Total profit after taxation for the year |
5,669 | 4,712 | 6 | 20 | ||||||||||||
Total profit attributable to shareholders |
5,531 | 4,602 | 6 | 20 | ||||||||||||
Basic earnings per share (pence) |
109.1 | p | 88.6 | p | ||||||||||||
Basic earnings per ADS (US$) |
$3.40 | $3.28 | ||||||||||||||
Results before major restructuring profit after taxation for the year |
6,283 | 5,551 | – | 13 | ||||||||||||
Results before major restructuring profit attributable to shareholders |
6,145 | 5,441 | – | 13 | ||||||||||||
Adjusted earnings per share (pence) |
121.2 | p | 104.7 | p | 2 | 16 | ||||||||||
Adjusted earnings per ADS (US$) |
$3.78 | $3.87 | ||||||||||||||
Weighted average number of shares (millions) |
5,069 | 5,195 | ||||||||||||||
Diluted total earnings per share (pence) |
108.2 | p | 88.1 | p | ||||||||||||
Diluted total earnings per ADS (US$) |
$3.38 | $3.26 | ||||||||||||||
Diluted weighted average number of shares (millions) |
5,108 | 5,226 | ||||||||||||||
Total results including restructuring costs produced a basic EPS of 109.1p compared with 88.6p in
2008. This was an 8% growth in CER terms and a 23% growth in sterling terms. Excluding major
restructuring costs, EPS was 121.2p compared with 104.7p.
Dividend
The Board declared a fourth interim dividend of 18 pence per share resulting in a dividend for the
year of 61 pence; a four pence increase over the 57 pence per share for 2008.
GSK Annual Report 2010
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53
Risk factors
There are risks and uncertainties relevant to the Group’s business, financial condition and
results of operations that may affect the Group’s performance and ability to achieve its
objectives. The factors below are among those that the Group believes could cause its actual
results to differ materially from expected and historical results. There are other risks and
uncertainties that may affect the Group’s performance and ability to achieve its objectives that
are not currently known to the Group, or which are deemed immaterial.
The Group reviews and assesses significant risks on a regular basis and has implemented an
oversight programme to help ensure that there is a system of internal control in place. This system
includes policies and procedures, communication and training programmes, supervision and monitoring
and processes for escalating issues to the appropriate level of senior management. Such a system
helps facilitate the Group’s ability to respond appropriately to risks and to achieve Group
objectives and helps ensure compliance with applicable laws, regulations and internal policies. The
Group’s management of risks is further discussed on pages 71 to 73 ‘Corporate Governance’.
It is not possible, however, for the Group to implement controls to respond to all the risks that
it may face, and there can be no assurance that the steps the Group has taken to address certain
risks will manage these risks effectively or at all. The six principal risks that might affect GSK’s
business are broken down in the following areas:
Risk that R&D will not deliver commercially successful new products
The Group operates in highly competitive markets. In the pharmaceuticals and vaccines businesses,
it faces competition from both proprietary products of large international manufacturers and from
producers of generic pharmaceuticals. Significant product innovations, technical advances or the
intensification of price competition by competitors may materially and adversely affect the Group’s
financial results. The Group cannot always predict the timing or impact of competitive products or
their potential impact on sales of the Group’s products. In light of the competitive environment in
which the Group operates, continued development of commercially viable new products as well as the
development of additional uses for existing products is critical to the Group’s ability to replace
sales of older products that decline upon expiration of exclusive rights, and to increase overall
sales.
Developing new products is a costly, lengthy and uncertain process. A new product candidate can
fail at any stage of the development process, and one or more late stage product candidates could
fail to receive regulatory approval.
New product candidates may appear promising in development but, after significant investment of
Group economic and human resources, may fail to reach the market or have only limited commercial
success. This, for example, could be as a result of efficacy or safety concerns, an inability to
obtain necessary regulatory approvals, difficulty manufacturing or excessive manufacturing costs,
erosion of patent terms as a result of a lengthy development period, infringement of patents or
other intellectual property rights of others or an inability to differentiate the product
adequately from those with which it competes. Furthermore, health authorities such as the US FDA,
the European Medicines Agency and the Japan Pharmaceuticals and Medicines Device Agency have
increased their focus on safety and product differentiation when assessing the benefit/risk balance
of drugs, which has made it more difficult for pharmaceutical products to gain regulatory approval.
There is also increasing pressure on healthcare budgets as the average age of the population in
developed markets increases and the absolute population in developing markets grows. Payers have
therefore increasingly demanded greater incremental benefit from drugs before agreeing to reimburse
suppliers at prices suppliers consider appropriate. A failure to develop commercially successful
products or develop additional uses for existing products for any of these reasons could materially
and adversely affect the Group’s financial results.
Intellectual property protection
Competition from generic manufacturers
The Group faces intense competition from manufacturers of generic pharmaceutical products in all of
its major markets. Generic products often enter the market upon expiration of patents or data
exclusivity periods for the Group’s products. Introduction of generic products, particularly in the
USA where the Group has its highest turnover and margins, typically leads to a dramatic loss of
sales and reduces the Group’s revenues and margins for its proprietary products. The Group had
eleven pharmaceutical products with over £500 million in annual global sales in 2010. Among these
products are Augmentin, Lamictal IR, Ventolin, and Valtrex for which there is generic competition
in the USA and certain markets in Europe. In addition, as detailed on page 7, the timing and impact
of entry for a follow-on product to Seretide/Advair that contains the same active ingredients is
uncertain.
Generic drug manufacturers have also exhibited a readiness to market generic versions of many of
the Group’s most important products prior to the expiration of the Group’s patents. Efforts may
involve challenges to the validity or enforceability of a patent or assertions that their generic
product does not infringe the Group’s patents. If the Group is not successful in defending an
attack on its patents and maintaining exclusive rights to market one or more of its major products,
particularly in the USA and Europe, the Group’s financial results would be adversely affected. The
expiration dates for patents for the Group’s major products and a description of litigation
settlements which may affect the dates on which generic versions of the Group’s products may be
introduced are set out on page 15. Legal proceedings involving patent challenges are set out in
Note 44 to the financial statements, ‘Legal proceedings’.
Potential changes in intellectual property laws and regulations
Proposals to change existing patent and data exclusivity laws and regulations in major markets in
which the Group sells its products are a continuing feature of the political process in those
countries. These include proposals that could have the effect of making prosecution of patents for
new products more difficult and time consuming or that could adversely affect the exclusivity
period for the Group’s products, including biological products. Should such proposals be enacted,
they may materially and adversely affect the Group’s financial results. For example, in 2010, as
part of the comprehensive healthcare reform in the USA, new
regulations for follow-on biologics
were introduced that allow a sufficiently similar biologic to be able to rely on an innovator’s
approval following a 12-year data exclusivity period. In addition, the current administration in
the USA has proposed reducing from 12 years to seven the period of time pharmaceutical companies
may keep their products exclusive of generic competition.
GSK Annual Report 2010
Table of Contents
54
Risk factors
Weakness of intellectual property protection in certain countries
In some of the countries in which the Group operates, patent protection may be significantly weaker
than in the USA or the European Union. Some developing countries have reduced, or threatened to
reduce, effective patent protection for pharmaceutical products generally, or in particular
therapeutic areas, to facilitate early competition within their markets from generic manufacturers.
Any loss of patent protection, including reducing the scope of patent rights or compulsory
licensing (in which a government forces a manufacturer to license its intellectual property to a
competitor), could materially and adversely affect the Group’s financial results in those markets.
Absence of adequate patent protection could limit the opportunity to rely on such markets for
future sales growth for the Group’s products.
Risk of substantial adverse outcome of litigation and government investigations
See Note 44 to the financial statements, ‘Legal proceedings’, for a discussion of proceedings and
governmental investigations currently involving the Group which, if proven, could give rise to
civil and/or criminal liabilities. Unfavourable resolution of these and similar future proceedings
or investigations may have a material adverse effect on the Group’s financial condition and results
of operations. The Group has made material provisions in 2010 and prior years related to such legal
proceedings and investigations, which reduced its earnings.
In the future, the Group may also make additional significant provisions related to legal
proceedings and investigations which would reduce its earnings. In many cases, the Group believes
that it is the practice of the plaintiff bar to claim damages in amounts that bear no reasonable
relationship to the underlying harm allegedly caused by the Group’s products or its actions.
Accordingly, it may be potentially misleading for the Group to quantify, based on the amount of
damages claimed, its potential exposure to claims, proceedings and investigations of the type
described in Note 44 to the financial statements, ‘Legal proceedings’.
Recent insurance loss experience, including pharmaceutical product liability exposures, has
increased the cost of, and reduced the capacity of insurers to provide coverage for pharmaceutical
companies generally, including the Group.
In order to contain insurance costs in recent years, the Group has continued to adjust its coverage
profile, accepting a greater degree of un-insured exposure in some areas, and a lesser degree in
others, in order to optimise the value of insurance markets. In addition, where claims are made
under insurance policies, insurers regularly reserve the right to deny coverage on various grounds.
Product liability litigation
Pre-clinical and clinical trials are conducted during the development of potential products
to determine the safety and efficacy of products for use by humans following approval by regulatory
authorities. Notwithstanding the efforts the Group makes to determine the safety of its products
through regulated clinical trials, unanticipated side effects may become evident only when drugs
and vaccines are introduced into the marketplace.
In other instances, third parties may perform analyses of published clinical trial results which,
although not necessarily accurate or meaningful, may raise questions regarding the safety of
pharmaceutical products which may be publicised by the media and may result in product liability
claims. The Group is currently a defendant in a number of product liability lawsuits, including
class actions, that involve substantial claims for damages related to the Group’s pharmaceutical
products. Litigation, particularly in the USA, is inherently
unpredictable. Class actions that sweep together all persons who
were prescribed the Group’s products can inflate the potential liability by the force of numbers.
Claims for pain and suffering and punitive damages are frequently asserted in product liability
actions and, if allowed, can represent potentially open ended exposure and thus could materially
and adversely affect the Group’s financial results.
Anti-trust litigation
In the USA, it has become increasingly common for patent infringement actions to prompt
claims that anti-trust laws have been violated during the initial prosecution of the patent or
during litigation involving the defence of that patent. Such claims by direct and indirect
purchasers and other payers are typically filed as class actions. The relief sought may include
treble damages and restitution claims. Damages in adverse anti-trust verdicts are subject to
automatic trebling in the USA. Similarly, anti-trust claims may be brought following settlement of
patent litigation, alleging that such settlements are anti-competitive and in violation of
anti-trust laws. A successful anti-trust claim against the Group could materially and adversely
affect the Group’s financial results.
Sales and marketing regulation
The Group operates globally in complex legal and regulatory environments that often vary among
jurisdictions. The failure to comply with applicable laws, rules and regulations in these
jurisdictions may result in civil and criminal legal proceedings. As those rules and regulations
change or as governmental interpretation of those rules and regulations evolve, prior conduct may
be called into question.
In the USA, for example, the Group is responding to federal and state governmental investigations
into pricing, marketing and reimbursement of its prescription drug products. These investigations
could result in related restitution or civil litigation on behalf of the federal or state
governments, as well as related proceedings initiated against the Group by or on behalf of
consumers and private payers. Such proceedings may result in trebling of damages awarded or fines
in respect of each violation of law. Criminal proceedings may also be initiated against the Group.
Any of these consequences could materially and adversely affect the Group’s financial results.
GSK Annual Report 2010
Table of Contents
55
Risk factors
Governmental, payer and regulatory controls
Pricing
Pharmaceutical products are subject to price controls or pressures and other restrictions in many
markets, including Japan, Germany, Spain, France and Italy. Some governments intervene directly in
setting prices.
In addition, in some markets major purchasers of pharmaceutical products (whether governmental
agencies or private health care providers) have the economic power to exert substantial pressure on
prices or the terms of access to formularies. The Group cannot accurately predict whether existing
controls, pressures or restrictions will increase or whether new controls, pressures or
restrictions will be introduced. Such measures may materially and adversely affect the Group’s
ability to introduce new products profitably and its financial results.
For example, in the USA, where the Group has its highest margins and the most sales for any
country, there are no government price controls over private sector purchases, but federal law
requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to be eligible for
reimbursement under several state and federal healthcare programmes, primarily Medicare and
Medicaid. Pricing pressures are likely to increase as the US government’s share of national health
spending continues to increase. Additionally, due to passage of comprehensive health care reform in
2010, the US government’s role in providing or subsidising health insurance is expected to
significantly expand in 2014, which indicates the growing role and leverage the government will
bring to bear on the Group’s rebate liability with respect to US federal programs.
In recent years, a number of states have also proposed or implemented various schemes to control
prices for their low-income and senior citizens’ programmes, including increasing the rebate
liability of pharmaceutical companies, importation from other countries and bulk purchases of
drugs. Given the new state mandates contained in the US health care reform law, which will increase
the number of Medicaid eligible participants, and the economic pressures on state government
budgets, pricing pressures on the Group’s products are likely to increase. Any of these trends may
materially and adversely affect the Group’s financial results.
Regulatory controls
The Group must comply with a broad range of regulatory controls on the testing, approval,
manufacturing and marketing of many of its pharmaceutical, vaccine and consumer healthcare
products, particularly in the USA and countries of the European Union, that affect not only the
cost of product development but also the time required to reach the market and the uncertainty of
successfully doing so. As detailed on page 18 health authorities have increased their focus on
safety when assessing the risk/benefit balance of drugs in the context of not only initial product
approval but also in the context of approval of additional indications and review of information
regarding marketed products. Stricter regulatory controls also heighten the risk of changes in
product profile or withdrawal by regulators on the basis of post-approval concerns over product
safety, which could reduce revenues and result in product recalls and product liability lawsuits.
There is also greater regulatory scrutiny, especially in the USA, on advertising and promotion and
in particular on direct-to-consumer advertising.
In addition, in some cases, the Group may voluntarily cease marketing a product or face declining
sales based on concerns about efficacy or safety (for example, the decline in sales of Avandia
beginning in 2007 following publicity around questions regarding risks associated with the
product), whether or not scientifically justified, even in the absence of regulatory action. The
development of the post-approval adverse event profile for a product or the product class may
materially and adversely affect the Group’s financial results.
Risk of interruption of product supply
The manufacture of pharmaceutical products and their constituent materials requires compliance with
good manufacturing practice regulations. The Group’s manufacturing sites are subject to review and
approval by the FDA and other regulatory agencies. Compliance failure by suppliers of key services
and materials or the Group’s own manufacturing facilities could lead to product recalls and
seizures, interruption of production and delays in the approvals of new products pending resolution
of manufacturing issues. Non-compliance can also result in fines and disgorgement of profits. Any
interruption of supply or the incurring of fines or disgorgement could materially and adversely
affect the Group’s financial results.
Although the Group undertakes business continuity planning, single sourcing for certain components,
bulk active materials and finished products creates a risk of failure of supply in the event of
regulatory non-compliance or physical disruption at the manufacturing sites.
Unaffiliated third-party suppliers provide a number of goods and services to the Group’s
operations. Many of these services, for example, services provided by clinical research
organisations to support development of key products, are very important to the operations of the
Group’s businesses. Materials provided by third-party suppliers are necessary for the commercial
production of our products, including speciality chemicals, commodities and components necessary
for the manufacture and packaging of many of the Group’s Pharmaceutical and Consumer Healthcare
products. While the Group does not believe that any of these third-party relationships are
individually significant in the context of the overall Group, the failure of any third-party
supplier to fulfil its contractual obligations in a timely manner may result in delays or service
interruptions, which may materially and adversely affect the Group’s financial results.
Taxation and Treasury
The Group’s effective tax rate is driven by rates of tax in jurisdictions that are both higher and
lower than that applied in the UK. In addition, many jurisdictions such as the UK, Belgium and the
USA currently offer regimes that encourage innovation and new scientific endeavours by providing
tax incentives, for example R&D tax credits. Furthermore, given the scale and international nature
of the Group’s business, intra-group transfer pricing is an inherent tax risk as it is for other
international businesses. Changes in tax laws or in their application with respect to matters such
as transfer pricing, foreign dividends, controlled companies, R&D tax credits or a restriction in
tax relief allowed on the interest on intra-group debt, could increase the Group’s effective tax
rate and materially and adversely affect its financial results.
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Risk factors
The tax charge included in the financial statements is the Group’s best estimate of its tax
liability but, until such time as audits by tax authorities are concluded, there is a degree of
uncertainty regarding the final tax liability for the period. The Group’s policy is to submit tax
returns within the statutory time limits and engage tax authorities to ensure that the Group’s tax
affairs are as current as possible, and that any differences in the interpretation of tax
legislation and regulation are resolved as quickly as possible. In exceptional cases where matters
cannot be settled by agreement with tax authorities, GSK may have to resolve disputes through
formal appeals or other proceedings. For example, the Canadian Tax Authorities are currently
seeking leave to appeal a court decision in respect of transfer pricing as discussed in Note 14 to
the financial statements, ‘Taxation’.
The Group deals in high value transactions on a frequent basis which may result in an increased
risk of financial loss due to the mismanagement of cash or entering into high risk positions on
hedge transactions, any of which could materially and adversely affect the Group’s financial
results.
There are a
number of further risks which could affect the financial
condition or results of the Group, as follows:
Anti-bribery and corruption
The Group’s extensive and increasing international operations may give rise to possible claims of
bribery and corruption. Failure to comply with applicable legislation such as the US Foreign
Corrupt Practices Act and the recently enacted UK Bribery Act could expose the Group and senior
officers to civil and criminal sanction, including fines, prosecution, potential debarment from
public procurement and reputational damage, all of which could materially and adversely affect the
Group’s financial results. The compliance mechanisms and
monitoring programmes that the Group has in place may not adequately prevent or detect possible
violations under applicable anti-bribery and corruption legislation.
Risk from concentration of sales to wholesalers
In the USA, similar to other pharmaceutical companies, the Group sells its products through a small
number of wholesalers in addition to hospitals, pharmacies, physicians and other groups. Sales to
the three largest wholesalers amounted to approximately 85% of the Group’s US pharmaceutical sales
in 2010. At 31st December 2010, the Group had trade receivables due from these three wholesalers
totalling £890 million (31st December 2009 – £867 million). The Group is exposed to a concentration
of credit risk in respect of these wholesalers such that, if one or more are affected by financial
difficulty, it could materially and adversely affect the Group’s financial results.
Global political and economic conditions
As described on page 20, many of the world’s largest economies, including the major markets in
which the Group operates, and financial institutions have in the recent past faced extreme
financial difficulty, including a decline in asset prices, liquidity problems and limited
availability of credit. Although many of these economies have recovered in 2010, the economic
recovery and its pace proved uneven.
Continued economic weakness may have a material adverse effect on the Group’s sales, results of
operations, financial condition and ability to raise capital. Some of the Group’s businesses,
including Pharmaceuticals and Consumer Healthcare, may be particularly sensitive to declines in
consumer spending. In addition, further or renewed declines in asset prices may result in a lower
return on the Group’s financial investments and may cause the value of the Group’s investments in
its pension plans to decrease, requiring the Group to increase its funding of those pension plans.
The Group conducts a substantial portion of its operations outside the UK. The Group’s management
of foreign exchange rates is discussed in Business review, ‘Foreign exchange management’ (see page
46). Fluctuations in exchange rates between Sterling and other currencies, especially the US
dollar, the Euro and the Japanese Yen, could materially and adversely affect the Group’s financial
results.
The Group has no control over changes in inflation and interest rates, foreign currency exchange
rates and controls or other economic factors affecting its businesses or the possibility of
political unrest, legal and regulatory changes or nationalisation in jurisdictions in which the
Group operates.
The Group operates in a number of Middle Eastern and North African markets that subsequent to the year-end are experiencing political unrest. These events may lead to business disruption and liquidity problems that could adversely impact the Group’s results.
The Group operates in a number of Middle Eastern and North African markets that subsequent to the year-end are experiencing political unrest. These events may lead to business disruption and liquidity problems that could adversely impact the Group’s results.
Environmental liabilities
The environmental laws of various jurisdictions impose actual and potential obligations on the
Group to remediate contaminated sites. The Group has also been identified as a potentially
responsible party under the US Comprehensive Environmental Response Compensation and Liability Act
at a number of sites for remediation costs relating to the Group’s use or ownership of such sites.
Failure to manage properly the environmental risks could result in additional remedial costs that
may materially and adversely affect the Group’s financial results. See Note 44 to the financial
statements, ‘Legal proceedings’, for a discussion of environmental related proceedings in which the
Group is involved.
Accounting standards
New or revised accounting standards, rules and interpretations issued from time to time by the
International Accounting Standards Board could result in changes to the recognition of income and
expense that may materially and adversely affect the Group’s financial results.
International Financial Reporting Standards changes in the market valuation of certain financial
instruments require gains and losses under such instruments to be reflected in the Group’s reported
results before those gains or losses are actually realised. This could have a significant impact on
the income statement in any given period. Accounting for deferred taxation on inter-company
inventory may give rise to volatility depending upon the Group entity that owns the inventory.
GSK Annual Report 2010
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Risk factors
Regulators regularly review the financial statements of listed companies for compliance with
accounting and regulatory requirements. The Group believes that it complies with the appropriate
regulatory requirements concerning its financial statements and disclosures. However, other
companies have experienced investigations into potential non-compliance with accounting and
disclosure requirements that have resulted in restatements of previously reported results and
sometimes significant penalties. Any such investigation and required restatement could materially
and adversely affect the Group’s financial results.
Protection of electronic information and assets
The Group relies on critical and sensitive data, such as personally identifiable information, trade
secrets, intellectual property and corporate strategic plans. Security of this type of data is
exposed to increasing external threats. The Group is also subject to various standards for the
protection of personally identifiable information. Failure to implement appropriate safeguards to
adequately protect against any unauthorised or unintentional access, acquisition, use,
modification, loss or disclosure of this critical or sensitive data may adversely affect the
Group’s operations.
Alliances and acquisitions
As part of the Group’s strategy to diversify into new product areas and markets, the Group has
grown, and expects to continue to grow, in part through acquisitions and business alliances. There
is intense competition for alliance and acquisition candidates in the pharmaceutical industry, and,
as such, the Group may be unable to make these deals on acceptable terms or at all. In acquiring or
forming alliances with companies, the Group may assume significant debt, become subject to unknown
or contingent liabilities or fail to realise the benefits expected from these transactions. For
example, most pharmaceutical companies, including those that the Group may consider acquiring, are
involved in patent disputes, product liability litigation, government investigations and other
legal proceedings whose outcome is subject to considerable uncertainty. The assumption of debt or
unknown or contingent liabilities or the failure to realise the expected benefits may materially
and adversely affect the Group’s financial results.
The process of integrating companies the Group may acquire may result in disruption to the ongoing
business as the effort of integrating organisations in different locations and with, among other
things, differing systems and corporate cultures may divert attention and resources, result in the
loss of key employees or have other adverse consequences, any of which may materially and adversely
affect the Group’s financial results.
Attraction and retention
The Group relies heavily on recruiting and retaining talented employees with a range of skills to
meet its objectives. The Group faces intense competition for qualified individuals, as the supply
of people with specific skills or in specific geographic regions may be limited, particularly given
the Group’s plans to expand its operations in Emerging Markets, Biologicals and Consumer
Healthcare.
The inability to attract staff with specific technical and leadership skills, retain key employees
or ensure effective succession planning for critical positions may materially and adversely affect
the Group’s financial results.
Implementing the Group’s strategic priorities
The Group has established three strategic priorities: to grow a diversified business, deliver more
products of value, and simplify its operating model. The
Group may not be able to implement its strategic priorities fully
and even if the Group is able to implement its strategic priorities
the strategic priorities
may not deliver the expected benefits.
For example, the strategic priority to grow a diversified business involves expanding the Group’s
business into Emerging Markets. The Group’s pharmaceutical sales in Emerging Markets grew 22% in
2010 to nearly £3.6 billion, and represented 15% of the Group’s 2010 pharmaceutical turnover. There
is no guarantee that the Group’s sales in Emerging Markets will continue to grow or that these
markets will continue to experience relatively high growth rates. Some emerging markets may be
especially vulnerable to the after-effects of the recent global financial crisis, or may have very
limited resources to spend on healthcare. Competition in these markets for staff with the skills
and training suitable for employment at an enterprise such as the Group’s may be intense. In some
emerging markets, the Group may be required to rely on third party agents, which may put the Group
at risk of liability, and some emerging markets lack sufficient protection against crimes such as
counterfeiting. A failure to continue to expand its business in emerging growth markets could
materially and adversely affect the Group’s financial results.
In addition, the
Group is undertaking a restructuring programme that has an estimated cost of
approximately £4.5 billion and is expected to deliver annual pre-tax savings of approximately £2.2
billion by the time it is substantially complete in 2012. The Group may not be able
to execute fully this transformation of its business. Furthermore, changes
in the Group’s structure, operations, revenues, costs or efficiency resulting from these
restructuring activities or other strategic initiatives could result in higher than expected costs
or other difficulties. Failure to realise the expected cost savings by the end of the restructuring
programme or to achieve and maintain a competitive cost base could materially and adversely affect
the Group’s financial results.
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Our Board
Sir Christopher Gent
(Aged 62)
(Aged 62)
Appointed on 1st June 2004.
Chairman.
Chairman.
Sir Christopher is a Non-Executive Director of Ferrari SpA and was the Chief Executive Officer of
Vodafone Group plc, until his retirement in July 2003. He is a Non-Executive Director of Lehman
Brothers Holdings Inc, a member of KPMG’s Chairman’s Advisory Group, a Senior Adviser at Bain & Co.
and a member of the Advisory Board of Reform.
Andrew Witty (Aged 46)
Appointed on 31st January 2008.
Chief Executive Officer.
Chief Executive Officer.
Andrew was named Chief Executive Officer Designate for GSK in October 2007 and was appointed Chief
Executive Officer (CEO) on 21st May 2008. He joined the Group in 1985 and has held senior positions
in Asia, Africa and the USA. Immediately prior to being appointed CEO, Andrew was President,
Pharmaceuticals Europe, a position he held from January 2003. He is a Board Member of PhRMA and
President of European Federation of Pharmaceutical Industries and Associations. He was appointed as
Lead Non-Executive Board Member for the Department of Business, Innovation and Skills and as a
Board Member of the INSEAD Business School in January 2011 and is a member of the Prime Minister’s
Business Advisory Group. He is a Member of the Singapore Economic Development Board’s International
Advisory Council and an Adviser to the Governor of Guangzhou, China.
Professor Sir Roy Anderson
(Aged 63)
(Aged 63)
Appointed on 1st October 2007.
Non-Executive Director.
Non-Executive Director.
Sir Roy is Professor of Infectious Disease Epidemiology in the Faculty of Medicine, Imperial
College, London. He is a member of the International Advisory Board of Hakluyt & Co. Ltd. and he is
a Trustee of the Natural History Museum, London. He is a fellow of the Royal Society and a Foreign
Associate Member of the Institute of Medicine at the US National Academy of Sciences and the French
Academy of Sciences. His former positions include Rector of Imperial College and Chief Scientific
Adviser at the Ministry of Defence in the UK.
Dr Stephanie Burns
(Aged 56)
(Aged 56)
Appointed on 12th February 2007.
Non-Executive Director.
Non-Executive Director.
Stephanie is Chairman and Chief Executive Officer of Dow Corning Corporation and sits on the US
President’s Export Council. She is also the chair of the American Chemistry Council, is an officer
of the Society of Chemical Industry, America Section, and on the Board for the Society for Women’s
Health Research. Dr Burns holds a PhD in organic chemistry from Iowa State University.
Larry
Culp (Aged 47)
Appointed on 1st July 2003.
Non-Executive Director.
Non-Executive Director.
Larry is President and Chief Executive Officer of Danaher Corporation. Prior to joining Danaher, he
held positions in Accenture, previously Andersen Consulting.
Sir Crispin Davis (Aged 61)
Appointed on 1st July 2003.
Non-Executive Director.
Non-Executive Director.
Sir Crispin is Chairman and Director of StarBev Netherlands BV, a member of Citigroup’s Global
Advisory Board and serves on the Council of Oxford University. He was previously Chief Executive
Officer of Reed Elsevier PLC, and prior to that appointment, Chief Executive of Aegis Group plc,
which he joined from Guinness plc, where he was a member of the main Board and Group Managing
Director of United Distillers. In his earlier career, he worked for Procter & Gamble, where he was
President of the North American Food Division.
Simon Dingemans (Aged 47)
Appointed on 4th January 2011.
Executive Director and Chief Financial Officer Designate.
Executive Director and Chief Financial Officer Designate.
Simon joined GSK from Goldman Sachs where he was a Managing Director and Partner. He has
over 25 years of experience in investment banking, including most recently as leader of Goldman
Sachs’ European M&A business and before that as head of UK Investment Banking.
Julian Heslop (Aged 57)
Appointed on 1st April 2005.
Chief Financial Officer.
Chief Financial Officer.
Julian joined Glaxo Wellcome as Financial Controller in April 1998. In January 2001 he was
appointed Senior Vice President, Operations Controller. Prior to joining the Group he held senior
finance roles at Grand Metropolitan. Julian will retire as Chief Financial Officer and Executive
Director on 31st March 2011.
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Our Board
Sir Deryck Maughan
(Aged 63)
(Aged 63)
Appointed on 1st June 2004.
Non-Executive Director.
Non-Executive Director.
Sir Deryck is a Partner of Kohlberg Kravis Roberts & Co, a Non-Executive Director of Thomson
Reuters and BlackRock Inc., as well as serving on the Board of Directors of Lincoln Center. He was
formerly Chairman and Chief Executive Officer of Citigroup International and of Salomon Brothers Inc.
James Murdoch (Aged 38)
Appointed on 20th May 2009.
Non-Executive Director.
Non-Executive Director.
James is Chairman and Chief Executive, Europe and Asia of News Corporation. He is also
Non-Executive Chairman of BSkyB, a member of the Board of News Corporation and Non-Executive
Director of Sotheby’s. He previously served as Chief Executive Officer of BSkyB from 2003 to 2007
and was also Chairman and Chief Executive Officer of Star TV from 2000 to 2003.
Dr Daniel Podolsky
(Aged 57)
(Aged 57)
Appointed on 1st July 2006.
Non-Executive Director.
Non-Executive Director.
Daniel is President of the University of Texas Southwestern
Medical Center and holds the Phillip O’Bryan Montgomery, Jr., M.D. Distinguished
Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal
Distinguished Chair in Medical Science. He is a member of the Institute of Medicine
of the US National Academy of Sciences.
Dr Moncef Slaoui (Aged 51)
Appointed on 17th May 2006.
Chairman, Research & Development.
Chairman, Research & Development.
Moncef joined GSK Biologicals in 1988 where he engineered the development of a robust vaccines
pipeline and subsequently led Worldwide Business Development for pharmaceuticals before his
appointment to lead R&D. In June 2010 Moncef was given overall responsibility for GSK’s Oncology
Business and over the next twelve months responsibility for GSK Biologicals will also transition to
him. He is a member of the Board of the Agency for Science, Technology & Research (A*STAR) and has
a PhD in Molecular Biology and Immunology from Université Libre de Bruxelles.
Tom de Swaan (Aged 64)
Appointed on 1st January 2006.
Non-Executive Director.
Non-Executive Director.
Tom is Chairman of the Supervisory Board of VanLanschot Bankiers, a member of the Board of
Directors of Zurich Financial Services and a Non-Executive Director of KPMG’s Public Interest
Committee. He is also Vice Chairman of the Supervisory Board and Chairman of the Audit Committee of
Royal Ahold and a member of the Supervisory Board of Royal DSM. He was previously a member of the
Managing Board and Chief Financial Officer of ABN AMRO.
Sir Robert Wilson
(Aged 67)
(Aged 67)
Appointed on 1st November 2003.
Non-Executive Director & Senior Independent Director.
Non-Executive Director & Senior Independent Director.
Sir Robert is Non-Executive Chairman of BG
Group plc. He was previously Executive Chairman of Rio Tinto plc until his retirement in October
2003 and Chairman of The Economist Group between 2003 and 2009.
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Our Corporate Executive Team (CET)
Andrew Witty
Chief Executive Officer
Andrew was appointed Chief Executive Officer in May 2008. He joined Glaxo UK in 1985. During his
career with the company he has held the roles of Managing Director South Africa, Vice President and
General Manager Marketing in the USA and Senior Vice President, Asia Pacific. He was appointed
President, Pharmaceuticals Europe for GlaxoSmithKline in January 2003.
Simon Bicknell
Senior Vice President, Governance, Ethics and Assurance
Simon was appointed to the role in January 2011. He is responsible for risk management, compliance
and internal auditing. He was formerly SVP, Company Secretary & Corporate Compliance Officer. Simon
joined the Corporate Secretariat in 1984. He was appointed Company Secretary of GlaxoSmithKline plc
in May 2000 and combined this position with his role as Corporate Compliance Officer from April
2006 until his current appointment.
John Clarke
President, Consumer Healthcare
John is responsible for the Consumer Healthcare business which produces oral healthcare,
over-the-counter and nutritional healthcare products. He joined Beecham in 1976 and was the
President of the Future Group before his current appointment in January 2006.
Deirdre Connelly
President, North America Pharmaceuticals
Deirdre joined GSK in February 2009 after working at Eli Lilly and Company for 24 years. She held a
variety of positions including sales professional, General Manager of Puerto Rico, Executive
Director of Human Resources and most recently President of US Operations.
Simon Dingemans
Chief Financial Officer Designate
Simon was appointed Chief Financial Officer Designate on 4th January 2011. He joined GSK from
Goldman Sachs where he was a Managing Director and Partner. He has over 25 years of experience in
investment banking, including most recently as leader of Goldman Sachs’ European M&A business and
before that as head of UK Investment Banking.
Marc Dunoyer
Head of Rare Diseases Unit and Chairman of GSK Japan
Marc was appointed Chairman GSK Japan in January 2010 and in February 2010 to lead GSK’s rare
diseases business from R&D to commercialisation. He joined the Group in 1999 and was previously
President, Pharmaceuticals Japan from January 2000 until May 2008. He was President,
Pharmaceuticals Asia Pacific/ Japan from May 2008 until July 2010.
Eddie Gray
President,
Pharmaceuticals Europe
Pharmaceuticals Europe
Eddie became responsible for the Group’s operations in Europe in January 2008. He joined Beecham in
1988 and, prior to his current appointment, was Senior Vice President and General Manager,
Pharmaceuticals UK.
Julian Heslop
Chief Financial Officer
Julian became Chief Financial Officer in April 2005. As head of the finance function he is
responsible for activities such as financial reporting and control, tax and treasury, finance
systems and insurance. He joined Glaxo Wellcome as Financial Controller in April 1998. He will
leave the CET when he retires from GSK at the end of March 2011.
Abbas Hussain
President, Emerging Markets & Asia Pacific
Abbas joined GSK in June 2008 from Eli Lilly and Company, where he spent 20 years overseeing
markets throughout Europe, Africa/Middle East and Australasia.
Bill Louv
Senior Vice President, Core Business Services & Chief Information Officer
Bill was appointed Chief Information Officer in January 2007. In addition to this role he was
appointed to create and lead Core Business Services in April 2010. He is responsible for
information technology across GSK. Bill joined Glaxo in 1994 as Vice President, Medical Data
Sciences. Prior to his current roles, Bill was Senior Vice President, R&D Information Technology.
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Our Corporate Executive Team (CET)
David Pulman
President, Global Manufacturing and Supply
David is responsible for the Global Manufacturing and Supply organisation and Global Procurement.
He joined Glaxo in 1978. He has broad experience of manufacturing operations having previously led
the Primary Supply, European manufacturing, North American manufacturing, Global Logistics and
Manufacturing Strategy organisations.
David Redfern
Chief Strategy Officer
David is responsible for proactive exploration of new business opportunities, strategic planning
and dermatology. In addition to his current role he was appointed Chairman of the Board of ViiV
Healthcare Ltd. with effect from 1st April 2011. He began his career with GSK in 1994 in Corporate
Development before being appointed Finance Director of Europe Pharmaceuticals in 1999. He was
appointed Area Director for Central Europe in 2003 and Northern Europe in 2005.
Moncef Slaoui
Chairman, Research & Development
Moncef leads the Group’s drug discovery and development activities as well as its Oncology
business. Over the next 12 months he will assume operational responsibility for GSK biologicals. He
joined the Group in 1988 and was a key player in building GSK’s vaccines pipeline. In 2003 he was
appointed Senior Vice President, Worldwide Business Development until his current appointment in
June 2006.
Jean Stéphenne
Chairman and President, Biologicals
Jean has led GSK’s global vaccines business since 1989. Previously he was Vice President of Human
Vaccines Research and Development and Production. He joined the company in 1974 as Head of
Bacterial and Viral Vaccines production. Jean was named Baron by King Albert II of the Belgians in
2000 in recognition of his leading contribution to R&D and industry in Belgium.
Claire Thomas
Senior Vice President, Human Resources
Claire leads the global Human Resources (HR) function. Previously, she oversaw HR in
Pharmaceuticals International and in Pharmaceuticals Europe. Claire joined the company in 1996 and
was appointed Director of Human Resources for UK Pharmaceuticals in 1997. Claire was honoured as an
Outstanding European Woman of Achievement in 2007.
Dan Troy
Senior Vice President and General Counsel
Dan joined GSK as Senior Vice President and General Counsel in September 2008. Before that he was a
Partner at the Washington law firm Sidley Austin LLP and Chief Counsel for the FDA. From 2006—2007
he chaired the American Bar Association’s Section of Administrative Law, and was previously adjunct
scholar at the American Enterprise Institute in Washington, DC.
Patrick Vallance
Senior Vice-President, Medicines Discovery and Development
Patrick was appointed Senior Vice President, Medicines Discovery and Development in July 2010. He
is responsible for ensuring a flow of new medicines through the R&D pipeline from early
discovery through to approval of the medicine. Patrick joined GSK in 2006. Prior to that he
was a clinical academic and led the Division of Medicines at University College London.
Changes to the CET
Duncan Learmouth, Senior Vice President, Global
Communications left the CET in August 2010 for a
new role as Senior Vice President, Developing Countries and Market Access. Phil Thomson was
appointed Senior Vice President, Global Communications in August 2010 and, although he is not a
member, is invited to attend CET meetings as required.
Dan Phelan, Chief of Staff stepped down from
the CET in December 2010 to act as an advisor to the CEO in advance of his eventual retirement from GSK.
GSK Annual Report 2010
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Corporate governance
Dear Shareholder
On behalf of the Board, I am pleased to present the Corporate Governance Report for 2010.
Review of 2010
Although our operating environment remains challenging, I believe that we made significant progress
during 2010 in substantially re-engineering GSK’s business through restructuring and a more
rigorous approach to capital allocation. The effect of these changes also became increasingly
evident in 2010 through the delivery of diversified underlying sales growth, increasing pipeline
potential and improved cash generation before legal settlements. By becoming a more balanced,
synergistic business with a broad and diverse pipeline generating increasing potential, the Board
believes that we can generate increased value for shareholders and deliver even better outcomes to
patients and consumers.
Corporate governance developments
2010 has seen a continuation of reviews and consultations aimed at examining and improving
corporate governance arrangements, predominantly in the light of the recent global financial
crisis. GSK has been an active participant in debating the issues raised by these consultations
where they have been relevant to the long term interests of our shareholders. We have also taken
the opportunity to review our board practices and governance procedures against the standards
contained in the Financial Reporting Council’s (FRC) updated UK Corporate Governance Code (updated
Code) published in June 2010, formerly the Combined Code on Corporate Governance (Combined Code).
Our review indicated that we are in a strong position to comply fully with its provisions and I
will report formally on GSK’s compliance with the updated Code next year.
Board role and effectiveness
As Chairman, my role primarily is to provide leadership to the Board, necessary to promote the
success of the company and create value for shareholders in the long term, while ensuring that
sound effective corporate governance practices are embedded in the organisation and its
decision-making processes.
There are a number of ingredients that make up an effectively functioning board. GSK’s approach is
set out in greater detail in the following Report. A notable example of this in practice has been
the exercise by the Audit & Risk Committee of the oversight powers delegated to it by the Board.
The decision to resolve the inherent unpredictability and reduce overall litigation exposure has
been a core focus for this Committee and the Board. The Audit & Risk Committee holds regular
dialogue with executive management, who provide updates on the progress being made to resolve
outstanding legal matters. The Board acknowledges that the scale of the legal provisioning required
for 2010 has been significant, but continues to believe it is in the best long term interests of
shareholders to resolve such matters.
As usual, we have conducted a rigorous evaluation to test the Board and its Committees’
effectiveness. I am pleased to note the FRC endorsed in its updated Code the approach of externally
facilitated board evaluations being undertaken at least every three years; an approach that GSK has
previously adopted. Details of the latest Board evaluation and the actions that have been
identified and agreed upon to drive standards of Board governance and performance can be found on
page 68 of the Report.
Other areas of board practice that I would also like to particularly focus on here are business
awareness, succession planning and shareholder engagement, key areas where we have made good
progress during 2010.
Business awareness and succession planning
Each year the Board seeks to further develop its knowledge and understanding of the business and to
gain greater visibility of executive talent and management succession. In 2010 the Board made
several visits to some of the Group’s sites and met with key talent and senior executives.
In March, the Board visited our Vaccines site in Wavre in Belgium to receive an update on the
progress of our main vaccines business, which continues to grow in terms of its contribution to the
Group. This included specific briefings on three important vaccine development programmes; namely
MAGE-A3, Synflorix and Malaria. The Board was also very pleased to meet and thank GSK staff at the
site for the extraordinary efforts they had made to enable the Group to respond to the H1N1
pandemic in 2009.
In July, the Board visited GMS and R&D sites in Research Triangle Park and Zebulon in the United
States. These visits included briefings with several Discovery Performance Units, a tour of a
pharmaceutical development pilot plant, together with workshops with senior executives. The Board
also held a reception with locally based executives and key talent.
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Corporate governance
GSK continues to target growth in Emerging Markets and has established an important new corporate
hub for the Group in the Far East in Singapore. During the summer, Abbas Hussain, President,
Emerging Markets & Asia Pacific and a Corporate Executive Team (CET) member, relocated to Singapore
to be more centrally located in this region. In October, the Board held a joint strategy review
meeting with CET members in Singapore and was pleased to visit a GMS site and tour one of GMS’
production facilities and a pilot plant. The Board also had a workshop on the results of GSK’s
investment in green chemistry and continuous manufacture technology in Singapore, which will
contribute to the Group’s efforts to reduce costs and minimise our impact on the environment. The
Board was also pleased to have the opportunity to meet with local senior executives and key talent.
In addition to these planned visits, our Non-Executive Directors are encouraged to attend CET
meetings and R&D related executive meetings. This provides them with a good perspective of how
management operates and gives a greater insight into key business issues. It also provides a
further opportunity for Board members to observe the skills, knowledge, integrity and behaviour of
our senior management cadre and key executive talent, whilst enabling our employees to give direct
feedback to Board members.
Shareholder engagement
At GSK we value an open, constructive and effective interaction with our shareholders.
In particular, the CEO, CFO and I maintain an ongoing dialogue with institutional investors through
a regular programme of meetings which cover a range of issues.
During 2010, Andrew Witty attended over 60 one-on-one meetings with investors, covering over 50
separate funds. Julian Heslop attended nearly 40 one-on-one meetings with investors, covering over
35 separate funds. In addition, both met with multiple additional investors via group meetings and
at broker conferences. I personally met a representative cross section of our shareholders during
the course of the year and am available to meet with shareholders on request along with other Board
colleagues. Also, along with the Remuneration Committee Chairman, the Head of Human Resources and
the Company Secretary, I attended meetings with institutional investors to specifically discuss
remuneration policy and governance related matters, a process we conduct annually.
We believe this level and quality of engagement is key to ensuring that the Board and senior
management understand our shareholders’ views and perspectives. On this theme, we welcome the
introduction by the FRC of the Stewardship Code for Institutional Investors, a code of good
practice for major shareholders, which aims to further strengthen the quality of the engagement
process between major shareholders and the companies that they invest in.
At the company’s 2011 AGM all Board directors who are able to attend will be available, as usual,
to meet with investors after the meeting to discuss issues on a face-to-face basis.
Combined Code compliance statement
Throughout 2010, the company complied with the provisions and applied the Main Principles of
Section 1 of the Combined Code, except that Dr Stephanie Burns, Larry Culp and Tom de Swaan were
unable to attend the company’s 2010 AGM. Dr Stephanie Burns and Larry Culp were prevented from
attending due to travel disruption caused by the ash clouds from the volcano in Iceland and Tom de
Swaan was required to chair a shareholder meeting of another public company on the same day. This
resulted in a partial non-compliance with code provision D.2.3.
Annual re-election of directors
GSK, like a number of other organisations and interested parties, expressed the view during the
consultation period on updating the Combined Code that the FRC’s proposal to mandate annual
re-election of directors could be damaging. We feared that it could erode the principle of the
unitary Board, was likely to increase short-termism and could make it even more difficult to
recruit new Board members. Nevertheless, this change has been included as a new provision in the
updated Code and the Board has agreed that each Board member should stand for re-election at the
2011 AGM. We will monitor the effect of this provision over time.
The Corporate Governance Report that follows sets out how GSK complied with the provisions and
applied the principles of the Combined Code during the year.
Sir Christopher Gent
Chairman
Chairman
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Corporate governance
Governance and policy
This section discusses GSK’s management structures and governance procedures and together with the
Remuneration Report on pages 81 to 101, includes details of how the company applies and complies
with the principles and provisions of the Combined Code maintained by the FRC and with US laws and
regulations.
The Board and Corporate Executive Team
The Directors are listed under ‘Our Board’ on pages 58 to 59 and the members of the CET under ‘Our
Corporate Executive Team’ on pages 60 to 61.
The Board is responsible for the Group’s system of corporate governance and is ultimately
accountable for the Group’s activities, strategy, risk management and financial performance.
Independence
The Board considers all its Non-Executive Directors to be independent in character and judgement
and free from any business or other relationship which could materially interfere with the exercise
of their judgement. The Chairman satisfied the independence criteria on his appointment to the
Board.
At the date of publication and throughout 2010, a majority of the Board members, excluding the
Chairman, were independent Non-Executive Directors.
Chairman, CEO and Senior Independent Director
Sir Christopher Gent has chaired the company since 1st January 2005 and was Chairman throughout
2010. His biographical details can be found on page 58. Andrew Witty is the CEO and his
biographical details can be found on pages 58 and 60.
The Chairman leads and manages the Board while the CEO manages the Group and implements the
strategy and policies adopted by the Board. The Chairman and the Chairmen of Board Committees
communicate regularly with the CEO and other CET members. The division of responsibilities between
the role of Chairman and the CEO has been set out in writing, and agreed by the Board.
The CEO is responsible for executive management of the Group and is assisted by the CET. The CET
meets at least 11 times per year and otherwise as necessary.
Under the terms of their engagement, the Chairman and each Non-Executive Director are expected to
devote such time as is necessary for the proper performance of their duties.
Sir Robert Wilson was appointed Senior Independent Director (SID) on 20th May 2009, following Sir
Ian Prosser’s retirement from the Board on that date. His responsibilities include the annual
evaluation of the performance of the Chairman, the Board, its Committees and Directors in
collaboration with the Committee Chairmen in those years when the process is internally
facilitated. He is also available as an additional point of contact on the Board for shareholders.
Board process
The Board is responsible for the long-term success of the company and has the authority, and is
accountable to shareholders, for ensuring that the Group is appropriately managed and achieves the
strategic objectives it sets. The Board discharges those responsibilities through an annual
programme of meetings which includes the approval of overall budgetary planning and business
strategy. The Board reviews the Group’s internal controls and risk management policies and approves
its governance structure and code of conduct.
The Board appraises and approves major financing, investment and licensing decisions in excess of
defined thresholds. In addition, the Board evaluates and monitors the performance of the Group as a
whole. This includes:
| • | engaging at Board meetings with and challenging the CEO, the other Executive Directors and members of the CET as appropriate, on the financial and operating performance of GSK and external issues material to the Group’s prospects, | |
| • | evaluating progress towards the achievement of the Group’s financial and business objectives and annual plans and the Non- Executive Directors scrutinising the performance of management in meeting these objectives and plans, and | |
| • | monitoring, through reports received directly or from various committees, the significant risks facing the Group. |
The Board has overall responsibility for succession planning for the CEO and the other Executive
and Non-Executive Directors. The Board has given the CEO broad authority to operate the business of
the Group, and the CEO is accountable for, and reports to the Board on, the performance of the
business. CET members make regular presentations to the Board on their areas of responsibility. The
Board Directors meet with all the CET members on an annual basis to
discuss and develop proposals
collectively in relation to the Group’s strategy.
The Board met six times in 2010, with each member attending as follows:
| Number of meetings | ||||||||
| held whilst a Board | Number of | |||||||
| member | meetings attended | |||||||
Sir Christopher Gent |
6 | 6 | ||||||
Andrew Witty |
6 | 6 | ||||||
Julian Heslop |
6 | 6 | ||||||
Dr Moncef Slaoui |
6 | 6 | ||||||
Professor Sir Roy
Anderson |
6 | 6 | ||||||
Dr Stephanie Burns |
6 | 6 | ||||||
Larry Culp |
6 | 5 | ||||||
Sir Crispin Davis |
6 | 6 | ||||||
Sir Deryck Maughan* |
6 | 4 | ||||||
James Murdoch |
6 | 6 | ||||||
Dr Daniel Podolsky |
6 | 6 | ||||||
Tom de Swaan |
6 | 5 | ||||||
Sir Robert Wilson |
6 | 6 | ||||||
| * | Sir Deryck was unable to attend two meetings for personal reasons. He gave his comments to the Chairman on the matters to be discussed in advance of both meetings. |
In addition to the six scheduled
meetings, the Board also met on a quorate basis
on three occasions.
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Corporate governance
Where Directors are unable to attend a Board or Committee meeting, they communicate their comments
and observations on the matters to be considered via the Chairman of the Board or the relevant
Board Committee Chairman for raising as appropriate at the relevant meeting. Attendance at meetings
is considered as part of the one-to-one meetings conducted by the Chairman with each Director.
Business environment and personal development
To ensure that the Board is kept up-to-date on important matters, including legal, governance and
regulatory developments, presentations are made on a regular basis by both external and internal
advisers.
Non-Executive Directors also gain greater insight and understanding of the business and access to
GSK employees through visits to Group operational facilities and attendance at various internal
management meetings, including CET, Research & Development Executive and Product Marketing Board
meetings, on an ad hoc basis.
A customised induction process is conducted by the Company Secretary for each of the new
Non-Executive Directors focusing on their particular experience and taking account of their
different backgrounds. A primary element of this process includes meeting members of the CET
informally on a collective and individual basis as appropriate, together with other senior
executives, and visiting particular operational facilities of the Group.
In addition, the Chairman meets with each Director annually on a one-to-one basis to discuss and
agree their individual ongoing training and development requirements.
Independent advice
The Board recognises that there may be occasions when one or more of the Directors feel it is
necessary to take independent legal and/or financial advice at the company’s expense. There is an
agreed procedure to enable them to do so.
Indemnification of Directors
Qualifying third party indemnity provisions (as defined in section 234 of the Companies Act 2006)
are in force for the benefit of the Directors and former Directors who held office during 2010.
Directors’ conflicts of interest
Directors have a statutory duty to avoid a situation in which they have, or can have, a direct or
indirect conflict of interest or possible conflict of interest with the company. The duty applies
in particular to the exploitation of any property, information or opportunity, whether or not GSK
could take advantage of it. The company’s Articles of Association include a general power for the
Board to authorise such conflicts. There is no breach of duty if the relevant matter has been so
authorised in advance.
The Board has an established procedure for handling situational conflicts of interest, which is in
line with the best practice guidance issued by the General Counsel 100 Group and in accordance with
the company’s Articles. It has authorised the Nominations Committee to grant and review
periodically, but in any event annually, any potential or actual conflict authorisations. Directors
are not counted in the quorum for the authorisation of their own actual or potential conflicts. The
Company Secretary minutes the consideration of any conflict. Authorisations granted are recorded by
the Company Secretary in a register of conflict authorisations which are noted by the Board at its
next meeting.
On an ongoing basis, the Directors are responsible for informing the Company Secretary of any new,
actual or potential conflicts that may arise or if there are any changes in circumstances that may
affect an authorisation previously given. Even when provided with authorisation, a Director is not
absolved from his or her statutory duty to promote the success of the company. If an actual
conflict arises post authorisation, the Board will choose to exclude the Director from receipt of
the relevant information and participation in the debate, or suspend the Director from the Board,
or, as a last resort, require the Director to resign.
The Nominations Committee reviewed the register of conflict authorisations in October 2010 and
concluded that the conflicts had been appropriately authorised and the process for authorisation
continues to operate effectively.
Company Secretary
The Company Secretary is responsible to the Board and is available to individual Directors in
respect of Board procedures. Simon Bicknell was Company Secretary until 31st December 2010 and was
Secretary to all of the Board Committees, except the Remuneration Committee. Victoria Whyte,
formerly Deputy Company Secretary, was appointed Company Secretary with effect from 1st January
2011. She was Secretary to the Remuneration Committee during 2010 and acts as Secretary to all of
the Board Committees since her appointment as Company Secretary. She is a solicitor and a Fellow of
the Institute of Chartered Secretaries and Administrators.
Board Committees
The Board has established a number of committees and provides sufficient resources to enable them
to undertake their duties. Executive Directors are not members of the Audit & Risk, Remuneration,
Nominations or Corporate Responsibility Committees, although they may be invited to attend
meetings. Each Director is a member of the Corporate Administration & Transactions and Finance
Committees.
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Corporate governance framework
| * | There have been 4 Executive Directors since the appointment of the Chief Financial Officer
Designate on 4th January 2011 (there will be 3 Executive Directors following the retirement of the Chief Financial Officer on 31st March 2011). |
Current membership of these Committees is shown in the table below.
| Corporate | ||||||||||||||||
| Audit & Risk | Remuneration | Nominations | Responsibility | |||||||||||||
Sir Christopher Gent |
– | M | C | C | ||||||||||||
Professor Sir Roy Anderson |
M | – | – | – | ||||||||||||
Dr Stephanie Burns |
– | – | – | M | ||||||||||||
Larry Culp |
– | M | M | – | ||||||||||||
Sir Crispin Davis |
– | C | M | – | ||||||||||||
Sir Deryck Maughan |
M | – | M | – | ||||||||||||
James Murdoch |
– | M | – | M | ||||||||||||
Dr Daniel Podolsky |
M | – | – | M | ||||||||||||
Tom de Swaan |
C | M | – | – | ||||||||||||
Sir Robert Wilson |
M | – | M | – | ||||||||||||
Key: C = Chairman M = Member
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Each Committee has written terms of reference which have been approved by the Board and are
reviewed at least annually to ensure that they comply with the latest legal and regulatory
requirements and reflect best practice developments. The following is a summary of the role and
terms of reference of each Committee. The current full terms of reference of each Committee may be
obtained from the Company Secretary.
| No of meetings | Committee Report | |||||||||
| Committee | Role and Terms of Reference | Membership comprises | per year | on page | ||||||
Audit & Risk
|
Reviews the financial and internal reporting process, the external and internal audit processes, the system of internal controls, and the identification and management of risks. The Committee also proposes to shareholders the appointment, re-appointment and removal of the external auditors and is directly responsible for their remuneration and oversight of their work. | Independent Non-Executive Directors |
≥ 4 | 74-76 | ||||||
Remuneration
|
Determines the terms of service and remuneration of the Executive Directors and members of the CET and, with the assistance of external independent advisers, it evaluates and makes recommendations to the Board on overall executive remuneration policy that assists the long-term success of the Group. | Independent Non-Executive Directors and the Chairman | ≥ 4 | 81-101 | ||||||
| (The Chairman and the CEO are responsible for evaluating and making recommendations to the Board on the remuneration of Non-Executive Directors.) | ||||||||||
Nominations
|
Reviews the structure, size and composition of the Board (including the skills, knowledge, independence, experience and diversity) and appointment of members to the Board and the CET, and makes recommendations to the Board as appropriate. The Committee monitors the planning of succession to the Board and Senior Management. The Committee also considers and if appropriate authorises directors’ conflicts of interest. | Independent Non-Executive Directors and the Chairman | ≥ 2 | 77 | ||||||
Corporate Responsibility |
Provides a Board-level forum for the regular review of external issues that have the potential for serious impact upon the Group’s business and reputation. The Committee is also responsible for oversight of GSK’s worldwide donations and community support. | Independent Non-Executive Directors and the Chairman | ≥ 3 | 78-80 | ||||||
Finance
|
Reviews and approves, on behalf of the Board, the Annual Report and Form 20-F, and convening of the AGM, together with the preliminary and quarterly statements of trading results. It also approves certain major licensing and capital transactions and changes to the Group’s Investment Instrument and Counterparty Limits. | Executive and Non-Executive Directors | As necessary | – | ||||||
Corporate Administration & Transactions |
Reviews and approves matters in connection with the administration of the Group’s business and certain corporate transactions. | Executive and Non-Executive Directors, CET members and the Company Secretary | As necessary | – | ||||||
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Evaluation of the Board, Board Committees and Directors
The Board decided in 2009 to undertake an externally facilitated evaluation process every three
years, which has since become a requirement within the UK Corporate Governance Code (updated Code).
In the intervening period the review will be facilitated by the SID or the Chairman. The next
externally facilitated evaluation will be undertaken at the end of 2011.
A reminder of the form the Board evaluation reviews for 2008 and 2009 had taken, together with the
action points agreed is set out below.
| Method of evaluation | Actions and areas of focus | |||||
2008
|
Dr Long, Boardroom Review, facilitated this review |
• | Utilise Board and Committee time more effectively and facilitate further contribution by Non-Executive Directors | |||
| • | Enhance continuous education
process for Non-Executive Directors |
|||||
| • | Provide greater visibility to executive talent and management succession planning process | |||||
2009
|
Sir Robert Wilson, Senior Independent Director |
• | Increase Board time devoted to strategic discussion and the indicators of success in the delivery of the R&D pipeline | |||
| • | Devote more time to focused consideration of the company’s key risks on an ongoing basis | |||||
| • | Provide the Board with more regular updates and insights into the newly enhanced management succession planning process | |||||
2010 Board evaluation process
In accordance with established practice, the SID, Sir Robert Wilson, conducted the 2010 evaluation
of the performance of the Chairman, the Board and its Committees and Directors in collaboration
with the Committee Chairmen.
The Board evaluation process included a one-to-one interview with each Director. The topics
discussed, which had been circulated to Directors in advance, included a variety of aspects
associated with Board effectiveness, including Board and Committee information flows, handling of
strategic issues, collective effectiveness and exploration of ways to further improve the way in
which the Board operates.
The Chairman of each of the Board Committees undertook separate evaluations and the outcome of each
was reported to and discussed with the respective Committee and the Board.
Feedback from the overall evaluation process was provided in the form of a written report to the
Board, which then debated its findings.
The Board evaluation review concluded that the Board and its Committees were operating effectively
at a high level. The Board continued to feel that it was receiving high quality information, in a
readily understandable format and on a timely basis in order to fulfil its role.
There was a high level of confidence in the performance of the CEO and a strong belief that the
Board dynamics facilitated open, honest and constructive discussion of issues. No major changes to
the Board’s practices and procedures were deemed necessary.
In terms of the implementation of action points from the previous year, the Board:
| • | had increased its focus on R&D activities and successful delivery of the pipeline and was pleased with progress from R&D during the year. Separately, on behalf of the Board, the Remuneration Committee initiated discussions with management and shareholders over the introduction of more strategically aligned performance criteria for the company’s long term incentive plans. As a result of a successful conclusion to these discussions, the grant of LTI options made in February 2011 was made with two additional performance criteria, one of which focuses on R&D new product performance. For more details, please refer to the Remuneration Report on pages 81 to 101 |
| • | had sought assistance from the Audit & Risk Committee to more fully understand the Group’s key risks. This work is ongoing and the Board will continue to consider regular reports from the Audit & Risk Committee during 2011, in advance of the Board’s annual review of the effectiveness of the company’s risk management next year |
| • | was pleased with the operation by the Nominations Committee of the enhanced succession planning process. This had resulted in the appointment of the CFO Designate and positive progress was being made on the recruitment of new Board members to refresh the Board. |
The Board agreed the following actions after discussion of the evaluation report to ensure that it
continues to improve the way in which it operates:
| • | given the fundamental strategic challenges facing the pharmaceutical industry, the Board will seek to continue to allocate more time on a regular basis to focus on strategic issues and the significant challenges facing the industry, with the direct aim of further enhancing returns to shareholders |
| • | to further enhance information flows by providing Board members with a wider variety of external perspectives on the company and the industry |
| • | R&D will continue to be a major expense to the company and the Board will be seeking to assess the extent to which the new policies implemented in recent years have added value |
| • | to continue to support Executive Management on ethical leadership within the Group. |
The Directors, led by the SID, also met separately, without the Chairman being present, to discuss
the Chairman’s performance. They considered that his leadership, performance and overall
contribution were of a high standard. As a result of this high level of confidence shared by all
Directors in Sir Christopher’s Chairmanship of the Board, it was unanimously agreed to extend his
appointment as Chairman for a period of five years with effect from 1st January 2011, subject to
re-election by shareholders. This would ensure continuity of leadership of the Board during a
period when several Non-Executive Directors would be approaching retirement after having served
nine years on the Board.
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Dialogue with shareholders
Financial results are announced on a quarterly basis and the full-year results are included in the
company’s Annual Report. The company produces an annual Summary which is sent to all shareholders
to advise them of the availability of the Annual Report and Notice of Meeting.
The CEO and CFO give presentations on the half-year and full-year results in face-to-face meetings
with institutional investors, analysts and the media which are also accessible via webcast and
teleconference. After the release of the first and third quarterly results, the company holds
webcast teleconferences for institutional investors, analysts and the media.
The AGM takes place in London, and formal notification is sent to shareholders at least one month
in advance. At the Meeting, a business presentation is made to shareholders and all Directors able
to attend are available, formally during the AGM, and informally afterwards, for questions.
Committee Chairmen ordinarily attend the AGM to respond to shareholders’ questions. The entire
Board was in attendance at the company’s AGM in May 2010, save for Dr Stephanie Burns and Larry
Culp, who were prevented from attending due to travel disruption caused by the ash clouds from the
volcano in Iceland, and Tom de Swaan who was required to chair a shareholder meeting of another
public company on the same day. All resolutions at the AGM are decided on a poll as required by the
company’s Articles of Association. The results of the poll are announced to the London Stock
Exchange. Details of the 2011 AGM are
set out in the section ‘Annual General Meeting’ (see page 71).
To ensure that the Non-Executive Directors are aware of and understand the views of major
shareholders about the company, the Board has in place a briefing process, which is managed by the
Chairman, focusing on sector-specific issues, as well as general shareholder preferences.
The Group’s Investor Relations department, with offices in London and Philadelphia, acts as a focal
point for contact with investors throughout the year.
The CEO, CFO and Chairman maintain a dialogue with institutional shareholders on performance, plans
and objectives through a programme of regular meetings. Since his appointment as CEO in May 2008,
Andrew Witty has undertaken an extensive ongoing series of meetings with GSK’s institutional
shareholders.
The Chairman meets regularly with institutional investors to hear their views and discuss issues of
mutual importance and communicates the views of investors to the Board as a whole. The SID is also
available to shareholders.
The Chairman of the Remuneration Committee, the Chairman, the Senior Vice President, Human
Resources and the Company Secretary meet annually with major shareholders to discuss executive
remuneration policy and governance matters.
All Non-Executive Directors, including new appointees, are available to meet with major
shareholders if requested.
Share capital and control
Details of the company’s issued share capital and the number of shares held in Treasury as at 31st
December 2010 can be found in Note 33 to the financial statements, ‘Share capital and share premium
account’. GSK’s shares are listed on the London Stock Exchange and are also quoted on the New York
Stock Exchange (NYSE) in the form of American Depositary shares (ADS). Each ADS represents two
Ordinary Shares.
The holders of Ordinary Shares are entitled to receive dividends, when declared and the company’s
Annual Report, attend and speak at general meetings of the company, appoint proxies and exercise
voting rights.
There are no restrictions on transfer, or limitations on the holding of Ordinary Shares and no
requirements to obtain prior approval for any transfers. No Ordinary Shares carry any special
rights with regard to control of the company and there are no restrictions on voting rights. Major
shareholders have the same voting rights per share as all other shareholders. There are no known
arrangements under which financial rights are held by a person other than the holder of the shares
and no known agreements on restrictions on share transfers or on voting rights.
Shares acquired through GSK share plans rank equally with the other shares in issue and have no
special rights. The trustees of the company’s Employee Share Ownership Plan (ESOP) trusts have
waived their rights to dividends on shares held by the ESOP trusts.
Change of control and essential contracts
The company does not have contracts or other arrangements which individually are essential to the
businesses, nor is it party to any significant agreements that would take effect, alter or
terminate upon a change of control following a takeover bid.
The company does not have agreements with any Director or Officer that would provide compensation
for loss of office or employment resulting from a takeover, except that provisions of the company’s
share plans may cause options and awards granted under such plans to vest on a takeover. Details of
the termination provisions in the company’s framework contracts for Executive Directors are given
on page 91.
Interests in voting rights
Other than as stated below, as far as the company is aware, there are no persons with significant
direct or indirect holdings in the company. Information provided to the company pursuant to the
Financial Services Authority’s (FSA) Disclosure and Transparency Rules (DTRs) is published on a
Regulatory Information Service.
At 24th February 2011, the company had received notifications in accordance with the FSA’s DTRs of
the following notifiable interests in the voting rights in the company’s issued share capital:
| No. of | Percentage of issued | |||||||
| shares | capital (%)* | |||||||
BlackRock, Inc. |
291,516,314 | 5.62 | ||||||
Legal & General Group Plc |
194,024,944 | 3.74 | ||||||
| * | Percentage of Ordinary Shares in issue, excluding Treasury shares. |
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The Bank of New York Mellon is the Depositary for the company’s ADS, which are listed on the NYSE.
Ordinary Shares representing the company’s American Depositary Receipt program, which are managed
by the Depositary, are registered in the name of BNY (Nominees) Limited. Details of the number of
Ordinary Shares held by the Depositary can be found on page 209.
The company has not acquired or disposed of any interests in its own shares during the period under
review. Details of shares purchased in prior years, those cancelled, and those held as Treasury
shares are disclosed in Note 33 to the financial statements ‘Share capital and share premium
account’.
Directors and Officers
The interests of Directors and Officers and their connected persons in the issued share capital of
the company are given in the Remuneration Report (pages 81 to 101).
The rules about the appointment and replacement of Directors are contained in the company’s
Articles of Association. The company’s Articles must be approved by shareholders in accordance with
the legislation in force from time to time.
The Articles provide that Directors may be appointed by an ordinary resolution of the members or by
a resolution of the Directors, provided that, in the latter instance, a Director appointed in this
way retires at the first AGM following his appointment.
The Articles also provide that Directors should normally be subject to re-election at the AGM at
intervals of three years or annually if they have held office for a continuous period of nine years
or more. However, the Board has agreed that all Directors will seek either election or re-election
in 2011 in accordance with the updated Code.
The company’s members may remove a Director by passing an ordinary resolution of which special
notice has been given, or by passing a special resolution. A Director may automatically cease to be
a Director if:
| • | he/she resigns | |
| • | he/she offers to resign and the Board accept that offer | |
| • | all other Directors (being at least three in number) require him/ her to resign | |
| • | he/she is suffering from physical or mental ill health | |
| • | he/she has missed Directors’ meetings for a continuous period of six months without permission and the Board resolves that he/she shall cease to be a Director | |
| • | he/she becomes bankrupt or compounds with his/her creditors generally | |
| • | he/she ceases to be a Director by virtue of the Articles or the Companies Acts, or | |
| • | he/she is prohibited from being a Director by law. |
Articles of Association
The powers of the Directors are determined by UK legislation and the company’s Articles of
Association. The Articles may be amended by a
special resolution of the members. The Directors may exercise all the company’s powers provided
that the Articles or applicable legislation do not stipulate that any such powers must be exercised
by the members. The Directors have been authorised to issue and allot Ordinary Shares under current
Article 9. The power under Article 9 and the authority for the company to make purchases of its own
shares are subject to shareholder authorities which are sought on an annual basis at the AGM. Any
shares purchased by the company may be cancelled or held as Treasury shares.
Share buy-back programme
A £12 billion programme of share repurchases commenced in July 2007. Shares costing £6.2 billion
were repurchased under this programme. No repurchases were made during 2009 or 2010. The company
announced publicly on 3rd February 2011 that it intends to commence a new long-term share buy-back
programme and expects to buy-back £1-2 billion of shares in 2011. In the period 4th February 2011
to 24th February 2011, 10.4 million shares were purchased at a cost of £123.4 million. The
programme covers purchases by the company of shares for cancellation or to be held as Treasury
shares, in accordance with the authority renewed by shareholders at the AGM in May 2010, when the
company was authorised to purchase a maximum of just over 519 million shares. Details of shares
purchased, those cancelled, and those held as Treasury shares are disclosed in Note 33 to the
financial statements ‘Share capital and share premium account’.
The exact amount and timing of future purchases, and whether the shares will be held as Treasury
shares or cancelled, will be determined by the company and is dependent on market conditions and
other factors.
Donations to political organisations and political expenditure
With effect from 1st January 2009, to ensure a consistent approach to political contributions
across the Group, GSK introduced a global policy to stop voluntarily all political contributions.
| Political donations to: | 2010 | 2009 | 2008 | |||||||||
| £ | £ | £ | ||||||||||
EU political organisations |
– | – | – | |||||||||
Non-EU political organisations comprising: |
||||||||||||
USA |
– | – | 319,000 | |||||||||
Canada |
– | – | 28,000 | |||||||||
| – | – | 347,000 | ||||||||||
Notwithstanding the introduction of this policy, in accordance with the Federal Election Campaign
Act, the company continues to support a Political Action Committee (PAC) that facilitates voluntary
political donations by eligible GSK employees. The PAC is not controlled by GSK. Decisions on the
amount and recipients of contributions are made by participating employees exercising their legal
right to contribute to pool their resources and make political contributions which are subject to
strict limitations. In 2010 a total of £531,613 (£540,551 in 2009) was donated to political
organisations by the GSK PAC.
At the AGM in May 2001, shareholders first authorised the company to make donations to EU political
organisations and to incur EU political expenditure, under the provisions of the Political Parties,
Elections and Referendums Act 2000, of up to £100,000 each year. This authority has since been
renewed annually. The Companies Act 2006 requires companies to continue to obtain shareholder
approval before they can make donations to EU political organisations or incur EU political
expenditure.
However, the company does not make and does not intend to make donations to political parties or
independent election candidates, nor does it make any donations to EU political organisations or
incur EU political expenditure.
The definitions of political donations, political expenditure and political organisations used in
the legislation are very wide. In particular, the definition of EU political organisations may
extend to bodies such as those concerned with policy review, law reform, the representation of the
business community and special interest groups such as those concerned with the environment, which
the company and its subsidiaries might wish to support.
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As a result, the definitions may cover legitimate business activities not in the ordinary sense
considered to be political donations or political expenditure. Such activities are not designed to
support any political party or independent election candidate. The authority which the Board has
sought annually is a precautionary measure to ensure that the company and its subsidiaries do not
inadvertently breach the legislation.
Annual General Meeting
The AGM will be held at 2.30pm on Thursday, 5th May 2011 at The Queen Elizabeth II Conference
Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The business to be transacted at the meeting
will include:
| • | Receiving and adopting GlaxoSmithKline’s 2010 Annual Report |
| • | Approving the 2010 Remuneration Report The Remuneration Report on pages 81 to 101 sets out the remuneration policies operated by GSK and disclosures on Directors’ remuneration, including those required by the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. A resolution will be proposed to approve the Remuneration Report. |
| • | Retirement and re-election of Directors Simon Dingemans, who was appointed before the AGM will retire in accordance with the Articles and, being eligible, will offer himself for election at the AGM. All the continuing Directors will retire by rotation at the 2011 AGM and offer themselves for re-election. |
| • | Re-appointment and remuneration of auditors Resolutions will be proposed to authorise the Audit & Risk Committee to re-appoint PricewaterhouseCoopers LLP as auditors and to determine their remuneration. |
| • | Special business The company will seek authority to: |
| • | make donations to EU political organisations and incur EU political expenditure, capped at £100,000 | ||
| • | allot Ordinary Shares in the company | ||
| • | give the Directors authority to disapply pre-emption rights when allotting new shares in connection with rights issues or otherwise up to a maximum of 5% of the current issued share capital and to purchase its own Ordinary Shares up to a maximum of just under 10% of the current issued share capital | ||
| • | exempt the auditors from having to state the name of their senior statutory auditor for the company in GSK’s Annual Report | ||
| • | reduce the notice required to call a general meeting to not less than 14 clear days. |
Shareholders are entitled to appoint one or more proxies to attend the AGM and to speak and vote on
their behalf provided that, in the event that a single shareholder appoints multiple proxies, each
proxy is appointed to exercise the rights attached to a different share or shares held by that
member.
Details on how to appoint or be appointed a corporate representative or proxy can be found on page
208.
Internal control framework
The Board recognises its responsibility to present a balanced and understandable assessment of the
Group’s position and prospects.
The Board has accountability for reviewing and approving the adequacy and effectiveness of internal
controls operated by the Group, including financial, operational and compliance controls and risk
management. The Board has delegated responsibility for such review to the Audit & Risk Committee
(the Committee), which receives regular reporting aligned with GSK’s Assurance Programme. It is the
responsibility of management, through the CET, to implement Board policies on risk and control. The
CET is responsible for identifying, approving, monitoring and enforcing key policies that go to the
heart of how the Group conducts business.
The internal control framework includes central direction, resource allocation and risk management
of the key activities of research and development, manufacturing, marketing and sales, legal, human
resources, information systems and financial practice. As part of this framework, there is a
comprehensive planning system with an annual budget approved by the Board. The results of operating
units are reported monthly and compared with the budget. Forecasts are prepared regularly during
the year.
The Group also has in place established procedures to identify and consolidate reporting entities.
The Group’s control activities include policies and practices covering appropriate authorisation
and approval of transactions, application of financial reporting standards and reviews of
significant judgements and financial performance.
Extensive financial, regulatory and operational controls, procedures and risk activities are
reviewed by the Group’s internal auditors. However, responsibility is clearly delegated to local
business units, supported by a regional management structure. These principles are designed to
provide an environment of central leadership coupled with local operating autonomy as the framework
for the exercise of accountability and control within the Group.
The Group also attaches importance to clear principles and procedures designed to achieve
appropriate accountability and control. A Group policy, ‘Risk Management and Legal Compliance’,
mandates that business units establish processes for managing and monitoring risks significant to
their businesses and the Group.
The internal control framework also relies on the following mechanisms for overseeing and reporting
risk and compliance issues.
GSK Annual Report 2010
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72
Corporate governance
Risk Oversight and Compliance Council (ROCC)
The ROCC is a council of senior executives authorised by the Board to assist the Committee oversee
the risk management and internal control activities of the Group. Membership comprises several CET
members and some of the heads of departments with internal control, risk management, assurance,
audit and compliance responsibilities.
The ROCC meets on a regular basis to review and assess significant risks and their mitigation plans
and provide oversight of internal controls to ensure compliance with applicable laws, regulations
and internal GSK policies. The ROCC, responding to the Group policy referred to above, has provided
the business units with a framework for risk management and upward reporting of significant risks.
Mitigation planning and identification of a manager with overall responsibility for management of
any given risk is a requirement.
Risk Management and Compliance Boards (RMCBs)
RMCBs have been established in each of the major business units. Membership often comprises members
of the senior executive team of the respective business unit, augmented by specialists where
appropriate. The RMCBs oversee management of all risks that are considered important for their
respective business units, including those risks that are designated as significant to GSK as a
whole, thus increasing the number of risks that are actively managed across the Group.
Each business unit and corporate function must periodically review the significant risks facing
their businesses. This review should include identifying operational risks, legal compliance risks
and risks to the achievement of strategic goals and objectives. The review must occur at least
annually and should be embedded within, and aligned with, the annual planning process to ensure
that significant risks are identified with changes in management direction and the external
environment.
Corporate Ethics & Compliance (CEC)
The ROCC and the RMCBs are assisted by the CEC department, which is responsible for supporting the
development and implementation of practices that facilitate employees’ compliance with laws and
Group policy. The department provides assistance to help employees meet high ethical standards and
comply with applicable laws and regulations and corporate responsibility.
The thrust of the Group’s compliance effort is due diligence in preventing and detecting misconduct
or non-compliance with law or regulation and the promotion of ethical behaviour, compliance with
all laws and regulations, corporate responsibility at all levels and effective compliance systems.
GSK employees are encouraged to seek help and to report concerns or suspected cases of misconduct
without the fear of retaliation. Employees can do this through line management or via GSK’s
integrity and confidential reporting lines managed by CEC. All concerns and allegations are fairly
and independently investigated and disciplinary action, if applicable, is commensurate with the
issues presented.
The CEC department is managed by the Senior Vice President, Governance, Ethics and Assurance, who
reports directly to the CEO. He chairs the ROCC and provides summary reports on the ROCC’s
activities and the Group’s significant risks to the CET and the Committee on a regular basis. His
direct reporting line to the Committee provides a mechanism for bypassing the executive management
should the need ever arise.
GSK Annual Report 2010
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73
Corporate governance
Assurance
In 2009, an Assurance Programme was implemented to further enhance governance and provide an
independent assessment of governance, risk management and control processes for the organisation.
Within GSK this comprises four main elements:
Internal Audit
GSK’s Internal Audit group has responsibility for independently assessing the adequacy and
effectiveness of the management of significant risk areas and reporting outcomes to the Committee
in line with an agreed Assurance Plan. The internal audit group is comprised of four principal
teams focused in the following areas:
| • | Commercial and Financial |
| • | Information Technology |
| • | Manufacturing (including Environmental Health, Safety and Sustainability) |
| • | Research and Development |
All internal audit activity is conducted by a single organisation under the leadership of the Head
of Audit & Assurance. The Head of Audit & Assurance has a dual reporting line into the Senior Vice
President, Governance, Ethics and Assurance and the Committee Chairman. The global audit function
allows for more holistic assurance, consistency in approach, and independence in reporting. This
has helped eliminate overlaps, gaps and the potential for over/ under auditing.
Internal Audit undertakes a continuous process of risk assessment that contributes to the evolution
of GSK’s audit strategies and compilation and delivery of the audit schedule. This approach allows
Audit & Assurance to respond expeditiously to changes in the business and risk environment and
ensure that audit strategies are fit-for-purpose.
When issues or control deficiencies are identified during audit engagements, Internal Audit
recommends processes for improvement. GSK managers develop corrective action plans to address the
causes of non-compliance and gaps in internal controls. Internal Audit tracks these plans to
completion and reports results to executive management and the Committee. Internal audit results
are also compiled and reported to the ROCC and the Committee as detailed in the Assurance reporting
section below.
To supplement the audit programme, Strategic Risk Evaluations (SREs) are performed on significant
issues facing GSK and are conducted by our assurance teams in partnership with the business. The
approach is designed to evaluate risk areas and enable the development and implementation of
appropriate mitigation plans. During 2010 two new SREs were performed covering the areas of change
management and evaluation of risks associated with existing and proposed sales force incentive
schemes. In addition, Audit & Assurance provided implementation support for the 2009 SREs which
included acquisitions — due diligence and use of pseudoephedrine in GSK products.
Assurance reporting
Assurance reporting to the Committee follows a structured programme integrating reporting from
business units, Assurance and Internal Audit.
Business units and corporate functions are required to present reports annually to the ROCC and the
Committee that detail their risk management and compliance approach, providing a balanced
assessment of the status of internal controls over key risks, and highlighting any significant
compliance issues. Managers must oversee risks that are considered important for their respective
business units, including those risks that are designated as significant to the Group. Information
regarding the controls in place to manage these risks is provided to assure the Committee that
these risks are adequately managed within the internal control framework.
In addition, significant compliance issues and internal audit results are escalated to the ROCC and
the Committee at the earliest opportunity.
Risk management
The Group’s risk management programme extends beyond legal and regulatory issues and considers the
Group’s overall strategy and changes in the external environment. Furthermore, risk management
principles are embedded within management practices and are part of the business strategy and
objectives setting process.
For details of risks affecting the Group, see ‘Risk factors’ on pages 53 to 57 and Note 44 to the
financial statements, ‘Legal proceedings’.
Effectiveness of controls
The internal control framework has been in operation for the whole of the year under review and
continues to operate up to the date of approval of this report. The system of internal controls is
designed to manage rather than eliminate the risk of not achieving business objectives, and can
only provide reasonable and not absolute assurance against material misstatement or loss.
The Committee receives reports on areas of significant risk to the Group and on related internal
controls. Following consideration of these reports and those received via the Assurance framework,
the Committee reports annually to the Board on the effectiveness of controls.
There are areas of the Group’s business where it is necessary to take risks to achieve a
satisfactory return for shareholders, such as investment in R&D and in acquiring new products or
businesses. In these cases, it is the Group’s objective to apply its expertise in the prudent
management rather than elimination of risk. The Directors’ review relates to the company and its
subsidiaries and does not extend to material associated undertakings, joint ventures or other
investments.
The Board, through the Committee, has reviewed the assessment of risks and the internal control
framework that operates in GSK and has considered the effectiveness of the system of internal
control in operation in the Group for the year covered by this report and up to the date of its
approval by the Board. The process followed by the Board in reviewing the system of internal
controls accords with the guidance on internal control issued by the Turnbull Committee.
GSK Annual Report 2010
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74
Corporate governance
Committee reports
Board Committees report regularly to the Board on the performance of the activities they have been
assigned.
Audit & Risk Committee Report
Dear Shareholder
During 2010, the Committee has focused on a number of activities associated with and beyond its
core financial internal control responsibilities.
The implementation of the new Assurance model at the end of 2009 involved the consolidation of each
of the audit groups into a new Audit & Assurance function which has enabled reporting to the
Committee to be streamlined and helped to ensure that business unit risks and internal audit
activity can be fully aligned.
To reflect the Group’s strategy to expand further into the Emerging Markets, an Eastern hemisphere
audit hub has been established as a focus for audit activity in the Asia Pacific region.
In response to the new UK Bribery Act a dedicated Anti-Bribery and Compliance (ABAC) team has been
established, which is part of Audit & Assurance.
At the end of 2010, work commenced to assist the Board further in reviewing, and the CET in
understanding, the nature and extent of the risks GSK is taking in order to achieve its strategic
objectives. This work will be ongoing as the FRC’s review of the Turnbull Guidance continues. I
will report further as this work progresses.
I have continued to visit more of the Group’s operations to help make the Committee more accessible
to employees and senior management; to discuss the issues brought to the Committee by management;
and meet more of the network of Compliance Officers, on whom the Group relies, to oversee and drive
compliance within GSK.
The Committee also continues to examine how to further improve our approach to Audit & Assurance,
as this is an ongoing initiative and further progress in this area will be reported next year.
Tom de Swaan
Audit & Risk Committee Chairman
Audit & Risk Committee Chairman
| Attendance at | ||||||||
| full meetings | ||||||||
| Members | Committee member since | during 2010 | ||||||
Mr Tom de Swaan |
1st January 2006 | 6/6 | ||||||
(Chairman from |
||||||||
1st September 2006) |
||||||||
Professor Sir Roy |
20th May 2009 | 6/6 | ||||||
Anderson |
||||||||
Sir Deryck Maughan |
21st January 2005 | 5/6 | ||||||
Dr Daniel Podolsky |
1st January 2007 | 6/6 | ||||||
Sir Robert Wilson |
12th December 2003 | 6/6 | ||||||
The structure of the Committee’s meetings was changed during 2009. Meetings have been split into
two parts. Part one deals with the more fundamental aspects of internal financial control and
considers standing items, such as receiving reports from the external auditors and Audit &
Assurance. The entire Board is invited to attend part two of the meetings which usually considers
developments in the external risk environment, receives legal updates, new business unit and
corporate function reports and reports on the outcome of Strategic Review Evaluations and other
topical issues.
In addition to the six scheduled meetings, the Committee also met on a quorate basis on five
occasions.
Other attendees at Committee meetings include:
| • | CEO | |
| • | CFO | |
| • | Chairman | |
| • | General Counsel | |
| • | Head of Audit & Assurance | |
| • | Company Secretary | |
| • | Chairman, Research & Development | |
| • | Chief Medical Officer | |
| • | Head of Governance, Ethics and Assurance | |
| • | External Auditors. |
The Committee’s main responsibilities include:
| • | Reviewing the corporate accounting and financial reporting process | |
| • | Monitoring the integrity of the financial statements | |
| • | Evaluating the system of internal control and identifying and managing risks, including in relation to the financial reporting process and the preparation of consolidated accounts | |
| • | Overseeing activities of each of the Group’s compliance and audit functions and overseeing compliance with laws, regulations and ethical codes of practice. |
The Committee’s oversight role requires it to address regularly the relationships between
management and the internal and external auditors and understand and monitor the reporting
relationships and tiers of accountability between them.
GSK Annual Report 2010
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75
Corporate governance
The Committee receives regular reports from members of the CET and senior managers covering the key
risk management and compliance activities of the Group, including those covering R&D,
manufacturing, sales and marketing and corporate functions. Further details of the reporting
framework to the Committee are set out on pages 71 to 73 ‘Internal control framework’.
In December 2009 the Committee’s terms of reference were amended to reflect its role in overseeing
the identification and management of risk under the new assurance-based audit framework referred to
on page 73. At the same time the name of the Audit Committee was changed to the Audit & Risk
Committee.
Qualifications of Audit & Risk Committee members
Committee members, with the exception of Professor Sir Roy Anderson and Dr Daniel Podolsky, bring
considerable financial and accounting experience to the Committee’s work. Members have past
employment experience in either finance or accounting roles or comparable experience in corporate
activities. Professor Sir Roy Anderson and Dr Daniel Podolsky’s backgrounds as world renowned
medical scientists and researchers enable them to bring scientific expertise to the Committee’s
deliberations.
| Financial & accounting experience | ||
Mr Tom de Swaan
|
• Chief Financial Officer of ABN AMRO until
31st December 2005 |
|
• Determined by the Board to be the Audit
Committee Financial Expert, as defined by the
Sarbanes Oxley Act of 2002 (Sarbanes-Oxley) |
||
• Non-Executive Director of KPMG’s Public
Interest Committee |
||
Sir Deryck Maughan
|
• A Partner of Kohlberg Kravis Roberts & Co.
(KKR) and Chairman of KKR Japan |
|
• Former Chairman & CEO of Citigroup
International and Vice Chairman of
Citigroup Inc. |
||
• Former Chairman and Co-Chief Executive
Officer of Salomon Smith Barney |
||
• Former Chairman and Chief Executive
Officer of Salomon Brothers Inc. |
||
Sir Robert Wilson
|
• Economist, and former Non-Executive
Chairman of The Economist Group |
|
• Chairman of BG Group plc |
||
• Retired from RioTinto in 2003 where he held
Senior Management positions culminating in
his appointment as Executive Chairman |
||
| Scientific expertise | ||
Professor Sir Roy Anderson |
• A world renowned medical scientist with
advanced knowledge of infectious disease
epidemiology |
|
• Professor of Infectious Disease Epidemiology
in the Faculty of Medicine, Imperial College,
London |
||
• Fellow of the Royal Society |
||
• Foreign Associate Member of the Institute
of Medicine at the US National Academy
of Sciences |
||
• Foreign Associate Member of the French
Academy of Sciences |
||
• Former Rector of Imperial College, London |
||
• Former Chief Scientific Adviser at the Ministry
of Defence in the UK |
||
Dr Daniel Podolsky
|
• A world renowned researcher with
advanced knowledge of underlying
mechanisms of disease and new therapies
for gastrointestinal disorders |
|
• President of the University of Texas
Southwestern Medical Center and Professor
of Internal Medicine |
||
• Member, Institute of Medicine of the US
National Academy of Sciences |
||
• Former Mallinckrodt Professor of Medicine,
Harvard Medical School |
||
• Former Chief Academic Officer, Partners
Healthcare |
||
GSK Annual Report 2010
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76
Corporate governance
In 2010, the Committee worked to a structured programme of activities, with standing items that the
Committee is required to consider at each meeting, together with other matters focused to coincide
with key events of the annual financial reporting cycle:
External auditors
|
reported on all critical accounting policies, significant judgements and practices used by the Group, alternative accounting treatments which had been discussed with management and their resultant conclusion, material written communications with management and any restrictions on access to information | |
CFO
|
reported on the financial performance of the company and on technical financial and accounting matters | |
General Counsel
|
reported on material litigation | |
Company Secretary & Corporate Compliance Officer
|
reported on corporate governance and on the activities undertaken by the ROCC | |
Heads of audit and
assurance and the
Group’s compliance
and audit groups
|
the majority of the Heads of these groups reported on their audit scope, annual coverage, audit resources and on the results of audits conducted throughout the year | |
Company Secretary,
as Chairman of
the Disclosure
Committee
|
reported on matters that affected the quality and timely disclosure of financial and other material information to the Board, to the public markets and to shareholders. This enabled the Audit & Risk Committee to review the clarity and completeness of the disclosures in the published annual financial statements, interim reports, quarterly and preliminary results announcements and other formal announcements relating to financial performance prior to approval by the Board. | |
The Committee, management, internal auditors and the full Board work together to ensure the quality
of the company’s corporate accounting and financial reporting. The Committee serves as the primary
link between the Board and the external and internal auditors. This facilitates the necessary
independence from management and encourages the external and internal auditors to communicate
freely and regularly with the Committee. In 2010, the Committee met both collectively and
separately with the external auditors and the Head of Audit & Assurance, and the Corporate
Compliance Officer without members of management being present.
External auditors’ appointment and fees
The Committee has primary responsibility for making a recommendation to shareholders on the
appointment, re-appointment and removal of the external auditors by annually assessing the
qualifications, expertise, resources and independence of the external auditors and the
effectiveness of the audit process.
In evaluating the effectiveness of the audit process prior to making a recommendation on the
re-appointment of the external auditors, the Committee reviews the effectiveness of their
performance against criteria which it agrees, in conjunction with management, at the beginning of
each year’s audit. As part of this process, the Committee considers feedback on the prior year’s
external audit gathered through a survey facilitated by the auditors’ client service review team,
which is independent of the engagement team that undertook the audit work. The survey seeks
feedback from a number of sources, including certain members of the Board who were involved in the
audit process and the financial management team at corporate and business unit level.
Before agreeing the audit fee proposed by the external auditors the Committee considers cost
comparisons to ensure that it is fair and appropriate for GSK. There are no contractual obligations
that restrict the Committee’s capacity to recommend a particular firm as external auditors to the
Group. PricewaterhouseCoopers LLP have remained in place as auditors since the Group’s inception in
December 2000. Their performance has been reviewed annually by the Committee since that time.
In making its assessment, the Committee considers papers which detail the relevant UK legislative,
regulatory and professional requirements relating to external auditors and evaluates reports from
the external auditors on their compliance with the requirements, on the safeguards that have been
established and on their own internal quality control procedures. Consideration is also given by
the Committee to the need to include the risk of the withdrawal of the external auditors from the
market in its risk evaluation and planning. The external auditors are required to rotate the audit
engagement partner every five years. The current audit partner commenced his engagement on 1st
January 2008 and is not subject to rotation until after the audit of GSK’s financial statements for
2012 has been concluded.
The Sarbanes-Oxley Act of 2002 prohibits the engagement of the external auditors for the provision
of certain services such as legal, actuarial, internal audit outsourcing, financial information
systems design. Where the external auditors are permitted to provide non- audit services, the
Committee ensures that auditor objectivity and independence are safeguarded by a policy requiring
pre-approval by the Committee for such services. These services may include audit, audit-related,
tax and other services. Pre-approval is detailed as to the particular service or categories of
services, and is subject to a specific budget.
There are guidelines which set out the Group’s policy on engaging the external auditors to provide
non-audit services, which include ascertaining that: the skills and experience of the external
auditors make them a suitable supplier of the non-audit services; adequate safeguards are in place
so that the objectivity and independence of the Group audit are not threatened or compromised; and
the fee levels relative to the annual audit fee are within the limits set by the Committee.
The external auditors and management report regularly to the Committee regarding the extent of
services provided in accordance with this pre-approval and the fees for the services performed. The
Committee may also pre-approve additional services on a case-by- case basis. Expenditure on audit
and non-audit services is set out in Note 9 to the financial statements, ‘Operating profit’.
GSK Annual Report 2010
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77
Corporate governance
Code of Conduct
The company also has a number of well-established policies, including a Code of Conduct and a help-line facility for the reporting and investigation of unlawful
conduct. No waivers to the Code were made in 2010.
Nominations Committee Report
Sir Christopher Gent
Nominations Committee Chairman
| Attendance at | ||||||||
| full meetings | ||||||||
| Members | Committee member since | during 2010 | ||||||
Sir Christopher Gent |
9th December 2004 | 3/3 | ||||||
(Chairman from |
||||||||
1st January 2005) |
||||||||
Larry Culp |
28th March 2008 | 2/3 | ||||||
Sir Crispin Davis |
9th July 2009 | 3/3 | ||||||
Sir Deryck Maughan |
9th July 2009 | 2/3 | ||||||
Sir Robert Wilson |
28th March 2008 | 3/3 | ||||||
In addition to the three scheduled meetings, the Committee also met on a quorate basis on two
occasions.
Other attendees at Committee meetings:
| • | CEO | |
| • | Head of Human Resources | |
| • | Company Secretary | |
| • | where relevant, appropriate external advisers. |
The Nominations Committee’s (the Committee) main responsibilities include proposing the appointment
of Board and Committee members.
During 2010, the Committee’s main focus was on the succession process for the CFO and the search
for new Non-Executive Directors to refresh the Board.
When appointing new Executive Directors or CET members, the Committee considers the skills,
knowledge and experience required for the particular executive position. The Committee will
consider potential external and internal candidates before recommending to the Board to approve the
new appointment. All new Directors offer themselves for election at the company’s next AGM. Their
appointments are announced publicly.
The succession process for the CFO focused on the need both for GSK to operate with creativity and
continued financial discipline and also to identify a candidate who would be able to bring
experience and capability to support our strategy to grow and diversify GSK’s business through
organic means and bolt-on acquisitions. The successful candidate would also be responsible for
delivering further cost savings as part of our global restructuring programme and implementing
additional measures to simplify our operational model. After considering potential external and
internal candidates, the Committee was pleased to recommend Simon Dingemans to the Board, as the
company’s CFO Designate.
Simon Dingemans was a Managing Director and Partner at Goldman Sachs’ European M&A business and
previously head of UK Investment Banking. During his 25 years in investment banking he built up
relationships and offered strategic advice across multiple industry sectors, including
pharmaceuticals and consumer healthcare. He had worked closely with GSK for many years and had
helped establish ViiV Healthcare a new world-leading, specialist HIV company.
The Board approved and announced the appointment of Simon Dingemans in September 2010 and he then
joined GSK in January 2011.
The Committee also recommended the appointment of Dr Patrick Vallance to the CET and as SVP, Drug
Discovery and Medicines Development with effect from 1st July 2010. He joined GSK in May 2006 as
Head of Drug Discovery. He has since transformed GSK’s discovery engine to focus on therapy areas
that are underpinned by the most promising and mature science, and which offer fresh insights into
diseases. In his new role, he assumed responsibility for Medicines Development and will be
responsible for ensuring that GSK maintains a flow of potential new medicines through the R&D
pipeline from early discovery through to late stage development.
When recruiting Non-Executive Directors, the Committee considers the particular skills, knowledge,
independence, diversity and experience that would benefit the Board most significantly for each
appointment. Broad selection criteria are used which focus on achieving a balance between the
representation of European, UK, US and Emerging Markets, and having individuals with CEO level
experience and skills developed in various sectors and specialities.
During 2010, particular focus continued to be placed upon recruiting a replacement for Dr Ronaldo
Schmitz who retired from the Board at the AGM in May 2009. The Committee has placed an emphasis on
candidates who are current or recently retired CEOs, CFOs, Audit partners or who have other
significant financial expertise and preferably an individual who brings increased diversity to the
Board’s composition and deliberations. Professional search agencies have been engaged who
specialise in the recruitment of high calibre Non-Executive Directors. Dossiers of potential
Non-Executive appointees have been considered by the Committee and shortlisted for interview on
merit and against objective criteria, after considering their relevant qualifications. Positive
progress has been made on the recruitment of new Non-Executive Directors to refresh the Board.
GSK Annual Report 2010
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78
Corporate governance
Remuneration Report
The Remuneration Report can be found on pages 81 to 101.
Corporate Responsibility Committee Report
Sir Christopher Gent
Corporate Responsibility Committee Chairman
| Attendance at | ||||||||
| full meetings | ||||||||
| Members | Committee member since | during 2010 | ||||||
Sir Christopher Gent (Chairman from 1st January 2005) |
9th December 2004 | 4/4 | ||||||
Dr Stephanie Burns |
6th December 2007 | 3/4 | ||||||
James Murdoch |
20th May 2009 | 4/4 | ||||||
Dr Daniel Podolsky |
1st July 2006 | 4/4 | ||||||
Other attendees at Committee meetings:
| • | CEO | |
| • | General Counsel | |
| • | Head of Governance, Ethics and Assurance | |
| • | Head of Global Communications | |
| • | Head of Corporate Responsibility | |
| • | Company Secretary | |
| • | Independent External Corporate Responsibility Adviser. |
Independent External Corporate Responsibility Adviser
To augment GSK’s engagement with stakeholder opinion, in March 2009, Ms Sophia Tickell was
appointed as an independent external adviser to the Corporate Responsibility Committee (the
Committee). Sophia Tickell is the co-founder and Director of Meteos, from which she directs the
Pharma Futures Series, which aims to align better societal and shareholder value. She also sits on
the Expert Review Committee of the Access to Medicines Foundation and is a member of the European
Healthcare Innovation Leadership Network.
Sophia Tickell attends meetings of the Committee and provides independent advice and guidance on
corporate and social responsibility matters to both the Chairman and CEO.
Main responsibilities of the Committee
The main responsibilities of the Committee are set out on page 67. The Committee has a rolling
agenda and receives reports from members of the CET and senior managers to ensure that progress on
meeting GSK’s Corporate Responsibility Principles is reviewed. The Committee annually reviews
progress on the following five Corporate Responsibility (CR) Principles:
| • | access to medicines | |
| • | standards of ethical conduct | |
| • | research and innovation | |
| • | employment practices; and | |
| • | community investment |
GSK’s other CR Principles are discussed at least once every two years. The Committee also reviews
and approves the Corporate
Responsibility Report.
Work of the Committee during 2010
| CR Principles | Committee’s area of focus during 2010 | |
Access to medicines
|
Access to and pricing of medicines in middle income and least developed countries. | |
Standards of ethical conduct
|
Embedding ethical values in the organisation. | |
Research and innovation
|
Policy on use of animals in research and development. Research integrity and transparency. Governance of research conducted by external suppliers and collaborators. R&D on treatments for rare conditions and for diseases of the developing world. The potential of stem cell science for regenerative medicines. | |
Employment practices
|
Diversity and inclusion. Leading and developing employees. Employee relations including consultation arrangements. Realignment of the pay for performance strategy. Management of health and safety risks in manufacturing. | |
Community investment
|
Community partnerships and investment. Humanitarian donations. | |
Caring for the environment
|
Environmental sustainability strategy. Management of environment risks in manufacturing. | |
Products and customers
|
Disclosure of payments to healthcare professionals. | |
Corporate responsibility is integrated into the management of GSK’s business. Throughout this
Annual Report you will read of advances to ensure that GSK works as efficiently and effectively as
possible whilst ensuring that we always act responsibly.
For those interested in more detail we publish a comprehensive Corporate Responsibility Report.
GSK Annual Report 2010
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79
Corporate governance
US law and regulation
A number of provisions of US law and regulation apply to GSK because the company’s shares are
quoted on the NYSE in the form of ADS.
NYSE rules
In general, the NYSE rules permit the company to follow UK corporate governance practices instead
of those applied in the USA, provided that the company explains any significant variations. This
explanation is contained in the company’s Form 20-F filing, which can be accessed from the
Securities and Exchange Commission’s (SEC) EDGAR database or via the company’s website. NYSE rules
that came into effect in 2005 require the company to file annual and interim written affirmations
concerning the Audit & Risk Committee and the company’s statement on significant differences in
corporate governance.
Sarbanes-Oxley Act of 2002
Following a number of corporate and accounting scandals in the USA, Congress passed the
Sarbanes-Oxley Act of 2002. Sarbanes- Oxley is a wide ranging piece of legislation concerned
largely with financial reporting and corporate governance.
As recommended by the SEC, GSK has established a Disclosure Committee. The Committee reports to the
CEO, the CFO and to the Audit & Risk Committee. It is chaired by the Company Secretary and the
members consist of senior managers from finance, legal, compliance, corporate communications and
investor relations.
External legal counsel, the external auditors and internal experts are invited to attend its
meetings periodically. It has responsibility for considering the materiality of information and, on
a timely basis, determining the disclosure of that information. It has responsibility for the
timely filing of reports with the SEC and the formal review of the Annual Report and Form 20-F. In
2010, the Committee met 6 times.
Sarbanes-Oxley requires that the Annual Report contains a statement as to whether a member of the
company’s Audit & Risk Committee is an Audit Committee Financial Expert as defined by
Sarbanes-Oxley. For a summary regarding the Board’s judgement on this matter, refer to page 75.
Additional disclosure requirements arise under section 302 and section 404 of Sarbanes-Oxley in
respect of disclosure controls and procedures and internal control over financial reporting.
Section 302: Corporate responsibility for financial reports
Sarbanes-Oxley also introduced a requirement for the CEO and the CFO to complete formal
certifications, confirming that:
| • | they have each reviewed the Annual Report and Form 20-F | |
| • | based on their knowledge, it contains no material misstatements or omissions | |
| • | based on their knowledge, the financial statements and other financial information fairly present, in all material respects, the financial condition, results of operations and cash flows as of the dates, and for the periods, presented in the Annual Report and Form 20-F | |
| • | they are responsible for establishing and maintaining disclosure controls and procedures that ensure that material information is made known to them, and have evaluated the effectiveness of these controls and procedures as at the year-end, the results of such evaluation being contained in the Annual Report and Form 20-F | |
| • | they are responsible for establishing and maintaining internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles | |
| • | they have disclosed in the Annual Report and Form 20-F any changes in internal controls over financial reporting during the period covered by the Annual Report and Form 20-F that have materially affected, or are reasonably likely to affect materially, the company’s internal control over financial reporting | |
| • | they have disclosed, based on their most recent evaluation of internal control over financial reporting, to the external auditors and the Audit & Risk Committee, all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to affect adversely the company’s ability to record, process, summarise and report financial information, and any fraud (regardless of materiality) involving persons that have a significant role in the company’s internal control over financial reporting. |
The Group has carried out an evaluation under the supervision and with the participation of the
Group’s management, including the CEO and CFO, of the effectiveness of the design and operation of
the Group’s disclosure controls and procedures as at 31st December 2010.
There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can only
provide reasonable assurance of achieving their control objectives.
Based on
the Group's evaluation, the CEO and CFO have concluded that, as at
31st December 2010, the disclosure controls and procedures were
effective to provide reasonable assurance that information required
to be disclosed in the reports that the Group files and submits under
the US Securities Exchange Act of 1934, as amended, is recorded,
processed, summarised and reported as and when required and that it
is accumulated and communicated to management, including the CEO and
CFO, as appropriate, to allow timely decisions regarding disclosure.
The CEO and
CFO completed these certifications on 4th March 2011.
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Corporate governance
Section 404: Management’s annual report on internal control over financial reporting
In accordance with the requirements of section 404 of Sarbanes- Oxley, the following report is
provided by management in respect of the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the US Securities Exchange Act of 1934):
| • | Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS | |
| • | Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission | |
| • | Management has assessed the effectiveness of internal control over financial reporting, as at 31st December 2010 and has concluded that such internal control over financial reporting was effective. In addition, there have been no changes in the Group’s internal control over financial reporting during 2010 that have materially affected, or are reasonably likely to affect materially, the Group’s internal control over financial reporting | |
| • | PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Group for the year ended 31st December 2010, has also assessed the effectiveness of the Group’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States). Their audit report may be found on page 103. |
GSK Annual Report 2010
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Remuneration Report
Sir Crispin Davis
Remuneration Committee Chairman
Dear Shareholder
On behalf of the Board, I am pleased to present our Remuneration Report for 2010, for which we will be seeking your approval at our AGM in May.
Over the last few years, the Remuneration Committee (the Committee) has implemented a number of changes, including more tailored benchmarking versus the market, and simplifying and aligning remuneration
across the Corporate Executive Team. Throughout we have consulted with shareholders and have been encouraged by the level of support.
As previewed last year, in 2010 our priority was to align more closely Executive remuneration with GSK’s strategic priorities, and to enhance our governance
practices. This report describes how we are progressing against these objectives.
Strategic alignment of long-term incentives
The Board has carried out a thorough review of GSK’s key strategic priorities, which are described
on page 7 of the Annual Report. The Board firmly believes achievement against these priorities will
deliver strong long-term financial performance and shareholder value creation on a sustainable
basis.
Accordingly in 2010 we have moved to align long-term performance incentives more closely with
the Group’s key strategic priorities. This will help ensure senior management are fully focused
on the right priorities, with incentives to deliver against them.
The long-term incentive awards we made in February 2011 were therefore based on four equally
weighted performance measures which directly link to the Group’s key strategic priorities and
the overarching goal to deliver value to shareholders:
| Key Strategic Priorities | Long-Term Incentive Performance Measure | |||
• Grow a diversified global business
|
→ | • Business diversification performance | ||
• Deliver more products of value
|
→ | • R&D new product performance | ||
• Simplify the operating model
|
→ | • Adjusted free cash flow | ||
• Deliver value to shareholders
|
→ | • Relative total shareholder return (TSR) |
The targets set out by the Committee are challenging and will require significant stretch
performance. The targets for adjusted free cash flow and relative TSR are set out on page 88.
However, given the very close linkage of the performance measures for business diversification and
R&D new product performance to our strategy, these targets are commercially very sensitive and will
not be published at date of grant. We will, though, update you regularly on the progress achieved
during the performance period. The targets and outcomes for the awards will be disclosed in full at
the end of the performance period.
We believe the combination of these four measures applied to our Performance Share Plan and
Deferred Annual Bonus Plan will ensure that we have a balanced framework of targets which focus
on each of our strategic objectives.
This year was the first year that all Executives were eligible to participate in our Deferred
Annual Bonus Plan, which was introduced in 2009 to encourage long-term shareholding and to
drive shareholder returns. I am very pleased to report that take-up has been very positive.
Governance
Following on from the progress we reported in last year’s Remuneration Report, we are now pleased
to report that all our continuing Executive Directors’ contracts have severance terms of one year’s
base salary only. Similarly to Andrew Witty, Dr Moncef Slaoui, Chairman, R&D, has voluntarily
agreed to remove the contractual entitlement to bonus from his severance terms. The severance terms
in the contract for Simon Dingemans, our new CFO, are also based on one year’s base salary.
In order to effectively manage risk, we will continue to operate the ‘clawback’ mechanism
introduced in 2009 for annual bonuses and long-term incentive awards should problems arise in the
years after an award has been made. We have adapted UK pension arrangements in the light of new
pension tax legislation to continue to meet our long-standing commitments. However, the company
will not offset any additional individual tax costs.
Each year, we review the market competitiveness of Executive Directors’ base salaries and
packages, taking into account the prevailing economic conditions and the positioning and
relativities of pay across the broader GSK workforce. As a result of that review, to ensure
appropriate market competitiveness in the context of Dr Moncef Slaoui’s enhanced role, including
the transition of responsibility for Biologicals, he will receive an increase to his base salary.
Andrew Witty and Simon Dingemans will not receive any increase in base salary.
We believe that the changes we have made in recent years support the long-term success of the
business and as such are in the best interests of shareholders.
Sir Crispin Davis
Remuneration Committee Chairman
1st March 2011
Remuneration Committee Chairman
1st March 2011
GSK Annual Report 2010
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Remuneration Report
The Remuneration Committee
Role of the Committee
The role of the Committee is to set the company’s remuneration policy for Executive Directors
and Corporate Executive Team (CET) members (together the Executives), so that GSK is able to
recruit, retain and motivate its Executives. The policy is regularly reviewed to ensure that it is
consistent with the company’s scale and scope of operations, supports the business strategy and
growth plans and helps drive the creation of shareholder value.
In setting remuneration policy and levels for the most senior executives, the Committee gives
consideration to remuneration policy and levels for the wider employee population of the Group, as
well as ensuring that remuneration is consistent with industry and broader market norms.
Terms of reference
The Committee’s full terms of reference are available. The terms of
reference, which are reviewed annually, were revised in January 2011 in the light of best practice
and corporate governance developments.
Governance
The Board considers all of the members of the Committee to be independent Non-Executive Directors,
in accordance with the Combined Code, with the exception of Sir Christopher Gent, Chairman of the
company, who was independent on appointment.
The Committee met six times during 2010, with each member attending as follows:
| Attendance | ||||||||
| at full | ||||||||
| meetings | ||||||||
| Committee member | during | |||||||
| Members | since | 2010 | ||||||
Sir Crispin Davis |
1st July 2003 | 6/6 | ||||||
(Chairman from 20th May 2009) |
||||||||
Sir Robert Wilson |
1st January 2004 | 3/3 | ||||||
(to 25th March 2010) |
||||||||
Larry Culp* |
1st January 2004 | 4/6 | ||||||
Sir Christopher Gent |
1st January 2007 | 6/6 | ||||||
James Murdoch |
1st October 2009 | 6/6 | ||||||
Tom de Swaan** |
20th May 2009 | 6/6 | ||||||
| * | Larry Culp was unable to attend two meetings for personal reasons. He reviewed the papers and provided his views to the Committee Chairman in advance of these meetings. | |
| ** | Tom de Swaan is also the Chairman of the Audit & Risk Committee. |
In addition to the six scheduled meetings,
the Committee also met on a quorate basis on
three occasions, principally to approve the
formal grant and vesting of long-term incentive
(LTI) awards in accordance with GSK’s
remuneration policy.
Andrew Witty (CEO) and Claire Thomas (Senior
Vice President, Human Resources) were invited to
attend part of some meetings of the Committee as
required. No Executives or Committee attendees
are involved in any decision or are present at
any discussion as to their own remuneration.
In addition, Allen Powley (Senior Vice President, Corporate Compensation) and Judy Lynch
(Senior Vice President, Benefits) were also invited to some meetings as required.
With the exception of Victoria Whyte (Company Secretary and Secretary to the Committee), no
employees of the company are involved in the conduct of Committee meetings.
The Committee has access to external advice as required. Deloitte LLP has been appointed by the
Committee to provide it with independent advice on executive remuneration. During the year,
Deloitte LLP provided independent commentary on matters under consideration by the Committee, and
provided updates on best practice, legislative requirements and market practice.
Deloitte LLP also provided other consulting, tax and assurance services to GSK during the year,
but did not provide advice on executive remuneration matters other than for the Committee.
Towers Watson and Pay Governance provided additional market data to the Committee.
Commitment to shareholders
The Committee engages in regular dialogue with shareholders and holds annual meetings with GSK’s
largest investors to discuss and take feedback on its remuneration policy, governance matters and
any key developments during the year. In particular, the Committee discusses any significant
changes to the policy or the measures used to assess performance.
The annual meetings were held in November 2010, at which Sir Crispin Davis, Committee Chairman,
shared progress on remuneration matters in the last 12 months and proposals for 2011 as outlined on
page 84. Sir Christopher Gent, Chairman, updated attendees on Corporate Governance developments.
GSK Annual Report 2010
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83
Remuneration Report
A diary of the Committee’s key activities and matters addressed during 2010 is set out below:
Month |
Executives’ Remuneration |
Annual bonus |
Long-term incentive plans |
Governance and other matters |
||||||||
January
|
Approve CET 2010 remuneration, including salaries of CEO, CFO and Chairman, R&D | Set CEO 2010 bonus objectives Review bonus plan arrangements for Chairman, R&D |
Annual Committee evaluation results Review remuneration report Review 2010 remuneration budget Review voting policy guidelines on remuneration |
|||||||||
February
|
Review and approve Executive Directors’ and CET 2009 bonuses |
Set 2010 PSP cash flow target Approve 2007 PSP and Share Option Plan vesting Grant 2010 LTI awards to Executive Directors, CET and below Approve deferred annual bonus award elections |
Approve remuneration report |
|||||||||
March
|
Scope review of strategic alignment of LTI performance measures | Review voting policy guidelines on remuneration |
||||||||||
July
|
Agree CFO retirement and appointment packages | Review progress against 2010 bonus objectives |
Review of strategic alignment
of LTI performance measures
Grant interim 2010 LTI awards |
Review of general market developments (including pensions) | ||||||||
October
|
Agree CET 2011 salary review process |
Review CET 2010 bonus process |
Review of strategic alignment of LTI performance measures | Annual Committee assessment |
||||||||
November
|
Annual meetings with investors |
Annual meetings with investors | ||||||||||
December
|
Consider feedback from annual meetings with investors on remuneration policy Review remuneration benchmarking and competitiveness below CET level |
Consider new LTI performance targets framework |
Review tax change implications for pension arrangements |
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Remuneration Report
Remuneration policy for 2011
The table below outlines the key elements of remuneration for 2011 for GSK’s Executives.
The remuneration structure of all CET members (including Dr Moncef Slaoui and Simon Dingemans,
CFO Designate) has now been harmonised with that of Andrew Witty. As a result of this, since
2010, share options are normally no longer granted to any of the CET members. Instead, CET
members receive additional performance share awards and are also eligible to participate in
GSK’s Deferred Annual Bonus Plan.
To further improve the alignment of our Executive remuneration arrangements with GSK’s key
strategic priorities and to incentivise management to deliver long-term financial performance
and shareholder value creation on a sustainable basis, two new business-specific performance
measures were introduced for the long-term incentive awards made to Executives in February
2011. This is to ensure that there is a balanced framework of measures focusing on all of
GSK’s strategic objectives. Further information on the long-term incentive performance
measures is outlined on pages 87 to 89.
Fixed pay
Salary
|
•
Salary levels reviewed annually and influenced by Executive’s role
and experience. Benchmarked against relevant comparator group(s) |
|
Pension
|
•
For UK Executives, defined contribution plan and legacy final salary plans
(closed to new entrants since 2001). UK Executives participating in defined contribution plan benefit from company contributions of 20% of base salary, plus matched contribution of 5% of base
salary |
|
•
Following changes to UK pension tax regime, changes
made to arrangements for UK Executives to continue to meet long-standing commitments within this new regime – see page 89 |
||
•
For US Executives, GSK operates a US Cash Balance
Plan (US Plan). US Executives participating in US Plan benefit from contributions of up to 38% of salary |
||
Variable pay
|
Annual bonus |
• Maximum bonus opportunity of 200% of salary |
• Majority of bonus based on achievement of financial targets (Group profit before
interest and tax and business unit operating profit) |
||||||||
|
•
Individual performance against pre-determined personal
objectives
|
||||||||||
|
•
R&D-specific key performance indicators for R&D
employees
|
||||||||||
|
•
‘Clawback’ – Committee reviews ongoing financial
impact of any prior year activities and Executive’s role in them
and may make appropriate adjustments to individual bonus awards to
reflect circumstances.
|
||||||||||
|
Deferred Annual Bonus Plan |
• Individuals may elect to defer up to 50% of any bonus earned |
•
Awards vest at end of three-year performance period based on four equally weighted performance measures:
|
||||||||
|
- Business diversification performance - R&D new product performance - Adjusted free cash flow - Relative TSR |
||||||||||
|
•
Deferred bonuses may be matched up to one-for-one subject to performance |
||||||||||
|
Performance Share Plan
(PSP)
|
For 2011, performance share awards are as follows: |
•
Relative TSR is calculated on twelve month averaging period, using
comparator group comprising 10 pharmaceutical companies. 30% vests at
median, with 100% vesting for upper quartile performance.
•
For business diversification, R&D new product measures and
adjusted free cash flow, 25% vests at threshold, rising to 100%
for stretching performance exceeding set threshold by a specified margin
|
||||||||
|
% of Salary |
||||||||||
• CEO
|
500 | |||||||||
|
• Chairman, R&D
|
500 | |||||||||
• CFO Designate
|
350 | |||||||||
GSK Annual Report 2010
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85
Remuneration Report
Total remuneration benchmarking
The Committee reviews GSK’s total remuneration against comparable companies on a regular basis, to
ensure that remuneration arrangements are structured appropriately to deliver value for money for
shareholders over the longer term and are competitive. The relevant comparator group(s) are now
determined for each individual Executive.
For benchmarking purposes, total remuneration incorporates base salary, bonus and LTIs. When
setting pay, the Committee also considers pension arrangements.
| UK cross-industry comparator group | Global pharmaceutical comparator group | ||||
AngloAmerican
|
France | Sanofi-Aventis | |||
AstraZeneca
|
Switzerland | Novartis | |||
Barclays
|
Roche Holdings | ||||
BG Group
|
UK | AstraZeneca | |||
BHP Billiton
|
USA | Abbott Laboratories | |||
BP
|
Amgen* | ||||
British American Tobacco
|
Bristol-Myers Squibb | ||||
Diageo
|
Eli Lilly | ||||
HSBC
|
Johnson & Johnson | ||||
Reckitt Benckiser
|
Merck | ||||
Royal Dutch Shell
|
Pfizer | ||||
Rio Tinto |
|||||
Standard Chartered |
|||||
Tesco |
|||||
Unilever |
|||||
Vodafone |
|||||
| * | Amgen is included for benchmarking but since 2009 has not been in the current TSR comparator group. |
Base salary
Base salaries are set by reference to the relevant comparator group at a level considered
appropriate to secure and retain the talent needed to deliver GSK’s strategic priorities. Salary
levels are reviewed annually and are influenced by the Executive’s role, experience and the pay
environment.
The Committee decides on an individual Executive basis whether the primary pay comparator should be
the global pharmaceutical sector, the UK-based large cross-industry multinationals and/or some
other comparator group(s).
| UK | Global | |||||||
| Primary Comparator Group | cross-industry | pharmaceutical | ||||||
Andrew Witty, CEO |
ü | |||||||
Julian Heslop, CFO* |
ü | |||||||
Simon Dingemans, CFO Designate** |
ü | |||||||
Dr Moncef Slaoui, Chairman, R&D |
ü | |||||||
| * | Julian Heslop will retire from the Board on 31st March 2011 | |
| ** | Simon Dingemans joined the Board on 4th January 2011 |
For 2011, the Committee considered the prevailing economic conditions, the market
competitiveness of each Executive Director’s package and the positioning and relativities of pay
across the broader GSK workforce. It agreed with Andrew Witty that his salary would be held at 2010
levels.
It decided that the only Executive Director to receive a base salary increase this year should
be Dr Moncef Slaoui. In particular, the Committee considered his package in the context of his
enhanced role, including the transition of responsibility for Biologicals.
The table immediately following sets out current base salaries and those proposed for 2011. Salary
increases typically take effect from 1st April each year.
| 2010 base | Effective date for | 2011 base | Effective date for | % | ||||||||||||||||
| salary | 2010 salary | salary | 2011 salary | change | ||||||||||||||||
Andrew Witty, CEO |
£1,000,000 | 1st April 2010 | £1,000,000 | 1st April 2011 | 0 | |||||||||||||||
Julian Heslop, |
£525,000 | 1st April 2010 | – | – | – | |||||||||||||||
CFO* |
||||||||||||||||||||
Simon Dingemans, |
– | – | £660,000 | 4th January 2011 | – | |||||||||||||||
CFO Designate** |
||||||||||||||||||||
Dr Moncef Slaoui, |
$975,000 | 1st April 2010 | $1,125,000 | 1st April 2011 | 15 | |||||||||||||||
Chairman, R&D |
||||||||||||||||||||
| * | Julian Heslop will retire from the Board on 31st March 2011 | |
| ** | Simon Dingemans joined the Board on 4th January 2011 |
Variable pay
A significant proportion of GSK’s total remuneration package (approximately 75% – 85%) is
variable. There is a particular emphasis on long-term share-based incentives, in order to closely
align Executives’ interests with those of shareholders.
The balance between the fixed (base salary) and variable (annual bonus and LTI) elements of
remuneration varies depending on performance. The charts below show the anticipated mix between
fixed and variable pay on an expected value basis under the current remuneration policy, excluding
pensions. The actual mix may be higher or lower, depending on the performance of GSK and the
individual.
CEO
CFO Designate
Chairman, R&D
GSK Annual Report 2010
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Remuneration Report
Safeguards and risk management
The Committee would not want to reward failure and views it as important that incentive payouts are
only made in circumstances when performance outcome reflects genuine achievement against the
original targets.
In addition, given the nature of GSK’s business and the increased focus on risk within the Group,
the Committee has taken a number of steps to ensure that the design of incentive arrangements
underpins effective risk management. The Chairman of the Audit & Risk Committee is a member of the
Committee and provides input on the Audit & Risk Committee’s review of the Group’s performance and
oversight on any risk factors relevant to remuneration matters considered by the Committee.
Under the annual bonus, each year the Committee reviews the ongoing financial impact of any prior
year activities and the role of individual Executives in such activities, and the Committee may
make appropriate adjustments to individual bonus awards to reflect those circumstances (the
‘clawback’ mechanism). The Committee ensures that where there has been continuity of Executive
responsibility, between initiation of an adverse event and its emergence as a problem, the adverse
event should be taken into account in assessing annual bonuses in the year the problem is
identified. Accordingly, charges for legacy legal matters were excluded from the assessment of 2010
financial performance. This reflects the view of the Committee that current management was not
responsible for these legal actions and that it should be supported in seeking to resolve these
matters in the long term interests of shareholders.
Under the long-term incentive plans approved by shareholders in 2009, the Committee may reduce the
grant or vesting levels if it determines that a participant has engaged in conduct which is
contrary to the legitimate expectations of the company for an employee in the participant’s
position.
There are also further safeguards relating to each of the business-specific performance measures
under the long-term incentive plans which are outlined in detail on page 89.
In addition, from 2009, the Committee decided that long-term incentive awards for good leavers
should normally vest at the end of the original vesting period set at grant, rather than vesting in
the year of departure. This ensures continued alignment with shareholders’ interests following
cessation of employment.
Annual bonus
Annual bonus is designed to drive the achievement of GSK’s annual financial and strategic business
targets and delivery of personal objectives.
For 2011 the on-target bonus for the Executive Directors is given in the table below.
| On-target bonus as a % of base salary | ||||
Andrew Witty, CEO |
125% | |||
Simon Dingemans, CFO Designate |
80% | |||
Dr Moncef Slaoui, Chairman, R&D |
85% | |||
Maximum bonuses are set by reference to individual on-target bonus levels. There is a cap
on bonus payments of 200% of salary. This cap remains unchanged for 2011. Annual bonus is not
pensionable.
For 2011, the majority of the annual bonus opportunity is based on a formal review of performance
against stretching financial targets based on Group profit before interest and tax and business
unit operating profit targets, with the remainder being based on achievements against specific
individual objectives. There is a significant weighting towards the financial performance measures.
The Committee has decided that profit should remain the key financial metric as one of the
company’s Key Performance Indicators. However, during 2011, the Committee intends to review the
annual bonus plan to ensure the strategic alignment of GSK’s short-term incentives.
Annual bonuses are calibrated to reflect the stretching targets which have been established to
drive significant changes to GSK’s business model. The bonus threshold will be 90% of target with
the maximum being payable for achievement of 110% of target. The bonus threshold of 90% reflects
the stretching nature of the bonus targets.
Bonus targets for Andrew Witty are set by the Board in January each year. In setting the objectives
for Andrew Witty, the Board focuses on the strategies that have been developed for the company,
which are set out on page 7 of the Annual Report. For reasons of commercial sensitivity, the
specific objectives are kept confidential. Following the end of the financial year, the Board
reviews his performance generally and against the set objectives, and the Committee then determines
the bonus payable.
For the other Executives, Andrew Witty sets their objectives in line with company strategy, and
makes recommendations to the Committee regarding performance against those objectives at the end of
the year. These recommendations are then considered by the Committee when determining the level of
bonuses payable.
Bonus measures for R&D employees, including Dr Moncef Slaoui, are linked to the pipeline. A robust
governance structure has been established to ensure that the bonus payable fairly reflects R&D
productivity and performance as well as performance against profit targets. This process requires
the review of progress against targets by the R&D Bonus Compensation Review Committee, which
includes Andrew Witty and the company’s two Non-Executive Directors who are designated as
Scientific Experts, Professor Sir Roy Anderson and Dr Daniel Podolsky. The Committee reviewed the
plan’s operation during the year and decided that it should continue as the annual bonus for R&D.
The Committee will continue to keep its operation under review.
GSK Annual Report 2010
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Remuneration Report
Long-term incentive plans
Awards are now made to Executives under the following long-term incentive plans, which were
approved by shareholders at the 2009 AGM:
(a) Deferred Annual Bonus Plan
(b) Performance Share Plan
From 2010, awards under the share option plan are no longer granted to Executives. Instead, CET
members receive additional performance share awards and are also eligible to participate in the
Deferred Annual Bonus Plan.
Typically, awards are delivered to US resident executives in the form of ADS. Awards are delivered
in the form of Ordinary Shares to executives resident in the UK and other countries. All awards are
made under plans which incorporate dilution limits consistent with guidelines provided by the
Association of British Insurers. Current estimated dilution from existing awards under all GSK
employee share plans made over the last 10 years are approximately 6.14% of the company’s issued
share capital at 31st December 2010.
To provide a closer link between shareholder returns and payments to the Executives, notional
dividends are reinvested and paid out in proportion to the shares deferred and vesting of awards.
The value of reinvested dividends is incorporated into the benchmarking of award levels.
Structure and performance measures
a) Deferred Annual Bonus Plan
The Deferred Annual Bonus Plan encourages long-term shareholding, discourages excessive risk taking
and helps focus on GSK’s key strategic priorities.
Starting from the 2010 bonus year, all CET members have been eligible to participate in the
plan.
Up to 50% of any annual bonus earned may be deferred for three years. The company will match shares
up to one-for-one depending on the company’s performance against the measures outlined below during
the three-year performance period.
b) Performance shares
The Performance Share Plan ensures focus on the delivery of GSK’s strategic priorities and
long-term shareholder returns relative to other pharmaceutical companies.
Under the Performance Share Plan, awards are made which vest at the end of a three-year performance
period subject to the achievement of the company’s performance against the measures outlined below.
There is an individual award limit on the maximum initial value of performance shares that may be
granted to an individual in any one year. Other than in exceptional circumstances, the maximum face
value of performance shares that may be granted to an individual in any one year will be six times
base salary.
The table below shows award levels in February 2011 for each Executive Director in line with
that policy:
| 2011 | 2011 award level | |||||||
| award | % of base salary | |||||||
Andrew Witty, CEO |
424,448 shares | 500% | ||||||
Simon Dingemans, |
196,095 shares | 350% | ||||||
CFO Designate |
||||||||
Dr Moncef Slaoui, |
147,521 ADS | 500% | ||||||
Chairman, R&D |
||||||||
Performance measures
Following the appointment of Andrew Witty in 2008, the Board carried out a thorough review of GSK’s
key strategic priorities, which are described on page 7 of the Annual Report. The Board firmly
believes that the delivery of these objectives will transform GSK into an organisation that can
deliver long-term financial performance and shareholder value creation on a sustainable basis. Over
the last few years, the focus of the Committee has been to improve the alignment of Executive
remuneration arrangements with these priorities to incentivise management to deliver these goals.
For awards made to Executives in February 2011, we have therefore introduced two new
business-specific performance measures on business diversification and R&D new product performance.
This is in addition to our adjusted free cash flow and relative TSR measures, and is in order to
ensure that we have a balanced framework of measures focusing on all of GSK’s strategic objectives,
as outlined in the diagram below.
The awards, which will vest subject to performance at the end of the three-year performance period
beginning 1st January 2011 and ending on 31st December 2013, are based on four equally weighted
measures: business diversification, R&D new product, adjusted free cash flow and relative TSR.
| Strategy | Remuneration | |||||||
Key strategic priorities:
|
LTI performance
measures
(over 3-year performance period) |
% of award |
||||||
Grow a diversified global business
|
|
Business
diversification
|
25 | % | ||||
|
Deliver more products of value
|
|
R&D
new product
|
25 | % | ||||
Simplify the operating model
|
|
Adjusted free cash
flow
|
25 | % | ||||
Deliver value to shareholders |
|
Relative TSR
|
25 | % | ||||
Details of the performance measures, targets and the thresholds for the 2011 long-term
incentive awards are given in the following table.
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Long- term incentive measures for 2011 awards
|
% of award |
Vesting schedule for 2011 awards | |
|||||||||||
| Business diversification performance | 25 | % | Due to commercial sensitivity, targets for business diversification and R&D new product measures will be disclosed along with outcomes in the 2013 Remuneration Report. | |||||||||||
| Incentivises growth of a global, diversified business | ||||||||||||||
| |
||||||||||||||
Designed to focus on our major growth areas: Vaccines,
Consumer Healthcare, Emerging Markets and Japan
(excluding Vaccines) and Dermatology businesses.
|
Proportion of threshold achieved |
Proportion of award available |
||||||||||||
| Below threshold | 0 | % | ||||||||||||
Aggregate revenue target for four business divisions over three-year performance period reflects strong growth against
previous periods and above market growth.
|
Threshold Maximum |
25 100 |
% % |
|||||||||||
|
|
||||||||||||||
R&D new product performance
|
25 | % |
The target for maximum performance (expressed as a percentage of the
threshold) for these two measures is shown below: |
|||||||||||
Recognises importance of R&D to future business growth
|
Measure |
Maximum expressed as % of threshold |
||||||||||||
Revenue target based on New Product Sales to incentivise better R&D performance.
|
Business | 114 | % | |||||||||||
| diversification | ||||||||||||||
New Products defined as products launched in performance period and two preceding years. Therefore, for 2011-13 performance period, products launched in years 2009-13 will be included in measurement. |
R&D new product |
122 |
% |
|||||||||||
Aggregate three-year revenue target for 2011 awards for New Product Sales reflects growth on historic performance. |
||||||||||||||
Adjusted free cash flow
|
25 | % |
Three year adjusted free cash flow targets |
% vesting |
||||||||||
Recognises importance of effective working capital and cash management
|
Below threshold Threshold |
£16.15 billion | 0 25 |
% % |
||||||||||
| £16.65 billion | 50 | % | ||||||||||||
| £18.32 billion | 75 | % | ||||||||||||
| Maximum | £19.15 billion | 100 | % | |||||||||||
|
|
||||||||||||||
Relative TSR
|
25 | % | ||||||||||||
Focuses on delivery of value to shareholders
Relative TSR using a comparator group comprising 10 global pharmaceutical companies. With move to four complementary measures, relative TSR now measured over three years in line with performance period for all other performance measures. To measure performance on a stable basis and better reflect long-term nature of pharmaceutical industry, twelve-month averaging period is used for relative TSR. |
 |
|
||||||||||||
|
TSR rank position |
Median performance |
Upper quartile performance |
||||||||||||
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The Board believes that the current strategic priorities are fundamental long-term objectives.
However, it recognises the possibility that these goals may evolve over time. Therefore the
Committee intends to review the long-term incentive performance measures periodically to ensure
that they remain appropriate.
Inevitably measures linked directly to strategy are very sensitive. In particular, the Committee
does not consider it appropriate to disclose the targets for business diversification and R&D new
product performance at grant, as it may result in competitive harm. However, we are committed to
fully disclosing the targets at the end of the performance period, together with details of the
extent to which the performance targets have been met. In addition, the Committee also commits to
providing an update on achievement to date against the targets during the performance period.
In addition to setting robust targets, the Committee has also implemented a number of safeguards to
ensure that targets are met in a sustainable way and that any performance outcome reflects genuine
achievement against the original targets and therefore value for shareholders.
Under the business diversification and R&D new product measures, in the light of any significant
event (including acquisitions and divestments), the Committee will review the target and payment
scale and make any adjustments it considers appropriate to maintain the integrity of the original
targets. In addition, the Committee reserves the right to reduce vesting levels if targets are
achieved in a manner which undermines the overall health of the business.
The Committee will normally include the revenue from opportunistic events such as pandemics when
assessing performance under the business diversification and R&D new product measures. It is
recognised that a successful response to an event such as a pandemic can generate significant value
for shareholders. Such responses usually require supply capacity and/or other resource to be
diverted from other products. However, before including that revenue, the Committee must be
satisfied that the decision to pursue the opportunistic revenue was clearly in the best interests
of shareholder value creation and that otherwise the performance under the relevant measure was
sufficiently positive. Ultimately, the Committee will expect management to have acted in a way
which enhanced shareholder value.
Under the business diversification measure, where above market growth has not been achieved at the
end of a performance period, the Committee will normally reduce the vesting levels.
It is part of the Group’s strategy to increase the return on its R&D investment. If the R&D new
product revenue target is achieved, but the Committee determines that insufficient progress has
been made during the measurement period in increasing the return on R&D investment, the Committee
may reduce the level of vesting under the R&D new product measure.
Under the adjusted free cash flow measure, the target may be adjusted for material factors which
could distort free cash flow as a performance measure. These will typically include exchange rate
movements and may also include legal and major taxation settlements and special pension
contributions, which could materially distort this calculation. The impact of any acquisition or
divestment will be quantified and adjusted for after the event. Major adjustments in the
calculation will be disclosed to shareholders.
Pensions
Pensions provide an important tool for creating a long-term
culture and loyalty.
The Executives participate in GSK senior executive pension plans. The pension arrangements
are structured in accordance with the plans operated for Executives in the country in which they
are likely to retire. Details of individual arrangements for the Executive Directors are set out on
page 100.
New Executives to GSK will be eligible for either a defined contribution scheme or a cash balance
pension plan. Existing obligations under defined benefit schemes in the UK will continue to be
honoured.
a) UK pension arrangements
The company currently operates a defined contribution plan, and legacy final salary plans which
are closed to new entrants. Newly hired Executives in the UK will participate in the defined
contribution plan.
During 2010 the UK Government announced a series of changes to pensions, which will initially
impact the pensions of approximately 80 people in GSK. The pension legislation will have
significant negative consequences and the effectiveness of pensions will be much reduced. Pensions
have been and continue to be an important tool for creating a long-term culture and promoting
employee retention. Therefore the Committee has decided that existing pension promises be honoured
and pensions above the new limits be delivered via GSK’s existing unfunded scheme.
Executives participating in the defined contribution plan receive a company contribution of 15%–20%
of base salary depending on grade. They will also have the opportunity to receive up to a further
5% in matched contributions in line with the policy for all other members of the pension plan.
The legacy final salary plans provide for up to two-thirds of final salary at age 60. For employees
subject to the cap, benefits in excess of the cap are currently provided through unfunded
arrangements. Under the legacy final salary plans, actuarial reduction factors apply where a
participant leaves employment of his/her own accord before the age of 60.
If employment is terminated by the company other than for cause then, in the same way as for all
other members of the legacy final salary plans, the reduction factors will not apply.
b) US pension arrangements
In the USA, GSK operates a US Cash Balance Plan which provides for an annual contribution and
interest on the sum accumulated in the cash balance plan but with no contractual promise to provide
specific levels of retirement income. The plan incorporates an Executive Pension Credit for senior
US executives. Contribution rates under the plan range from 15% to 38% of base salary depending on
grade. All current senior US executives are eligible for the Executive Pension Credit.
For capped employees in the USA, benefits above the cap are provided through an unfunded
non-qualified plan.
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Share ownership requirements
To align
the interests of Executives with those of shareholders, Executives are
required to build up and maintain significant holdings of shares in GSK over time.
Current share ownership requirements (SOR) are set out in the table below:
| Share Ownership Requirement | ||||
CEO |
4 x base salary | |||
Other Executive Directors |
3 x base salary | |||
CET members |
2 x base salary | |||
Executives are required to continue to satisfy these shareholding requirements for a minimum
of twelve months following retirement from the company to support the long-term nature of the
business. Shareholdings for the purpose of SOR as at 25th February 2011 were:
| Holding for | Holding for | |||||||||||
| Ordinary shares | Ordinary shares | |||||||||||
| for SOR purposes | for SOR purposes | % increase in | ||||||||||
| as at 31/12/09 | as at 25/02/11 | * | shareholding | |||||||||
Andrew Witty |
91,472 | 226,199 | 147 | |||||||||
Julian Heslop |
49,350 | 92,182 | 87 | |||||||||
Simon Dingemans** |
– | 40,000 | – | |||||||||
Dr Moncef Slaoui |
66,938 | 169,906 | 154 | |||||||||
| * | Shares to be sold for tax following the vesting of the 2008 PSP awards have been excluded. | |
| ** | The disclosure for Simon Dingemans is from the date he joined the Board on 4th January 2011. |
Other remuneration elements
The Executives participate in various all-employee share plans in either the UK or the USA.
The ShareSave Plan and the ShareReward Plan are UK HM Revenue & Customs approved plans open to all
UK employees and UK-based Executive Directors on the same terms.
ShareSave participants may save up to £250 a month from their net salary for a fixed term of three
years and at the end of the savings period they have the option to buy GSK shares at a discount of
20% of the market price set at the launch of each plan. Andrew Witty and Julian Heslop are
ShareSave members, and each contribute £250 a month into the Plan. This provides them both with
the option to buy shares at the end of the three-year savings period.
ShareReward participants can contribute up to £125 a month from their gross salary to purchase GSK
shares and the company matches the number of GSK shares bought each month under this arrangement.
The shares are held in trust and if they are left there for five years, they can be removed free
of UK tax and national insurance contributions. Andrew Witty, Julian Heslop and Simon Dingemans
each contribute £125 a month to buy shares under the ShareReward Plan.
The Executives also receive other benefits including healthcare (medical and dental), personal
financial advice and life assurance. The cash value of the benefits received by the Executive
Directors in 2010 is shown on page 94. Dr Moncef Slaoui normally resides in the USA. He has been
seconded to the UK for a two year period from 1st November 2010 to enable him to be closer to GSK
Biologicals as he assumes operational responsibility for this business.
Variable pay — performance periods ended
31st December 2010
31st December 2010
This section provides further details on performance
achieved under the company’s annual bonus and long-term
incentive plans for performance periods that ended on
31st December 2010.
achieved under the company’s annual bonus and long-term
incentive plans for performance periods that ended on
31st December 2010.
Annual bonus
For 2010, the majority of the annual bonus was based on the achievement of financial targets (based
on Group profit before interest and tax and on business unit operating profit) and individual
performance. The achievement of additional operational efficiency goals was also taken into account
in determining the 2010 annual bonus levels.
The objectives set for the company for 2010 focused in particular on the continued development and
launch of late stage pipeline assets, delivery of commercial targets and execution of restructuring
programmes to simplify the operating model.
Despite 2010 being a challenging year for GSK and the pharmaceutical industry due to the effect of
generic competition in the USA, the rapid loss of sales of Avandia following regulatory decisions
in the Autumn, US healthcare reform and significant legacy litigation costs, management achieved
key financial and strategic objectives, including:
| • | delivering underlying sales growth (excluding pandemic products, Avandia and Valtrex) | |
| • | strong sales performance in investment areas of the business, particularly Emerging Markets and Consumer Healthcare | |
| • | increasing R&D pipeline potential and achieving key milestones in the transformation of R&D productivity, particularly in relation to the late stage R&D pipeline products | |
| • | simplification of GSK’s business model, improved cash generation, before legal settlements, and achievement of operational efficiencies. |
Overall, the Committee took into account GSK’s success in achieving the above objectives, as well
as each individual’s performance, when determining the bonus awards for 2010. However, because
management did not fully achieve the group profit before interest targets that were set, bonuses
were determined accordingly. Actual bonus payments for Executive Directors are shown on page 94 and
ranged from 79% to 147% of base salaries as at 31st December 2010 (2009–115% to 200%).
| Annual bonus | Annual bonus | |||||||||||
| 2010 000 |
2009 000 |
% change | ||||||||||
Andrew Witty |
£1,177 | £2,000 | (41 | ) | ||||||||
Julian Heslop |
£417 | £602 | (31 | ) | ||||||||
Dr Moncef Slaoui |
$1,434 | $1,439 | – | |||||||||
The following Executive Directors elected to participate in the Deferred Annual Bonus Plan in
respect of 2010. Matching Awards may vest in February 2014, subject to their continued employment
and achievement of the long-term incentive performance measures outlined on page 87 of the report.
| Executive | % of total bonus | Deferred Award | Matching Award | |||||||||
Andrew Witty |
32% | 31,921 shares | 31,921 shares | |||||||||
Dr Moncef Slaoui |
50% | 18,756 ADS | 18,756 ADS | |||||||||
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Long-term incentive plans
Performance share plan – Vesting of 2008 Awards
The Committee reviewed the performance criteria of the performance share plan awards granted to
the Executive Directors in 2008, with the three-year performance period starting on 1st January
2008 and ending on 31st December 2010. The company ranked at median position in the comparator
group of 10 companies and therefore 35% of the awards vested.
The awards made to other senior executives in 2008 were dependent in part on relative TSR
performance and in part on EPS performance. The EPS portion of those awards did not vest.
The vesting schedules for the 2008, 2009 and 2010 awards are shown on page 99.
Share options – Vesting of 2008 Awards
The share option awards granted to Executives in 2008 were based on EPS performance. The
performance conditions for the 2008 awards were not met and, as a result, all these awards
lapsed.
Historical vesting for GSK’s LTIs
GSK’s LTI performance conditions continue to be challenging as is demonstrated by the table
below. Relative TSR has been an important part of the LTI measures for many years. This measure
has been retained under the current remuneration policy.
The following table shows the vesting levels of GSK’s performance share and share option awards
to Executives since 2003. A TSR vesting percentage of 0% indicates that GSK’s relative TSR
performance was below the median of the comparator group for that performance period.
| Performance Share | Share Option | |||||||||||
| Plan | Plan | |||||||||||
| Vesting | Vesting | |||||||||||
| under TSR | under EPS | |||||||||||
| Performance period | measure % | measure % | ||||||||||
2003 |
2004 - 2006 | 0 | 100 | |||||||||
2004 |
2005 - 2007 | 38.47 | 100 | |||||||||
2006 |
2006 - 2008 | 0 | 50.7 | |||||||||
2007 |
2007 - 2009 | 35 | 0 | |||||||||
2008 |
2008 - 2010 | 35 | 0 | |||||||||
| Average annual vesting | 21.69 | 50.14 | ||||||||||
No award was made during 2005 due to a change in the award cycle.
Executive Director terms and conditions
Executive Director contracts
The policy set out below provides the framework for contracts for Executive Directors.
Notice period on termination by employing company or executive |
12 calendar months | |
Termination payment
|
1 x annual salary payable on termination |
|
Vesting of LTIs
|
Rules of relevant incentive plan, as approved by shareholders | |
Pension
|
Based on existing arrangements and terms of relevant pension plan |
|
Non-compete clause
|
12 months from termination notice date* | |
| * | The ability to impose a 12-month non-compete period (and a non-solicitation restriction) on an Executive is considered important by the company in order to have the ability to protect the Group’s intellectual property and staff. In light of this, the Committee believes that it would not be appropriate to provide for mitigation in the contracts. |
In 2010, Andrew Witty and Dr Moncef Slaoui agreed an amendment to their contractual terms to
remove an entitlement to bonus as part of their termination package. The contracts for new
Executives will not normally include a bonus element in any termination payment.
The terms of the new contracts seek to balance commercial imperatives and best practice. Where the
company considers it important that an individual does not work elsewhere during his notice period,
it may make a compensatory payment in respect of bonus for the period of restraint.
Julian Heslop is retiring early from the company on 31st March 2011. Under the terms of his
contract entered into in 2005, he is entitled to receive one year’s notice on termination and his
payment will include one year’s annual salary and 12 months’ on-target bonus.
Simon Dingemans joined the Board on 4th January 2011 as CFO Designate, and will become the CFO on
1st April 2011 following Julian Heslop’s retirement. In line with the company’s policy going
forward, Simon Dingemans’ contract provides for a termination payment based on one year’s base
salary only.
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The following table sets out the details of the Executive Directors’ service contracts:
| Current Directors | Date of contract | Effective date | Expiry date | |||
Andrew Witty*
|
18th June 2008 | 22nd May 2008 | 31st August 2024 | |||
Julian Heslop
|
16th March 2006 | 1st April 2005 | 31st January 2014 | |||
Simon Dingemans
|
8th September 2010 | 4th January 2011 | 30th April 2028 | |||
Dr Moncef Slaoui**
|
21st December 2010 | 21st December 2010 | 1st August 2019 | |||
| * | Andrew Witty’s contract was renewed in June 2008 following his appointment as CEO, and was amended on 4th February 2010 to reflect the changes to his severance terms outlined above. | |
| ** | Dr Moncef Slaoui’s previous contract dated 16th May 2008 was replaced on 21st December 2010 to reflect the changes to his severance terms outlined above. |
No termination payments will be made in respect of any part of a notice period extending beyond the
contract expiry date.
Other entitlements
In addition to the contractual provisions outlined above, in the event that Executive
Directors’ service agreements are terminated by their employing company, the following will apply:
| • | in the case of outstanding awards under the GlaxoSmithKline Annual Investment Plan (which was closed to new deferrals with effect from the first quarter of 2006) provided that their agreement is terminated other than for cause, the executive must exercise any Bonus Investment Rights within six months of termination to receive any deferred amounts, and any income and gains; and | |
| • | in line with the policy applicable to US senior executives, Dr Moncef Slaoui may become eligible, at a future date, to receive continuing medical and dental insurance after retirement. |
Following the merger, those participants in the legacy share option schemes who elected to
exchange their legacy options for options over GSK shares received an additional cash benefit
equal to 10% of the grant price of the original option. This additional benefit was triggered when
the option was exercised or lapsed. To qualify for this additional cash benefit, participants had
to retain their options until at least the second anniversary of the effective date of the merger.
Following the payments made during 2010, there are no further payments due under this arrangement.
Outside appointments for Executive Directors
Any outside appointments are considered by the Nominations Committee to ensure they would not
cause a conflict of interest and are then approved by the Chairman on behalf of the Board. It is
the company’s policy that remuneration earned from such appointments may be kept by the individual
Executive Director.
Chairman and Non-Executive Directors
Terms and conditions
Sir Christopher Gent’s letter of appointment was dated 26th May 2004, under which it was agreed
that he would serve the company as Deputy Chairman until 31st December 2004 and from 1st January
2005 as Chairman until the conclusion of the AGM following the third anniversary of his
appointment. This was extended for a further term of three years by mutual agreement, with effect
from his re-election as a Director at the AGM held on 21st May 2008. This has been
further extended for a period of five years subject to re-election with effect from 1st January
2011. (Further details are provided on page 68 of the Corporate Governance Report).
The terms of engagement of Non-Executive Directors other than Sir Christopher Gent, are also set
out in letters of appointment. For all Non-Executive Directors, their initial appointment and any
subsequent re-appointment are subject to election, and thereafter, periodic re-election by
shareholders.
The letters of appointment for Non-Executive Directors do not contain provision for notice periods
or for compensation if their appointments are terminated.
The following table shows the date of the initial letter of appointment of each
Non-Executive Director:
| Non-Executive Director | Date of letter of appointment | |||
Sir Christopher Gent |
26th May 2004 | |||
Professor Sir Roy Anderson |
28th September 2007 | |||
Dr Stephanie Burns |
12th February 2007 | |||
Larry Culp |
9th June 2003 | |||
Sir Crispin Davis |
9th June 2003 | |||
Sir Deryck Maughan |
26th May 2004 | |||
James Murdoch |
26th February 2009 | |||
Dr Daniel Podolsky |
3rd July 2008 | |||
Tom de Swaan |
21st December 2005 | |||
Sir Robert Wilson |
9th June 2003 | |||
Chairman and Non-Executive Directors’ fees
The company aims to provide the Chairman and Non-Executive Directors with fees that are competitive
with those paid by other companies of equivalent size and complexity subject to the limits
contained in GSK’s Articles of Association.
The Chairman’s fees are currently £540,000 per annum plus an allocation of shares to the value of
£135,000 per annum.
Non-Executive Directors’ fees applying at 31st December 2010 are as follows:
| Per annum | ||||
Standard annual cash retainer fee |
£75,000 | |||
Supplemental
fees |
||||
Chairman of Audit & Risk Committee |
£80,000 | |||
Senior Independent Director and Scientific/Medical Experts |
£30,000 | |||
Chairmen of the Remuneration and Corporate Responsibility Committees* |
£20,000 | |||
Non-Executive Director undertaking intercontinental travel to meetings |
£7,500 per meeting |
|||
| * | Sir Christopher Gent is the current Chairman of the Corporate Responsibility Committee, but does not receive the additional fee listed above. |
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To reflect the increased focus within the company on compliance and risk, GSK significantly
enlarged the remit and responsibilities of the Audit & Risk Committee, and the commitment required
from Tom de Swaan, its Chairman. The company agreed that the time requirement for his role as
Committee Chairman moving from approximately 30 days to approximately 80 days per annum should be
reflected through an increase in the fees payable.
Following an independent review, the supplemental fee for the Chairman of the Audit & Risk
Committee was increased from £30,000 per annum to £80,000 per annum with effect from 1st October
2009.
Full details of the current Committee’s terms of reference and GSK’s Audit & Assurance model
are given on pages 71 to 76.
In recent years there has been an increase in the time commitment, demands and responsibility
placed on the role of a non-executive director, and this has generally led to an increase in their
fees. As a result of these developments in the market, Non-Executive Director fees at GSK were
independently reviewed during 2010. The review highlighted that there was scope to increase
Non-Executive Director fees. However, in light of the current environment, the Board decided not to
increase their fees at this time. They will continue to be kept under review.
Exchange rate
Fees that are paid in US dollars were converted at the following exchange rates:
| Exchange rate | ||||||||
| Date of approval | Period rate applied | £1/US$ | ||||||
29th July 2004 |
01.10.04 – 31.03.08 | US$1.8162 | ||||||
28th March 2008 |
01.04.08 – 30.09.09 | US$1.9918 | ||||||
3rd December 2009* |
01.10.09 – 31.12.09 | US$1.6395 | ||||||
| 01.01.10 – 31.12.10 | US$1.6326 | |||||||
| 01.01.11 – 31.12.11 | US$1.5798 | |||||||
| * | Given fluctuations in the Sterling: US dollar exchange rate, it was agreed that with effect from 1st October 2009 the exchange rate would be set annually based on the average daily rate for the last quarter of the year prior to payment. The rate would be reviewed if exchange rates moved significantly during the year. |
Non-Executive Directors’ share allocation plan
To enhance the link between Directors and shareholders, GSK requires Non-Executive Directors to
receive a significant part of their fees in the form of shares. At least 25% of the Non-Executive
Directors’ total fees, excluding the Chairman, are paid in the form of shares or ADS and allocated
to a share account. The Non-Executive Directors may also take the opportunity to invest part or
all of the balance of their fees into the same share account.
The shares or ADS which are notionally awarded to the Non-Executive Directors and allocated to
their interest accounts are included within the Directors’ interests tables on page 96. The
accumulated balance of these shares or ADS, together with notional dividends subsequently
reinvested, are not paid out to the Non-Executive Directors until retirement from the Board. Upon
retirement, the Non-Executive Directors will receive either the shares or ADS or a cash amount
equal to the value of the shares or ADS at the date of retirement or date of payment if later.
TSR performance graph
The following graph sets out the performance of the company relative to the FTSE 100 Index of
which the company is a constituent and to the pharmaceutical performance comparator group from 1st
January 2006 to 31st December 2010. The graph has been prepared in accordance with the Regulations
as defined on page 101 and is not an indication of the likely vesting of awards granted under any
of the company’s incentive plans.
TSR performance
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Annual remuneration
| 2010 | 2009 | |||||||||||||||||||||||||||||||||||
| Total | Total | |||||||||||||||||||||||||||||||||||
| Fees and | Other | Annual | annual | Fees and | Other | Annual | annual | |||||||||||||||||||||||||||||
| salary | benefits | bonus | remuneration | salary | benefits | bonus | remuneration | |||||||||||||||||||||||||||||
| Footnote | 000 | 000 | 000 | 000 | 000 | 000 | 000 | 000 | ||||||||||||||||||||||||||||
Executive Directors |
||||||||||||||||||||||||||||||||||||
Andrew Witty |
a,b,c,e | £1,000 | £126 | £1,177 | £2,303 | £948 | £89 | £2,000 | £3,037 | |||||||||||||||||||||||||||
Julian Heslop |
a,b | £525 | £108 | £417 | £1,050 | £507 | £56 | £602 | £1,165 | |||||||||||||||||||||||||||
Dr Moncef Slaoui |
c,d,e | $953 | $405 | $1,434 | $2,792 | $865 | $355 | $1,439 | $2,659 | |||||||||||||||||||||||||||
Non-Executive Directors |
||||||||||||||||||||||||||||||||||||
Professor Sir Roy Anderson |
£128 | – | – | £128 | £120 | – | – | £120 | ||||||||||||||||||||||||||||
Sir Crispin Davis |
£118 | – | – | £118 | £102 | – | – | £102 | ||||||||||||||||||||||||||||
Sir Christopher Gent |
£675 | £2 | – | £677 | £675 | £5 | – | £680 | ||||||||||||||||||||||||||||
James Murdoch |
f | £98 | – | – | £98 | £54 | – | – | £54 | |||||||||||||||||||||||||||
Tom de Swaan |
£177 | £1 | – | £178 | £133 | – | – | £133 | ||||||||||||||||||||||||||||
Sir Robert Wilson |
£128 | – | – | £128 | £116 | – | – | £116 | ||||||||||||||||||||||||||||
Dr Stephanie Burns |
$146 | – | – | $146 | $188 | – | – | $188 | ||||||||||||||||||||||||||||
Larry Culp |
$135 | – | – | $135 | $188 | – | – | $188 | ||||||||||||||||||||||||||||
Sir Deryck Maughan |
$147 | – | – | $147 | $188 | – | – | $188 | ||||||||||||||||||||||||||||
Dr Daniel Podolsky |
$208 | – | – | $208 | $245 | – | – | $245 | ||||||||||||||||||||||||||||
Former Directors |
||||||||||||||||||||||||||||||||||||
Dr Michèle Barzach |
g | – | – | – | – | £80 | – | – | £80 | |||||||||||||||||||||||||||
Sir Ian Prosser |
h | – | – | – | – | £48 | £5 | – | £53 | |||||||||||||||||||||||||||
Dr Ronaldo Schmitz |
h | – | – | – | – | £37 | £5 | – | £42 | |||||||||||||||||||||||||||
Dr Jean-Pierre Garnier |
b | – | $118 | – | $118 | – | $5,885 | – | $5,885 | |||||||||||||||||||||||||||
Total remuneration |
£3,873 | £574 | £2,518 | £6,965 | £3,893 | £4,160 | £3,525 | £11,578 | ||||||||||||||||||||||||||||
Analysed as: |
||||||||||||||||||||||||||||||||||||
Executive Directors |
£2,140 | £495 | £2,518 | £5,153 | £2,009 | £373 | £3,525 | £5,907 | ||||||||||||||||||||||||||||
Non-Executive Directors |
£1,733 | £3 | – | £1,736 | £1,719 | £5 | – | £1,724 | ||||||||||||||||||||||||||||
Former Directors |
– | £76 | – | £76 | £165 | £3,782 | – | £3,947 | ||||||||||||||||||||||||||||
Total remuneration |
£3,873 | £574 | £2,518 | £6,965 | £3,893 | £4,160 | £3,525 | £11,578 | ||||||||||||||||||||||||||||
Remuneration for Directors on the US payroll is reported in Dollars. Dollar amounts are included in
the totals based on conversion to Sterling at the average exchange rates for each year.
| a) | Andrew Witty and Julian Heslop both participate in Salary Sacrifice schemes. | |
| b) | Following the merger, and in order to encourage employees to convert their non-savings related options held over legacy shares or ADS for options over GlaxoSmithKline shares or ADS, employees were granted an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit, known as the Exchange Offer Incentive, was only payable when the new option was exercised or lapsed underwater. To qualify for this additional cash benefit, participants had to retain these options until at least the second anniversary of the effective date of the merger. During the year, Andrew Witty received £93,002 (2009 – £49,499) and Julian Heslop received £89,936 (2009 – £32,000). Dr Jean-Pierre Garnier received $5,512,369 in 2009 as a result of options granted to him in 1999 lapsing. No further payments will be made. | |
| c) | Andrew Witty and Dr Moncef Slaoui have elected to participate in GSK’s Deferred Annual Bonus Plan in respect of their 2010 bonuses. Andrew Witty also participated in 2009 (Dr Moncef Slaoui was not eligible to participate in that year). | |
| d) | Dr Moncef Slaoui is a Non-Executive Director of the Agency for Science, Technology and Research (A*STAR) in respect of which he received $1,005 (2009 – $3,951) during 2010 which is not included above. | |
| e) | Other benefits in 2009 for Andrew Witty and Dr Moncef Slaoui have been restated to reflect certain elements of remuneration no longer being deemed a benefit. | |
| f) | James Murdoch was appointed to the Board with effect from 20th May 2009. | |
| g) | Dr Michele Barzach received fees of €nil (2009 – €89,700) from GSK France for healthcare consultancy provided. These are included within fees and salary above, | |
| h) | Sir Ian Prosser and Dr Ronaldo Schmitz retired as Non-Executive Directors of the company on 20th May 2009. On leaving the Board both Sir Ian Prosser and Dr Ronaldo Schmitz received the accumulated balance of shares previously awarded under the Non-Executive Directors’ share arrangements based on the share price at the payment date. A final payment in respect of the balance for Sir Ian Prosser was made during 2010. Further details are as set out in the table on page 96. These are not included within fees and salaries above. |
None of the above Directors received reimbursement for expenses during the year requiring
separate disclosure as required by the Regulations.
GSK Annual Report 2010
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Remuneration Report
Non-Executive Directors’ fees
| 2010 | 2009 | |||||||||||||||||||||||
| Total | Cash | Shares/ADS | Total | Cash | Shares/ADS | |||||||||||||||||||
| Fees | 000 | 000 | 000 | 000 | 000 | 000 | ||||||||||||||||||
Current Non-Executive Directors |
||||||||||||||||||||||||
Professor Sir Roy Anderson |
£128 | £96 | £32 | £120 | £90 | £30 | ||||||||||||||||||
Sir Crispin Davis |
£118 | – | £118 | £102 | – | £102 | ||||||||||||||||||
Sir Christopher Gent |
£675 | £540 | £135 | £675 | £540 | £135 | ||||||||||||||||||
James Murdoch |
£98 | – | £98 | £54 | £40 | £14 | ||||||||||||||||||
Tom de Swaan |
£177 | £133 | £44 | £133 | £99 | £34 | ||||||||||||||||||
Sir Robert Wilson |
£128 | £96 | £32 | £116 | £87 | £29 | ||||||||||||||||||
Dr Stephanie Burns |
$146 | $73 | $73 | $188 | $141 | $47 | ||||||||||||||||||
Larry Culp |
$135 | – | $135 | $188 | $141 | $47 | ||||||||||||||||||
Sir Deryck Maughan |
$147 | – | $147 | $188 | $141 | $47 | ||||||||||||||||||
Dr Daniel Podolsky |
$208 | $52 | $156 | $245 | $184 | $61 | ||||||||||||||||||
Former Non-Executive Directors |
||||||||||||||||||||||||
Sir Ian Prosser |
– | – | – | £48 | £31 | £17 | ||||||||||||||||||
Dr Ronaldo Schmitz |
– | – | – | £37 | £26 | £11 | ||||||||||||||||||
Total Remuneration |
£1,733 | £945 | £788 | £1,804 | £1,302 | £502 | ||||||||||||||||||
The table above sets out the remuneration received as Non-Executive Directors of the company.
Non-Executive Directors are required to take at least a part of their total fees in the form of
shares allocated to a share account which is not paid out until retirement from the Board (see page
93 for further details). The total value of these shares and ADS as at the date of award, together
with the cash payment, forms their total fees, which are included within the Annual remuneration
table under ‘Fees and salary’. The table above sets out the value of their fees received in the
form of cash and shares and ADS.
The table below sets out the accumulated number of shares and ADS held by the Non-Executive
Directors in relation to their fees received as Board members as at 31st December 2010, together
with the movements in their accounts over the year.
| Number of shares and ADS | ||||||||||||||||||||
| Non-Executive Directors’ share arrangements | 31st December 2009 | Allocated & elected |
Dividends reinvested |
Paid out | 31st December 2010 | |||||||||||||||
Current Non-Executive Directors |
||||||||||||||||||||
Shares |
||||||||||||||||||||
Professor Sir Roy Anderson |
5,730 | 2,585 | 305 | – | 8,620 | |||||||||||||||
Sir Crispin Davis |
42,909 | 9,527 | 2,206 | – | 54,642 | |||||||||||||||
Sir Christopher Gent |
53,025 | 11,006 | 2,709 | – | 66,740 | |||||||||||||||
James Murdoch |
1,077 | 7,896 | 132 | – | 9,105 | |||||||||||||||
Tom de Swaan |
8,952 | 3,605 | 471 | – | 13,028 | |||||||||||||||
Sir Robert Wilson |
12,133 | 2,585 | 623 | – | 15,341 | |||||||||||||||
ADS |
||||||||||||||||||||
Dr Stephanie Burns |
5,096 | 1,984 | 272 | – | 7,352 | |||||||||||||||
Larry Culp |
18,832 | 3,609 | 976 | – | 23,417 | |||||||||||||||
Sir Deryck Maughan |
16,678 | 3,917 | 867 | – | 21,462 | |||||||||||||||
Dr Daniel Podolsky |
8,017 | 4,182 | 436 | – | 12,635 | |||||||||||||||
Former Non-Executive Directors |
||||||||||||||||||||
Shares |
||||||||||||||||||||
Sir Ian Prosser |
1,240 | – | – | 1,240 | – | |||||||||||||||
GSK Annual Report 2010
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Remuneration Report
The table below sets out the settlement of former Non-Executive Directors’ share arrangements on
their leaving the Board:
| Value of | Value of | |||||||||||||||||||||||
| Date of | awards on | awards on | Payments | Payments | ||||||||||||||||||||
| Footnote | leaving | allocation | leaving | in 2009 | in 2010 | |||||||||||||||||||
Sir Ian Prosser |
a,b | 20.05.09 | £382,142 | £356,644 | £343,525 | £15,767 | ||||||||||||||||||
| a) | The changes in value of awards between allocation, leaving and subsequent payment are attributable to dividends reinvested and the change in the share price for each award. | |
| b) | Awards to Sir Ian Prosser under the Non-Executive Directors’ share arrangements were partially settled in shares during 2009 with the balance of 1,240 shares settled in 2010. |
Directors’ interests
The following interests of the Directors of the company and their connected persons are shown in
accordance with the FSA Listing Rules.
| Shares | ADS | |||||||||||||||||||||||||||
| 24th February | 31st December | 1st January | 24th February | 31st December | 1st January | |||||||||||||||||||||||
| Footnote | 2011 | 2010 | 2010 | 2011 | 2010 | 2010 | ||||||||||||||||||||||
Executive Directors |
||||||||||||||||||||||||||||
Andrew Witty |
a,d | 184,281 | 151,213 | 91,472 | – | – | – | |||||||||||||||||||||
Simon Dingemans |
b | 40,000 | – | – | – | – | – | |||||||||||||||||||||
Julian Heslop |
a,d | 76,900 | 76,254 | 49,350 | – | – | – | |||||||||||||||||||||
Dr Moncef Slaoui |
c,d | 59,622 | 59,133 | 60,948 | 37,883 | 18,459 | 592 | |||||||||||||||||||||
Non-Executive Directors |
||||||||||||||||||||||||||||
Professor Sir Roy Anderson |
e | 8,620 | 8,620 | 5,730 | – | – | – | |||||||||||||||||||||
Dr Stephanie Burns |
e | 44 | 44 | 44 | 7,418 | 7,418 | 5,161 | |||||||||||||||||||||
Larry Culp |
e | – | – | – | 23,417 | 23,417 | 18,832 | |||||||||||||||||||||
Sir Crispin Davis |
e | 61,402 | 61,402 | 49,669 | – | – | – | |||||||||||||||||||||
Sir Christopher Gent |
e | 66,741 | 66,741 | 53,025 | – | – | – | |||||||||||||||||||||
Sir Deryck Maughan |
e | – | – | – | 21,462 | 21,462 | 16,678 | |||||||||||||||||||||
James Murdoch |
e | 10,105 | 10,105 | 2,077 | – | – | – | |||||||||||||||||||||
Dr Daniel Podolsky |
e | – | – | – | 12,635 | 12,635 | 8,017 | |||||||||||||||||||||
Tom de Swaan |
e | 13,028 | 13,028 | 8,952 | – | – | – | |||||||||||||||||||||
Sir Robert Wilson |
e | 21,470 | 21,470 | 18,262 | – | – | – | |||||||||||||||||||||
One GlaxoSmithKline ADS represents two GlaxoSmithKline shares. The interests of the above-mentioned
Directors at 24th February 2011 reflect the change between the year-end and that date.
| a) | Includes shares purchased through the GlaxoSmithKline ShareReward Plan for Andrew Witty totalling 2,577 at 31st December 2010 (31st December 2009 – 2,216) and 2,628 shares at 24th February 2011 and Julian Heslop totalling 2,577 at 31st December 2010 (31st December 2009 – 2,216) and 2,628 shares at 24th February 2011. | |
| b) | Simon Dingemans joined the Board on 4th January 2011. | |
| c) | Includes ADS purchased in the GlaxoSmithKline Stock Fund within the US Retirement Savings Plan and US Executive Supplemental Savings Plan. | |
| d) | The 2008 Performance Share Plan vesting conditions were approved on 24th February 2011, as detailed on page 91. However, the shares did not vest until 25th February 2011 and are not included in the totals above. | |
| e) | Includes shares and ADS received as part or all of their fees, as described under Non-Executive Directors’ share allocation plan on page 93. Dividends received on these shares and ADS were converted to shares and ADS as at 31st December 2010. |
GSK Annual Report 2010
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Remuneration Report
Long-term Incentive plans
Share option plan awards
| Options – Shares | Granted | |||||||||||||||||||||||||||||||
| Footnote | 31st December 2009 |
Date of grant | Exercise period | Grant price | Number | Lapsed | 31st December 2010 |
|||||||||||||||||||||||||
Andrew Witty |
1,549,702 | – | – | – | – | 259,200 | 1,290,502 | |||||||||||||||||||||||||
Julian Heslop |
889,400 | – | – | – | – | 304,350 | 585,050 | |||||||||||||||||||||||||
Dr Moncef Slaoui |
155,190 | – | – | – | – | 14,870 | 140,320 | |||||||||||||||||||||||||
| Options – ADS | Granted | |||||||||||||||||||||||||||||||
| 31st December 2009 |
Date of grant | Exercise period | Grant price | Number | Lapsed | 31st December 2010 |
||||||||||||||||||||||||||
Dr Moncef Slaoui |
a | 489,330 | 22.02.10 | 22.02.13 – 22.02.20 | 37.32 | 1,100 | 168,695 | 321,735 | ||||||||||||||||||||||||
| a) | These details include a change to Dr Slaoui’s connected person, who is also an employee of GSK. |
For those options outstanding at 31st December 2010, the earliest and latest vesting and lapse
dates for options above and below the market price for a GlaxoSmithKline share at the year-end are
given in the table below.
| Weighted average | Vesting date | Lapse date | ||||||||||||||||||||||||
| Andrew Witty | grant price | Number | earliest | latest | earliest | latest | ||||||||||||||||||||
Options above market price at year-end: |
vested | 15.26 | 369,993 | 29.03.04 | 20.02.09 | 28.03.11 | 22.02.16 | |||||||||||||||||||
Options below market price at year-end: |
vested | 11.39 | 249,500 | 02.12.05 | 30.11.07 | 30.11.12 | 01.12.14 | |||||||||||||||||||
| unvested | 11.63 | 671,009 | 18.02.11 | 01.12.11 | 31.05.12 | 20.07.18 | ||||||||||||||||||||
Total share options as at 31st December 2010 |
12.62 | 1,290,502 | ||||||||||||||||||||||||
| Weighted average | Vesting date | Lapse date | ||||||||||||||||||||||||
| Julian Heslop | grant price | Number | earliest | latest | earliest | latest | ||||||||||||||||||||
Options above market price at year-end: |
vested | 15.59 | 279,117 | 29.03.04 | 20.02.09 | 28.03.11 | 22.02.16 | |||||||||||||||||||
Options below market price at year-end: |
vested | 11.23 | 62,250 | 03.12.07 | 03.12.07 | 01.12.14 | 01.12.14 | |||||||||||||||||||
| unvested | 11.46 | 243,683 | 18.02.11 | 30.11.12 | 31.05.13 | 16.02.18 | ||||||||||||||||||||
Total share options as at 31st December 2010 |
13.41 | 585,050 | ||||||||||||||||||||||||
| Weighted average | Vesting date | Lapse date | ||||||||||||||||||||||||
| Dr Moncef Slaoui | grant price | Number | earliest | latest | earliest | latest | ||||||||||||||||||||
Options above market price at year-end: |
vested | 14.68 | 68,520 | 20.02.09 | 20.02.09 | 23.02.16 | 20.02.16 | |||||||||||||||||||
Options below market price at year-end: |
vested | 11.58 | 71,800 | 02.12.05 | 03.12.07 | 03.12.12 | 01.12.14 | |||||||||||||||||||
Total share options as at 31st December 2010 |
13.09 | 140,320 | ||||||||||||||||||||||||
Options above market price at year-end: |
vested | 56.92 | 935 | 27.07.09 | 19.02.10 | 25.07.16 | 17.02.17 | |||||||||||||||||||
| unvested | 44.75 | 159,850 | 18.02.11 | 18.02.11 | 16.02.18 | 16.02.18 | ||||||||||||||||||||
Options below market price at year-end: |
unvested | 33.45 | 160,950 | 17.02.12 | 21.02.13 | 15.02.19 | 20.02.20 | |||||||||||||||||||
Total ADS options as at 31st December 2010 |
39.13 | 321,735 | ||||||||||||||||||||||||
This includes those share options held by Dr Moncef Slaoui’s connected person, who is also an
employee of GSK.
GSK Annual Report 2010
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Remuneration Report
GSK granted share options to Executive Directors on an annual basis until 2009. The Directors hold
these options under the various share option plans referred to in Note 42 to the financial
statements, ‘Employee share schemes’. None of the Non-Executive Directors had an interest in any
option over the company’s shares.
The table below sets out, for share options granted in 2008, the performance periods, the
performance targets and whether or not the options have vested at 31st December 2010.
| Performance target | ||||||||||||||||||||
| Vesting status | Annualised growth | Percentage of | ||||||||||||||||||
| Grant | Footnote | Performance period | at 31st December 2010 | in EPS | award vesting | |||||||||||||||
February 2008 |
a | 2008 – 2010 | Unvested | > RPI + 6% | 100% | |||||||||||||||
| RPI + 5% | 83% | |||||||||||||||||||
| RPI + 4% | 67% | |||||||||||||||||||
| RPI + 3% | 50% | |||||||||||||||||||
| <RPI + 3% | 0% | |||||||||||||||||||
| a) | The performance targets for these share options were not met, and as a result they lapsed on the third anniversary of the date of grant. |
The table below sets out,
for share options granted in respect of 2009 and 2010 the performance period and
targets.
| Performance target | ||||||||||||||||||||
| Vesting status | Annualised growth | Percentage of | ||||||||||||||||||
| Grant | Performance period | at 31st December 2010 | in EPS | award vesting | ||||||||||||||||
February 2009 – 50% of award |
2009 – 2011 | Unvested | > RPI + 6% | 100% | ||||||||||||||||
February 2009 – 50% of award |
2009 – 2012 | Unvested | RPI + 5% | 85% | ||||||||||||||||
| RPI + 4% | 65% | |||||||||||||||||||
| RPI + 3% | 30% | |||||||||||||||||||
| <RPI + 3% | 0% | |||||||||||||||||||
The highest and lowest closing prices during the year ended 31st December 2010 for GlaxoSmithKline
shares were £10.95 and £13.40, respectively. The highest and lowest prices for GlaxoSmithKline ADS
during the year ended 31st December 2010 were $32.34 and $42.97, respectively. The market price for
a GlaxoSmithKline share on 31st December 2010 was £12.40 (31st December 2009 – £13.20) and for a
GlaxoSmithKline ADS was $39.22 (31st December 2009 – $42.25). The prices on 24th February 2011 were
£11.78 per GlaxoSmithKline share and $38.13 per GlaxoSmithKline ADS.
Performance Share Plan (PSP) awards
Performance share awards are made to Executive Directors on an annual basis. The Directors hold
these options under the various PSP plans referred to in Note 42 to the financial statements.
| Andrew Witty – Shares | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market price | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | Number | |||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | granted in | |||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | 2011 | ||||||||||||||||||||||||||||||
2007 – 2009 |
95,410 | – | £14.88 | 33,781 | £12.09 | 408,238 | 62,735 | 1,106 | – | – | ||||||||||||||||||||||||||||||
2008 – 2010 |
242,010 | – | £11.47 | – | – | – | – | 12,439 | 254,449 | – | ||||||||||||||||||||||||||||||
2008 – 2010 |
65,923 | – | £12.21 | – | – | – | – | 3,388 | 69,311 | – | ||||||||||||||||||||||||||||||
2009 – 2011 |
476,146 | – | £10.51 | – | – | – | – | 24,471 | 500,617 | – | ||||||||||||||||||||||||||||||
2010 – 2012 |
– | 415,454 | £12.04 | – | – | – | – | 10,327 | 425,781 | – | ||||||||||||||||||||||||||||||
2011 – 2013 |
– | – | – | – | – | – | – | – | – | 424,448 | ||||||||||||||||||||||||||||||
| Julian Heslop – Shares | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | ||||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | ||||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | |||||||||||||||||||||||||||||||
2007 – 2009 |
117,859 | – | £14.88 | 41,729 | £12.09 | 504,294 | 77,497 | 1,367 | – | |||||||||||||||||||||||||||||||
2008 – 2010 |
112,938 | – | £11.47 | – | – | – | – | 5,805 | 118,743 | |||||||||||||||||||||||||||||||
2009 – 2011 |
199,982 | – | £10.51 | – | – | – | – | 10,278 | 210,260 | |||||||||||||||||||||||||||||||
2010 – 2012 |
– | 174,491 | £12.04 | – | – | – | – | 4,337 | 178,828 | |||||||||||||||||||||||||||||||
GSK Annual Report 2010
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Remuneration Report
| Dr Moncef Slaoui – ADS | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | Number | |||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | granted in | |||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | 2011 | ||||||||||||||||||||||||||||||
2007 – 2009 |
79,286 | – | $58.00 | 27,454 | $37.42 | $1,027,342 | 52,748 | 916 | – | – | ||||||||||||||||||||||||||||||
2008 – 2010 |
75,991 | – | $44.75 | – | – | – | 1,778 | 3,939 | 78,152 | – | ||||||||||||||||||||||||||||||
2009 – 2011 |
2,686 | – | $33.42 | – | – | – | 2,825 | 139 | – | – | ||||||||||||||||||||||||||||||
2009 – 2011 |
69,804 | – | $33.50 | – | – | – | – | 3,618 | 73,422 | – | ||||||||||||||||||||||||||||||
2010 – 2012 |
– | 133,247 | – | – | – | – | 2,684 | 3,256 | 133,819 | – | ||||||||||||||||||||||||||||||
2011 – 2013 |
– | – | – | – | – | – | – | – | – | 147,521 | ||||||||||||||||||||||||||||||
This includes those performance shares held by Dr Moncef Slaoui’s connected person, who is
also an employee of GSK. Lapses for performance periods 2008 to 2011 relate to a change in
connected person.
| Simon Dingemans - Shares | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | Number | |||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | granted in | |||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | 2011 | ||||||||||||||||||||||||||||||
2011 – 2013 |
– | – | – | – | – | – | – | – | – | 196,095 | ||||||||||||||||||||||||||||||
Under the terms of the PSP the number of shares actually vesting is determined following the end of
the relevant measurement period and is dependent on GSK’s performance during that period as
described on pages 87 to 89. The Committee adjusted the comparator group by removing
Schering-Plough and Wyeth following their de-listing during 2009 and revised the vesting schedule
accordingly. For outstanding and future awards, TSR performance will be measured against the
revised comparator group including GSK, as set out below.
Dividends are reinvested on the performance shares awarded to Executives, throughout the
performance period and up to the date of the final award. The dividend reinvestment is calculated
as of the dividend payment date. Under the terms of the PSP, US participants may defer receipt of
all or part of their vested awards. The total gain on vesting of PSP awards made by Executive
Directors and connected persons is £1,575,333 (2009 – £193,518).
The following vesting schedules apply to PSP awards made in 2008.
| TSR vesting schedule | |||||||||||||||||
| Award | % of Award | Performance Period | TSR rank with 12 other companies | Percentage of award vesting | |||||||||||||
2008 |
100 | 2008 – 2010 | 1 | 100% | |||||||||||||
| 2 | 100% | ||||||||||||||||
| 3 | 87% | ||||||||||||||||
| 4 | 74% | ||||||||||||||||
| 5 | 61% | ||||||||||||||||
| 6 | 48% | ||||||||||||||||
| Median | 35% | ||||||||||||||||
| Below median | 0% | ||||||||||||||||
The following vesting schedules apply to PSP awards made in 2009 and 2010. |
|||||||||||||||||
| TSR vesting schedule | |||||||||||||||||
| Award | % of Award | Performance Period | TSR rank with 10 other companies | Percentage of award vesting | |||||||||||||
2009 |
30 | 2009 – 2011 | 1 | 100% | |||||||||||||
| 30 | 2009 – 2012 | 2 | 100% | ||||||||||||||
2010 |
30 | 2010 – 2012 | 3 | 100% | |||||||||||||
| 30 | 2010 – 2013 | 4 | 80% | ||||||||||||||
| 5 | 55% | ||||||||||||||||
| Median | 30% | ||||||||||||||||
| Below median | 0% | ||||||||||||||||
| Adjusted free cash flow vesting schedule | |||||||||||||||||
| Cash flow Targets | |||||||||||||||||
| Award | % of Award | Performance Period | £bn | Percentage of award vesting | |||||||||||||
2009 |
40 | 2009 – 2011 | 13.5 – 16.0 | 25% – 100% | |||||||||||||
2010 |
40 | 2010 – 2012 | 17.3 – 20.5 | 25% – 100% | |||||||||||||
GSK Annual Report 2010
Table of Contents
100
Remuneration Report
Deferred Annual Bonus Plan Awards
Deferred Annual Bonus Plan awards are made to Executive Directors’ annually based on the
individual’s voluntary bonus deferral election. The terms of the Deferred Annual Bonus Plan are
outlined on page 87.
| Andrew Witty – Shares | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | Number | |||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | granted in | |||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | 2011 | ||||||||||||||||||||||||||||||
2010 – 2012 |
– | 24,291 | 12.35 | – | – | – | – | 616 | 24,907 | – | ||||||||||||||||||||||||||||||
2011 – 2013 |
– | – | – | – | – | – | – | – | – | 31,921 | ||||||||||||||||||||||||||||||
| Dr Moncef Slaoui - ADS | Vested | |||||||||||||||||||||||||||||||||||||||
| Unvested | Market | Additional | Unvested | |||||||||||||||||||||||||||||||||||||
| at 31st | Number | price on | shares by | at 31st | Number | |||||||||||||||||||||||||||||||||||
| December | granted in | date of | Market | Vested | dividends | December | granted in | |||||||||||||||||||||||||||||||||
| Performance period | 2009 | 2010 | grant | Number | price | Gain | Lapsed | reinvested | 2010 | 2011 | ||||||||||||||||||||||||||||||
2011 – 2013 |
– | – | – | – | – | – | – | – | – | 18,756 | ||||||||||||||||||||||||||||||
| Share Value Plan awards | ||||||||||||||||||||||||||||
| Dr Moncef Slaoui – Shares and ADS | Vested & deferred | |||||||||||||||||||||||||||
| Unvested | Market | Unvested | ||||||||||||||||||||||||||
| Plan year | at 31st | price on | at 31st | Number | ||||||||||||||||||||||||
| December | date of | Market | December | granted in | ||||||||||||||||||||||||
| 2009 | grant | Number | price | Gain | 2010 | 2011 | ||||||||||||||||||||||
2007 |
510 | $58.00 | 510 | $37.32 | 19,033 | – | – | |||||||||||||||||||||
2008 |
640 | $44.75 | – | – | – | 640 | – | |||||||||||||||||||||
2009 |
640 | $33.42 | – | – | – | 640 | – | |||||||||||||||||||||
2010 |
640 | $37.32 | – | – | – | 640 | – | |||||||||||||||||||||
2011 |
– | $38.13 | – | – | – | – | 2,450 | |||||||||||||||||||||
As an Executive Director, Dr Moncef Slaoui is not eligible to receive awards under the Share Value
Plan. The awards shown above reflect the holdings of Dr Moncef Slaoui’s connected person, an
employee of GSK. The awards are subject to three-year vesting periods and vesting is contingent on
continued employment with GSK.
Pension benefits
The accrued annual pension benefits and transfer values for Executive Directors in office on 31st
December 2010 on retirement are set out below.
The Companies Act 2006 requires disclosure of the accrued benefit at the end of the year, the
change in accrued benefit over the year, the transfer value at both the beginning and end of the
year and the change in the transfer value over the year. The FSA’s Listing Rules require additional
disclosure of the change in the accrued benefit, net of inflation and the transfer value of this
change. Pensions for the Executive Directors have been disclosed in the currency in which the
pension is payable.
| Accrued | Change in | |||||||||||||||||||||||||||||||||||
| benefit at | Accrued | Change in | Personal | Transfer | Transfer | accrued | Transfer value | |||||||||||||||||||||||||||||
| 31st | benefit at | accrued | contributions | value at | value at | Change | benefit over | of change | ||||||||||||||||||||||||||||
| December | 31st December | benefit | made during | 31st December | 31st December | in transfer | year net | in accrued | ||||||||||||||||||||||||||||
| 2009 | 2010 | over year | the year | 2009 | 2010 | value | of inflation | benefit* | ||||||||||||||||||||||||||||
| Executive Directors | 000 | 000 | 000 | 000 | 000 | 000 | 000* | 000 | 000 | |||||||||||||||||||||||||||
Andrew Witty |
£446 | £497 | £51 | £30 | £6,272 | £9,651 | £3,349 | £51 | £987 | |||||||||||||||||||||||||||
Julian Heslop |
£201 | £222 | £21 | £16 | £3,787 | £5,308 | £1,505 | £21 | £563 | |||||||||||||||||||||||||||
Dr Moncef Slaoui |
$187 | $230 | $43 | – | $1,101 | $1,518 | $417 | $41 | – | |||||||||||||||||||||||||||
Dr Moncef Slaoui |
€59 | €65 | €6 | – | €647 | €689 | €42 | €5 | – | |||||||||||||||||||||||||||
| * | These are shown net of contributions made by the individual. |
Andrew Witty and Julian Heslop participate in the Glaxo Wellcome Defined Benefit Plan with an
accrual rate of 1/30th of final pensionable salary per annum. In 2000 all benefits accrued under
the Glaxo Wellcome UK pension arrangements were augmented by the Trustees of the plans by 5% to
reflect a distribution of surplus. This augmentation will apply to that element of Andrew Witty and
Julian Heslop’s pension earnings before 31st March 2000.
Table of Contents
101
Remuneration Report
The transfer values for Andrew Witty and Julian Heslop are calculated in accordance with pensions’
regulation and represent the present value of potential payments under the pension plan. The
actuarial assumptions for the calculation have changed since 31st December 2009 and these changes
have increased the transfer values by £2,117,956 (63% of increase) for Andrew Witty and £778,368
(52% of increase) for Julian Heslop. The balance of the increase in transfer value is the result of
the increased valuation of the pension benefit accrued in the year and the reduced period of
service to the assumed retirement age.
Dr Moncef Slaoui is a member of the US Executive Cash Balance Pension Plan. The plan provides for
an Executive Pension Credit, under which GSK makes annual contributions calculated as a percentage
of the executive’s base salary. GSK makes contributions at 38% of base pay. The fund increases at
an interest rate set annually in advance based on the 30 year US Treasury bond rate to provide a
cash sum at retirement. The plan has no entitlement to a spouse’s pension or to pension increases.
The transfer value, or cash sum, has increased by $416,924 for Dr Moncef Slaoui over the year as a
result of further accumulation of interest and contributions paid by the company.
Dr Moncef Slaoui was an active participant in the Belgium Fortis Plan until 31st May 2006. This
plan is a defined benefit plan with a lump sum payable at normal retirement which is age 60 for the
plan. The transfer value, or cash sum, of Dr Moncef Slaoui’s plan has increased by €41,598 over the
year as a result of further accumulation of interest.
Dr Moncef Slaoui is a member of the US Retirement Savings Plan, a 401k savings scheme open to all
US employees and the Executive Supplemental Savings Plan, a savings scheme open to executives to
accrue benefits above US government limits imposed on the Retirement Savings Plan. Contributions to
both plans are invested in a range of funds and the value of the accumulated funds is paid at
retirement.
During 2010, contributions of $138,290 (£88,648) were paid into these two schemes by GSK in respect
of Dr Moncef Slaoui.
Directors’ interests in contracts
Except as described in Note 35 to the financial statements, ‘Related party transactions’,
during or at the end of the financial year no Director or connected person had any material
interest in any contract of significance in relation to the Group’s business with a Group company.
Directors and Senior Management
Further information is also provided on compensation and interests of Directors and Senior
Management as a group (‘the group’). For this purpose, the group is defined as the Executive and
Non-Executive Directors and members of the CET. For the financial year 2010, the total compensation
paid to members of the group for the periods during which they served in that capacity was
£20,377,021, the aggregate increase in accrued pension benefits, net of inflation, was £1,252,061
and the aggregate payment to defined contribution schemes was £613,889.
During 2010, the members of the group were granted 94,320 share options and 1,100 ADS options under
the Share Option Plan, were awarded 24,291 shares under the Deferred Annual Bonus Plan, 1,273,718
shares and 421,417 ADS under the Performance Share Plan, and nil shares and 640 ADS under the Share
Value Plan. No notional shares or ADS were granted under the Deferred Investment Award Plan in
2010. Members of the group were awarded through the reinvestment of dividends with 131,316 shares
and 40,260 ADS in the Performance Share Plan, 616 shares in the Deferred Annual Bonus Plan and
5,521 notional shares in the Deferred Investment Award Plan.
At 24th February 2011, the group (comprising 29 persons) owned 922,342 shares and 90,057 ADS,
constituting less than 1% of the issued share capital of the company. The group also held, at that
date: options to purchase 6,452,022 shares and 1,153,094 ADS; 4,747,585 shares and 1,250,945 ADS
awarded under the Performance Share Plan, including those shares and ADS that are vested and
deferred; 1,350 vested and deferred ADS under the legacy SmithKline Beecham Mid-Term Incentive
Plan; 13,510 shares and 3,730 ADS awarded under the Share Value Plan; 88,315 shares and 31,913 ADS
under the Deferred Annual Bonus Plan and 1,561 notional shares awarded under the Deferred
Investment Award Plan. These holdings were issued under the various executive share option plans
described in Note 42 to the financial statements, ‘Employee share schemes’.
Basis of preparation
The Remuneration Report has been prepared in accordance with the Companies Act 2006 and The
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the
Regulations) and meets the relevant requirements of the FSA Listing Rules.
The Remuneration Report has been approved by the Board of Directors
and signed on its behalf by
Sir Crispin Davis
Remuneration Committee Chairman
1st March 2011
Remuneration Committee Chairman
1st March 2011
GSK Annual Report 2010
Table of Contents
102
Directors’ statement of responsibilities
Directors’ statement of responsibilities in relation
to the Group financial statements
to the Group financial statements
The Directors are responsible for preparing the Annual Report, the Remuneration Report and the
Group financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under
that law the Directors are required to prepare the Group financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. In preparing
the Group financial statements, the Directors have also elected to comply with IFRS, as issued by
the International Accounting Standards Board (IASB). Under company law the Directors must not
approve the Group financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing those financial statements, the Directors are required to:
| • | select suitable accounting policies and then apply them consistently; | |
| • | make judgements and accounting estimates that are reasonable and prudent; | |
| • | state that the Group financial statements comply with IFRS as adopted by the European Union and IFRS as issued by the IASB, subject to any material departures disclosed and explained in the Group financial statements. |
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the company’s transactions and disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that the Group financial statements
and the Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Group financial statements for the year ended 31st December 2010, comprising principal
statements and supporting notes, are set out in ‘Financial
statements’ on pages 104 to 185 of this
report.
The responsibilities of the auditors in relation to the Group financial statements are set out in
the Independent Auditors’ report on page 103.
The Group financial statements for the year ended 31st December 2010 are included in the Annual
Report.
The Directors are responsible for the maintenance and integrity of the Annual Report on the website
in accordance with UK legislation governing the preparation and dissemination of financial
statements. Access to the website is available from outside the UK, where comparable legislation
may be different.
Each of the current Directors, whose names and functions are listed in the Corporate Governance
section of the Annual Report 2010 confirms that, to the best of his or her knowledge:
| • | the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU and IFRS as issued by IASB, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and |
| • | the Business review section contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. |
Disclosure of information to auditors
The Directors in office at the date of this Report have each confirmed that:
| • | so far as he or she is aware, there is no relevant audit information of which the company’s auditors are unaware; and | |
| • | he or she has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. |
This confirmation is given and should be interpreted in accordance with the provisions of Section
418 of the Companies Act 2006.
Going concern basis
The
Business review on pages 7 to 57 contains information on the performance of the Group, its
financial position, cash flows, net debt position and borrowing facilities. Further information,
including Treasury risk management policies, exposures to market and credit risk and hedging
activities, is given in Note 41 to the financial statements, ‘Financial instruments and related
disclosures’.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the financial statements.
Internal control
The Board, through the Audit & Risk Committee, has reviewed the assessment of risks and the
internal control framework that operates in GSK and has considered the effectiveness of the system
of internal control in operation in the Group for the year covered by this report and up to the
date of its approval by the Board of Directors.
The Combined Code
The Board
considers that GlaxoSmithKline plc applies the Main Principles of Section 1 of the
Combined Code maintained by the FRC, as described in the Corporate Governance section on pages
58 to 83, and has complied with its provisions except as disclosed on
page 63.
As required by the FSA’s Listing Rules the auditors have considered the Directors’ statement of
compliance in relation to those points of the Combined Code which are specified for their review.
Annual Report
The Annual Report for the year ended 31st December 2010, comprising the Report of the Directors,
the Remuneration Report, the Financial statements and additional information for investors, has
been approved by the Board of Directors and signed on its behalf by
Sir Christopher Gent
Chairman
1st March 2011
Chairman
1st March 2011
GSK Annual Report 2010
Table of Contents
103
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of GlaxoSmithKline plc
In our opinion, the accompanying consolidated balance sheets and the related consolidated
income statement, consolidated statements of cash flows, consolidated statements of comprehensive
income and, consolidated statement of changes in equity present fairly, in all material respects,
the financial position of GlaxoSmithKline plc and its subsidiaries at 31st December 2010 and 31st
December 2009, and the results of their operations and cash flows for each of the three years in
the period ended 31st December 2010, in conformity with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards Board. Also, in our opinion the Company
maintained, in all material respects, effective internal control over financial reporting as of
31st December 2010, based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission COSO. The Company’s
management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in ‘Managements annual report on internal control over financial
reporting’ on page 80. Our responsibility is to express opinions on these financial statements and
on the Company’s internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
London
United Kingdom
4th March 2011
London
United Kingdom
4th March 2011
GSK Annual Report 2010
Table of Contents
104
Consolidated income statement for the year ended 31st December 2010
| 2010 | ||||||||||||||||
| Results | ||||||||||||||||
| before major | Major | |||||||||||||||
| restructuring | restructuring | Total | ||||||||||||||
| Notes | £m | £m | £m | |||||||||||||
Turnover |
6 | 28,392 | – | 28,392 | ||||||||||||
Cost of sales |
(7,405 | ) | (187 | ) | (7,592 | ) | ||||||||||
Gross profit |
20,987 | (187 | ) | 20,800 | ||||||||||||
Selling, general and administration |
(12,388 | ) | (665 | ) | (13,053 | ) | ||||||||||
Research and development |
(3,964 | ) | (493 | ) | (4,457 | ) | ||||||||||
Other operating income |
8 | 493 | – | 493 | ||||||||||||
Operating profit |
9 | 5,128 | (1,345 | ) | 3,783 | |||||||||||
Finance income |
11 | 116 | – | 116 | ||||||||||||
Finance costs |
12 | (828 | ) | (3 | ) | (831 | ) | |||||||||
Profit on disposal of interest in associates |
8 | – | 8 | |||||||||||||
Share of after tax profits of associates and joint ventures |
13 | 81 | – | 81 | ||||||||||||
Profit before taxation |
4,505 | (1,348 | ) | 3,157 | ||||||||||||
Taxation |
14 | (1,544 | ) | 240 | (1,304 | ) | ||||||||||
Profit after taxation for the year |
2,961 | (1,108 | ) | 1,853 | ||||||||||||
Profit attributable to non-controlling interests |
219 | – | 219 | |||||||||||||
Profit attributable to shareholders |
2,742 | (1,108 | ) | 1,634 | ||||||||||||
| 2,961 | (1,108 | ) | 1,853 | |||||||||||||
Basic earnings per share (pence) |
15 | 32.1 | p | |||||||||||||
Diluted earnings per share (pence) |
15 | 31.9 | p | |||||||||||||
The calculation of ‘Results before major restructuring’ is described in Note 1, ‘Presentation of
the financial statements’.
Consolidated statement of comprehensive income for the year ended 31st December 2010
| 2010 | ||||
| £m | ||||
Profit for the year |
1,853 | |||
Exchange movements on overseas net assets and net investment hedges |
166 | |||
Reclassification of exchange on liquidation or disposal of overseas subsidiaries |
(2 | ) | ||
Tax on exchange movements |
– | |||
Fair value movements on available-for-sale investments |
94 | |||
Deferred tax on fair value movements on available-for-sale investments |
(25 | ) | ||
Reclassification of fair value movements on available-for-sale investments |
1 | |||
Deferred tax reversed on reclassification of available-for-sale investments |
(3 | ) | ||
Fair value movements on cash flow hedges |
(8 | ) | ||
Deferred tax on fair value movements on cash flow hedges |
1 | |||
Reclassification of cash flow hedges to income statement |
3 | |||
Fair value movement on subsidiary acquisition |
– | |||
Cash flow
hedge reclassified to goodwill |
6 | |||
Actuarial losses on defined benefit plans |
(1 | ) | ||
Deferred tax on actuarial movements in defined benefit plans |
1 | |||
Other comprehensive income/(expense) for the year |
233 | |||
Total comprehensive income for the year |
2,086 | |||
Total comprehensive income for the year attributable to: |
||||
Shareholders |
1,847 | |||
Non-controlling interests |
239 | |||
Total comprehensive income for the year |
2,086 | |||
GSK Annual Report 2010
Table of Contents
105
| 2009 | 2008 | |||||||||||||||||||||
| Results | Results | |||||||||||||||||||||
| before major | Major | before major | Major | |||||||||||||||||||
| restructuring | restructuring | Total | restructuring | restructuring | Total | |||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||
| 28,368 | – | 28,368 | 24,352 | – | 24,352 | |||||||||||||||||
| (7,095 | ) | (285 | ) | (7,380 | ) | (5,776 | ) | (639 | ) | (6,415 | ) | |||||||||||
| 21,273 | (285 | ) | 20,988 | 18,576 | (639 | ) | 17,937 | |||||||||||||||
| (9,200 | ) | (392 | ) | (9,592 | ) | (7,352 | ) | (304 | ) | (7,656 | ) | |||||||||||
| (3,951 | ) | (155 | ) | (4,106 | ) | (3,506 | ) | (175 | ) | (3,681 | ) | |||||||||||
| 1,135 | – | 1,135 | 541 | – | 541 | |||||||||||||||||
| 9,257 | (832 | ) | 8,425 | 8,259 | (1,118 | ) | 7,141 | |||||||||||||||
| 70 | – | 70 | 313 | – | 313 | |||||||||||||||||
| (780 | ) | (3 | ) | (783 | ) | (838 | ) | (5 | ) | (843 | ) | |||||||||||
| 115 | – | 115 | – | – | – | |||||||||||||||||
| 64 | – | 64 | 48 | – | 48 | |||||||||||||||||
| 8,726 | (835 | ) | 7,891 | 7,782 | (1,123 | ) | 6,659 | |||||||||||||||
| (2,443 | ) | 221 | (2,222 | ) | (2,231 | ) | 284 | (1,947 | ) | |||||||||||||
| 6,283 | (614 | ) | 5,669 | 5,551 | (839 | ) | 4,712 | |||||||||||||||
| 138 | – | 138 | 110 | – | 110 | |||||||||||||||||
| 6,145 | (614 | ) | 5,531 | 5,441 | (839 | ) | 4,602 | |||||||||||||||
| 6,283 | (614 | ) | 5,669 | 5,551 | (839 | ) | 4,712 | |||||||||||||||
| 109.1 | p | 88.6 | p | |||||||||||||||||||
| 108.2 | p | 88.1 | p | |||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||
| £m | £m | |||||||||||||||||||||
| 5,669 | 4,712 | |||||||||||||||||||||
| (194 | ) | 1,017 | ||||||||||||||||||||
| (44 | ) | 84 | ||||||||||||||||||||
| 19 | 15 | |||||||||||||||||||||
| 42 | (47 | ) | ||||||||||||||||||||
| (24 | ) | 5 | ||||||||||||||||||||
| – | (34 | ) | ||||||||||||||||||||
| 13 | 3 | |||||||||||||||||||||
| (6 | ) | 6 | ||||||||||||||||||||
| 2 | (3 | ) | ||||||||||||||||||||
| 1 | – | |||||||||||||||||||||
| (6 | ) | – | ||||||||||||||||||||
| – | – | |||||||||||||||||||||
| (659 | ) | (1,370 | ) | |||||||||||||||||||
| 183 | 441 | |||||||||||||||||||||
| (673 | ) | 117 | ||||||||||||||||||||
| 4,996 | 4,829 | |||||||||||||||||||||
| 4,895 | 4,670 | |||||||||||||||||||||
| 101 | 159 | |||||||||||||||||||||
| 4,996 | 4,829 | |||||||||||||||||||||
GSK Annual Report 2010
Table of Contents
106
Consolidated balance sheet as at 31st December 2010
| 2010 | 2009 | |||||||||||
| Notes | £m | £m | ||||||||||
Non-current assets |
||||||||||||
Property, plant and equipment |
17 | 9,045 | 9,374 | |||||||||
Goodwill |
18 | 3,606 | 3,361 | |||||||||
Other intangible assets |
19 | 8,532 | 8,183 | |||||||||
Investments in associates and joint ventures |
20 | 1,081 | 895 | |||||||||
Other investments |
21 | 711 | 454 | |||||||||
Deferred tax assets |
14 | 2,566 | 2,374 | |||||||||
Derivative financial instruments |
41 | 97 | 68 | |||||||||
Other non-current assets |
22 | 556 | 583 | |||||||||
Total non-current assets |
26,194 | 25,292 | ||||||||||
Current assets |
||||||||||||
Inventories |
23 | 3,837 | 4,064 | |||||||||
Current tax recoverable |
14 | 56 | 58 | |||||||||
Trade and other receivables |
24 | 5,793 | 6,492 | |||||||||
Derivative financial instruments |
41 | 93 | 129 | |||||||||
Liquid investments |
32 | 184 | 268 | |||||||||
Cash and cash equivalents |
25 | 6,057 | 6,545 | |||||||||
Assets held for sale |
26 | 16 | 14 | |||||||||
Total current assets |
16,036 | 17,570 | ||||||||||
Total assets |
42,230 | 42,862 | ||||||||||
Current liabilities |
||||||||||||
Short-term borrowings |
32 | (291 | ) | (1,471 | ) | |||||||
Trade and other payables |
27 | (6,888 | ) | (6,772 | ) | |||||||
Derivative financial instruments |
41 | (188 | ) | (168 | ) | |||||||
Current tax payable |
14 | (1,047 | ) | (1,451 | ) | |||||||
Short-term provisions |
29 | (4,380 | ) | (2,256 | ) | |||||||
Total current liabilities |
(12,794 | ) | (12,118 | ) | ||||||||
Non-current liabilities |
||||||||||||
Long-term borrowings |
32 | (14,809 | ) | (14,786 | ) | |||||||
Deferred tax liabilities |
14 | (707 | ) | (645 | ) | |||||||
Pensions and other post-employment benefits |
28 | (2,672 | ) | (2,981 | ) | |||||||
Other provisions |
29 | (904 | ) | (985 | ) | |||||||
Derivative financial instruments |
41 | (5 | ) | – | ||||||||
Other non-current liabilities |
30 | (594 | ) | (605 | ) | |||||||
Total non-current liabilities |
(19,691 | ) | (20,002 | ) | ||||||||
Total liabilities |
(32,485 | ) | (32,120 | ) | ||||||||
Net assets |
9,745 | 10,742 | ||||||||||
Equity |
||||||||||||
Share capital |
33 | 1,418 | 1,416 | |||||||||
Share premium account |
33 | 1,428 | 1,368 | |||||||||
Retained earnings |
34 | 4,779 | 6,321 | |||||||||
Other reserves |
34 | 1,262 | 900 | |||||||||
Shareholders’ equity |
8,887 | 10,005 | ||||||||||
Non-controlling interests |
858 | 737 | ||||||||||
Total equity |
9,745 | 10,742 | ||||||||||
Approved by the Board on 1st March 2011
Sir Christopher Gent
Chairman
Chairman
GSK Annual Report 2010
Table of Contents
107
Consolidated statement of changes in equity for the year ended 31st December 2010
| Shareholders’ equity | ||||||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||||||
| Share | Share | Retained | Other | controlling | Total | |||||||||||||||||||||||
| capital | premium | earnings | reserves | Total | interests | equity | ||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||
At 1st January 2008 |
1,503 | 1,266 | 6,475 | 359 | 9,603 | 307 | 9,910 | |||||||||||||||||||||
Profit for the year |
– | – | 4,602 | – | 4,602 | 110 | 4,712 | |||||||||||||||||||||
Other comprehensive income/(expense) for the year |
– | – | 121 | (53 | ) | 68 | 49 | 117 | ||||||||||||||||||||
Distributions to non-controlling interests |
– | – | – | – | – | (79 | ) | (79 | ) | |||||||||||||||||||
Dividends to shareholders |
– | – | (2,929 | ) | – | (2,929 | ) | – | (2,929 | ) | ||||||||||||||||||
Ordinary shares issued |
2 | 60 | – | – | 62 | – | 62 | |||||||||||||||||||||
Ordinary shares purchased and cancelled |
(90 | ) | – | (3,706 | ) | 90 | (3,706 | ) | – | (3,706 | ) | |||||||||||||||||
Ordinary shares acquired by ESOP Trusts |
– | – | – | (19 | ) | (19 | ) | – | (19 | ) | ||||||||||||||||||
Ordinary shares transferred by ESOP Trusts |
– | – | – | 10 | 10 | – | 10 | |||||||||||||||||||||
Write-down of shares held by ESOP Trusts |
– | – | (181 | ) | 181 | – | – | – | ||||||||||||||||||||
Share-based incentive plans |
– | – | 241 | – | 241 | – | 241 | |||||||||||||||||||||
Tax on share-based incentive plans |
– | – | (1 | ) | – | (1 | ) | – | (1 | ) | ||||||||||||||||||
At 31st December 2008 |
1,415 | 1,326 | 4,622 | 568 | 7,931 | 387 | 8,318 | |||||||||||||||||||||
Profit for the year |
– | – | 5,531 | – | 5,531 | 138 | 5,669 | |||||||||||||||||||||
Other comprehensive (expense)/income for the year |
– | – | (663 | ) | 27 | (636 | ) | (37 | ) | (673 | ) | |||||||||||||||||
Distributions to non-controlling interests |
– | – | – | – | – | (89 | ) | (89 | ) | |||||||||||||||||||
Changes in non-controlling interests |
– | – | – | – | – | 338 | 338 | |||||||||||||||||||||
Put option over non-controlling interest |
– | – | – | (2 | ) | (2 | ) | – | (2 | ) | ||||||||||||||||||
Dividends to shareholders |
– | – | (3,003 | ) | – | (3,003 | ) | – | (3,003 | ) | ||||||||||||||||||
Ordinary shares issued |
1 | 42 | – | – | 43 | – | 43 | |||||||||||||||||||||
Ordinary shares acquired by ESOP Trusts |
– | – | – | (57 | ) | (57 | ) | – | (57 | ) | ||||||||||||||||||
Ordinary shares transferred by ESOP Trusts |
– | – | – | 13 | 13 | – | 13 | |||||||||||||||||||||
Write-down of shares held by ESOP Trusts |
– | – | (351 | ) | 351 | – | – | – | ||||||||||||||||||||
Share-based incentive plans |
– | – | 171 | – | 171 | – | 171 | |||||||||||||||||||||
Tax on share-based incentive plans |
– | – | 14 | – | 14 | – | 14 | |||||||||||||||||||||
At 31st December 2009 |
1,416 | 1,368 | 6,321 | 900 | 10,005 | 737 | 10,742 | |||||||||||||||||||||
Profit for the year |
– | – | 1,634 | – | 1,634 | 219 | 1,853 | |||||||||||||||||||||
Other comprehensive income for the year |
– | – | 144 | 69 | 213 | 20 | 233 | |||||||||||||||||||||
Distributions to non-controlling interests |
– | – | – | – | – | (118 | ) | (118 | ) | |||||||||||||||||||
Dividends to shareholders |
– | – | (3,205 | ) | – | (3,205 | ) | – | (3,205 | ) | ||||||||||||||||||
Ordinary shares issued |
2 | 60 | – | – | 62 | – | 62 | |||||||||||||||||||||
Ordinary shares acquired by ESOP Trusts |
– | – | – | (16 | ) | (16 | ) | – | (16 | ) | ||||||||||||||||||
Ordinary shares transferred by ESOP Trusts |
– | – | – | 17 | 17 | – | 17 | |||||||||||||||||||||
Write-down of shares held by ESOP Trusts |
– | – | (292 | ) | 292 | – | – | – | ||||||||||||||||||||
Share-based incentive plans |
– | – | 175 | – | 175 | – | 175 | |||||||||||||||||||||
Tax on share-based incentive plans |
– | – | 2 | – | 2 | – | 2 | |||||||||||||||||||||
At 31st December 2010 |
1,418 | 1,428 | 4,779 | 1,262 | 8,887 | 858 | 9,745 | |||||||||||||||||||||
GSK Annual Report 2010
Table of Contents
108
Consolidated cash flow statement for the year ended 31st December 2010
| 2010 | 2009 | 2008 | ||||||||||||||
| Notes | £m | £m | £m | |||||||||||||
Cash flow from operating activities |
||||||||||||||||
Profit after taxation for the year |
1,853 | 5,669 | 4,712 | |||||||||||||
Adjustments reconciling profit after tax to operating cash flows |
36 | 6,778 | 3,876 | 4,343 | ||||||||||||
Cash generated from operations |
8,631 | 9,545 | 9,055 | |||||||||||||
Taxation paid |
(1,834 | ) | (1,704 | ) | (1,850 | ) | ||||||||||
Net cash inflow from operating activities |
6,797 | 7,841 | 7,205 | |||||||||||||
Cash flow from investing activities |
||||||||||||||||
Purchase of property, plant and equipment |
(1,014 | ) | (1,418 | ) | (1,437 | ) | ||||||||||
Proceeds from sale of property, plant and equipment |
92 | 48 | 20 | |||||||||||||
Purchase of intangible assets |
(621 | ) | (455 | ) | (632 | ) | ||||||||||
Proceeds from sale of intangible assets |
126 | 356 | 171 | |||||||||||||
Purchase of equity investments |
(279 | ) | (154 | ) | (87 | ) | ||||||||||
Proceeds from sale of equity investments |
27 | 59 | 42 | |||||||||||||
Purchase of businesses, net of cash acquired |
38 | (354 | ) | (2,792 | ) | (454 | ) | |||||||||
Investments in associates and joint ventures |
38 | (61 | ) | (29 | ) | (9 | ) | |||||||||
Decrease in liquid investments |
91 | 87 | 905 | |||||||||||||
Interest received |
107 | 90 | 320 | |||||||||||||
Dividends from associates and joint ventures |
18 | 17 | 12 | |||||||||||||
Proceeds from disposal of associates |
– | 178 | – | |||||||||||||
Net cash outflow from investing activities |
(1,868 | ) | (4,013 | ) | (1,149 | ) | ||||||||||
Cash flow from financing activities |
||||||||||||||||
Proceeds from own shares for employee share options |
17 | 13 | 9 | |||||||||||||
Shares acquired by ESOP Trusts |
(16 | ) | (57 | ) | (19 | ) | ||||||||||
Issue of share capital |
33 | 62 | 43 | 62 | ||||||||||||
Purchase of own shares for cancellation |
– | – | (3,706 | ) | ||||||||||||
Increase in long-term loans |
– | 1,358 | 5,523 | |||||||||||||
Increase in short-term loans |
6 | 646 | 275 | |||||||||||||
Repayment of short-term loans |
(1,296 | ) | (748 | ) | (3,334 | ) | ||||||||||
Net repayment of obligations under finance leases |
(45 | ) | (48 | ) | (48 | ) | ||||||||||
Interest paid |
(775 | ) | (780 | ) | (730 | ) | ||||||||||
Dividends paid to shareholders |
(3,205 | ) | (3,003 | ) | (2,929 | ) | ||||||||||
Distributions to non-controlling interests |
(118 | ) | (89 | ) | (79 | ) | ||||||||||
Other financing cash flows |
(201 | ) | (109 | ) | 68 | |||||||||||
Net cash outflow from financing activities |
(5,571 | ) | (2,774 | ) | (4,908 | ) | ||||||||||
(Decrease)/increase in cash and bank overdrafts |
37 | (642 | ) | 1,054 | 1,148 | |||||||||||
Exchange adjustments |
81 | (158 | ) | 1,103 | ||||||||||||
Cash and bank overdrafts at beginning of year |
6,368 | 5,472 | 3,221 | |||||||||||||
Cash and bank overdrafts at end of year |
5,807 | 6,368 | 5,472 | |||||||||||||
Cash and bank overdrafts at end of year comprise: |
||||||||||||||||
Cash and cash equivalents |
6,057 | 6,545 | 5,623 | |||||||||||||
Overdrafts |
(250 | ) | (177 | ) | (151 | ) | ||||||||||
| 5,807 | 6,368 | 5,472 | ||||||||||||||
GSK Annual Report 2010
Table of Contents
109
Notes to the financial statements
1 Presentation of the financial statements
Description of business
GlaxoSmithKline is a major global healthcare group which is engaged in the creation and discovery,
development, manufacture and marketing of pharmaceutical products including vaccines,
over-the-counter (OTC) medicines and health-related consumer products. GSK’s principal
pharmaceutical products include medicines in the following therapeutic areas: respiratory,
anti-virals including HIV, central nervous system, cardiovascular and urogenital, metabolic,
anti-bacterials, oncology and emesis, vaccines and dermatologicals.
Compliance with applicable law and IFRS
The financial statements have been prepared in accordance with the Companies Act 2006, Article 4 of
the IAS Regulation and International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS) and related interpretations, as adopted by the European Union.
The financial statements are also in compliance with IFRS as issued by the International
Accounting Standards Board.
Composition of financial statements
The consolidated financial statements are drawn up in Sterling, the functional currency of
GlaxoSmithKline plc, and in accordance with IFRS accounting presentation. The financial statements
comprise:
| • | Consolidated income statement | |
| • | Consolidated statement of comprehensive income | |
| • | Consolidated balance sheet | |
| • | Consolidated statement of changes in equity | |
| • | Consolidated cash flow statement | |
| • | Notes to the financial statements. |
Accounting convention
The financial statements have been prepared using the historical cost convention, as modified by
the revaluation of certain items, as stated in the accounting policies.
Financial period
These financial statements cover the financial year from 1st January to 31st December 2010, with
comparative figures for the financial years from 1st January to 31st December 2009 and, where
appropriate, from 1st January to 31st December 2008.
Composition of the Group
A list of the subsidiary and associated undertakings which, in the opinion of the Directors,
principally affected the amount of profit or the net assets of the Group is given in Note 43,
‘Principal Group companies’.
Presentation of restructuring costs
In October 2007, the Board approved the implementation of a detailed formal plan for, and GSK
announced, a significant new Operational Excellence restructuring programme. A second formal plan,
representing a significant expansion of the Operational Excellence programme, was approved by the
Board and announced in February 2009. A further expansion was approved by the Board and announced
in February 2010. This restructuring programme, comprising these detailed formal plans, covers all
areas of GSK’s business, including manufacturing, selling, R&D and infrastructure.
With an estimated total cost of approximately £4.5 billion, the expanded programme is expected to
deliver annual pre-tax savings of approximately £2.2 billion by the time it is substantially
complete in 2012. Given the extent and cost of the Operational Excellence programme, management
believes it has a material impact on GSK’s operating results and on the manner in which GSK’s
business is conducted. GSK presents the restructuring costs incurred solely as a direct result of
the Operational Excellence programme in a separate column in the income statement titled ‘Major
restructuring’.
In addition to the restructuring costs of the Operational Excellence programme, the major
restructuring column in the income statement includes restructuring costs incurred solely as a
direct result of any restructuring programmes that follow, and relate to, material acquisitions
where the operations of the acquired business overlap extensively with GSK’s existing operations.
The restructuring activities that follow, and relate to, such acquisitions are of the same nature
as those undertaken under the Operational Excellence programme and are also carried out following a
detailed formal plan. Management therefore considers it appropriate to present the costs of these
restructuring activities in the same manner. The $1.65 billion (£814 million) acquisition of
Reliant Pharmaceuticals in December 2007 and the $3.6 billion (£2.2 billion) acquisition of Stiefel
Laboratories in July 2009 are the only acquisitions since
October 2007 that meet the criteria set
out above and are the only acquisitions where the costs incurred as a direct result of a related
restructuring programme have been included within the major restructuring column.
The Group’s results before the costs of the Operational Excellence programme and
acquisition-related restructuring programmes meeting the criteria described above are also
presented in a separate column in the income statement and are described as ‘Results before major
restructuring’. This presentation, which GSK intends to apply consistently to future major
restructuring programmes that have a material impact on GSK’s operating results and on the manner
in which GSK’s business is conducted, has been adopted to show clearly the Group’s results both
before and after the costs of these restructuring programmes. Management believes that this
presentation assists investors in gaining a clearer understanding of the Group’s financial
performance and in making projections of future financial performance, as results that include such
costs, by virtue of their size and nature, have limited comparative value. This presentation is
also consistent with the way management assesses the Group’s financial performance.
Any restructuring costs that do not arise solely as a direct result of the Operational Excellence
programme and restructuring programmes following, and relating to, acquisitions meeting the
criteria described above continue to be reported in operating expenses within results before major
restructuring.
GSK Annual Report 2010
Table of Contents
110
Notes to the financial statements
1 Presentation of the financial statements
continued
Accounting principles and policies
The preparation of the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The financial statements have been prepared in accordance with the Group’s accounting policies
approved by the Board and described in Note 2, ‘Accounting principles and policies’. Information on
the application of these accounting policies, including areas of estimation and judgement is given
in Note 3, ‘Key accounting judgements and estimates’. Where appropriate, comparative figures are
reclassified to ensure a consistent presentation with current year information.
Implementation of new accounting standards
With effect from 1st January 2010, GSK has implemented IFRS 3 (Revised) ‘Business combinations’ and
IAS 27 (Revised) ‘Consolidated and separate financial statements’ and minor amendments to a number
of other accounting standards. IFRS 3 (Revised) and IAS 27 (Revised) have been implemented
prospectively, with no restatement of comparative information.
The revised accounting policy on business combinations is set out in Note 2, ‘Accounting principles
and policies’, and acquisitions during the year are discussed in Note 38, ‘Acquisitions and
disposals’. The revisions to IAS 27 had no impact on the current period.
Parent company financial statements
The financial statements of
the parent company, GlaxoSmithKline plc, have been prepared in
accordance with UK GAAP and with UK accounting presentation. The company balance sheet is presented
on page 188 and the accounting policies are given on page 189.
2 Accounting principles and policies
Consolidation
The consolidated financial statements include:
| • | the assets and liabilities, and the results and cash flows, of the company and its subsidiaries, including ESOP Trusts |
| • | the Group’s share of the results and net assets of associates and joint ventures. |
The financial statements of entities consolidated are made up to 31st December each year.
Entities over which the Group has the power to govern the financial and operating policies are
accounted for as subsidiaries. Where the Group has the ability to exercise joint control, the
entities are accounted for as joint ventures, and where the Group has the ability to exercise
significant influence, they are accounted for as associates. The results and assets and liabilities
of associates and joint ventures are incorporated into the consolidated financial statements using
the equity method of accounting.
Interests acquired in entities are consolidated from the date the Group acquires control and
interests sold are de-consolidated from the date control ceases.
Transactions and balances between subsidiaries are eliminated and no profit before tax is taken on
sales between subsidiaries until the products are sold to customers outside the Group. The relevant
proportion of profits on transactions with joint ventures and associates is also deferred until the
products are sold to third parties. Deferred tax relief on unrealised intra-Group profit is
accounted for only to the extent that it is considered recoverable.
Goodwill is capitalised as a separate item in the case of subsidiaries and as part of the cost of
investment in the case of joint ventures and associates. Goodwill is denominated in the currency of
the operation acquired.
Where the cost of acquisition is below the fair value of the net assets acquired, the difference is
recognised directly in the income statement.
Business combinations
Business combinations are accounted for using the acquisition accounting method. Identifiable
assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition
date. The consideration transferred is measured at fair value and includes the fair value of any
contingent consideration. The costs of acquisition are charged to the income statement in the
period in which they are incurred.
Where not all of the equity of a subsidiary is acquired the non-controlling interest is recognised
either at fair value or at the non-controlling interest’s share of the net assets of the
subsidiary, on a case-by-case basis. Changes in the Group’s ownership percentage of subsidiaries
are accounted for within equity.
GSK Annual Report 2010
Table of Contents
111
Notes to the financial statements
2 Accounting principles and policies continued
Foreign currency translation
Foreign currency transactions are booked in the functional currency of the Group company at the
exchange rate ruling on the date of transaction. Foreign currency monetary assets and liabilities
are retranslated into the functional currency at rates of exchange ruling at the balance sheet
date. Exchange differences are included in the income statement.
On consolidation, assets and liabilities, including related goodwill, of overseas subsidiaries,
associates and joint ventures, are translated into Sterling at rates of exchange ruling at the
balance sheet date. The results and cash flows of overseas subsidiaries, associates and joint
ventures are translated into Sterling using average rates of exchange.
Exchange adjustments arising when the opening net assets and the profits for the year retained by
overseas subsidiaries, associates and joint ventures are translated into Sterling, less exchange
differences arising on related foreign currency borrowings which hedge the Group’s net investment
in these operations, are taken to a separate component of equity.
When translating into Sterling the assets, liabilities, results and cash flows of overseas
subsidiaries, associates and joint ventures which are reported in currencies of hyper-inflationary
economies, adjustments are made where material to reflect current price levels. Any loss on net
monetary assets is charged to the consolidated income statement.
Revenue
Revenue is recognised in the income statement when goods or services are supplied or made available
to external customers against orders received, title and risk of loss is passed to the customer,
reliable estimates can be made of relevant deductions and all relevant obligations have been
fulfilled, such that the earnings process is regarded as being complete.
Turnover represents net invoice value after the deduction of discounts and allowances given and
accruals for estimated future rebates and returns. The methodology and assumptions used to estimate
rebates and returns are monitored and adjusted regularly in the light of contractual and legal
obligations, historical trends, past experience and projected market conditions. Market conditions
are evaluated using wholesaler and other third-party analyses, market research data and internally
generated information. Value added tax and other sales taxes are excluded from revenue.
Where the Group co-promotes a product and the third party records the sale, the Group records its
share of revenue as co-promotion income within turnover. The nature of co-promotion activities is
such that the Group records no costs of sales. Pharmaceutical turnover includes co-promotion
revenue of £294 million (2009 – £439 million; 2008 – £378 million).
Royalty income is recognised in other operating income on an accruals basis in accordance with
the terms of the relevant licensing agreements.
Expenditure
Expenditure is recognised in respect of goods and services received when supplied in accordance
with contractual terms. Provision is made when an obligation exists for a future liability in
respect of a past event and where the amount of the obligation can be reliably estimated.
Manufacturing start-up costs between validation and the achievement of normal production are
expensed as incurred. Advertising and promotion expenditure is charged to the income statement as
incurred. Shipment costs on
inter-company transfers are charged to cost of sales; distribution costs
on sales to customers are included in selling, general and administrative expenditure.
Restructuring costs are recognised and provided for, where appropriate, in respect of the direct
expenditure of a business reorganisation where the plans are sufficiently detailed and well
advanced, and where appropriate communication to those affected has been undertaken.
Research and development
Research and development expenditure is charged to the income statement in the period in which it
is incurred. Development expenditure is capitalised when the criteria for recognising an asset are
met, usually when a regulatory filing has been made in a major market and approval is considered
highly probable. Property, plant and equipment used for research and development is capitalised and
depreciated in accordance with the Group’s policy.
Environmental expenditure
Environmental expenditure related to existing conditions resulting from past or current operations
and from which no current or future benefit is discernible is charged to the income statement. The
Group recognises its liability on a site-by-site basis when it can be reliably estimated. This
liability includes the Group’s portion of the total costs and also a portion of other potentially
responsible parties’ costs when it is probable that they will not be able to satisfy their
respective shares of the clean-up obligation. Recoveries of reimbursements are recorded as assets
when virtually certain.
Legal and other disputes
Provision is made for the anticipated settlement costs of legal or other disputes against the Group
where an outflow of resources is considered probable and a reliable estimate can be made of the
likely outcome. In addition, provision is made for legal or other expenses arising from claims
received or other disputes. In respect of product liability claims related to certain products,
there is sufficient history of claims made and settlements to enable management to make a reliable
estimate of the provision required to cover unasserted claims. In certain cases, an incurred but
not reported (IBNR) actuarial technique is used to determine this estimate.
The Group
may become involved in legal proceedings, in respect of which it is not possible to
make a reliable estimate of the expected financial effect, if any,
that could result from ultimate
resolution of the proceedings. In these cases,
appropriate disclosure about such cases would be included
but no provision would be made. Costs associated with claims
made by the Group against third parties are charged to the income statement as they are incurred.
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Notes to the financial statements
2 Accounting principles and policies
continued
Pensions and other post-employment benefits
The costs of providing pensions under defined benefit schemes are calculated using the projected
unit credit method and spread over the period during which benefit is expected to be derived from
the employees’ services, consistent with the advice of qualified actuaries. Pension obligations are
measured as the present value of estimated future cash flows discounted at rates reflecting the
yields of high quality corporate bonds.
Pension scheme assets are measured at fair value at the balance sheet date. Actuarial gains and
losses, differences between the expected and actual returns of assets and the effect of changes in
actuarial assumptions, are recognised in the statement of comprehensive income in the year in which
they arise.
The Group’s contributions to defined contribution plans are charged to the income statement as
incurred. The costs of other post-employment liabilities are calculated in a similar way to defined
benefit pension schemes and spread over the period during which benefit is expected to be derived
from the employees’ services, in accordance with the advice of qualified actuaries.
Employee share plans
Incentives in the form of shares are provided to employees under share option and share award
schemes.
The fair values of these options and awards are calculated at their grant dates using a
Black-Scholes option pricing model and charged to the income statement over the relevant vesting
periods.
The Group provides finance to ESOP Trusts to purchase company shares on the open market to meet the
obligation to provide shares when employees exercise their options or awards. Costs of running the
ESOP Trusts are charged to the income statement. Shares held by the ESOP Trusts are deducted from
other reserves. A transfer is made between other reserves and retained earnings over the vesting
periods of the related share options or awards to reflect the ultimate proceeds receivable from
employees on exercise.
Property, plant and equipment
Property, plant and equipment (PP&E) is stated at the cost of purchase or construction less
provisions for depreciation and impairment. Financing costs are capitalised within the cost
of qualifying assets in construction.
Depreciation is calculated to write off the cost less residual value of PP&E, excluding freehold
land, using the straight-line basis over the expected useful life. Residual values and lives are
reviewed, and where appropriate adjusted, annually. The normal expected useful lives of the major
categories of PP&E are:
Freehold buildings
|
20 to 50 years | |
Leasehold land and buildings
|
Lease term or 20 to 50 years | |
Plant and machinery
|
10 to 20 years | |
Fixtures and equipment
|
3 to 10 years | |
On disposal of PP&E, the cost and related
accumulated depreciation and impairments are
removed from the financial statements and the net
amount, less any proceeds, is taken to the income
statement.
Leases
Leasing agreements which transfer to the Group substantially all the benefits and risks of
ownership of an asset are treated as finance leases, as if the asset had been purchased outright.
The assets are included in PP&E or computer software and the capital elements of the leasing
commitments are shown as obligations under finance leases. Assets held under finance leases are
depreciated on a basis consistent with similar owned assets or the lease term if shorter. The
interest element of the lease rental is included in the income statement. All other leases are
operating leases and the rental costs are charged to the income statement on a straight-line basis
over the lease term.
Goodwill
Goodwill is stated at cost less impairments. Goodwill is deemed to have an indefinite useful life
and is tested for impairment annually.
Where the fair value of the interest acquired in an entity’s assets, liabilities and contingent
liabilities exceeds the consideration paid, this excess is recognised immediately as a gain in the
income statement.
Other intangible assets
Intangible assets are stated at cost less provisions for amortisation and impairments.
Licences, patents, know-how and marketing rights separately acquired or acquired as part of a
business combination are amortised over their estimated useful lives, generally not exceeding 20
years, using the straight-line basis, from the time they are available for use. The estimated
useful lives for determining the amortisation charge take into account patent lives, where
applicable, as well as the value obtained from periods of non-exclusivity. Asset lives are
reviewed, and where appropriate adjusted, annually. Contingent milestone payments are recognised at
the point that the contingent event becomes certain. Any development costs incurred by the Group
and associated with acquired licences, patents, know-how or marketing rights are written off to the
income statement when incurred, unless the criteria for recognition of an internally generated
intangible asset are met, usually when a regulatory filing has been made in a major market and
approval is considered highly probable.
Acquired brands are valued independently as part of the fair value of businesses acquired from
third parties where the brand has a value which is substantial and long-term and where the brands
either are contractual or legal in nature or can be sold separately from the rest of the businesses
acquired. Brands are amortised over their estimated useful lives of up to 20 years, except where it
is considered that the useful economic life is indefinite.
The costs of acquiring and developing computer software for internal use and internet sites for
external use are capitalised as intangible fixed assets where the software or site supports a
significant business system and the expenditure leads to the creation of a durable asset. ERP
systems software is amortised over seven years and other computer software over three to five
years.
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Notes to the financial statements
2 Accounting principles and policies continued
Impairment of non-current assets
The carrying values of all non-current assets are reviewed for impairment when there is an
indication that the assets might be impaired. Additionally, goodwill, intangible assets with
indefinite useful lives and intangible assets which are not yet available for use are tested for
impairment annually. Any provision for impairment is charged to the income statement in the year
concerned.
Impairments of goodwill are not reversed. Impairment losses on other non-current assets are only
reversed if there has been a change in estimates used to determine recoverable amounts and only to
the extent that the revised recoverable amounts do not exceed the carrying values that would have
existed, net of depreciation or amortisation, had no impairments been recognised.
Investments in associates and joint ventures
Investments in associates and joint ventures are carried in the consolidated balance sheet at the
Group’s share of their net assets at date of acquisition and of their post-acquisition retained
profits or losses together with any goodwill arising on the acquisition.
Available-for-sale investments
Liquid investments and other investments are classified as available-for-sale investments and are
initially recorded at fair value plus transaction costs and then remeasured at subsequent reporting
dates to fair value. Unrealised gains and losses on available-for-sale investments are recognised
directly in other comprehensive income. Impairments arising from the significant or prolonged
decline in fair value of an equity investment reduce the carrying amount of the asset directly and
are charged to the income statement.
On disposal or impairment of the investments, any gains and losses that have been deferred in other
comprehensive income are reclassified to the income statement. Dividends on equity investments are
recognised in the income statement when the Group’s right to receive payment is established. Equity
investments are recorded in non-current assets unless they are expected to be sold within one year.
Purchases and sales of equity investments are accounted for on the trade date and purchases and
sales of other available-for-sale investments are accounted for on settlement date.
Inventories
Inventories are included in the financial statements at the lower of cost (including raw materials,
direct labour, other direct costs and related production overheads) and net realisable value. Cost
is generally determined on a first in, first out basis. Pre-launch inventory is held as an asset
when there is a high probability of regulatory approval for the product. Before that point a
provision is made against the carrying value to its recoverable amount; the provision is then
reversed at the point when a high probability of regulatory approval is determined.
Trade receivables
Trade receivables are carried at original invoice amount less any provisions for doubtful debts.
Provisions are made where there is evidence of a risk of non-payment, taking into account ageing,
previous experience and general economic conditions. When a trade receivable is determined to be
uncollectable it is written off, firstly against any provision available and then to the income
statement.
Subsequent recoveries of amounts previously provided for are credited to the income statement.
Long-term receivables are discounted where the effect is material.
Trade payables
Trade payables are held at amortised cost which equates to nominal value. Long-term payables are
discounted where the effect is material.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current balances with banks and similar
institutions and highly liquid investments generally with maturities of three months or less. They
are readily convertible into known amounts of cash and have an insignificant risk of changes in
value.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs.
Borrowings are subsequently carried at amortised cost, with the difference between the proceeds,
net of transaction costs, and the amount due on redemption being recognised as a charge to the
income statement over the period of the relevant borrowing.
Taxation
Current tax is provided at the amounts expected to be paid applying tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. Deferred tax assets are recognised to the extent that it is probable that future
taxable profits will be available against which the temporary differences can be utilised. Deferred
tax is provided on temporary differences arising on investments in subsidiaries, associates and
joint ventures, except where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax is provided using rates of tax that have been enacted or substantively enacted
by the balance sheet date. Deferred tax liabilities and assets are not discounted.
GSK Annual Report 2010
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Notes to the financial statements
2 Accounting principles and policies continued
Derivative financial instruments and hedging
Derivative financial
instruments are used to manage exposure to market risks. The principal derivative instruments used by GSK are foreign currency swaps, interest
rate swaps and forward foreign exchange contracts. The Group does not hold or issue derivative
financial instruments for trading or speculative purposes.
Derivative financial instruments are classified as held-for-trading and are carried in the balance
sheet at fair value. Derivatives designated as hedging instruments are classified on inception as
cash flow hedges, net investment hedges or fair value hedges.
Changes in the fair value of derivatives designated as cash flow hedges are recognised in other
comprehensive income to the extent that the hedges are effective. Ineffective portions are
recognised in profit or loss immediately. Amounts deferred in other comprehensive income are
reclassified to the income statement when the hedged item affects profit or loss.
Net investment hedges are accounted for in a similar way to cash flow hedges.
Changes in the fair value of derivatives designated as fair value hedges are recorded in the income
statement, together with the changes in the fair value of the hedged asset or liability.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting
are recognised immediately in the income statement.
Discounting
Where the time effect of money is material, balances are discounted to current values using
appropriate rates of interest. The unwinding of the discounts is recorded in finance income and
finance costs.
3 Key accounting judgements and estimates
In preparing the financial statements, management is required to make estimates and assumptions
that affect the amounts of assets, liabilities, revenue and expenses reported in the financial
statements. Actual amounts and results could differ from those estimates. The following are
considered to be the key accounting judgements and estimates made.
Turnover
Revenue is recognised when title and risk of loss is passed to the customer, reliable estimates can
be made of relevant deductions and all relevant obligations have been fulfilled, such that the
earnings process is regarded as being complete.
Gross turnover is reduced by rebates, discounts, allowances and product returns given or expected
to be given, which vary by product arrangements and buying groups. These arrangements with
purchasing organisations are dependent upon the submission of claims some time after the initial
recognition of the sale. Accruals are made at the time of sale for the estimated rebates, discounts
or allowances payable or returns to be made, based on available market information and historical
experience.
Because the amounts are estimated they may not fully reflect the final outcome, and the amounts are
subject to change dependent upon, amongst other things, the types of buying group and product sales
mix.
The level of accrual is reviewed and adjusted regularly in the light of contractual and legal
obligations, historical trends, past experience and projected market conditions. Market conditions
are evaluated using wholesaler and other third-party analyses, market research data and internally
generated information. Future events could cause the assumptions on which the accruals are based to
change, which could affect the future results of the Group.
Taxation
Current tax is provided at the amounts expected to be paid, and deferred tax is provided on
temporary differences between the tax bases of assets and liabilities and their carrying amounts,
at the rates that have been enacted or substantively enacted by the balance sheet date.
The Group has open tax issues with a number of revenue authorities. GSK continues to believe that
it has made adequate provision for the liabilities likely to arise from open assessments. Where
open issues exist the ultimate liability for such matters may vary from the amounts provided and is
dependent upon the outcome of negotiations with the relevant tax authorities or, if necessary,
litigation proceedings.
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115
Notes to the financial statements
3 Key accounting judgements and estimates
continued
Legal and other disputes
GSK provides for anticipated settlement costs where an outflow of resources is considered probable
and a reliable estimate may be made of the likely outcome of the dispute and legal and other
expenses arising from claims against the Group.
The company’s Directors, having taken legal advice, have established provisions after taking into
account the relevant facts and circumstances of each matter and in accordance with accounting
requirements. In respect of product liability claims related to certain products there is
sufficient history of claims made and settlements to enable management to make a reliable estimate
of the provision required to cover unasserted claims. In certain cases, an incurred but not
reported (IBNR) actuarial technique is used to determine this estimate.
The Group may become involved in legal proceedings, in respect of
which it is not possible to make a reliable estimate of
the expected financial effect, if any, that could result from ultimate resolution of the
proceedings. In these cases,
appropriate disclosure about such cases would be included,
but no provision would be made.
At 31st December 2010 provisions for legal and other disputes amounted to £4.0 billion (2009 – £2.0
billion).
The ultimate liability for legal claims may vary from the amounts provided and is dependent upon
the outcome of litigation proceedings, investigations and possible settlement negotiations. The
position could change over time and, therefore, there can be no assurance that any losses that
result from the outcome of any legal proceedings will not exceed the amount of the provisions
reported in the Group’s financial statements by a material amount.
Property, plant and equipment
As set out in Note 17, ‘Property plant and equipment’ the carrying values of property, plant and
equipment are tested for impairment when there is an indication that the values of the assets might
be impaired. Impairment is determined by reference to the higher of fair value less costs to sell
and value in use, measured by assessing risk-adjusted future cash flows discounted using
appropriate interest rates. These future cash flows are based on business forecasts and are
therefore inherently judgemental. Future events could cause the assumptions used in these
impairment tests to change, with a consequent adverse effect on the future results of the Group.
Goodwill
Goodwill arising on business combinations is capitalised and allocated to an appropriate cash
generating unit. It is deemed to have an indefinite life and so is not amortised. Annual impairment
tests of the relevant cash generating units are performed. Impairment tests are based on
established market multiples or risk-adjusted future cash flows discounted using appropriate
interest rates. These future cash flows are based on business forecasts and are therefore
inherently judgemental. Future events could cause the assumptions used in these impairment tests,
as set out in Note 18, ‘Goodwill’, to change with a consequent adverse effect on the future results
of the Group.
Other intangible assets
Where intangible assets are acquired by GSK from third parties the costs of acquisition are
capitalised. Licences to compounds in development are amortised from the point at which they are
available for use, over their estimated useful lives, which may include periods of non-exclusivity.
Estimated useful lives are reviewed annually and impairment tests are undertaken if events occur
which call into question the carrying values of the assets. Brands acquired with businesses are
capitalised independently where they are separable and have an expected life of more than one year.
Brands are amortised on a straight-line basis over their estimated useful lives, not exceeding 20
years, except where the end of the useful economic life cannot be foreseen. Where brands are not
amortised, they are subject to annual impairment tests.
Both initial valuations and valuations for subsequent impairment tests are based on established
market multiples or risk-adjusted future cash flows discounted using appropriate interest rates.
These future cash flows are based on business forecasts and are therefore inherently judgemental.
Future events could cause the assumptions used in these impairment reviews to change with a
consequent adverse effect on the future results of the Group.
Pensions and other post-employment benefits
The costs of providing pensions and other post-employment benefits are charged to the income
statement in accordance with IAS 19 over the period during which benefit is derived from the
employee’s services. The costs are assessed on the basis of assumptions selected by management.
These assumptions include future earnings and pension increases, discount rates, expected long term
rates of return on assets and mortality rates, and are disclosed in Note 28, ‘Pensions and other
post-employment benefits’.
The expected long term rates of return on bonds are determined based on the portfolio mix of
index-linked, government and corporate bonds. An equity risk premium is added to this for equities.
Discount rates are derived from AA rated corporate bond yields except in countries where there is
no deep market in corporate bonds where government bond yields are used. Sensitivity analysis is
provided in Note 28, ‘Pensions and other post-employment benefits’, but a 0.25% reduction in the
discount rate would lead to an increase in the net pension deficit of approximately £472 million
and an increase in the annual pension cost of approximately £4 million. The selection of different
assumptions could affect the future results of the Group.
GSK Annual Report 2010
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Notes to the financial statements
4 New accounting requirements
The following new and amended accounting standards and IFRIC interpretations have been issued by
the IASB and are likely to affect future Annual Reports, although, in their current forms, none is
expected to have a material impact on the results or financial position of the Group.
An amendment to IAS 32 ‘Financial instruments: Presentation – Classification of rights issues’
was issued in October 2009 and will be implemented by GSK from 1st January 2011. The amendment
requires an issue of rights to acquire additional shares to all existing shareholders to be
recognised in equity, regardless of the currency of the shares.
The lASB’s annual improvements project was published in May 2010 and most of the changes are
effective from 1st January 2011. The project makes minor amendments to a number of Standards in
areas including consolidation, business combinations and financial instruments.
IAS 24 (Revised) ‘Related party disclosures’ was issued in November 2009 and will be implemented by
GSK from 1st January 2011. The revised Standard clarifies the definition of a related party and
provides some exemptions for government related entities.
IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’ was issued in November 2009
and will be implemented by GSK from 1st January 2011. The Interpretation addresses the accounting
by an entity that issues equity instruments in order to settle a financial liability in part or in
full.
An amendment to IFRIC 14 ‘Pre-payments of a minimum funding requirement’ was issued in November
2009 and will be implemented by GSK from 1st January 2011. The amendment permits a voluntary
prepayment of a minimum funding requirement to be recognised as an asset.
The following new standards and interpretations have not yet been endorsed by the EU:
IFRS 9 ‘Financial instruments’ was first issued in November 2009 and amended in October 2010 and
will be implemented by GSK from 1st January 2013. The Standard will eventually replace IAS 39 and
covers the classification, measurement and derecognition of financial assets and financial
liabilities. The IASB intends to expand IFRS 9 to add new requirements for impairment and hedge
accounting and to become a complete replacement of IAS 39 by the end of 2011.
An
amendment to IFRS 7 ‘Disclosures – Transfers of financial assets’ was issued in October 2010 and
will be implemented by GSK from 1st January 2012. The amendment requires additional disclosures
regarding the risk exposures relating to transfers of financial assets.
An amendment to IAS 12 ‘Deferred tax: recovery of underlying assets’ was issued in December 2010
and will be implemented by GSK from 1st January 2012. The amendment requires that the deferred tax
on non-depreciable assets measured using the revaluation model should be calculated on a sale
basis.
5 Exchange rates
The Group uses the average of exchange rates prevailing during the period to translate the results
and cash flows of overseas subsidiaries, joint ventures and associated undertakings into Sterling
and period end rates to translate the net assets of those undertakings. The currencies which most
influence these translations and the relevant exchange rates were:
| 2010 | 2009 | 2008 | ||||||||||
Average rates: |
||||||||||||
£/US$ |
1.55 | 1.56 | 1.85 | |||||||||
£/Euro |
1.16 | 1.12 | 1.26 | |||||||||
£/Yen |
136 | 146 | 192 | |||||||||
Period end rates: |
||||||||||||
£/US$ |
1.56 | 1.61 | 1.44 | |||||||||
£/Euro |
1.17 | 1.13 | 1.04 | |||||||||
£/Yen |
127 | 150 | 131 | |||||||||
GSK Annual Report 2010
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Notes to the financial statements
6 Segment information
GSK has revised its segmental information disclosures to reflect changes in the internal reporting
structures with effect from 1st January 2010. ViiV Healthcare is now shown as a separate segment.
Stiefel has been integrated with the GSK heritage dermatology business and is reported within the
relevant geographical pharmaceutical segments. The other trading and other unallocated
pharmaceuticals information has been combined. In addition, the responsibility for certain products
in two small markets moved from the pharmaceuticals business to Consumer Healthcare. Comparative
information has been restated onto a consistent basis.
GSK’s operating segments are being reported based on the financial information provided to the
Chief Executive Officer, who is regarded as the ‘Chief Operating Decision Maker’ (CODM),
and the
responsibilities of the Corporate Executive Team (CET). Individual members of the CET are
responsible for geographic regions of the Pharmaceuticals business, ViiV Healthcare and for the
Consumer Healthcare business as a whole, respectively, before major restructuring.
No geographic information is regularly provided to the CODM.
R&D investment is essential for the sustainability of the pharmaceutical businesses. However, for
segment reporting, the USA, Europe, Emerging Markets and Asia Pacific/Japan regional pharmaceutical
operating profits exclude allocations of globally funded R&D as well as central costs, principally
corporate functions and unallocated manufacturing costs. GSK’s management reporting process
allocates all intra-Group profit on a product sale to the market in which that sale is recorded,
and the profit analyses below have been presented on that basis.
The Other trading and unallocated pharmaceuticals segment includes Canada, Puerto Rico, central
vaccine tender sales and contract manufacturing sales, together with costs such as vaccines R&D,
central dermatology costs and central manufacturing costs not attributed to other segments.
The Pharmaceuticals R&D segment (which excludes vaccines R&D) is the responsibility of the
Chairman, Research & Development and is therefore being reported as a separate segment.
Corporate and other unallocated costs and disposal profits include corporate functions, costs for
legal matters, fair value movements on financial instruments and investments and unallocated
profits on asset disposals.
| Turnover by segment | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
US pharmaceuticals |
7,648 | 8,578 | 8,254 | |||||||||
Europe pharmaceuticals |
6,548 | 7,087 | 5,847 | |||||||||
Emerging Markets pharmaceuticals |
3,556 | 2,895 | 2,177 | |||||||||
Asia Pacific/Japan pharmaceuticals |
3,102 | 2,628 | 1,848 | |||||||||
ViiV Healthcare |
1,566 | 1,605 | 1,513 | |||||||||
Other trading and unallocated pharmaceuticals |
962 | 901 | 742 | |||||||||
Pharmaceuticals turnover |
23,382 | 23,694 | 20,381 | |||||||||
Consumer Healthcare turnover |
5,010 | 4,674 | 3,971 | |||||||||
| 28,392 | 28,368 | 24,352 | ||||||||||
| Pharmaceutical turnover by therapeutic area | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
Respiratory |
7,238 | 6,977 | 5,817 | |||||||||
Anti-virals |
1,086 | 2,416 | 1,584 | |||||||||
Central nervous system |
1,753 | 1,870 | 2,897 | |||||||||
Cardiovascular and urogenital |
2,570 | 2,298 | 1,847 | |||||||||
Metabolic |
678 | 1,181 | 1,191 | |||||||||
Anti-bacterials |
1,396 | 1,457 | 1,301 | |||||||||
Oncology and emesis |
688 | 629 | 496 | |||||||||
Vaccines |
4,326 | 3,706 | 2,539 | |||||||||
Dermatologicals |
1,087 | 707 | 414 | |||||||||
ViiV Healthcare (HIV) |
1,566 | 1,605 | 1,513 | |||||||||
Other |
994 | 848 | 782 | |||||||||
| 23,382 | 23,694 | 20,381 | ||||||||||
| Consumer Healthcare turnover by category | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
OTC medicines |
2,456 | 2,339 | 1,935 | |||||||||
Oral healthcare |
1,602 | 1,484 | 1,240 | |||||||||
Nutritional healthcare |
952 | 851 | 796 | |||||||||
| 5,010 | 4,674 | 3,971 | ||||||||||
GSK Annual Report 2010
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118
Notes to the financial statements
6 Segment information continued
During 2010, US pharmaceuticals and ViiV Healthcare made sales to three wholesalers of
approximately £2,561 million
(2009 – £2,760 million; 2008 – £2,460 million), £2,412 million (2009 – £2,710 million; 2008 –
£2,710 million) and £1,642 million
(2009 –
£1,680 million; 2008 – £1,980 million) respectively, after allocating final-customer
discounts to the wholesalers.
| Segment profit | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
US Pharmaceuticals |
5,043 | 5,933 | 5,461 | |||||||||
Europe Pharmaceuticals |
3,744 | 3,993 | 3,229 | |||||||||
Emerging Markets pharmaceuticals |
1,271 | 948 | 837 | |||||||||
Asia Pacific/Japan pharmaceuticals |
1,730 | 1,352 | 1,016 | |||||||||
ViiV Healthcare |
851 | 1,071 | 1,005 | |||||||||
Pharmaceuticals R&D |
(3,105 | ) | (3,082 | ) | (2,840 | ) | ||||||
Other trading and unallocated pharmaceuticals costs |
(783 | ) | (705 | ) | (110 | ) | ||||||
Pharmaceuticals operating profit |
8,751 | 9,510 | 8,598 | |||||||||
Consumer Healthcare operating profit |
1,043 | 931 | 881 | |||||||||
Segment profit |
9,794 | 10,441 | 9,479 | |||||||||
Corporate and other unallocated costs and disposal profits |
(4,666 | ) | (1,184 | ) | (1,220 | ) | ||||||
Operating profit before major restructuring |
5,128 | 9,257 | 8,259 | |||||||||
Major restructuring |
(1,345 | ) | (832 | ) | (1,118 | ) | ||||||
Total operating profit |
3,783 | 8,425 | 7,141 | |||||||||
Finance income |
116 | 70 | 313 | |||||||||
Finance costs |
(831 | ) | (783 | ) | (843 | ) | ||||||
Profit on disposal of interest in associate |
8 | 115 | – | |||||||||
Share of after tax profits of associates and joint ventures |
81 | 64 | 48 | |||||||||
Profit before taxation |
3,157 | 7,891 | 6,659 | |||||||||
Taxation |
(1,304 | ) | (2,222 | ) | (1,947 | ) | ||||||
Profit after taxation for the year |
1,853 | 5,669 | 4,712 | |||||||||
| Depreciation and amortisation by segment | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
US pharmaceuticals |
101 | 116 | 110 | |||||||||
Europe pharmaceuticals |
31 | 24 | 36 | |||||||||
Emerging Markets pharmaceuticals |
51 | 29 | 22 | |||||||||
Asia Pacific/Japan pharmaceuticals |
25 | 15 | 11 | |||||||||
ViiV Healthcare |
29 | 5 | – | |||||||||
Pharmaceuticals R&D |
262 | 280 | 267 | |||||||||
Other trading and unallocated pharmaceuticals |
809 | 789 | 580 | |||||||||
Pharmaceuticals depreciation and amortisation |
1,308 | 1,258 | 1,026 | |||||||||
Consumer Healthcare depreciation and amortisation |
66 | 63 | 52 | |||||||||
Segment depreciation and amortisation |
1,374 | 1,321 | 1,078 | |||||||||
Corporate and other unallocated depreciation and amortisation |
85 | 80 | 76 | |||||||||
Depreciation and amortisation before major restructuring |
1,459 | 1,401 | 1,154 | |||||||||
Major restructuring |
220 | 161 | 77 | |||||||||
Total depreciation and amortisation |
1,679 | 1,562 | 1,231 | |||||||||
GSK Annual Report 2010
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119
Notes to the financial statements
6
Segment information continued
| PP&E, intangible asset and goodwill impairment by segment | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
US pharmaceuticals |
– | 1 | 1 | |||||||||
Europe pharmaceuticals |
1 | 7 | 2 | |||||||||
Emerging Markets pharmaceuticals |
1 | – | – | |||||||||
Asia Pacific/Japan pharmaceuticals |
2 | 1 | 2 | |||||||||
ViiV Healthcare |
– | – | – | |||||||||
Pharmaceuticals R&D |
134 | 118 | 107 | |||||||||
Other trading and unallocated pharmaceuticals |
129 | 124 | 30 | |||||||||
Pharmaceuticals impairment |
267 | 251 | 142 | |||||||||
Consumer Healthcare impairment |
5 | 1 | – | |||||||||
Segment impairment |
272 | 252 | 142 | |||||||||
Corporate and other unallocated impairment |
4 | 23 | 52 | |||||||||
Impairment before major restructuring |
276 | 275 | 194 | |||||||||
Major restructuring |
89 | 57 | 197 | |||||||||
Total impairment |
365 | 332 | 391 | |||||||||
| PP&E, intangible asset and goodwill impairment reversals by segment | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
US pharmaceuticals |
– | (1 | ) | – | ||||||||
Europe pharmaceuticals |
– | – | – | |||||||||
Emerging Markets pharmaceuticals |
– | – | – | |||||||||
Asia Pacific/Japan pharmaceuticals |
– | – | – | |||||||||
ViiV Healthcare |
– | – | – | |||||||||
Pharmaceuticals R&D |
(1 | ) | (1 | ) | (10 | ) | ||||||
Other trading and unallocated pharmaceuticals |
(4 | ) | (9 | ) | – | |||||||
Pharmaceuticals impairment reversals |
(5 | ) | (11 | ) | (10 | ) | ||||||
Consumer Healthcare impairment reversals |
– | – | – | |||||||||
Segment impairment reversals |
(5 | ) | (11 | ) | (10 | ) | ||||||
Corporate and other unallocated impairment reversals |
– | – | (10 | ) | ||||||||
Impairment reversals before major restructuring |
(5 | ) | (11 | ) | (20 | ) | ||||||
Major restructuring |
(14 | ) | – | – | ||||||||
Total impairment reversals |
(19 | ) | (11 | ) | (20 | ) | ||||||
GSK Annual Report 2010
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120
Notes to the financial statements
6 Segment information continued
| Net assets by segment | 2009 | |||||||||
| 2010 | (restated) | |||||||||
| £m | £m | |||||||||
US pharmaceuticals |
616 | 1,049 | ||||||||
Europe pharmaceuticals |
1,031 | 1,567 | ||||||||
Emerging Markets pharmaceuticals |
1,840 | 1,508 | ||||||||
Asia Pacific/Japan pharmaceuticals |
1,057 | 982 | ||||||||
ViiV Healthcare |
832 | 835 | ||||||||
Pharmaceuticals R&D |
1,656 | 2,278 | ||||||||
Other trading and unallocated pharmaceuticals |
13,320 | 13,037 | ||||||||
Pharmaceuticals net operating assets |
20,352 | 21,256 | ||||||||
Consumer Healthcare net operating assets |
2,972 | 2,990 | ||||||||
Segment net operating assets |
23,324 | 24,246 | ||||||||
Corporate and other unallocated operating net assets |
(6,682 | ) | (5,334 | ) | ||||||
Net operating assets |
16,642 | 18,912 | ||||||||
Net debt |
(8,859 | ) | (9,444 | ) | ||||||
Investments in associates and joint ventures |
1,081 | 895 | ||||||||
Derivative financial instruments |
(3 | ) | 29 | |||||||
Current and deferred taxation |
868 | 336 | ||||||||
Assets held for sale |
16 | 14 | ||||||||
Net assets |
9,745 | 10,742 | ||||||||
The other trading and unallocated pharmaceuticals segment includes assets for the centrally
managed pharmaceutical and vaccine manufacturing operations, the depreciation on which,
totalling £616 million (2009 – £618 million; 2008 – £536 million) is recovered through the
standard cost of product charged to businesses.
Geographical information
The UK is regarded as being the Group’s country of domicile.
| Turnover by location of customer | 2009 | 2008 | ||||||||||
| 2010 | (restated) | (restated) | ||||||||||
| £m | £m | £m | ||||||||||
UK |
1,820 | 1,864 | 1,636 | |||||||||
USA |
9,345 | 10,315 | 9,746 | |||||||||
Rest of World |
17,227 | 16,189 | 12,970 | |||||||||
External turnover |
28,392 | 28,368 | 24,352 | |||||||||
| Turnover by location of subsidiary | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
UK |
4,965 | 4,469 | 3,096 | |||||||||
USA |
13,072 | 13,711 | 12,925 | |||||||||
Rest of World |
21,220 | 19,661 | 15,977 | |||||||||
Turnover including inter-segment turnover |
39,257 | 37,841 | 31,998 | |||||||||
UK |
2,032 | 1,556 | 1,042 | |||||||||
USA |
3,717 | 3,395 | 3,114 | |||||||||
Rest of World |
5,116 | 4,522 | 3,490 | |||||||||
Inter-segment turnover |
10,865 | 9,473 | 7,646 | |||||||||
UK |
2,933 | 2,913 | 2,054 | |||||||||
USA |
9,355 | 10,316 | 9,811 | |||||||||
Rest of World |
16,104 | 15,139 | 12,487 | |||||||||
External turnover |
28,392 | 28,368 | 24,352 | |||||||||
GSK Annual Report 2010
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121
Notes to the financial statements
6 Segment information continued
| Operating profit by location | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
UK |
1,033 | 2,608 | 1,861 | |||||||||
USA |
420 | 2,337 | 1,951 | |||||||||
Rest of World |
2,330 | 3,480 | 3,329 | |||||||||
Total operating profit |
3,783 | 8,425 | 7,141 | |||||||||
| Net operating assets by location | 2009 | |||||||||||
| 2010 | (restated) | |||||||||||
| £m | £m | |||||||||||
UK |
3,177 | 4,540 | ||||||||||
USA |
4,235 | 3,168 | ||||||||||
Rest of World |
9,230 | 11,204 | ||||||||||
Net operating assets |
16,642 | 18,912 | ||||||||||
| Non-current assets by location | 2009 | |||||||||||
| 2010 | (restated) | |||||||||||
| £m | £m | |||||||||||
UK |
5,066 | 5,270 | ||||||||||
USA |
6,972 | 6,863 | ||||||||||
Rest of World |
10,372 | 9,847 | ||||||||||
Non-current assets |
22,410 | 21,980 | ||||||||||
Non-current assets by location excludes amounts relating to other investments, deferred tax
assets, derivative financial instruments, pension assets, amounts
receivable under insurance
contracts and certain other non-current receivables.
7 Major restructuring programme
In October 2007, GSK announced a significant new Operational Excellence programme to improve the
effectiveness and productivity of its operations. A significant expansion of the Operational
Excellence programme was approved by the Board and announced in February 2009. A further expansion
was approved by the Board and announced in February 2010, when total approved costs for the
implementation of the expanded programme were increased from £3.6 billion to approximately £4.5
billion, over the period from 2007 to 2012. Approximately 75% of these costs were incurred by 31st
December 2010, and approximately 20% are expected to be incurred in 2011 with the balance in 2012.
In total, approximately 75% of these costs are expected to be cash expenditures and 25% are
expected to be asset write-downs. Uncertainties exist over the exact amount and timing of cash
outflows as a result of potential future exchange rate fluctuations and as many elements of the
restructuring programme are subject to employee consultation procedures, making it difficult to
predict with precision when these procedures will be completed. However, the majority of the
remaining cash payments are expected to be made in 2011 and 2012. The programme remains on track to deliver
total annual pre-tax savings of £2.2 billion by 2012, with savings realised across the business. Of
the total restructuring costs of £1,345 million incurred in 2010, £1,242 million was incurred under
the Operational Excellence programme in the following areas:
| • | cost saving projects in R&D, focused primarily on the simplification and streamlining of support infrastructure, including some site rationalisations, principally Verona in Italy and Harlow and Tonbridge in the UK; | |
| • | the adoption of more customised sales approaches, leading to staff reductions in a number of sales forces, principally in the USA, France and Italy; | |
| • | the closure of a number of manufacturing sites, including Dartford and Crawley in the UK, giving rise to asset write-downs and staff reductions; and | |
| • | projects to simplify or eliminate processes, leading to staff reductions in administrative and support functions. |
The remaining costs of £103 million were incurred during the year under the restructuring programme
related to the integration of the Stiefel Laboratories, Inc. business in the USA, following its
acquisition in July 2009.
GSK Annual Report 2010
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122
Notes to the financial statements
7 Major restructuring programme continued
The analysis of the costs incurred under these programmes in 2010, 2009 and 2008 is as follows:
| 2010 | Asset | Staff | Other | |||||||||||||
| impairment | reductions | costs | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cost of sales |
(14 | ) | (58 | ) | (115 | ) | (187 | ) | ||||||||
Selling, general and administration |
(17 | ) | (503 | ) | (145 | ) | (665 | ) | ||||||||
Research and development |
(44 | ) | (117 | ) | (332 | ) | (493 | ) | ||||||||
Effect on operating profit |
(75 | ) | (678 | ) | (592 | ) | (1,345 | ) | ||||||||
Net finance expense |
(3 | ) | ||||||||||||||
Effect on profit before taxation |
(1,348 | ) | ||||||||||||||
Effect on taxation |
240 | |||||||||||||||
Effect on earnings |
(1,108 | ) | ||||||||||||||
| 2009 | Asset | Staff | Other | |||||||||||||
| impairment | reductions | costs | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cost of sales |
(41 | ) | (112 | ) | (132 | ) | (285 | ) | ||||||||
Selling, general and administration |
(1 | ) | (337 | ) | (54 | ) | (392 | ) | ||||||||
Research and development |
(15 | ) | (68 | ) | (72 | ) | (155 | ) | ||||||||
Effect on operating profit |
(57 | ) | (517 | ) | (258 | ) | (832 | ) | ||||||||
Net finance expense |
(3 | ) | ||||||||||||||
Effect on profit before taxation |
(835 | ) | ||||||||||||||
Effect on taxation |
221 | |||||||||||||||
Effect on earnings |
(614 | ) | ||||||||||||||
| 2008 | Asset | Staff | Other | |||||||||||||
| impairment | reductions | costs | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cost of sales |
(181 | ) | (370 | ) | (88 | ) | (639 | ) | ||||||||
Selling, general and administration |
(2 | ) | (177 | ) | (125 | ) | (304 | ) | ||||||||
Research and development |
(14 | ) | (143 | ) | (18 | ) | (175 | ) | ||||||||
Effect on operating profit |
(197 | ) | (690 | ) | (231 | ) | (1,118 | ) | ||||||||
Net finance expense |
(5 | ) | ||||||||||||||
Effect on profit before taxation |
(1,123 | ) | ||||||||||||||
Effect on taxation |
284 | |||||||||||||||
Effect on earnings |
(839 | ) | ||||||||||||||
Asset impairments of £75 million (2009 – £57 million, 2008 – £197 million) and other
net costs totalling £240 million (2009 – £124 million, 2008 – £137 million) are
non-cash items, principally accelerated depreciation. All other charges have been or will be settled in
cash and include the termination of leases, site closure costs,
consultancy and project management fees.
GSK Annual Report 2010
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123
Notes to the financial statements
7 Major restructuring programme continued
These restructuring costs are reported in the major restructuring column of the Income statement on
page 104. Other income, resulting from minor restructuring activity initiated prior to October 2007
amounted to £5 million (2009 –
£4 million cost, 2008 – £20 million cost).
This income/cost is reported within ‘Results before
major restructuring’.
| The costs of the major restructuring programmes have arisen as follows: | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
Increase in provision for major restructuring programmes (see Note 29) |
(837 | ) | (487 | ) | (740 | ) | ||||||
Amount of provision reversed unused (see Note 29) |
40 | 15 | 7 | |||||||||
Impairments losses recognised |
(75 | ) | (57 | ) | (197 | ) | ||||||
Foreign exchange gain/(loss) recognised on liquidation of subsidiary |
– | 44 | (84 | ) | ||||||||
Other non-cash charges |
(240 | ) | (168 | ) | (53 | ) | ||||||
Other cash costs |
(233 | ) | (179 | ) | (51 | ) | ||||||
Net finance expense |
(3 | ) | (3 | ) | (5 | ) | ||||||
Effect on profit before taxation |
(1,348 | ) | (835 | ) | (1,123 | ) | ||||||
Other non-cash charges are principally accelerated depreciation arising where asset lives have been
shortened as a result of the major restructuring programmes. Other cash costs include the
termination of leases, site closure costs and consultancy and project management fees.
8 Other operating income
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Royalty income |
296 | 296 | 307 | |||||||||
Milestone income |
7 | 90 | 11 | |||||||||
Impairment of equity investments |
(65 | ) | (135 | ) | (63 | ) | ||||||
Disposal of equity investments |
17 | 40 | 33 | |||||||||
Disposal of
other assets, asset rights and legal settlements |
227 | 539 | 260 | |||||||||
Gain recognised on creation of ViiV Healthcare |
– | 296 | – | |||||||||
Fair value movements on derivative financial instruments |
(6 | ) | (5 | ) | (10 | ) | ||||||
Other income |
17 | 14 | 3 | |||||||||
| 493 | 1,135 | 541 | ||||||||||
Royalty and milestone income is principally a core of recurring income from the out-licensing of
intellectual property.
GSK Annual Report 2010
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124
Notes to the financial statements
9 Operating profit
| The following items have been included in operating profit: | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
Employee costs (Note 10) |
6,994 | 7,167 | 6,524 | |||||||||
Advertising |
971 | 923 | 805 | |||||||||
Distribution costs |
413 | 363 | 310 | |||||||||
Depreciation of property, plant and equipment |
1,146 | 1,130 | 920 | |||||||||
Impairment of property, plant and equipment, net of reversals |
186 | 149 | 256 | |||||||||
Amortisation of intangible assets |
533 | 432 | 311 | |||||||||
Impairment of intangible assets and goodwill, net of reversals in 2008 |
160 | 172 | 115 | |||||||||
Net foreign exchange losses/(gains) |
60 | 163 | (145 | ) | ||||||||
Inventories: |
||||||||||||
Cost of inventories included in cost of sales |
7,014 | 6,743 | 5,734 | |||||||||
Write-down of inventories |
305 | 276 | 298 | |||||||||
Reversal of prior year write-down of inventories |
(66 | ) | (116 | ) | (118 | ) | ||||||
Operating lease rentals: |
||||||||||||
Minimum lease payments |
136 | 160 | 143 | |||||||||
Contingent rents |
14 | 13 | 15 | |||||||||
Sub-lease payments |
7 | 6 | 1 | |||||||||
Fees payable to the company’s auditor and its associates in relation to the Group (see below) |
22.2 | 24.1 | 19.2 | |||||||||
The reversals of prior year write-downs of inventories principally arise from the reassessment of
usage or demand expectations prior to inventory expiration.
| Fees payable to the company's auditor and its associates | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
Audit of parent company and consolidated financial statements |
2.0 | 2.0 | 1.6 | |||||||||
Audit of accounts of the Group’s UK and overseas subsidiaries, pursuant to legislation |
11.2 | 10.2 | 9.3 | |||||||||
Other
assurance services, pursuant to legislation, including attestation under
s.404 of Sarbanes-Oxley Act 2002 |
3.3 | 3.0 | 2.9 | |||||||||
Audit and assurance services |
16.5 | 15.2 | 13.8 | |||||||||
Other tax services |
2.5 | 7.3 | 2.5 | |||||||||
All other services, including regulatory, compliance and treasury related services |
3.2 | 1.6 | 2.9 | |||||||||
| 22.2 | 24.1 | 19.2 | ||||||||||
At 31st December 2010, the amount due to PricewaterhouseCoopers LLP and its associates for fees yet
to be invoiced was £6.1 million, comprising statutory audit £5.6 million, taxation services £0.2
million and other services £0.3 million.
| In addition to the above, fees paid in respect of the GSK pension schemes were: | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
Audit |
0.4 | 0.4 | 0.4 | |||||||||
Other services |
– | – | – | |||||||||
GSK Annual Report 2010
Table of Contents
125
Notes to the financial statements
10 Employee costs
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Wages and salaries |
5,079 | 5,387 | 4,640 | |||||||||
Social security costs |
600 | 661 | 653 | |||||||||
Pension and other post-employment costs, including augmentations (Note 28) |
554 | 491 | 505 | |||||||||
Cost of share-based incentive plans |
179 | 179 | 241 | |||||||||
Severance and other costs from integration and restructuring activities |
582 | 449 | 485 | |||||||||
| 6,994 | 7,167 | 6,524 | ||||||||||
In 2010, wages and salaries decreased by 7% in CER terms.
The Group provides benefits to employees, commensurate with local practice in individual
countries, including, in some markets, healthcare insurance, subsidised car schemes and personal
life assurance.
| The average number of persons employed by the Group (including Directors) during the year: | 2010 | 2009 | 2008 | |||||||||
| Number | Number | Number | ||||||||||
Manufacturing |
30,883 | 31,467 | 33,372 | |||||||||
Selling, general and administration |
53,778 | 53,183 | 52,115 | |||||||||
Research and development |
13,824 | 14,204 | 15,646 | |||||||||
| 98,485 | 98,854 | 101,133 | ||||||||||
The average number of Group employees excludes temporary and contract staff. The numbers of
Group employees at the end of each financial year are given in the financial record on page
196. The average number of persons employed by GlaxoSmithKline plc in 2010 was nil (2009 –
nil).
The
compensation of the Directors and Senior Management (members of the CET) in aggregate, was as
follows:
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Wages and salaries |
20 | 23 | 17 | |||||||||
Social security costs |
2 | 1 | 1 | |||||||||
Pension and other post-employment costs |
3 | 3 | 3 | |||||||||
Cost of share-based incentive plans |
11 | 4 | 12 | |||||||||
| 36 | 31 | 33 | ||||||||||
11 Finance income
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Interest income arising from: |
||||||||||||
cash and cash equivalents |
58 | 46 | 107 | |||||||||
available-for-sale investments |
8 | 15 | 31 | |||||||||
derivatives at fair value through profit or loss |
24 | (5 | ) | 159 | ||||||||
loans and receivables |
12 | 11 | 22 | |||||||||
Realised gains on liquid investments |
– | – | 2 | |||||||||
Fair value movements on derivatives at fair value through profit or loss |
13 | (3 | ) | 4 | ||||||||
Net investment hedge ineffectiveness |
– | 4 | (13 | ) | ||||||||
Unwinding of discounts on assets |
1 | 2 | 1 | |||||||||
| 116 | 70 | 313 | ||||||||||
All derivatives at fair value through profit or loss other than designated and effective
hedging instruments (see Note 41, ‘Financial instruments and related disclosures’) are
classified as held-for-trading financial instruments under IAS 39. Interest income arising
from derivatives at fair value through profit or loss relates to swap interest income.
GSK Annual Report 2010
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126
Notes to the financial statements
12 Finance costs
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Interest expense arising on: |
||||||||||||
financial liabilities at amortised cost |
(767 | ) | (790 | ) | (664 | ) | ||||||
derivatives at fair value through profit or loss |
– | 20 | (165 | ) | ||||||||
Fair value hedges: |
||||||||||||
fair value movements on derivatives designated as hedging instruments |
26 | (37 | ) | 92 | ||||||||
fair value adjustments on hedged items |
(27 | ) | 38 | (90 | ) | |||||||
Fair value movements on other derivatives at fair value through profit or loss |
(16 | ) | (2 | ) | – | |||||||
Reclassification of cash flow hedge from other comprehensive income |
(3 | ) | (1 | ) | – | |||||||
Unwinding of discounts on provisions |
(18 | ) | (11 | ) | (16 | ) | ||||||
Net investment hedge ineffectiveness |
(1 | ) | – | – | ||||||||
Other finance expense |
(25 | ) | – | – | ||||||||
| (831 | ) | (783 | ) | (843 | ) | |||||||
All derivatives at fair value through profit or loss except designated and effective hedging
instruments are classified as held-for-trading financial instruments under IAS 39.
13 Associates and joint ventures
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Associates: |
||||||||||||
Share of after tax profits of Quest Diagnostics Inc. |
79 | 73 | 47 | |||||||||
Share of after tax profits of Aspen Pharmacare Holdings Limited |
32 | 2 | – | |||||||||
Share of after tax losses of other associates |
(7 | ) | (3 | ) | (3 | ) | ||||||
| 104 | 72 | 44 | ||||||||||
Share of after tax (losses)/profits of joint ventures |
(23 | ) | (8 | ) | 4 | |||||||
| 81 | 64 | 48 | ||||||||||
Share of turnover of joint ventures |
18 | 13 | 13 | |||||||||
Sales to joint ventures and associates |
90 | 26 | 9 | |||||||||
Summarised income statement information in respect of the Group’s associates is set out below:
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Total turnover: |
||||||||||||
Quest Diagnostics Inc. |
4,754 | 4,779 | 3,919 | |||||||||
Aspen Pharmacare Holdings Limited |
1,171 | 67 | – | |||||||||
Others |
65 | 7 | 3 | |||||||||
| 5,990 | 4,853 | 3,922 | ||||||||||
Total profit: |
||||||||||||
Quest Diagnostics Inc. |
465 | 467 | 314 | |||||||||
Aspen Pharmacare Holdings Limited |
233 | 12 | – | |||||||||
Others |
(23 | ) | (14 | ) | (7 | ) | ||||||
| 675 | 465 | 307 | ||||||||||
The results of Aspen Pharmacare Holdings Limited included in the summarised income statement
information above represent the estimated earnings of the Aspen group in the period.
Subsequent to the year-end, GSK sold its entire shareholding in Quest Diagnostics Inc.
GSK Annual Report 2010
Table of Contents
127
Notes to the financial statements
14 Taxation
| Taxation charge based on profits for the year | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
UK corporation tax at the UK statutory rate |
82 | 600 | 2,213 | |||||||||
Less double taxation relief |
(156 | ) | (183 | ) | (1,924 | ) | ||||||
| (74 | ) | 417 | 289 | |||||||||
Overseas taxation |
1,496 | 1,997 | 1,589 | |||||||||
Current taxation |
1,422 | 2,414 | 1,878 | |||||||||
Deferred taxation |
(118 | ) | (192 | ) | 69 | |||||||
| 1,304 | 2,222 | 1,947 | ||||||||||
| Reconciliation of the taxation rate on Group profits | 2010 | 2009 | 2008 | |||||||||
| % | % | % | ||||||||||
UK statutory rate of taxation |
28.0 | 28.0 | 28.5 | |||||||||
Differences in overseas taxation rates |
8.1 | 3.5 | 1.9 | |||||||||
Benefit of special tax status |
(2.6 | ) | (1.8 | ) | (2.4 | ) | ||||||
R&D credits |
(3.7 | ) | (1.9 | ) | (1.3 | ) | ||||||
Inter-company stock profit |
1.7 | 0.5 | 2.1 | |||||||||
Impact of share based payments |
1.4 | 0.1 | 0.7 | |||||||||
Tax on profit of associates |
(1.2 | ) | (0.2 | ) | (0.4 | ) | ||||||
Losses for which no benefit is recognised |
5.5 | 0.6 | 0.0 | |||||||||
Other permanent differences |
6.2 | (0.9 | ) | 1.2 | ||||||||
Prior year items |
(6.5 | ) | 0.1 | (1.6 | ) | |||||||
Restructuring |
4.4 | 0.2 | 0.5 | |||||||||
Tax rate |
41.3 | 28.2 | 29.2 | |||||||||
The higher tax rate for the year ended 31st December 2010 reflects the impact of the relatively low
tax relief arising on the £4 billion of legal provisions charged during the year and the
non-deductibility of costs associated with certain site closures, partly offset by the settlement
of certain historical tax matters. The percentages within the above reconciliation are exacerbated
by the relatively low reported profit.
The Group operates in countries where the tax rate differs from the UK tax rate. The impact of
these overseas taxes on the overall rate of tax is shown above. Profits arising from certain
operations in Singapore are accorded special status and are taxed at reduced rates compared with
the normal rates of tax in that territory. The effect of this reduction in the taxation charge
increased earnings per share by 1.6p in 2010, 2.8p in 2009 and 2.8p in 2008. The Group is required
under IFRS to create a deferred tax asset in respect of unrealised
inter-company profit arising on
inventory held by the Group at the year-end by applying the tax rate of the country in which the
inventory is held (rather than the tax rate of the country where the profit was originally made and
the tax paid, which is the practice under UK and US GAAP). As a result of this difference in
accounting treatment the Group tax rate on current period inter-company profit under IFRS increased
by 1.7% in 2010 (2009 – 0.5% increase; 2008 – 2.1% increase) arising from changes in the location
of work-in-progress and finished goods.
| Tax on items charged to equity and statement of comprehensive income | 2010 | 2009 | 2008 | |||||||||
| £m | £m | £m | ||||||||||
Current taxation |
||||||||||||
Share based payments |
– | 1 | 4 | |||||||||
Foreign exchange movements |
– | 19 | 15 | |||||||||
| – | 20 | 19 | ||||||||||
Deferred taxation |
||||||||||||
Share based payments |
2 | 13 | (5 | ) | ||||||||
Defined benefit plans |
1 | 183 | 441 | |||||||||
Fair value movements on cash flow hedges |
1 | 2 | (3 | ) | ||||||||
Fair value movements on available-for-sale investments |
(28 | ) | (11 | ) | 8 | |||||||
| (24 | ) | 187 | 441 | |||||||||
Total (charge)/credit to equity and statement of comprehensive income |
(24 | ) | 207 | 460 | ||||||||
All of the above items have been charged to the statement of comprehensive income except for tax on
share based payments.
GSK Annual Report 2010
Table of Contents
128
Notes to the financial statements
14 Taxation continued
Issues relating to taxation
The integrated nature of the Group’s worldwide operations involves significant investment in
research and strategic manufacture at a limited number of locations, with consequential
cross-border supply routes into numerous end-markets. This gives rise to complexity and delay in
negotiations with revenue authorities as to the profits on which individual Group companies are
liable to tax. Resolution of such issues is a continuing fact of life for GSK.
During the year GSK agreed and settled further open years with major tax authorities up to and
including 2008. In Canada, the Federal Court of Appeal overturned a judgement of the Tax Court of
Canada in respect of GSK’s transfer pricing in the early 1990’s and remanded the case back to the
Tax Court for reconsideration. The parties are seeking leave to appeal to the Supreme Court of
Canada.
GSK continues to believe that it has made adequate provision for the liabilities likely to
arise from periods which are open and not yet agreed by tax authorities. The ultimate liability
for such matters may vary from the amounts provided and is dependent upon the outcome of
agreements with relevant tax authorities or litigation where appropriate.
No provision has been made for taxation which would arise on the distribution of profits retained
by overseas subsidiaries, on the grounds that the Group is able to control the timing of the
reversal of these temporary differences and it is probable that they will not reverse in the
foreseeable future. The aggregate amount of these unremitted profits at the balance sheet date was
approximately £30 billion (2009 – £29 billion). The deferred tax on unremitted earnings at 31st
December 2010 is estimated to be £500 million (2009 – £500 million), which relates to taxes payable
on repatriation and dividend withholding taxes levied by overseas tax jurisdictions. UK legislation
relating to company distributions provides for exemption from tax for most repatriated profits,
subject to certain exceptions.
Movement in deferred tax assets and liabilities
| Pensions & | Manu- | Share | Other | |||||||||||||||||||||||||||||||||||||||||||||
| Accelerated | Intra- | other post | Legal | facturing | Stock | option | net | Offset | ||||||||||||||||||||||||||||||||||||||||
| capital | group | employment | Tax | & other | restruct- | valuation | and award | temporary | within | |||||||||||||||||||||||||||||||||||||||
| allowances | Intangibles | profit | benefits | losses | disputes | uring | adjustments | schemes | differences | countries | Total | |||||||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
Deferred tax assets at 1st January 2010 |
24 | 177 | 1,183 | 1,043 | 211 | 303 | 157 | 30 | 126 | 822 | (1,702 | ) | 2,374 | |||||||||||||||||||||||||||||||||||
Deferred tax liabilities at 1st January 2010 |
(628 | ) | (1,476 | ) | – | – | (28 | ) | – | – | (198 | ) | – | (17 | ) | 1,702 | (645 | ) | ||||||||||||||||||||||||||||||
At 1st January 2010 |
(604 | ) | (1,299 | ) | 1,183 | 1,043 | 183 | 303 | 157 | (168 | ) | 126 | 805 | – | 1,729 | |||||||||||||||||||||||||||||||||
Exchange adjustments |
(5 | ) | (10 | ) | 70 | 15 | 3 | 7 | 2 | (2 | ) | – | 31 | – | 111 | |||||||||||||||||||||||||||||||||
Credit/(charge) to income statement |
146 | 10 | (126 | ) | (36 | ) | (88 | ) | 115 | (42 | ) | 148 | (35 | ) | 26 | – | 118 | |||||||||||||||||||||||||||||||
Credit to equity |
– | – | – | – | – | – | – | – | 2 | – | – | 2 | ||||||||||||||||||||||||||||||||||||
Credit/(charge) to statement of comprehensive
income |
– | – | – | 1 | – | – | – | – | – | (27 | ) | – | (26 | ) | ||||||||||||||||||||||||||||||||||
Acquisitions |
– | (40 | ) | – | – | – | – | – | – | – | (35 | ) | – | (75 | ) | |||||||||||||||||||||||||||||||||
At 31st December 2010 |
(463 | ) | (1,339 | ) | 1,127 | 1,023 | 98 | 425 | 117 | (22 | ) | 93 | 800 | – | 1,859 | |||||||||||||||||||||||||||||||||
Deferred tax assets at 31st December 2010 |
49 | 224 | 1,127 | 1,023 | 98 | 425 | 117 | 29 | 93 | 914 | (1,533 | ) | 2,566 | |||||||||||||||||||||||||||||||||||
Deferred tax liabilities at 31st December 2010 |
(512 | ) | (1,563 | ) | – | – | – | – | – | (51 | ) | – | (114 | ) | 1,533 | (707 | ) | |||||||||||||||||||||||||||||||
| (463 | ) | (1,339 | ) | 1,127 | 1,023 | 98 | 425 | 117 | (22 | ) | 93 | 800 | – | 1,859 | ||||||||||||||||||||||||||||||||||
The
deferred tax credit to income relating to changes in tax rates is £11 million (2009 – £9
million, 2008 – £18 million). All other deferred tax movements arise from the origination and
reversal of temporary differences. Other net temporary differences mainly include accrued expenses
for which a tax deduction is only available on a paid basis.
GSK Annual Report 2010
Table of Contents
129
Notes to the financial statements
14 Taxation continued
| Tax losses | Recognised | Unrecognised | ||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Trading losses expiring: |
||||||||||||||||
Within 10 years |
163 | 76 | 14 | 34 | ||||||||||||
In more than 10 years |
329 | 445 | 529 | 159 | ||||||||||||
Available indefinitely |
1 | 96 | 5,302 | 4,204 | ||||||||||||
At 31st December |
493 | 617 | 5,845 | 4,397 | ||||||||||||
Deferred tax asset |
98 | 183 | – | – | ||||||||||||
In addition, the Group had capital losses at 31st December 2010 of approximately £4.3 billion (2009
– £4.3 billion) in respect of which no deferred tax asset has been recognised. Deferred tax assets
are recognised where it is probable that future taxable profit will be available to utilise losses.
Factors affecting the tax charge in future years
As a global organisation there are many factors which could affect the future effective tax rate of
the Group. The mix of profits across different territories, transfer pricing and other disputes
with tax authorities and the location of research and development activity can all have a
significant impact on the Group’s effective tax rate.
Changes to tax legislation in territories where GSK has business operations could also impact the
Group’s effective tax rate. The UK Government has proposed some significant changes to the UK
taxation system. In June 2010 the UK Government announced a phased reduction in the main rate of
corporation tax from 28% to 24% over 4 years from April 2011. The deferred tax movements reflect
the reduction in the UK tax rate from 28% to 27% as it has been substantively enacted. In November
2010 the UK Government reconfirmed its intention to introduce a ‘patent box’ regime which would
apply a reduced rate of corporation tax to income from patents with effect from April 2013,
following a period of consultation. The UK Government also continues to consult with business on
proposed changes to legislation relating to controlled foreign companies. The majority of these
changes are expected to be enacted in 2012.
15 Earnings per share
| 2010 | 2009 | 2008 | ||||||||||
| pence | pence | pence | ||||||||||
Basic earnings per share |
32.1 | 109.1 | 88.6 | |||||||||
Adjustment for major restructuring |
21.8 | 12.1 | 16.1 | |||||||||
Basic earnings per share before major restructuring |
53.9 | 121.2 | 104.7 | |||||||||
Diluted earnings per share |
31.9 | 108.2 | 88.1 | |||||||||
Adjustment for major restructuring |
21.6 | 12.1 | 16.0 | |||||||||
Diluted earnings per share before major restructuring |
53.5 | 120.3 | 104.1 | |||||||||
Basic and adjusted earnings per share have been calculated by dividing the profit attributable to
shareholders by the weighted average number of shares in issue during the period after deducting
shares held by the ESOP Trusts and Treasury shares. The trustees have waived their rights to
dividends on the shares held by the ESOP Trusts.
Adjusted earnings per share is calculated using results before major restructuring earnings. The
calculation of results before major restructuring is described in Note 1 ‘Presentation of the
financial statements’.
Diluted earnings per share have been calculated after adjusting the weighted average number of
shares used in the basic calculation to assume the conversion of all potentially dilutive shares. A
potentially dilutive share forms part of the employee share schemes where its exercise price is
below the average market price of GSK shares during the period and any performance conditions
attaching to the scheme have been met at the balance sheet date.
The numbers of shares used in calculating basic and diluted earnings per share are reconciled
below.
| Weighted average number of shares in issue | 2010 | 2009 | 2008 | |||||||||
| millions | millions | millions | ||||||||||
Basic |
5,085 | 5,069 | 5,195 | |||||||||
Dilution for share options |
43 | 39 | 31 | |||||||||
Diluted |
5,128 | 5,108 | 5,226 | |||||||||
GSK Annual Report 2010
Table of Contents
130
Notes to the financial statements
16 Dividends
| 2010 | First interim | Second interim | Third interim | Fourth interim | Total | |||||||||||||||
Total dividend (£m) |
764 | 759 | 816 | 967 | 3,306 | |||||||||||||||
Dividend per share (pence) |
15 | 15 | 16 | 19 | 65 | |||||||||||||||
Paid/payable |
8th July 2010 | 7th October 2010 | 6th January 2011 | 7th April 2011 | ||||||||||||||||
2009 |
||||||||||||||||||||
Total dividend (£m) |
701 | 713 | 763 | 919 | 3,096 | |||||||||||||||
Dividend per share (pence) |
14 | 14 | 15 | 18 | 61 | |||||||||||||||
Paid |
9th July 2009 | 8th October 2009 | 7th January 2010 | 8th April 2010 | ||||||||||||||||
2008 |
||||||||||||||||||||
Total dividend (£m) |
683 | 679 | 730 | 859 | 2,951 | |||||||||||||||
Dividend per share (pence) |
13 | 13 | 14 | 17 | 57 | |||||||||||||||
Paid |
10th July 2008 | 9th October 2008 | 8th January 2009 | 9th April 2009 | ||||||||||||||||
Under IFRS interim dividends are only recognised in the financial statements when paid and not when
declared. GSK normally pays a dividend two quarters after the quarter to which it relates and one
quarter after it is declared. The 2010 financial statements recognise those dividends paid in 2010,
namely the third and fourth interim dividends for 2009 and the first and second interim dividends
for 2010.
The amounts
recognised in each year are as follows:
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Dividends to shareholders |
3,205 | 3,003 | 2,929 | |||||||||
17 Property, plant and equipment
| Plant, | ||||||||||||||||
| Land and | equipment | Assets in | ||||||||||||||
| buildings | and vehicles | construction | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cost at 1st January 2009 |
5,979 | 10,686 | 2,322 | 18,987 | ||||||||||||
Exchange adjustments |
(343 | ) | (493 | ) | (154 | ) | (990 | ) | ||||||||
Additions |
188 | 432 | 803 | 1,423 | ||||||||||||
Additions through business combinations |
67 | 76 | 8 | 151 | ||||||||||||
Capitalised borrowing costs |
– | – | 1 | 1 | ||||||||||||
Disposals and write-offs |
(184 | ) | (614 | ) | (5 | ) | (803 | ) | ||||||||
Reclassifications |
309 | 430 | (735 | ) | 4 | |||||||||||
Transfer to assets held for sale |
(14 | ) | (2 | ) | – | (16 | ) | |||||||||
Cost at 31st December 2009 |
6,002 | 10,515 | 2,240 | 18,757 | ||||||||||||
Exchange adjustments |
80 | 60 | (7 | ) | 133 | |||||||||||
Additions |
75 | 293 | 670 | 1,038 | ||||||||||||
Additions through business combinations |
20 | 7 | – | 27 | ||||||||||||
Capitalised borrowing costs |
– | – | 6 | 6 | ||||||||||||
Disposals and write-offs |
(111 | ) | (661 | ) | (2 | ) | (774 | ) | ||||||||
Reclassifications |
223 | 432 | (671 | ) | (16 | ) | ||||||||||
Transfer to assets held for sale |
(171 | ) | (105 | ) | – | (276 | ) | |||||||||
Cost at 31st December 2010 |
6,118 | 10,541 | 2,236 | 18,895 | ||||||||||||
GSK Annual Report 2010
Table of Contents
131
Notes to the financial statements
17 Property, plant and equipment continued
| Plant, | ||||||||||||||||
| Land and | equipment | Assets in | ||||||||||||||
| buildings | and vehicles | construction | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Depreciation at 1st January 2009 |
(2,062 | ) | (6,630 | ) | – | (8,692 | ) | |||||||||
Exchange adjustments |
128 | 312 | – | 440 | ||||||||||||
Charge for the year |
(283 | ) | (847 | ) | – | (1,130 | ) | |||||||||
Disposals and write-offs |
129 | 478 | – | 607 | ||||||||||||
Transfer to assets held for sale |
1 | 1 | – | 2 | ||||||||||||
Depreciation at 31st December 2009 |
(2,087 | ) | (6,686 | ) | – | (8,773 | ) | |||||||||
Exchange adjustments |
(39 | ) | (51 | ) | – | (90 | ) | |||||||||
Charge for the year |
(321 | ) | (825 | ) | – | (1,146 | ) | |||||||||
Disposals and write-offs |
11 | 508 | – | 519 | ||||||||||||
Transfer to assets held for sale |
147 | 95 | – | 242 | ||||||||||||
Depreciation at 31st December 2010 |
(2,289 | ) | (6,959 | ) | – | (9,248 | ) | |||||||||
Impairment at 1st January 2009 |
(161 | ) | (412 | ) | (44 | ) | (617 | ) | ||||||||
Exchange adjustments |
6 | 10 | 4 | 20 | ||||||||||||
Disposals and write-offs |
28 | 104 | 4 | 136 | ||||||||||||
Impairment losses |
(27 | ) | (108 | ) | (25 | ) | (160 | ) | ||||||||
Reversal of impairments |
1 | 10 | – | 11 | ||||||||||||
Impairment at 31st December 2009 |
(153 | ) | (396 | ) | (61 | ) | (610 | ) | ||||||||
Exchange adjustments |
– | 2 | (1 | ) | 1 | |||||||||||
Disposals and write-offs |
64 | 111 | – | 175 | ||||||||||||
Impairment losses |
(43 | ) | (160 | ) | (2 | ) | (205 | ) | ||||||||
Reversal of impairments |
14 | 5 | – | 19 | ||||||||||||
Transfer to assets held for sale |
18 | – | – | 18 | ||||||||||||
Impairment at 31st December 2010 |
(100 | ) | (438 | ) | (64 | ) | (602 | ) | ||||||||
Total depreciation and impairment at 31st December 2009 |
(2,240 | ) | (7,082 | ) | (61 | ) | (9,383 | ) | ||||||||
Total depreciation and impairment at 31st December 2010 |
(2,389 | ) | (7,397 | ) | (64 | ) | (9,850 | ) | ||||||||
Net book value at 1st January 2009 |
3,756 | 3,644 | 2,278 | 9,678 | ||||||||||||
Net book value at 31st December 2009 |
3,762 | 3,433 | 2,179 | 9,374 | ||||||||||||
Net book value at 31st December 2010 |
3,729 | 3,144 | 2,172 | 9,045 | ||||||||||||
The net book value at 31st December 2010 of the Group’s land and buildings comprises freehold
properties £3,427 million
(2009 – £3,462 million), properties with leases of 50 years or more £238 million (2009 – £239
million) and properties with leases of less than 50 years £64 million (2009 – £61 million).
Included in land and buildings at 31st December 2010 are leased assets with a cost of £582 million
(2009 – £561 million), accumulated depreciation of £280 million (2009 – £261 million), impairment of
£nil (2009 – £nil) and a net book value of
£302 million (2009 – £300 million). Included in plant,
equipment and vehicles at 31st December 2010 are leased assets with a cost of £95 million (2009
– £126 million), accumulated depreciation of £54 million (2009 – £44 million), and a net book value
of £41 million (2009 – £82 million). Some lease agreements include renewal or purchase options or
escalation clauses.
The impairment losses principally arise from decisions to rationalise facilities and are calculated
based on either fair value less costs to sell or value in use. The value in use calculations
determine the net present value of the projected risk-adjusted, post-tax cash flows of the relevant
asset or cash generating unit, applying a discount rate of the Group post-tax weighted average cost
of capital (WACC) of 8%, adjusted where appropriate for relevant specific risks. Where an
impairment is indicated and a pre-tax cash flow calculation is expected to give a materially
different result, the test would be reperformed using pre-tax cash flows and a pre-tax discount
rate. The Group WACC is equivalent to a pre-tax discount rate of approximately 11%. The impairment
losses have been charged to cost of sales £142 million (2009 – £95 million), R&D £46 million (2009
– £47 million) and SG&A £17 million (2009 – £18 million), and include £57 million (2009 – £57
million) arising from the major restructuring programmes.
Reversals of impairment arise from subsequent reviews of the impaired assets where the
conditions which gave rise to the original impairments are deemed no longer to apply. All of
the reversals have been credited to cost of sales.
GSK Annual Report 2010
Table of Contents
132
Notes to the financial statements
18 Goodwill
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Cost at 1st January |
3,361 | 2,101 | ||||||
Exchange adjustments |
95 | (116 | ) | |||||
Additions through business combinations |
160 | 1,376 | ||||||
Impairment losses |
(10 | ) | – | |||||
Cost at 31st December |
3,606 | 3,361 | ||||||
Net book value at 1st January |
3,361 | 2,101 | ||||||
Net book value at 31st December |
3,606 | 3,361 | ||||||
The impairment losses in the year arose from the decision to exit the Pliva Research Institute site
in Zagreb, Croatia. This loss is reported in the consolidated income statement under the major
restructuring programme within selling, general and administration.
The additions in the year, translated at acquisition exchange rates, arose primarily on the
acquisition of Laboratorios Phoenix S.A.I.C.yF. See Note 38, ‘Acquisitions and disposals’ for
further details.
The carrying value of goodwill, translated at year-end exchange rates, is made up of balances
arising on acquisition of the following businesses:
| 2010 | 2009 | |||||||||||
| Cash generating unit | £m | £m | ||||||||||
Stiefel Laboratories, Inc. |
US, Europe, Emerging Markets, Asia Pacific, Other pharmaceuticals | 894 | 901 | |||||||||
ID Biomedical Corporation |
US, Europe, Emerging Markets, Asia Pacific, Japan, Other pharmaceuticals | 464 | 426 | |||||||||
Reliant Pharmaceuticals, Inc. |
US pharmaceuticals | 448 | 434 | |||||||||
Sirtris Pharmaceuticals, Inc. |
US, Europe, Emerging Markets, Asia Pacific, Japan, Other pharmaceuticals | 304 | 294 | |||||||||
Pfizer HIV business |
ViiV Healthcare | 255 | 255 | |||||||||
GlaxoSmithKline K.K. |
Japan pharmaceuticals | 246 | 208 | |||||||||
Domantis Limited |
US, Europe, Emerging Markets, Asia Pacific, Japan, Other pharmaceuticals | 181 | 181 | |||||||||
CNS, Inc. |
Consumer Healthcare | 142 | 137 | |||||||||
Polfa Poznan S.A. |
Europe pharmaceuticals | 118 | 118 | |||||||||
Certain businesses from UCB S.A. |
Emerging Markets and Asia Pacific pharmaceuticals | 89 | 87 | |||||||||
Laboratorios Phoenix S.A.I.C.yF. |
Emerging Markets pharmaceuticals | 66 | – | |||||||||
NovaMin Technology Inc. |
Consumer Healthcare | 52 | 50 | |||||||||
Others |
347 | 270 | ||||||||||
| 3,606 | 3,361 | |||||||||||
GSK Annual Report 2010
Table of Contents
133
Notes to the financial statements
18 Goodwill continued
Goodwill is allocated to cash generating units which are tested for impairment at least annually.
With effect from 1st January 2010, GSK revised its segmental disclosures to reflect changes in the
internal reporting structure. ViiV Healthcare is now shown as a separate segment and the Stiefel
business has been integrated with the GSK legacy dermatology business. Following these changes, the
goodwill arising on the acquisition of Stiefel has been allocated to the US, Europe, Emerging
Markets, Asia Pacific and Other pharmaceuticals CGUs for impairment testing purposes as the
benefits of the acquired business are expected to arise from these businesses.
The goodwill arising on the acquisitions of ID Biomedical, Sirtris Pharmaceuticals and Domantis has
been split between the US, Europe, Emerging Markets, Asia Pacific, Japan and Other pharmaceutical
CGUs for impairment testing purposes as either the benefit of the acquired businesses is split
among the CGUs or the acquired businesses do not generate independent cash flows.
In 2010, the allocation of Polfa Poznan S.A. goodwill has changed from Poland pharmaceuticals to
the Europe pharmaceuticals cash generating unit. This change of allocation reflects the level at
which GSK internal management monitors the Polfa Poznan S.A. goodwill.
The valuation of the US pharmaceuticals cash generating unit for goodwill impairment testing
purposes, has been prepared on a fair value less costs to sell basis, using turnover and earnings
multiples derived from observed market data.
The recoverable amounts of the other cash generating units are assessed using either a value in use
or a fair value less costs to sell model. Value in use is calculated as the net present value of
the projected risk-adjusted post-tax cash flows plus a terminal value of the cash generating unit
to which the goodwill is allocated. Initially a post-tax discount rate is applied to calculate the
net present value of the post-tax cash flows. The post-tax discount rate used is based on the Group
WACC of 8%, as most cash generating units have integrated operations across large parts of the
Group. The Group WACC is equivalent to a pre-tax discount rate of approximately 11%. The discount
rate is increased where specific country risks are sufficiently significant to have a material
impact on the outcome of the impairment test. Where the impairment test indicates that the
recoverable value of the unit is close to or below its carrying value, the test is reperformed
using a pre-tax discount rate and pre-tax cash flows in order to determine if an impairment exists
and to establish its magnitude.
Fair value is calculated using a similar discounted cash flow approach based on the
Group’s acquisition valuation model. A post-tax discount rate is applied to the
projected risk-adjusted post-tax cash flows and terminal value.
Details relating to the discounted cash flow models used in the impairment tests of the other
significant goodwill balances are as follows:
| Europe, Emerging Markets, Asia Pacific, | ||||||
| Other pharmaceuticals CGUs | ViiV Healthcare CGU | |||||
| Valuation basis | Value in use | Fair value less costs to sell | ||||
| Key assumptions | Sales growth rates Profit margins Discount rate |
Sales growth rates Profit margins Discount rate |
||||
| Determination of assumptions | Growth rates are internal forecasts based on both
internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. |
Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. | ||||
Period of specific projected cash flows |
5 years | 5 years | ||||
Discount rate |
8% | 8% | ||||
Terminal growth rate |
Europe | 6% p.a. decline | 2.5% p.a. | |||
| Emerging markets | 1% p.a. | |||||
| Asia Pacific | 0% p.a. | |||||
| Other | 0% p.a. | |||||
GSK Annual Report 2010
Table of Contents
134
Notes to the financial statements
18 Goodwill continued
| Japan pharmaceuticals CGU | Consumer Healthcare CGU | |||
Valuation basis |
Fair value less costs to sell | Fair value less costs to sell | ||
Key assumptions |
Sales growth rates Profit margins Discount rate |
Sales growth rates Advertising and promotion investment Terminal growth rate Discount rate |
||
Determination of assumptions |
Growth rates are internal forecasts based on both internal and external market
information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. |
Growth rates are internal forecasts based on both internal and external market
information. Advertising and promotion investment based on historical levels adjusted for management’s view of support needed for innovation and expansion. Terminal growth rate based on management’s estimate of future long-term average growth rates. Discount rate based on Group WACC. |
||
Period of specific projected cash flows |
5 years | 5 years | ||
Discount rate |
8% | 8% | ||
Terminal growth rate |
2% p.a. | 3% p.a. | ||
The terminal growth rates do not exceed the long-term projected growth rates for the relevant
markets. The terminal growth rates used in the value in use calculations for the pharmaceuticals
cash generating units reflect the impact of future generic competition and take no account of new
product launches.
The Consumer Healthcare cash generating unit comprises a collection of smaller cash generating
units including brands with indefinite lives with a carrying value of £1.83 billion (2009 – £1.79
billion).
The pharmaceutical cash generating units also comprise a collection of smaller cash generating
units including assets with indefinite lives with a carrying value of £708 million (2009 – £660
million). Details of indefinite life brands are given in Note 19 ‘Other intangible assets’.
In each case the valuations indicate sufficient headroom such that a reasonably possible change to
key assumptions is unlikely to result in an impairment of the related goodwill.
GSK Annual Report 2010
Table of Contents
135
Notes to the financial statements
19 Other intangible assets
| Computer | Licences, | Amortised | Indefinite life | |||||||||||||||||
| software | patents, etc. | brands | brands | Total | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Cost at 1st January 2009 |
1,003 | 4,794 | 331 | 1,823 | 7,951 | |||||||||||||||
Exchange adjustments |
(36 | ) | (193 | ) | (23 | ) | (99 | ) | (351 | ) | ||||||||||
Capitalised internal development costs |
13 | – | – | – | 13 | |||||||||||||||
Additions through business combinations |
30 | 1,883 | 51 | 758 | 2,722 | |||||||||||||||
Other additions |
41 | 391 | – | – | 432 | |||||||||||||||
Disposals and asset write-offs |
(17 | ) | (26 | ) | – | – | (43 | ) | ||||||||||||
Reclassifications |
(4 | ) | – | – | – | (4 | ) | |||||||||||||
Cost at 31st December 2009 |
1,030 | 6,849 | 359 | 2,482 | 10,720 | |||||||||||||||
Exchange adjustments |
14 | 150 | 7 | 55 | 226 | |||||||||||||||
Capitalised internal development costs |
81 | – | – | – | 81 | |||||||||||||||
Additions through business combinations |
– | 214 | 11 | 27 | 252 | |||||||||||||||
Capitalised borrowing costs |
– | 2 | – | – | 2 | |||||||||||||||
Other additions |
58 | 469 | – | – | 527 | |||||||||||||||
Disposals and asset write-offs |
(25 | ) | (13 | ) | – | – | (38 | ) | ||||||||||||
Reclassifications |
16 | – | – | – | 16 | |||||||||||||||
Cost at 31st December 2010 |
1,174 | 7,671 | 377 | 2,564 | 11,786 | |||||||||||||||
Amortisation at 1st January 2009 |
(698 | ) | (995 | ) | (24 | ) | – | (1,717 | ) | |||||||||||
Exchange adjustments |
27 | 58 | – | – | 85 | |||||||||||||||
Charge for the year |
(113 | ) | (306 | ) | (13 | ) | – | (432 | ) | |||||||||||
Disposals and asset write-offs |
16 | 1 | – | – | 17 | |||||||||||||||
Amortisation at 31st December 2009 |
(768 | ) | (1,242 | ) | (37 | ) | – | (2,047 | ) | |||||||||||
Exchange adjustments |
(8 | ) | (37 | ) | – | – | (45 | ) | ||||||||||||
Charge for the year |
(106 | ) | (411 | ) | (16 | ) | – | (533 | ) | |||||||||||
Disposals and asset write-offs |
20 | 1 | – | – | 21 | |||||||||||||||
Amortisation at 31st December 2010 |
(862 | ) | (1,689 | ) | (53 | ) | – | (2,604 | ) | |||||||||||
Impairment at 1st January 2009 |
(32 | ) | (304 | ) | – | (29 | ) | (365 | ) | |||||||||||
Exchange adjustments |
1 | 19 | – | 3 | 23 | |||||||||||||||
Impairment losses |
(4 | ) | (168 | ) | – | – | (172 | ) | ||||||||||||
Disposals and asset write-offs |
2 | 22 | – | – | 24 | |||||||||||||||
Impairment at 31st December 2009 |
(33 | ) | (431 | ) | – | (26 | ) | (490 | ) | |||||||||||
Exchange adjustments |
(1 | ) | (13 | ) | – | (1 | ) | (15 | ) | |||||||||||
Impairment losses |
(5 | ) | (143 | ) | (2 | ) | – | (150 | ) | |||||||||||
Disposals and asset write-offs |
3 | – | 2 | – | 5 | |||||||||||||||
Impairment at 31st December 2010 |
(36 | ) | (587 | ) | – | (27 | ) | (650 | ) | |||||||||||
Total amortisation and impairment at 31st December 2009 |
(801 | ) | (1,673 | ) | (37 | ) | (26 | ) | (2,537 | ) | ||||||||||
Total amortisation and impairment at 31st December 2010 |
(898 | ) | (2,276 | ) | (53 | ) | (27 | ) | (3,254 | ) | ||||||||||
Net book value at 1st January 2009 |
273 | 3,495 | 307 | 1,794 | 5,869 | |||||||||||||||
Net book value at 31st December 2009 |
229 | 5,176 | 322 | 2,456 | 8,183 | |||||||||||||||
Net book value at 31st December 2010 |
276 | 5,395 | 324 | 2,537 | 8,532 | |||||||||||||||
GSK Annual Report 2010
Table of Contents
136
Notes to the financial statements
19 Other intangible assets continued
Amortisation and impairment losses, net of reversals, have been charged in the income statement as
follows:
| Amortisation | Net impairment losses | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cost of sales |
26 | 29 | – | 1 | ||||||||||||
Selling, general and administration |
353 | 270 | 13 | 1 | ||||||||||||
Research and development |
154 | 133 | 137 | 170 | ||||||||||||
| 533 | 432 | 150 | 172 | |||||||||||||
Included in the impairments above is £8 million arising from the major restructuring programmes.
The net book value of computer software includes £129 million (2009 – £80 million) of internally
generated costs.
Licences, patents, etc. includes a large number of acquired licences, patents, know-how agreements
and marketing rights, which are either marketed or in use, or still in development. The net book
value includes £5 million (2009 – £6 million) of internally generated costs. Impairment losses of
£143 million (2009 – £168 million) principally arise on assets in development that are no longer
being actively pursued. Note 38, ‘Acquisitions and disposals’ gives details of additions through
business combinations in the year. The book values of the largest individual items are as follows:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Fluviral |
663 | 648 | ||||||
Lovaza |
593 | 637 | ||||||
Selzentry |
299 | 337 | ||||||
Arzerra |
294 | 191 | ||||||
Duac |
157 | 165 | ||||||
Fraxiparine |
135 | 158 | ||||||
Others |
3,254 | 3,040 | ||||||
| 5,395 | 5,176 | |||||||
Amortised
brands include OTC rights relating to alli, with a book value at 31st December 2010 of
£252 million (2009 – £260 million).
Indefinite life brands comprise a portfolio of Consumer Healthcare products primarily acquired with
the acquisitions of Sterling Winthrop, Inc. in 1994, Block Drug
Company, Inc. in 2001 and CNS, Inc.
in 2006, together with a number of pharmaceutical brands from the acquisition of Stiefel
Laboratories, Inc. in 2009. The book values of the major brands are as follows:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Panadol |
426 | 399 | ||||||
Sensodyne |
270 | 271 | ||||||
Stiefel trade name |
216 | 209 | ||||||
Breathe Right |
199 | 193 | ||||||
Physiogel |
182 | 176 | ||||||
Polident |
114 | 115 | ||||||
Corega |
102 | 102 | ||||||
Biotene |
111 | 108 | ||||||
Poligrip |
70 | 71 | ||||||
Solpadeine |
59 | 59 | ||||||
Others |
788 | 753 | ||||||
| 2,537 | 2,456 | |||||||
Each of these brands is considered to have an indefinite life, given the strength and durability of
the brand and the level of marketing support. The brands are in relatively similar stable and
profitable market sectors, with similar risk profiles, and their size, diversification and market
shares mean that the risk of market-related factors causing a reduction in the lives of the brands
is considered to be relatively low. The Group is not aware of any material legal, regulatory,
contractual, competitive, economic or other factor which could limit their useful lives.
Accordingly, they are not amortised.
Each brand is tested annually for impairment applying a fair value less costs to sell methodology,
generally using four year post-tax cash flow forecasts with a terminal value calculation and a
discount rate equal to the Group post-tax WACC of 8%, adjusted where appropriate for
country-specific risks. The main assumptions include future sales price and volume growth, product
contribution and the future expenditure required to maintain the product’s marketability and
registration in the relevant jurisdictions. These assumptions are based on past experience and are
reviewed as part of management’s budgeting and strategic planning cycle for changes in market
conditions and sales erosion through competition. The terminal growth rates applied of between 2%
and 3% are management’s estimates of future long-term average growth rates of the relevant markets.
In each case the valuations indicate sufficient headroom such that a reasonably possible change to
key assumptions is unlikely to result in an impairment of these brands.
GSK Annual Report 2010
Table of Contents
137
Notes to the financial statements
20 Investments in associates and joint ventures
| Joint | Associated | 2010 | Joint | Associated | 2009 | |||||||||||||||||||
| ventures | undertakings | Total | ventures | undertakings | Total | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
At 1st January |
46 | 849 | 895 | 28 | 524 | 552 | ||||||||||||||||||
Exchange adjustments |
4 | 8 | 12 | (3 | ) | (44 | ) | (47 | ) | |||||||||||||||
Additions |
30 | 35 | 65 | 36 | 312 | 348 | ||||||||||||||||||
Disposals |
– | (2 | ) | (2 | ) | – | (69 | ) | (69 | ) | ||||||||||||||
Transfer from other investments |
– | 40 | 40 | – | 56 | 56 | ||||||||||||||||||
Distributions received |
(3 | ) | (18 | ) | (21 | ) | (7 | ) | (10 | ) | (17 | ) | ||||||||||||
Other movements |
– | 11 | 11 | – | 8 | 8 | ||||||||||||||||||
(Loss)/profit after tax recognised in the consolidated
income statement |
(23 | ) | 104 | 81 | (8 | ) | 72 | 64 | ||||||||||||||||
At 31st December |
54 | 1,027 | 1,081 | 46 | 849 | 895 | ||||||||||||||||||
The Group held two significant associated undertakings at 31st December 2010.
Quest Diagnostics Inc., a US clinical laboratory business listed on the New York Stock Exchange.
The investment had a book value at 31st December 2010 of
£494 million (2009 – £410 million) and a
market value of £1,064 million (2009 – £1,153 million). At 31st December 2010, the Group owned 18.1%
of Quest (2009 – 16.8%). Although the Group held less than 20% of the ownership interest and voting
control in Quest, the Group had the ability to exercise significant influence through both its
significant shareholding and its nominated director’s active participation on the Quest Board of
Directors and Board sub-committees.
Subsequent to the year-end GSK sold its entire shareholding in Quest Diagnostics Inc. The sale
comprised a secondary public offering and an accompanying repurchase of shares by Quest Diagnostics
which together are expected to generate gross proceeds of $1.1 billion (£0.7 billion) after tax.
At 31st December 2010, the Group owned 81.7 million shares or 19% of Aspen Pharmacare Holdings
Limited. Aspen, listed on the Johannesburg Stock Exchange, is Africa’s largest pharmaceutical
manufacturer and a major supplier of branded and generic pharmaceutical, healthcare and nutritional
products to the southern African and selected international markets. The investment had a book
value at 31st December 2010 of £397 million (2009
– £372 million) and a market value of £729 million
(2009 – £505 million). Although the Group holds less than 20% of the ownership interest and voting
control of Aspen, the Group has the ability to exercise significant influence through both its
shareholding and its nominated director’s active participation on the Aspen Board of Directors.
The transfer from other investments in 2010 relates to the Group’s holding in JCR
Pharmaceuticals Ltd, previously classified within Other investments.
Summarised balance sheet information in respect of the Group’s associates is set out below:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Total assets: |
||||||||
Quest Diagnostics Inc. |
5,466 | 5,319 | ||||||
Aspen Pharmacare Holdings Limited |
1,913 | 1,318 | ||||||
Others |
360 | 121 | ||||||
| 7,739 | 6,758 | |||||||
Total liabilities: |
||||||||
Quest Diagnostics Inc. |
(2,868 | ) | (2,828 | ) | ||||
Aspen Pharmacare Holdings Limited |
(786 | ) | (689 | ) | ||||
Others |
(73 | ) | (19 | ) | ||||
| (3,727 | ) | (3,536 | ) | |||||
Net assets |
4,012 | 3,222 | ||||||
The summarised balance sheet information in respect of Aspen Pharmacare Holdings Limited is based
on preliminary results information and analysts forecasts available at 31st December 2010.
Investments in joint ventures comprise £66 million share of gross assets (2009 – £57 million) and
£12 million share of gross liabilities (2009 – £11 million). These principally arise from 50%
interests in two joint ventures, Shionogi-ViiV Healthcare Holdings, L.P., which is developing
specified chemical compounds, and ViiV Healthcare Shire Canada, which primarily co-markets Combivir, Trizivir
and Epivir in certain territories, both of which are now part of the ViiV Healthcare business.
Investments in joint ventures also include a 28% interest in Pharmaceutical Insurance Limited,
which is a mutual insurance company covering pharmaceutical business risk, and a 49% interest in
GlaxoSmithKline – NeptunusBio, which is a flu vaccine research, development and manufacturing
venture.
During 2010, GSK made additional capital contributions of £6 million to
Shenzhen
GlaxoSmithKline – NeptunusBio Co., Ltd and £24 million to Shionogi-ViiV Healthcare
Holdings, L.P.
GSK Annual Report 2010
Table of Contents
138
Notes to the financial statements
21 Other investments
| 2010 | 2009 | |||||||
| £m | £m | |||||||
At 1st January |
454 | 478 | ||||||
Exchange adjustments |
7 | (48 | ) | |||||
Additions |
281 | 175 | ||||||
Net fair value movements |
96 | 57 | ||||||
Impairment losses |
(60 | ) | (95 | ) | ||||
Transfer to investments in associates and joint ventures |
(40 | ) | (56 | ) | ||||
Disposals |
(27 | ) | (57 | ) | ||||
At 31st December |
711 | 454 | ||||||
Other investments comprise non-current equity investments which are available-for-sale investments
recorded at fair value at each balance sheet date. For investments traded in an active market, the
fair value is determined by reference to the relevant stock exchange quoted bid price. For other
investments, the fair value is estimated by management with reference to relevant available
information, including the current market value of similar instruments and discounted cash flows of
the underlying net assets. The Group holds a number of equity investments in entities where the
Group has entered into research collaborations. Other investments include listed investments of
£491 million (2009 – £245 million), the increase primarily arising from a number of additional
investments during the year.
On disposal of investments, fair value movements are reclassified from equity to the income
statement based on average cost for shares acquired at different times. The transfer to
associates relates to the Group’s holding in JCR Pharmaceuticals, which increased during the year
to 27%.
The impairment losses recorded in the tables above have been recognised in the income statement for
the year within other operating income, together with amounts reclassified from the fair value
reserve on recognition of the impairments. These impairments initially result from prolonged or
significant declines in the fair value of the equity investments below acquisition cost, subsequent
to which any further declines in fair value are immediately taken to the income statement.
Other investments include assets that have been impaired, as follows:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Original cost |
429 | 401 | ||||||
Impairments recognised in profit and loss |
(340 | ) | (292 | ) | ||||
Subsequent fair value increases |
45 | 43 | ||||||
Carrying value at 31st December |
134 | 152 | ||||||
22 Other non-current assets
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Amounts receivable under insurance contracts |
343 | 299 | ||||||
Pension schemes in surplus |
23 | 23 | ||||||
Other receivables |
190 | 261 | ||||||
| 556 | 583 | |||||||
23 Inventories
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Raw materials and consumables |
1,466 | 1,153 | ||||||
Work in progress |
751 | 1,437 | ||||||
Finished goods |
1,620 | 1,474 | ||||||
| 3,837 | 4,064 | |||||||
GSK Annual Report 2010
Table of Contents
139
Notes to the financial statements
24 Trade and other receivables
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Trade receivables |
4,727 | 5,486 | ||||||
Prepaid pension contributions |
2 | 1 | ||||||
Other prepayments and accrued income |
256 | 301 | ||||||
Interest receivable |
16 | 20 | ||||||
Employee loans and advances |
50 | 48 | ||||||
Other receivables |
742 | 636 | ||||||
| 5,793 | 6,492 | |||||||
Trade receivables include £42 million (2009 – £32 million) due from associates and joint
ventures and are stated after deducting the provision for bad and doubtful debts.
| 2010 | 2009 | |||||||
Bad and doubtful debt provision |
£m | £m | ||||||
At 1st January |
116 | 129 | ||||||
Exchange adjustments |
– | (10 | ) | |||||
Charge for the year |
54 | 21 | ||||||
Subsequent recoveries of amounts provided for |
(19 | ) | (18 | ) | ||||
Utilised |
(1 | ) | (6 | ) | ||||
At 31st December |
150 | 116 | ||||||
25 Cash and cash equivalents
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Cash at bank and in hand |
1,027 | 856 | ||||||
Short-term deposits |
5,030 | 5,689 | ||||||
| 6,057 | 6,545 | |||||||
26 Assets held for sale
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Land and buildings |
6 | 13 | ||||||
Plant, equipment and vehicles |
10 | 1 | ||||||
| 16 | 14 | |||||||
GSK Annual Report 2010
Table of Contents
140
Notes to the financial statements
27 Trade and other payables
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Trade payables |
2,141 | 1,855 | ||||||
Wages and salaries |
931 | 1,089 | ||||||
Social security |
115 | 125 | ||||||
Other payables |
296 | 280 | ||||||
Deferred income |
70 | 156 | ||||||
Customer return and rebate accruals |
1,632 | 1,379 | ||||||
Other accruals |
1,703 | 1,888 | ||||||
| 6,888 | 6,772 | |||||||
Customer return and rebate accruals are provided for by the Group at the point of sale in respect
of the estimated rebates, discounts or allowances payable to customers, principally in the USA, and
have increased during the year as a result of the US healthcare reform amendments. Accruals are
made at the time of sale but the actual amounts paid are based on claims made some time after the
initial recognition of the sale. As the amounts are estimated they may not fully reflect the final
outcome and are subject to change dependent upon, amongst other things, the types of buying group
and product sales mix. The level of accrual is reviewed and adjusted quarterly in the light of
historical experience of actual rebates, discounts or allowances given and returns made and any
changes in arrangements. Future events could cause the assumptions on which the accruals are based
to change, which could affect the future results of the Group.
Trade and other payables include £26 million (2009 – £23 million) due to
associates and joint ventures.
28 Pensions and other post-employment benefits
| 2010 | 2009 | 2008 | ||||||||||
Pension and other post-employment costs |
£m | £m | £m | |||||||||
UK pension schemes |
158 | 206 | 236 | |||||||||
US pension schemes |
115 | 94 | 60 | |||||||||
Other overseas pensions schemes |
125 | 101 | 87 | |||||||||
Unfunded post-retirement healthcare schemes |
156 | 90 | 118 | |||||||||
Other post-employment costs |
– | – | 4 | |||||||||
| 554 | 491 | 505 | ||||||||||
Analysed as: |
||||||||||||
Funded defined benefit/hybrid pension schemes |
325 | 338 | 318 | |||||||||
Unfunded defined benefit pension schemes |
28 | 25 | 23 | |||||||||
Unfunded post-retirement healthcare schemes |
156 | 90 | 118 | |||||||||
Defined benefit schemes |
509 | 453 | 459 | |||||||||
Defined contribution pension schemes |
45 | 38 | 42 | |||||||||
Other post-employment costs |
– | – | 4 | |||||||||
| 554 | 491 | 505 | ||||||||||
| The costs of the defined benefit pension and post-retirement healthcare schemes are charged in the income statement as follows: | ||||||||||||
Cost of sales |
117 | 121 | 179 | |||||||||
Selling, general and administration |
254 | 195 | 160 | |||||||||
Research and development |
138 | 137 | 120 | |||||||||
| 509 | 453 | 459 | ||||||||||
GSK entities operate pension arrangements which cover the Group’s material obligations to provide
pensions to retired employees. These arrangements have been developed in accordance with local
practices in the countries concerned. Pension benefits can be provided by state schemes; by defined
contribution schemes, whereby retirement benefits are determined by the value of funds arising from
contributions paid in respect of each employee; or by defined benefit schemes, whereby retirement
benefits are based on employee pensionable remuneration and length of service. Some ‘hybrid’
defined benefit schemes also include defined contribution sections.
GSK Annual Report 2010
Table of Contents
141
Notes to the financial statements
28 Pensions and other post-employment benefits continued
Pension costs of defined benefit schemes for accounting purposes have been calculated using the
projected unit method. In certain countries pension benefits are provided on an unfunded basis,
some administered by trustee companies. Formal, independent, actuarial valuations of the Group’s
main plans are undertaken regularly, normally at least every three years.
Actuarial movements in the year are recognised through the statement of comprehensive income.
Discount rates are derived from AA rated corporate bond yields except in countries where there is
no deep market in corporate bonds where government bond yields are used. Discount rates are
selected to reflect the term of the expected benefit payments. The expected rate of return on bonds
reflects the portfolio mix of index-linked, government and corporate bonds. An equity risk premium
of between 3% and 4% is added to longer term government bond yields to give the expected rate of
return on equities. Projected inflation rate and pension increases are long-term predictions based
on the yield gap between long-term index-linked and fixed interest Gilts. In the UK, mortality
rates are determined by adjusting the PCA00 standard mortality tables to reflect recent scheme
experience. These rates are then projected to reflect improvements in life expectancy in line with
the medium cohort (i.e. improvements at recently observed higher levels which are assumed to
continue to 2020) with minimum improvements thereafter of 1% per year for both males and females.
In the USA, mortality rates are calculated using the RP2000 fully generational table, projected
using scale AA, with the white collar adjustment.
The average life expectancy assumed now for an individual at the age of 60 and projected to apply
in 2030 for an individual then at the age of 60 is as follows:
| UK | USA | |||||||||||||||
| Male | Female | Male | Female | |||||||||||||
| Years | Years | Years | Years | |||||||||||||
Current |
27.4 | 28.7 | 24.6 | 26.3 | ||||||||||||
Projected for 2030 |
29.7 | 30.5 | 26.5 | 27.4 | ||||||||||||
The assets of funded schemes are generally held in separately administered trusts, either as
specific assets or as a proportion of a general fund, or are insurance contracts. Assets are
invested in different classes in order to maintain a balance between risk and return. Investments
are diversified to limit the financial effect of the failure of any individual investment.
Following an asset liability study in 2007, the Group decided to adopt a strategy to reduce
gradually the allocation of investment in equities. During 2009, it was agreed that the pace of
reallocation would be increased primarily through investment of the deficit reduction contributions
in bonds. The target allocation of equities and property in the US scheme has been reduced to 50%
of the total.
In the UK the defined benefit pension schemes operated for the benefit of former Glaxo Wellcome
employees and former SmithKline Beecham employees remain separate. These schemes were closed to new
entrants in 2001 and subsequent UK employees are entitled to join a defined contribution scheme. In
the USA the former Glaxo Wellcome and SmithKline Beecham defined benefit schemes were merged during
2001. In addition, the Group operates a number of post-retirement healthcare schemes, the principal
one of which is in the USA.
The Group has applied the following financial assumptions in assessing the defined benefit
liabilities:
| UK | USA | Rest of World | ||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||
| % pa | % pa | % pa | % pa | % pa | % pa | % pa | % pa | % pa | ||||||||||||||||||||||||||||
Rate of increase of future earnings |
4.50 | 4.60 | 3.90 | 4.50 | 4.50 | 4.50 | 3.50 | 3.00 | 3.10 | |||||||||||||||||||||||||||
Discount rate |
5.50 | 5.70 | 6.20 | 5.20 | 5.75 | 6.00 | 4.50 | 4.70 | 5.00 | |||||||||||||||||||||||||||
Expected pension increases |
3.50 | 3.60 | 2.90 | n/a | n/a | n/a | 2.20 | 2.20 | 2.10 | |||||||||||||||||||||||||||
Cash balance credit/conversion rate |
n/a | n/a | n/a | 4.20 | 4.75 | 4.50 | 1.30 | 1.60 | 1.20 | |||||||||||||||||||||||||||
Inflation rate |
3.50 | 3.60 | 2.70 | 2.25 | 2.50 | 2.50 | 1.70 | 1.70 | 1.70 | |||||||||||||||||||||||||||
GSK Annual Report 2010
Table of Contents
142
Notes to the financial statements
28 Pensions and other post-employment benefits
continued
The amounts recorded in the income statement and statement of comprehensive income for the three
years ended 31st December 2010 in relation to the defined benefit pension and post-retirement
healthcare schemes were as follows:
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| UK | USA | Rest of World | Group | Group | ||||||||||||||||
2010 |
£m | £m | £m | £m | £m | |||||||||||||||
Amounts charged to operating profit Current service cost |
130 | 68 | 70 | 268 | 31 | |||||||||||||||
Past service cost |
– | – | – | – | 5 | |||||||||||||||
Expected return on pension scheme assets |
(427 | ) | (134 | ) | (51 | ) | (612 | ) | – | |||||||||||
Interest on scheme liabilities |
425 | 151 | 64 | 640 | 73 | |||||||||||||||
Settlements and curtailments |
30 | 30 | (3 | ) | 57 | 47 | ||||||||||||||
| 158 | 115 | 80 | 353 | 156 | ||||||||||||||||
Actuarial gains/(losses) recorded in the statement of
comprehensive income |
73 | 43 | (37 | ) | 79 | (80 | ) | |||||||||||||
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| UK | USA | Rest of World | Group | Group | ||||||||||||||||
2009 |
£m | £m | £m | £m | £m | |||||||||||||||
Amounts charged to operating profit Current service cost |
121 | 66 | 64 | 251 | 35 | |||||||||||||||
Past service cost |
– | (6 | ) | – | (6 | ) | (27 | ) | ||||||||||||
Expected return on pension scheme assets |
(347 | ) | (121 | ) | (46 | ) | (514 | ) | – | |||||||||||
Interest on scheme liabilities |
378 | 148 | 62 | 588 | 74 | |||||||||||||||
Settlements and curtailments |
54 | 7 | (17 | ) | 44 | 8 | ||||||||||||||
| 206 | 94 | 63 | 363 | 90 | ||||||||||||||||
Actuarial (losses)/gains recorded in the statement of
comprehensive income |
(578 | ) | (5 | ) | (77 | ) | (660 | ) | 1 | |||||||||||
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| UK | USA | Rest of World | Group | Group | ||||||||||||||||
2008 |
£m | £m | £m | £m | £m | |||||||||||||||
Amounts charged to operating profit |
||||||||||||||||||||
Current service cost |
126 | 61 | 59 | 246 | 30 | |||||||||||||||
Past service cost |
– | 10 | 2 | 12 | 4 | |||||||||||||||
Expected return on pension scheme assets |
(442 | ) | (144 | ) | (47 | ) | (633 | ) | – | |||||||||||
Interest on scheme liabilities |
377 | 121 | 53 | 551 | 62 | |||||||||||||||
Settlements and curtailments |
175 | 12 | (22 | ) | 165 | 22 | ||||||||||||||
| 236 | 60 | 45 | 341 | 118 | ||||||||||||||||
Actuarial (losses)/gains recorded in the statement of
comprehensive income |
(776 | ) | (576 | ) | (82 | ) | (1,434 | ) | 64 | |||||||||||
The total actuarial losses recorded in the statement of comprehensive income since 1st January 2003
amount to £2,048 million.
The amounts included within settlements and curtailments include £110 million (2009 – £72 million;
2008 – £208 million) of augmentation costs arising from major restructuring programmes (see Note 29
‘Other provisions’).
GSK Annual Report 2010
Table of Contents
143
Notes to the financial statements
28 Pensions and other post-employment benefits continued
The fair values of the assets and liabilities of the UK and US defined benefit pension schemes,
together with aggregated data for other defined benefit pension schemes in the Group are as
follows:
| UK | USA | Rest of World | Group | |||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||
| At 31st December 2010 | Expected rate | Fair | Expected rate | Fair | expected rate | Fair | Fair | |||||||||||||||||||||
| of return | value | of return | value | of return | value | value | ||||||||||||||||||||||
| % | £m | % | £m | % | £m | £m | ||||||||||||||||||||||
Equities |
8.00 | 4,698 | 8.25 | 1,092 | 7.40 | 251 | 6,041 | |||||||||||||||||||||
Property |
7.00 | 272 | 7.25 | 147 | 7.00 | 6 | 425 | |||||||||||||||||||||
Bonds |
4.50 | 2,460 | 4.75 | 1,012 | 3.10 | 572 | 4,044 | |||||||||||||||||||||
Other assets |
3.50 | 1,188 | 0.25 | 59 | 3.80 | 399 | 1,646 | |||||||||||||||||||||
Fair value of assets |
8,618 | 2,310 | 1,228 | 12,156 | ||||||||||||||||||||||||
Present value of scheme obligations |
(9,119 | ) | (2,781 | ) | (1,479 | ) | (13,379 | ) | ||||||||||||||||||||
| (501 | ) | (471 | ) | (251 | ) | (1,223 | ) | |||||||||||||||||||||
Unrecognised past service cost |
– | (2 | ) | 1 | (1 | ) | ||||||||||||||||||||||
Recognised on the balance sheet |
(501 | ) | (473 | ) | (250 | ) | (1,224 | ) | ||||||||||||||||||||
Included in other non-current assets |
– | – | 23 | 23 | ||||||||||||||||||||||||
Included in pensions and other post-employment
benefits |
(501 | ) | (473 | ) | (273 | ) | (1,247 | ) | ||||||||||||||||||||
| (501 | ) | (473 | ) | (250 | ) | (1,224 | ) | |||||||||||||||||||||
Actual return on plan assets |
881 | 240 | 43 | 1,164 | ||||||||||||||||||||||||
In
December 2010, the UK scheme purchased an insurance contract that
will guarantee payment of specified pensioner liabilities. This is included
within ‘Other assets’ and the ‘Present value of scheme obligations’ in the table above at a value
of £698 million at 31st December 2010.
| UK | USA | Rest of World | Group | |||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||
| At 31st December 2009 | Expected rate | Fair | Expected rate | Fair | expected rate | Fair | Fair | |||||||||||||||||||||
| of return | value | of return | value | of return | value | value | ||||||||||||||||||||||
| % | £m | % | £m | % | £m | £m | ||||||||||||||||||||||
Equities |
8.00 | 4,209 | 8.25 | 914 | 7.50 | 232 | 5,355 | |||||||||||||||||||||
Property |
7.00 | 291 | 7.25 | 159 | 7.00 | 20 | 470 | |||||||||||||||||||||
Bonds |
4.90 | 2,632 | 5.00 | 907 | 3.50 | 562 | 4,101 | |||||||||||||||||||||
Other assets |
0.50 | 367 | 0.25 | 92 | 3.80 | 309 | 768 | |||||||||||||||||||||
Fair value of assets |
7,499 | 2,072 | 1,123 | 10,694 | ||||||||||||||||||||||||
Present value of scheme obligations |
(8,446 | ) | (2,628 | ) | (1,364 | ) | (12,438 | ) | ||||||||||||||||||||
| (947 | ) | (556 | ) | (241 | ) | (1,744 | ) | |||||||||||||||||||||
Unrecognised past service cost |
– | (2 | ) | 1 | (1 | ) | ||||||||||||||||||||||
Recognised on the balance sheet |
(947 | ) | (558 | ) | (240 | ) | (1,745 | ) | ||||||||||||||||||||
Included in other non-current assets |
– | – | 23 | 23 | ||||||||||||||||||||||||
Included in pensions and other post-employment benefits |
(947 | ) | (558 | ) | (263 | ) | (1,768 | ) | ||||||||||||||||||||
| (947 | ) | (558 | ) | (240 | ) | (1,745 | ) | |||||||||||||||||||||
Actual return on plan assets |
1,076 | 243 | 65 | 1,384 | ||||||||||||||||||||||||
GSK Annual Report 2010
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144
Notes to the financial statements
28 Pensions and other post-employment benefits continued
| UK | USA | Rest of World | Group | |||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||
| At 31st December 2008 | Expected rate | Fair | Expected rate | Fair | expected rate | Fair | Fair | |||||||||||||||||||||
| of return | value | of return | value | of return | value | value | ||||||||||||||||||||||
| % | £m | % | £m | % | £m | £m | ||||||||||||||||||||||
Equities |
7.75 | 3,334 | 8.25 | 838 | 7.00 | 211 | 4,383 | |||||||||||||||||||||
Property |
6.75 | 331 | 7.25 | 259 | 6.75 | 22 | 612 | |||||||||||||||||||||
Bonds |
4.75 | 2,430 | 5.25 | 893 | 3.25 | 598 | 3,921 | |||||||||||||||||||||
Other assets |
2.75 | 40 | 1.50 | 26 | 4.25 | 306 | 372 | |||||||||||||||||||||
Fair value of assets |
6,135 | 2,016 | 1,137 | 9,288 | ||||||||||||||||||||||||
Present value of scheme obligations |
(6,885 | ) | (2,738 | ) | (1,357 | ) | (10,980 | ) | ||||||||||||||||||||
| (750 | ) | (722 | ) | (220 | ) | (1,692 | ) | |||||||||||||||||||||
Unrecognised past service cost |
– | – | 1 | 1 | ||||||||||||||||||||||||
Restriction on surplus |
– | – | (6 | ) | (6 | ) | ||||||||||||||||||||||
Recognised on the balance sheet |
(750 | ) | (722 | ) | (225 | ) | (1,697 | ) | ||||||||||||||||||||
Included in other non-current assets |
– | – | 39 | 39 | ||||||||||||||||||||||||
Included in pensions and other post-employment benefits |
(750 | ) | (722 | ) | (264 | ) | (1,736 | ) | ||||||||||||||||||||
| (750 | ) | (722 | ) | (225 | ) | (1,697 | ) | |||||||||||||||||||||
Actual return on plan assets |
(1,249 | ) | (470 | ) | (87 | ) | (1,806 | ) | ||||||||||||||||||||
GSK Annual Report 2010
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145
Notes to the financial statements
28 Pensions and other post-employment benefits continued
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| Movements in defined benefit obligations | UK | USA | Rest of World | Group | Group | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Obligations at 1st January 2008 |
(7,371 | ) | (1,945 | ) | (1,022 | ) | (10,338 | ) | (1,019 | ) | ||||||||||
Exchange adjustments |
– | (753 | ) | (353 | ) | (1,106 | ) | (351 | ) | |||||||||||
Service cost |
(126 | ) | (71 | ) | (61 | ) | (258 | ) | (28 | ) | ||||||||||
Interest cost |
(377 | ) | (121 | ) | (53 | ) | (551 | ) | (62 | ) | ||||||||||
Settlements and curtailments |
(175 | ) | (12 | ) | 19 | (168 | ) | (16 | ) | |||||||||||
Actuarial gains |
915 | 38 | 58 | 1,011 | 64 | |||||||||||||||
Scheme participants’ contributions |
(33 | ) | – | (5 | ) | (38 | ) | (9 | ) | |||||||||||
Benefits paid |
282 | 126 | 60 | 468 | 53 | |||||||||||||||
Transfers to other provisions |
– | – | – | – | 14 | |||||||||||||||
Obligations at 31st December 2008 |
(6,885 | ) | (2,738 | ) | (1,357 | ) | (10,980 | ) | (1,354 | ) | ||||||||||
Exchange adjustments |
– | 294 | 109 | 403 | 133 | |||||||||||||||
Service cost |
(121 | ) | (58 | ) | (64 | ) | (243 | ) | (5 | ) | ||||||||||
Interest cost |
(378 | ) | (148 | ) | (62 | ) | (588 | ) | (74 | ) | ||||||||||
Settlements and curtailments |
(54 | ) | (7 | ) | 68 | 7 | (8 | ) | ||||||||||||
Actuarial (losses)/gains |
(1,307 | ) | (127 | ) | (102 | ) | (1,536 | ) | 1 | |||||||||||
Scheme participants’ contributions |
(17 | ) | – | (8 | ) | (25 | ) | (11 | ) | |||||||||||
Benefits paid |
345 | 156 | 71 | 572 | 69 | |||||||||||||||
Acquisitions |
(29 | ) | – | (19 | ) | (48 | ) | (4 | ) | |||||||||||
Obligations at 31st December 2009 |
(8,446 | ) | (2,628 | ) | (1,364 | ) | (12,438 | ) | (1,253 | ) | ||||||||||
Exchange adjustments |
– | (84 | ) | (27 | ) | (111 | ) | (38 | ) | |||||||||||
Service cost |
(130 | ) | (68 | ) | (70 | ) | (268 | ) | (31 | ) | ||||||||||
Interest cost |
(425 | ) | (151 | ) | (64 | ) | (640 | ) | (73 | ) | ||||||||||
Settlements and curtailments |
(30 | ) | (30 | ) | 3 | (57 | ) | (44 | ) | |||||||||||
Actuarial losses |
(381 | ) | (63 | ) | (29 | ) | (473 | ) | (80 | ) | ||||||||||
Scheme participants’ contributions |
(20 | ) | – | (8 | ) | (28 | ) | (13 | ) | |||||||||||
Benefits paid |
313 | 243 | 80 | 636 | 73 | |||||||||||||||
Obligations at 31st December 2010 |
(9,119 | ) | (2,781 | ) | (1,479 | ) | (13,379 | ) | (1,459 | ) | ||||||||||
Unrecognised past service cost |
– | (2 | ) | 1 | (1 | ) | 34 | |||||||||||||
Recognised on the balance sheet at 31st December 2010 |
(9,119 | ) | (2,783 | ) | (1,478 | ) | (13,380 | ) | (1,425 | ) | ||||||||||
The UK defined benefit schemes include defined contribution sections with obligations totalling
£961 million at 31st December 2010 (2009 – £765 million; 2008 – £553 million).
The liability for the US post-retirement healthcare scheme has been assessed using the same
assumptions as for the US pension scheme, together with the assumption for future medical inflation
of 8% (2009 – 8.5%), grading down to 4.75% in 2018 and thereafter. During 2007, the US
post-retirement healthcare scheme was amended. The main change was an increase in the cap on Group
costs. During 2009, both the US pension and post-retirement healthcare plan were amended. The
changes resulted in a one-off gain of £37 million in the income statement. At 31st December 2010
the US plan obligation was £1,288 million (2009 – £1,102 million; 2008 – £1,223 million). However,
in accordance with IAS 19 the unvested part of a benefit improvement is not recognised immediately
on the balance sheet but is recognised gradually through the income statement. At 31st December
2010, the unrecognised amount of £34 million (2009 – £40 million; 2008 – £51 million) primarily
relates to the effect of the change in the US post-retirement scheme, which amounted to £36 million
(2009 – £42 million; 2008 – £53 million).
GSK Annual Report 2010
Table of Contents
146
Notes to the financial statements
28 Pensions and other post-employment benefits continued
The defined benefit pension obligation is analysed as follows:
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Funded |
(13,033 | ) | (12,126 | ) | (10,662 | ) | ||||||
Unfunded |
(346 | ) | (312 | ) | (318 | ) | ||||||
| (13,379 | ) | (12,438 | ) | (10,980 | ) | |||||||
Post-retirement benefits are unfunded.
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| UK | USA | Rest of World | Group | Group | ||||||||||||||||
| Movements in fair values of assets | £m | £m | £m | £m | £m | |||||||||||||||
Assets at 1st January 2008 |
7,293 | 2,004 | 885 | 10,182 | – | |||||||||||||||
Exchange adjustments |
– | 598 | 298 | 896 | – | |||||||||||||||
Expected return on assets |
442 | 144 | 47 | 633 | – | |||||||||||||||
Settlements and curtailments |
– | – | 3 | 3 | – | |||||||||||||||
Actuarial gains/(losses) |
(1,691 | ) | (614 | ) | (134 | ) | (2,439 | ) | – | |||||||||||
Employer contributions |
340 | 10 | 93 | 443 | 44 | |||||||||||||||
Scheme participants’ contributions |
33 | – | 5 | 38 | 9 | |||||||||||||||
Benefits paid |
(282 | ) | (126 | ) | (60 | ) | (468 | ) | (53 | ) | ||||||||||
Assets at 31st December 2008 |
6,135 | 2,016 | 1,137 | 9,288 | – | |||||||||||||||
Exchange adjustments |
– | (221 | ) | (93 | ) | (314 | ) | – | ||||||||||||
Expected return on assets |
347 | 121 | 46 | 514 | – | |||||||||||||||
Settlements and curtailments |
– | – | (51 | ) | (51 | ) | – | |||||||||||||
Actuarial losses |
729 | 122 | 19 | 870 | – | |||||||||||||||
Employer contributions |
594 | 190 | 110 | 894 | 58 | |||||||||||||||
Scheme participants’ contributions |
17 | – | 8 | 25 | 11 | |||||||||||||||
Benefits paid |
(345 | ) | (156 | ) | (71 | ) | (572 | ) | (69 | ) | ||||||||||
Acquisitions |
22 | – | 18 | 40 | – | |||||||||||||||
Assets at 31st December 2009 |
7,499 | 2,072 | 1,123 | 10,694 | – | |||||||||||||||
Exchange adjustments |
– | 66 | 26 | 92 | – | |||||||||||||||
Expected return on assets |
427 | 134 | 51 | 612 | – | |||||||||||||||
Actuarial gains |
454 | 106 | (8 | ) | 552 | – | ||||||||||||||
Employer contributions |
531 | 175 | 108 | 814 | 60 | |||||||||||||||
Scheme participants’ contributions |
20 | – | 8 | 28 | 13 | |||||||||||||||
Benefits paid |
(313 | ) | (243 | ) | (80 | ) | (636 | ) | (73 | ) | ||||||||||
Assets at 31st December 2010 |
8,618 | 2,310 | 1,228 | 12,156 | – | |||||||||||||||
The UK defined benefit schemes include defined contribution sections with account balances
totalling £961 million at 31st December 2010 (2009 – £765 million; 2008 – £553 million).
During 2010, the Group made special funding contributions to the UK pension schemes totalling £365
million (2009 – £332 million; 2008 –
£200 million) and £91 million (2009 – £95 million; 2008 – £nil) to the US scheme. In 2009, GSK reached an agreement with the trustees of the UK pension
schemes to make additional contributions to eliminate the pension deficit identified at the 31st
December 2008 actuarial funding valuation. The additional contributions are expected to be £365
million per year for 2011 to 2013. The contributions are based on a discount rate of 5.25% and an
inflation assumption of 2.8%. The next review of contribution levels is expected to be at the 31st
December 2011 actuarial valuation.
Employer contributions for 2011, including special funding contributions, are estimated to be
approximately £800 million in respect of defined benefit pension schemes and £65 million in respect
of post-retirement benefits.
GSK Annual Report 2010
Table of Contents
147
Notes to the financial statements
28 Pensions and other post-employment benefits continued
| Post-retirement | ||||||||||||||||||||
| Pensions | benefits | |||||||||||||||||||
| UK | USA | Rest of World | Group | Group | ||||||||||||||||
| History of experience gains and losses | £m | £m | £m | £m | £m | |||||||||||||||
2010 |
||||||||||||||||||||
Experience gains/(losses) of scheme assets |
454 | 106 | (8 | ) | 552 | |||||||||||||||
Percentage of scheme assets at 31st December 2010 |
5 | % | 5 | % | 1 | % | 5 | % | ||||||||||||
Experience (losses)/gains of scheme liabilities |
(45 | ) | 5 | (3 | ) | (43 | ) | (14 | ) | |||||||||||
Percentage of scheme obligations at 31st December 2010 |
– | – | – | – | 1 | % | ||||||||||||||
Fair value of assets |
8,618 | 2,310 | 1,228 | 12,156 | – | |||||||||||||||
Present value of scheme obligations |
(9,119 | ) | (2,781 | ) | (1,479 | ) | (13,379 | ) | (1,459 | ) | ||||||||||
Deficits in the schemes |
(501 | ) | (471 | ) | (251 | ) | (1,223 | ) | (1,459 | ) | ||||||||||
2009 |
||||||||||||||||||||
Experience gains of scheme assets |
729 | 122 | 19 | 870 | ||||||||||||||||
Percentage of scheme assets at 31st December 2009 |
10 | % | 6 | % | 2 | % | 8 | % | ||||||||||||
Experience gains/(losses) of scheme liabilities |
162 | (27 | ) | (15 | ) | 120 | 6 | |||||||||||||
Percentage of scheme obligations at 31st December 2009 |
2 | % | 1 | % | 1 | % | 1 | % | – | |||||||||||
Fair value of assets |
7,499 | 2,072 | 1,123 | 10,694 | _ | |||||||||||||||
Present value of scheme obligations |
(8,446 | ) | (2,628 | ) | (1,364 | ) | (12,438 | ) | (1,253 | ) | ||||||||||
Deficits in the schemes |
(947 | ) | (556 | ) | (241 | ) | (1,744 | ) | (1,253 | ) | ||||||||||
2008 |
||||||||||||||||||||
Experience losses of scheme assets |
(1,691 | ) | (614 | ) | (134 | ) | (2,439 | ) | ||||||||||||
Percentage of scheme assets at 31st December 2008 |
28 | % | 30 | % | 12 | % | 26 | % | ||||||||||||
Experience (losses)/gains of scheme liabilities |
(148 | ) | 2 | 1 | (145 | ) | (14 | ) | ||||||||||||
Percentage of scheme obligations at 31st December 2008 |
2 | % | – | – | 1 | % | 1 | % | ||||||||||||
Fair value of assets |
6,135 | 2,016 | 1,137 | 9,288 | – | |||||||||||||||
Present value of scheme obligations |
(6,885 | ) | (2,738 | ) | (1,357 | ) | (10,980 | ) | (1,354 | ) | ||||||||||
Deficits in the schemes |
(750 | ) | (722 | ) | (220 | ) | (1,692 | ) | (1,354 | ) | ||||||||||
2007 |
||||||||||||||||||||
Experience gains/(losses) of scheme assets |
168 | 46 | (18 | ) | 196 | |||||||||||||||
Percentage of scheme assets at 31st December 2007 |
2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||
Experience gains/(losses) of scheme liabilities |
33 | (30 | ) | 6 | 9 | – | ||||||||||||||
Percentage of scheme obligations at 31st December 2007 |
– | 2 | % | 1 | % | – | – | |||||||||||||
Fair value of assets |
7,293 | 2,004 | 885 | 10,182 | – | |||||||||||||||
Present value of scheme obligations |
(7,371 | ) | (1,945 | ) | (1,022 | ) | (10,338 | ) | (1,019 | ) | ||||||||||
(Deficits)/surpluses in the schemes |
(78 | ) | 59 | (137 | ) | (156 | ) | (1,019 | ) | |||||||||||
2006 |
||||||||||||||||||||
Experience gains of scheme assets |
227 | 168 | 26 | 421 | ||||||||||||||||
Percentage of scheme assets at 31st December 2006 |
3 | % | 9 | % | 4 | % | 5 | % | ||||||||||||
Experience (losses)/gains of scheme liabilities |
(37 | ) | (16 | ) | (42 | ) | (95 | ) | 17 | |||||||||||
Percentage of scheme obligations at 31st December 2006 |
– | 1 | % | 4 | % | 1 | % | 2 | % | |||||||||||
Fair value of assets |
6,554 | 1,953 | 741 | 9,248 | – | |||||||||||||||
Present value of scheme obligations |
(7,444 | ) | (1,949 | ) | (952 | ) | (10,345 | ) | (1,063 | ) | ||||||||||
(Deficits)/surpluses in the schemes |
(890 | ) | 4 | (211 | ) | (1,097 | ) | (1,063 | ) | |||||||||||
GSK Annual Report 2010
Table of Contents
148
Notes to the financial statements
28 Pensions and other post-employment benefits continued
Sensitivity analysis
Effect of changes in assumptions used on the annual defined benefit pension and post-retirement
costs or the benefit obligations:
| £m | ||||
A 0.25% decrease in discount rate would have the following approximate effect: |
||||
Increase in annual pension cost |
4 | |||
Increase in annual post-retirement benefits cost |
– | |||
Increase in pension obligation |
472 | |||
Increase in post-retirement benefits obligation |
41 | |||
A one year increase in life expectancy would have the following approximate effect: |
||||
Increase in annual pension cost |
20 | |||
Increase in annual post-retirement benefits cost |
4 | |||
Increase in pension obligation |
305 | |||
Increase in post-retirement benefits obligation |
60 | |||
A 0.25% decrease in expected rates of return on assets would have the following approximate effect: |
||||
Increase in annual pension cost |
28 | |||
A 1% increase in the rate of future healthcare inflation would have the following approximate effect: |
||||
Increase in annual post-retirement benefits cost |
1 | |||
Increase in post-retirement benefits obligation |
25 | |||
A 0.25% increase in inflation would have the following approximate effect: |
||||
Increase in annual pension cost |
25 | |||
Increase in pension obligation |
339 | |||
29 Other provisions
| Integration | ||||||||||||||||||||||||
| Legal | Major | Employee | and | |||||||||||||||||||||
| and other | restructuring | related | manufacturing | Other | ||||||||||||||||||||
| disputes | programmes | provisions | reorganisation | provisions | Total | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
At 1st January 2010 |
2,020 | 574 | 241 | 55 | 351 | 3,241 | ||||||||||||||||||
Exchange adjustments |
12 | (4 | ) | 6 | 1 | 4 | 19 | |||||||||||||||||
Charge for the year |
4,111 | 837 | 39 | – | 15 | 5,002 | ||||||||||||||||||
Reversed unused |
(103 | ) | (40 | ) | (5 | ) | (4 | ) | (16 | ) | (168 | ) | ||||||||||||
Unwinding of discount |
7 | 3 | – | – | 8 | 18 | ||||||||||||||||||
Utilised |
(2,047 | ) | (610 | ) | (35 | ) | (17 | ) | (19 | ) | (2,728 | ) | ||||||||||||
Transfer to pensions obligations |
– | (110 | ) | – | – | – | (110 | ) | ||||||||||||||||
Reclassifications and other movements |
– | 24 | 5 | (8 | ) | (11 | ) | 10 | ||||||||||||||||
At 31st December 2010 |
4,000 | 674 | 251 | 27 | 332 | 5,284 | ||||||||||||||||||
To be settled within one year |
3,654 | 512 | 34 | 4 | 176 | 4,380 | ||||||||||||||||||
To be settled after one year |
346 | 162 | 217 | 23 | 156 | 904 | ||||||||||||||||||
At 31st December 2010 |
4,000 | 674 | 251 | 27 | 332 | 5,284 | ||||||||||||||||||
GSK Annual Report 2010
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149
Notes to the financial statements
29 Other provisions continued
Legal and other disputes
GSK is involved in a number of legal and other disputes, including notification of possible
claims, as set out in Note 44 ‘Legal proceedings’. Provisions for legal and other disputes include
amounts relating to product liability, intellectual property, anti-trust, government
investigations, contract terminations, self-insurance, environmental clean-up and property rental.
The charge for the year primarily relates to provisions in relation to the investigation by the US
Government into the Group’s former manufacturing site at Cidra, Puerto Rico; product liability and
anti-trust litigation relating to Paxil; the investigation by the US Attorney’s Office for the
District of Colorado into the Group’s US sales and promotional practices, and product liability
cases regarding Avandia and other products. The discount on the provisions decreased by £2 million
in 2010 (2009 – £5 million increase) and was calculated using risk-adjusted projected cash flows and
risk-free rates of return. The movement in 2010 includes a decrease of £10 million (2009 –
£6 million increase) arising from a change in the discount rate in the year.
In respect of product liability claims related to certain products, there is sufficient history of
claims made and settlements to enable management to make a reliable estimate of the provision
required to cover unasserted claims. In certain cases an IBNR (incurred but not reported) actuarial
technique is used to determine this estimate. The ultimate liability for such matters may vary from
the amounts provided and is dependent upon the outcome of litigation proceedings, investigations
and possible settlement negotiations.
It is in the nature of the Group’s business that a number of these matters, including those
provided using the IBNR actuarial technique, may be the subject of negotiation and litigation over
several years.
At 31st December 2010, it is expected that £117 million (2009 – £97 million) of the provision made
for legal and other disputes will be reimbursed by third party insurers. This amount is included
within ‘Other receivables’ in Note 22, ‘Other
non-current assets’ and Note 24, ‘Trade and other
receivables’. For a discussion of legal issues, see Note 44 ‘Legal proceedings’.
Major restructuring programmes
In October 2007 GSK announced a significant new Operational Excellence programme to improve the
effectiveness and productivity of its operations (see Note 7 ‘Major restructuring programme’). A
significant expansion of the Operational Excellence programme was approved by the Board and
announced in February 2009. A further expansion was approved by the Board and announced in February
2010.
Provisions for staff severance payments are made when management has made a formal decision to
eliminate certain positions and this has been communicated to the groups of employees affected.
No provision is made for staff severance payments that are made immediately.
Pension augmentations arising from staff redundancies of £110 million (2009 – £72 million) have been
charged during the year and then transferred to the pension obligations provision as shown in Note
28 ‘Pensions and other post-employment benefits’. Asset write-downs have been recognised as
impairments of property, plant and equipment in Note 17 ‘Property, plant and equipment’. The
majority of the amounts provided are expected to be utilised in the next two years.
Employee related provisions
Employee related provisions include certain medical benefits to disabled employees and their
spouses in the USA. At 31st December 2010, the provision for these benefits amounted to £120
million (2009 – £118 million). Other employee benefits reflect a variety of provisions for
severance costs, jubilee awards and other long-service benefits.
Integration and manufacturing reorganisation
Provisions for integration and manufacturing reorganisations reflect costs related to ongoing
restructuring programmes not included within the costs disclosed in Note 7, ‘Major restructuring
programmes’.
Other provisions
Included in other provisions is contingent consideration in respect of business acquisitions,
principally of Stiefel Laboratories Inc. in 2009. The contingent consideration is payable upon
certain criteria being met by certain specified dates in the future. The aggregate provision for
these items amounts to £164 million at 31st December 2010 (2009 – £161 million).
GSK Annual Report 2010
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150
Notes to the financial statements
30 Other non-current liabilities
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Accruals and deferred income |
103 | 124 | ||||||
Other payables |
491 | 481 | ||||||
| 594 | 605 | |||||||
31 Contingent liabilities
At 31st December 2010, contingent liabilities, comprising guarantees, discounted bills and other
items arising in the normal course of business, amounted to £165 million (2009 – £150 million). At
31st December 2010, £4 million (2009 – £9 million) of financial assets were pledged as collateral
for contingent liabilities. For discussions of tax and legal issues, refer to Note 14, ‘Taxation’
and Note 44, ‘Legal proceedings’.
32 Net debt
| 2010 | 2009 | |||||||||
| Listing exchange | £m | £m | ||||||||
Current assets: |
||||||||||
Liquid investments |
184 | 268 | ||||||||
Cash and cash equivalents |
6,057 | 6,545 | ||||||||
| 6,241 | 6,813 | |||||||||
Short-term borrowings: |
||||||||||
US$ Floating Rate Note 2010 |
New York Stock Exchange | – | (621 | ) | ||||||
Commercial paper |
– | (621 | ) | |||||||
Bank loans and overdrafts |
(259 | ) | (182 | ) | ||||||
Loan stock |
– | (7 | ) | |||||||
Obligations under finance leases |
(32 | ) | (40 | ) | ||||||
| (291 | ) | (1,471 | ) | |||||||
Long-term borrowings: |
||||||||||
3.00% € European Medium Term Note 2012 |
London Stock Exchange | (640 | ) | (662 | ) | |||||
5.125% € European Medium Term Note 2012 |
London Stock Exchange | (1,919 | ) | (1,985 | ) | |||||
4.85% US$ US Medium Term Note 2013 |
New York Stock Exchange | (1,599 | ) | (1,548 | ) | |||||
4.375% US$ US Medium Term Note 2014 |
London Stock Exchange | (1,049 | ) | (990 | ) | |||||
3.875% € European Medium Term Note 2015 |
London Stock Exchange | (1,358 | ) | (1,404 | ) | |||||
5.625% € European Medium Term Note 2017 |
London Stock Exchange | (1,062 | ) | (1,100 | ) | |||||
5.65% US$ US Medium Term Note 2018 |
New York Stock Exchange | (1,756 | ) | (1,701 | ) | |||||
4.00% € European Medium Term Note 2025 |
London Stock Exchange | (632 | ) | (653 | ) | |||||
5.25% £ European Medium Term Note 2033 |
London Stock Exchange | (981 | ) | (979 | ) | |||||
5.375% US$ US Medium Term Note 2034 |
London Stock Exchange | (318 | ) | (308 | ) | |||||
6.375% US$ US Medium Term Note 2038 |
New York Stock Exchange | (1,744 | ) | (1,689 | ) | |||||
6.375% £ European Medium Term Note 2039 |
London Stock Exchange | (694 | ) | (693 | ) | |||||
5.25% £ European Medium Term Note 2042 |
London Stock Exchange | (985 | ) | (984 | ) | |||||
Bank loans |
(1 | ) | – | |||||||
Obligations under finance leases |
(71 | ) | (90 | ) | ||||||
| (14,809 | ) | (14,786 | ) | |||||||
Net debt |
(8,859 | ) | (9,444 | ) | ||||||
GSK Annual Report 2010
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151
Notes to the financial statements
32 Net debt continued
Current assets
Liquid investments are classified as available-for-sale investments. At 31st December 2010, they
included US Treasury Notes and other government bonds. The effective interest rate on liquid
investments at 31st December 2010 was approximately 1.6% (2009 – approximately 4.6%). Liquid
investment balances at 31st December 2010 earning interest at floating and fixed rates amount to £2
million and £182 million respectively (2009 – £1 million and £267 million).
The effective interest rate on cash and cash equivalents at 31st December 2010 was approximately
1.3% (2009 – approximately 0.7%). Cash and cash equivalents balances at 31st December 2010 earning
interest at floating and fixed rates amount to £5,752 million and £166 million respectively (2009
– £6,372 million and £17 million).
GSK’s policy regarding the credit quality of cash and cash equivalents is referred to in Note 41,
‘Financial instruments and related disclosures’.
Short-term borrowings
GSK has a US $10 billion (£6.4 billion) commercial paper programme, of which none was in issue at
31st December 2010 (2009 – $1 billion (£621 million)) and committed facilities of 364 days
duration of $3.9 billion (£2.5 billion) (2009 – $3.9 billion (£2.4 billion)) renewable annually,
and liquid investments, cash and cash equivalents as shown in the table above.
The weighted average interest rate on current bank loans and overdrafts at 31st December 2010 was
4.5% (2009 – 4.8%).
Long-term borrowings
At the year-end, GSK had long-term borrowings of £14.8 billion (2009 – £14.8 billion) of which
£8.2 billion (2009 – £9.5 billion) falls due in more than five years. The average effective
interest rate of all notes at 31st December 2010 was approximately 5.2% (2009 – approximately
5.3%).
Long-term borrowings repayable after five years carry interest at effective rates between 3.92% and
6.46%. The repayment dates range from 2017 to 2042.
Secured liabilities
GSK had no loans secured by charges on non-current and current assets in the year (2009 – £nil).
The Group has pledged investments in US Treasury Notes with a par value of $107 million (£69
million) (2009 – $103 million (£64 million)) as security against irrevocable letters of credit
issued on the Group’s behalf in respect of the Group’s self-insurance activity. Provisions in
respect of self-insurance are included within the provisions for legal and other disputes discussed
in Note 29, ‘Other provisions’.
| 2010 | 2009 | |||||||
| Finance lease obligations | £m | £m | ||||||
Rental payments due within one year |
37 | 44 | ||||||
Rental payments due between one and two years |
32 | 38 | ||||||
Rental payments due between two and three years |
21 | 26 | ||||||
Rental payments due between three and four years |
13 | 16 | ||||||
Rental payments due between four and five years |
8 | 6 | ||||||
Rental payments due after five years |
8 | 16 | ||||||
Total future rental payments |
119 | 146 | ||||||
Future finance charges |
(16 | ) | (16 | ) | ||||
Total finance lease obligations |
103 | 130 | ||||||
Finance lease obligations at 31st December 2010 bearing interest at floating and fixed rates amount
to £70 million and £33 million, respectively (2009 – £89 million and £41 million).
GSK Annual Report 2010
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152
Notes to the financial statements
33 Share capital and share premium account
| Share | ||||||||||||
| Ordinary Shares of 25p each | premium | |||||||||||
| Number | £m | £m | ||||||||||
Share capital authorised |
||||||||||||
At 31st December 2008 |
10,000,000,000 | 2,500 | ||||||||||
At 31st December 2009 |
10,000,000,000 | 2,500 | ||||||||||
At 31st December 2010 |
10,000,000,000 | 2,500 | ||||||||||
Share capital issued and fully paid |
||||||||||||
At 1st January 2008 |
6,012,587,026 | 1,503 | 1,266 | |||||||||
Issued under share option schemes |
5,640,119 | 2 | 60 | |||||||||
Share capital purchased and cancelled |
(356,910,908 | ) | (90 | ) | – | |||||||
At 31st December 2008 |
5,661,316,237 | 1,415 | 1,326 | |||||||||
Issued under share option schemes |
3,812,482 | 1 | 42 | |||||||||
At 31st December 2009 |
5,665,128,719 | 1,416 | 1,368 | |||||||||
Issued under share option schemes |
5,329,458 | 2 | 60 | |||||||||
At 31st December 2010 |
5,670,458,177 | 1,418 | 1,428 | |||||||||
| 31st December | 31st December | |||||||
| 2010 | 2009 | |||||||
Number (‘000) of shares issuable under outstanding options (Note 42) |
207,132 | 213,110 | ||||||
Number (‘000) of unissued shares not under option |
4,122,410 | 4,121,761 | ||||||
At 31st December 2010, of the issued share capital, 105,472,070 shares were held in the ESOP Trust,
474,194,158 shares were held as Treasury shares and 5,090,791,949 shares were in free issue. All
issued shares are fully paid. The nominal, carrying and market values of the shares held in the
ESOP Trust are disclosed in Note 42, ‘Employee share schemes’.
The company did not purchase any of its own shares in 2010. On 3rd February 2011, GSK announced
that it would commence a new long-term share buy-back programme and expected to repurchase £1-2
billion of shares, depending on market conditions and other factors, in 2011. The exact amount and timing of
purchases and whether the shares will be held as Treasury shares or be cancelled will be determined
by the company and is dependent on market conditions and other factors. No shares were purchased in
the period 1st January 2011 to 3rd February 2011. In the period 4th February 2011 to 24th February
2011 10.4 million shares were purchased at a cost of £123.4 million.
GSK Annual Report 2010
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153
Notes to the financial statements
34 Movements in equity
Retained earnings and other reserves amounted to £6,041 million at 31st December 2010 (2009 –
£7,221 million; 2008 – £5,190 million) of which £472 million (2009 – £390 million; 2008 – £391
million) relates to joint ventures and associated undertakings. The cumulative translation exchange
in equity is shown below in the following table:
| Net translation exchange included in: | ||||||||||||||||
| Non- | Total | |||||||||||||||
| Fair value | Retained | controlling | translation | |||||||||||||
| reserve | earnings | interests | exchange | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
At 1st January 2008 |
9 | 335 | (75 | ) | 269 | |||||||||||
Exchange movements on overseas net assets |
1 | 952 | 64 | 1,017 | ||||||||||||
Reclassification of exchange on liquidation of overseas subsidiary |
– | 84 | – | 84 | ||||||||||||
At 31st December 2008 |
10 | 1,371 | (11 | ) | 1,370 | |||||||||||
Exchange movements on overseas net assets |
1 | (161 | ) | (34 | ) | (194 | ) | |||||||||
Reclassification of exchange on liquidation of overseas subsidiary |
– | (44 | ) | – | (44 | ) | ||||||||||
At 31st December 2009 |
11 | 1,166 | (45 | ) | 1,132 | |||||||||||
Exchange movements on overseas net assets |
– | 145 | 21 | 166 | ||||||||||||
Reclassification of exchange on liquidation or disposal of overseas subsidiaries |
– | (2 | ) | – | (2 | ) | ||||||||||
At 31st December 2010 |
11 | 1,309 | (24 | ) | 1,296 | |||||||||||
The analysis of other reserves is as follows:
| ESOP Trust | Fair value | Cash flow | Other | |||||||||||||||||
| shares | reserve | hedge reserve | reserves | Total | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
At 1st January 2008 |
(1,617 | ) | 49 | (7 | ) | 1,934 | 359 | |||||||||||||
Transferred to income and expense in the year on disposals |
– | (32 | ) | – | – | (32 | ) | |||||||||||||
Transferred to income and expense in the year on impairment |
– | (2 | ) | – | – | (2 | ) | |||||||||||||
Net fair value movement in the year |
– | (23 | ) | 4 | – | (19 | ) | |||||||||||||
Ordinary Shares purchased and cancelled |
– | – | – | 90 | 90 | |||||||||||||||
Ordinary Shares acquired by ESOP Trusts |
(19 | ) | – | – | – | (19 | ) | |||||||||||||
Ordinary Shares transferred by ESOP Trusts |
10 | – | – | – | 10 | |||||||||||||||
Write-down of shares held by ESOP Trusts |
181 | – | – | – | 181 | |||||||||||||||
At 31st December 2008 |
(1,445 | ) | (8 | ) | (3 | ) | 2,024 | 568 | ||||||||||||
Transferred to income and expense in the year on disposals |
– | (40 | ) | 1 | – | (39 | ) | |||||||||||||
Transferred to income and expense in the year on impairment |
– | 40 | – | – | 40 | |||||||||||||||
Net fair value movement in the year |
– | 30 | (4 | ) | – | 26 | ||||||||||||||
Ordinary Shares acquired by ESOP Trusts |
(57 | ) | – | – | – | (57 | ) | |||||||||||||
Ordinary Shares transferred by ESOP Trusts |
13 | – | – | – | 13 | |||||||||||||||
Write-down of shares held by ESOP Trusts |
351 | – | – | – | 351 | |||||||||||||||
Put option over non-controlling interest |
– | – | – | (2 | ) | (2 | ) | |||||||||||||
At 31st December 2009 |
(1,138 | ) | 22 | (6 | ) | 2,022 | 900 | |||||||||||||
Transferred to income and expense in the year on disposals |
– | (5 | ) | 3 | – | (2 | ) | |||||||||||||
Transferred to income and expense in the year on impairment |
– | 5 | – | – | 5 | |||||||||||||||
Net fair value movement in the year |
– | 67 | (1 | ) | – | 66 | ||||||||||||||
Ordinary Shares acquired by ESOP Trusts |
(16 | ) | – | – | – | (16 | ) | |||||||||||||
Ordinary Shares transferred by ESOP Trusts |
17 | – | – | – | 17 | |||||||||||||||
Write-down of shares held by ESOP Trusts |
292 | – | – | – | 292 | |||||||||||||||
At 31st December 2010 |
(845 | ) | 89 | (4 | ) | 2,022 | 1,262 | |||||||||||||
Other reserves include various non-distributable merger and pre-merger reserves amounting to £1,849
million at 31st December 2010 (2009 – £1,849 million; 2008 – £1,849 million). Other reserves also
include the capital redemption reserve created as a result of the share buy-back programme
amounting to £175 million at 31st December 2010 (2009 – £175 million; 2008 – £175 million).
GSK Annual Report 2010
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154
Notes to the financial statements
35 Related party transactions
GSK held a 18.1% interest in Quest Diagnostics Inc. at 31st December 2010 (2009 – 16.8%). The
Group and Quest Diagnostics are parties to a long-term contractual relationship under which Quest
Diagnostics is the primary provider of clinical laboratory testing to support the Group’s clinical
trials testing requirements worldwide. During 2010, Quest Diagnostics provided services of £41
million (2009 – £47 million) to the Group. At 31st December 2010, the balance payable by GSK to
Quest Diagnostics was £10 million (2009 – £10 million).
Subsequent to the year-end, GSK sold its entire shareholding in Quest Diagnostics Inc. The sale
comprised a secondary public offering and an accompanying repurchase of shares by Quest Diagnostics
which together are expected to generate gross proceeds of $1.1 billion (£0.7 billion) after tax.
GSK held a 19% interest in Aspen Pharmacare Holdings Limited at 31st December 2010 (2009 – 19%).
During 2010, GSK distributed £81 million (2009 – £18 million) of its products through Aspen’s
extensive distribution network. At 31st December 2010, the balance due to GSK from Aspen was £22
million (2009 – £18 million) and the balance payable by GSK to Aspen was £12 million (2009 – £13
million).
In 2010, both the Group and Shionogi & Co. Ltd. entered into transactions with their 50/50 US joint
venture company in support of the research and development activities conducted by that joint
venture company. During 2010, GSK provided services to the joint venture of £42 million (2009 –
£15 million). At 31st December 2010, the balance due to GSK from the joint venture was £20 million
(2009 – £14 million).
At 31st December 2010, GSK held a 50% interest in ViiV
Healthcare Shire Canada, which primarily co-markets
Combivir, Trizivir and Epivir in certain territories. At 31st December 2010, the balance payable by
GSK to ViiV
Healthcare Canada was £4 million (2009 – £nil).
The aggregate compensation of the Directors and CET is given in Note 10, ‘Employee Costs’.
36 Adjustments reconciling profit after tax to operating cash flows
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Profit after tax |
1,853 | 5,669 | 4,712 | |||||||||
Tax on profits |
1,304 | 2,222 | 1,947 | |||||||||
Share of after tax profits of associates and joint ventures |
(81 | ) | (64 | ) | (48 | ) | ||||||
Finance income net of finance costs |
715 | 713 | 530 | |||||||||
Depreciation |
1,146 | 1,130 | 920 | |||||||||
Amortisation of intangible assets |
533 | 432 | 311 | |||||||||
Impairment and assets written off |
411 | 445 | 436 | |||||||||
Profit on sale of intangible assets |
(118 | ) | (835 | ) | (170 | ) | ||||||
Profit on sale of investments in associates |
(8 | ) | (115 | ) | – | |||||||
Profit on sale of equity investments |
(17 | ) | (40 | ) | (33 | ) | ||||||
Changes in working capital: |
||||||||||||
Decrease/(increase) in inventories |
238 | (132 | ) | (411 | ) | |||||||
Decrease/(increase) in trade receivables |
905 | (473 | ) | 519 | ||||||||
Decrease/(increase) in other receivables |
6 | (134 | ) | 22 | ||||||||
Increase/(decrease) in trade payables |
154 | 499 | (39 | ) | ||||||||
(Decrease)/increase in other payables |
(179 | ) | 409 | (162 | ) | |||||||
Increase/(decrease) in pension and other provisions |
1,653 | (320 | ) | 548 | ||||||||
Share-based incentive plans |
179 | 179 | 241 | |||||||||
Other |
(63 | ) | (40 | ) | (268 | ) | ||||||
| 6,778 | 3,876 | 4,343 | ||||||||||
Cash generated from operations |
8,631 | 9,545 | 9,055 | |||||||||
The increase in pension and other provisions primarily reflects the charge for legal costs in the
year of £4.0 billion, partly offset by legal settlements of
£2.0 billion and further contributions to the
defined benefit pension schemes.
GSK Annual Report 2010
Table of Contents
155
Notes to the financial statements
37 Reconciliation of net cash flow to movement in net debt
| 2010 | 2009 | 2008 | ||||||||||
| £m | £m | £m | ||||||||||
Net debt at beginning of year |
(9,444 | ) | (10,173 | ) | (6,039 | ) | ||||||
(Decrease)/increase in cash and bank overdrafts |
(642 | ) | 1,054 | 1,148 | ||||||||
Cash inflow from liquid investments |
(91 | ) | (87 | ) | (905 | ) | ||||||
Net increase in long-term loans |
– | (1,358 | ) | (5,523 | ) | |||||||
Net repayment of short-term loans |
1,290 | 102 | 3,059 | |||||||||
Net repayment of obligations under finance leases |
45 | 48 | 48 | |||||||||
Debt of subsidiary undertakings acquired |
(20 | ) | (9 | ) | – | |||||||
Exchange adjustments |
61 | 1,041 | (1,918 | ) | ||||||||
Other non-cash movements |
(58 | ) | (62 | ) | (43 | ) | ||||||
Movement in net debt |
585 | 729 | (4,134 | ) | ||||||||
Net debt at end of year |
(8,859 | ) | (9,444 | ) | (10,173 | ) | ||||||
| Analysis of changes in net debt | At 31.12.09 | Exchange | Other | Reclassifications | Acquisitions | Cash flow | At 31.12.10 | |||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||
Liquid investments |
268 | 7 | – | – | – | (91 | ) | 184 | ||||||||||||||||||||
Cash and cash equivalents |
6,545 | 77 | – | – | 12 | (577 | ) | 6,057 | ||||||||||||||||||||
Overdrafts |
(177 | ) | 4 | – | – | – | (77 | ) | (250 | ) | ||||||||||||||||||
| 6,368 | 81 | – | – | 12 | (654 | ) | 5,807 | |||||||||||||||||||||
Debt due within one year: |
||||||||||||||||||||||||||||
Commercial paper |
(621 | ) | – | – | – | – | 621 | – | ||||||||||||||||||||
Eurobonds and Medium-Term Notes |
(621 | ) | (24 | ) | – | – | – | 645 | – | |||||||||||||||||||
Other |
(52 | ) | (1 | ) | (18 | ) | (15 | ) | (20 | ) | 65 | (41 | ) | |||||||||||||||
| (1,294 | ) | (25 | ) | (18 | ) | (15 | ) | (20 | ) | 1,331 | (41 | ) | ||||||||||||||||
Debt due after one year: |
||||||||||||||||||||||||||||
Eurobonds, Medium-Term Notes and
private financing |
(14,696 | ) | (1 | ) | (40 | ) | – | – | – | (14,737 | ) | |||||||||||||||||
Other |
(90 | ) | (1 | ) | – | 15 | – | 4 | (72 | ) | ||||||||||||||||||
| (14,786 | ) | (2 | ) | (40 | ) | 15 | – | 4 | (14,809 | ) | ||||||||||||||||||
Net debt |
(9,444 | ) | 61 | (58 | ) | – | (8 | ) | 590 | (8,859 | ) | |||||||||||||||||
For further information on significant changes in net debt see Note 32 ‘Net debt’.
38 Acquisitions and disposals
Details of
the acquisition and disposal of significant subsidiaries and
associates,
joint ventures and other businesses are given below:
2010
Acquisitions
Laboratorios Phoenix S.A.C.yF.
On 10th June 2010, GSK acquired 100% of the issued share capital of Laboratorios Phoenix S.A.C.yF.,
a leading pharmaceutical business focused on the development, marketing and sale of branded generic
and over-the-counter products in Latin America for cash. The purchase price of £174 million included £11
million of net cash, £121 million of intangible assets, £72 million of goodwill and £30 million of
other net liabilities. The goodwill arising on the acquisition of this business reflects the
potential for business synergies and further sales growth through the increase in GSK’s market
presence following the acquisition of an established market participant. None of the goodwill
recognised is expected to be deductible for income tax purposes.
The results
of Phoenix are reported as part of the Emerging Markets operating segment. This
transaction has been accounted for by using the purchase method of accounting.
The pro-forma results of Laboratorios Phoenix S.A C.yF. for the full year are turnover of £60
million and loss after tax (before major restructuring) of £2 million.
GSK Annual Report 2010
Table of Contents
156
Notes to the financial statements
38 Acquisitions and disposals continued
2010
Acquisitions continued
Laboratorios Phoenix S.A.C.yF.
Since acquisition, GSK recorded turnover of £35 million and after tax losses (before major
restructuring) of £0.5 million from the business. Transaction costs expensed in 2010 arising on the acquisition of
Laboratorios Phoenix S.A.C.yF. amounted to £3 million.
| Fair value | ||||||||||||
| Book value | adjustments | Fair value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
– | 121 | 121 | |||||||||
Property, plant and equipment |
6 | 10 | 16 | |||||||||
Other assets including cash and cash equivalents |
39 | 7 | 46 | |||||||||
Deferred tax provision |
(1 | ) | (41 | ) | (42 | ) | ||||||
Other liabilities |
(27 | ) | (12 | ) | (39 | ) | ||||||
| 17 | 85 | 102 | ||||||||||
Goodwill |
– | 72 | 72 | |||||||||
Total consideration |
17 | 157 | 174 | |||||||||
Other acquisitions
During the
year, GSK completed three smaller subsidiary acquisitions for cash. The total purchase price of
£198 million included £1 million of net cash.
| Fair value | ||||||||||||
| Book value | adjustments | Fair value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
3 | 128 | 131 | |||||||||
Property, plant and equipment |
9 | 2 | 11 | |||||||||
Other assets including cash and cash equivalents |
20 | 12 | 32 | |||||||||
Deferred tax provision |
– | (33 | ) | (33 | ) | |||||||
Other liabilities |
(10 | ) | – | (10 | ) | |||||||
| 22 | 109 | 131 | ||||||||||
Goodwill |
– | 75 | 75 | |||||||||
Fair value gain recognised on conversion of associate to subsidiary |
– | (8 | ) | (8 | ) | |||||||
Total consideration |
22 | 176 | 198 | |||||||||
If the other acquisitions had been made at the beginning of the year, it is estimated that Group
turnover would have increased by £51 million for the year. As some of the subsidiaries have been
fully integrated into the GSK business it is not practicable to separately identify the impact of
the acquisitions on the Group profit for the year.
The goodwill arising on the acquisitions reflects the potential for business synergies and further
sales growth through the increase in GSK’s market presence following the acquisition of these
established market participants. In addition, goodwill of £13 million was recognised in respect of
further consideration for a prior year acquisition. None of the goodwill recognised is expected to
be deductible for income tax purposes.
The results of the other acquisitions are reported primarily as part of the Emerging Markets
reportable operating segment.
The Group recognised a gain of £8 million as a result of measuring at fair value an associate held
prior to the acquisition date. This gain is reported as Profit on disposal of interest in
associates in the income statement.
Acquisition costs expensed in 2010 arising on other acquisitions totalled £7 million.
GSK Annual Report 2010
Table of Contents
157
Notes to the financial statements
38 Acquisitions and disposals continued
2010
Acquisitions continued
Investments in associates and joint ventures
GSK made cash and non-cash contributions of £24 million in a joint venture in which the Group has a
50% share, £6 million in a joint venture in which the Group has a 49% share, an investment in an
associate of £32 million to increase the Group’s share to 27% and other investments in associates
totalling £3 million.
| Associates | ||||||||||||||||
| Other | and joint | |||||||||||||||
| Cash flows | Phoenix | acquisitions | ventures | Total | ||||||||||||
| £m | £m | £m | £m | |||||||||||||
Total cash consideration |
174 | 198 | 61 | 433 | ||||||||||||
Cash and cash equivalents acquired |
(11 | ) | (1 | ) | – | (12 | ) | |||||||||
Cash consideration, net of cash acquired |
163 | 197 | 61 | 421 | ||||||||||||
Net cash consideration paid |
163 | 191 | 61 | 415 | ||||||||||||
Deferred consideration |
– | 6 | – | 6 | ||||||||||||
Cash consideration, net of cash acquired |
163 | 197 | 61 | 421 | ||||||||||||
2009
Acquisitions
Certain businesses from UCB S.A.
On 31st March 2009, the Group acquired from UCB S.A. its marketed product portfolio across certain
territories in Africa, the Middle East, Asia Pacific and Latin America which included several
leading pharmaceutical brands in a number of disease areas. Subsequent to this date the Group
completed further country acquisitions which formed part of the original transaction. The purchase
price of £477 million included £5 million of net cash, £445 million of intangible assets, £87
million of goodwill and £60 million of other net liabilities. The goodwill arising on the
acquisition of this business reflects the potential for product growth throughout the regions and
the expected synergies for the Group. This transaction has been accounted for by the purchase
method of accounting.
The transaction included acquisition of both a number of legal entities and product rights that had
been previously marketed outside of those entities. The product portfolio acquired was integrated
into the GSK business after acquisition and it is not therefore practicable to identify the result
after tax arising as a result of this transaction for the period of 2009 after acquisition.
During 2009, prior to acquisition it is estimated that the product portfolio recorded turnover of
£26 million. Since acquisition GSK recorded turnover of £77 million in 2009 from the products
acquired.
| Book | Fair value | Fair | ||||||||||
| value | adjustment | value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
417 | 28 | 445 | |||||||||
Property, plant and equipment |
1 | – | 1 | |||||||||
Cash and cash equivalents |
5 | – | 5 | |||||||||
Deferred tax provision |
– | (56 | ) | (56 | ) | |||||||
Other liabilities |
(5 | ) | – | (5 | ) | |||||||
| 418 | (28 | ) | 390 | |||||||||
Goodwill |
– | 87 | 87 | |||||||||
Total consideration |
418 | 59 | 477 | |||||||||
GSK Annual Report 2010
Table of Contents
158
Notes to the financial statements
38 Acquisitions and disposals continued
2009
Acquisitions continued
Stiefel Laboratories, Inc.
On 22nd July 2009, the Group acquired all of the share capital of Stiefel Laboratories, Inc., the
world’s largest private dermatological company for a cash consideration of £1,993 million net of
cash acquired and including £326 million of debt repaid on acquisition. The purchase price of
£2,219 million (including contingent cash consideration of £152 million payable upon certain
criteria being met by specified dates in the future) included £74 million of cash and cash
equivalents, £1,513 million of intangible assets, £885 million of goodwill, representing the
potential for additional growth from the combination of the Stiefel business and GSK’s existing
dermatology portfolio, and £253 million of other net liabilities. The purchase price included
potential obligations to make additional payments of up to $300 million (£183 million) depending on
the future performance of certain products. Stiefel Laboratories Inc. had a turnover of £547
million and a loss after tax (including restructuring costs) of £103 million for the year ended
31st December 2009, of which £248 million of turnover and £78 million of loss after tax (including
restructuring costs) related to the period since acquisition and are included in the Group
accounts. In 2009, since acquisition, Stiefel made an operating profit of £35 million before
restructuring costs and intangible assets amortisation.
The business will provide significant opportunities for both sales and cost synergies. Stiefel’s
products will benefit from GSK’s global distribution and commercial organisations, particularly in
markets such as Brazil, Russia, India, China and Japan. GSK’s products will benefit from Stiefel’s
speciality sales force relationships and experienced management in dermatology.
Cost synergies for the business are expected primarily from combining manufacturing and
administrative functions. As previously reported, GSK expects to deliver annual pre-tax cost
savings of up to £155 million by 2012 with restructuring costs of approximately £205 million.
Excluding restructuring costs, the Stiefel acquisition resulted in a dilution of GSK’s earnings per
share of less than 1% in 2009.
| Book | Fair value | Fair | ||||||||||
| value | adjustment | value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
274 | 1,239 | 1,513 | |||||||||
Property, plant and equipment |
111 | – | 111 | |||||||||
Other assets including cash and cash equivalents |
210 | 47 | 257 | |||||||||
Deferred tax provision |
35 | (331 | ) | (296 | ) | |||||||
Other liabilities |
(251 | ) | – | (251 | ) | |||||||
| 379 | 955 | 1,334 | ||||||||||
Goodwill |
– | 885 | 885 | |||||||||
Total consideration |
379 | 1,840 | 2,219 | |||||||||
ViiV Healthcare Limited
On 30th October 2009, GSK acquired Pfizer Inc.’s HIV business and combined it with its own HIV
business to form ViiV Healthcare Limited, a sub-group owned 85% by GSK and 15% by Pfizer. The
consideration given by GSK, representing 15% of the net value of GSK’s HIV business, contingent
consideration and transaction costs, was valued at £383 million. This was represented by £595
million of intangible assets, £172 million of deferred tax liability, £21 million of other net
assets, £316 million increase in non-controlling interests and £255 million of goodwill
representing the economies of scale gained from the combination of the two businesses and the
potential for growth of both partners’ HIV products within ViiV Healthcare. The non-controlling
interest represents Pfizer’s interest in ViiV Healthcare including the right to preferential
dividends based on the sales performance of certain products.
GSK recognised an accounting gain of £296 million on this transaction arising on the disposal of a
15% interest in GSK’s HIV business to Pfizer recorded at book value, in return for 85% of Pfizer’s
HIV business recorded at fair value.
GSK Annual Report 2010
Table of Contents
159
Notes to the financial statements
38 Acquisitions and disposals continued
2009
Acquisitions continued
The acquired Pfizer HIV business had a turnover of £89 million and a loss after tax of £39 million
in 2009, of which, after taking account of the transition status in various territories, £1 million
of turnover and £23 million of loss after tax, including restructuring costs, was recognised in the
Group accounts in 2009.
| Book | Fair value | Fair | ||||||||||
| value | adjustment | value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
13 | 582 | 595 | |||||||||
Other assets including cash and cash equivalents |
10 | 11 | 21 | |||||||||
Deferred tax provision |
– | (172 | ) | (172 | ) | |||||||
| 23 | 421 | 444 | ||||||||||
Non-controlling interests |
– | (316 | ) | (316 | ) | |||||||
Goodwill |
– | 255 | 255 | |||||||||
Total consideration |
23 | 360 | 383 | |||||||||
Consideration |
||||||||||||
Fair value of assets contributed by GSK |
328 | |||||||||||
Fair value of contingent equity contributed by GSK |
37 | |||||||||||
Direct costs |
18 | |||||||||||
Total consideration |
383 | |||||||||||
Other acquisitions
Other investments in the year included £327 million in five subsidiaries, £16 million in a joint
venture in which the Group has a 50% share and £20 million in an associate in which the Group has
an initial 40% share.
| Certain | Stiefel | |||||||||||||||
| businesses | Laboratories, | |||||||||||||||
| Cash flows | of UCB S.A. | Inc. | Other | Total | ||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cash consideration |
477 | 2,067 | 371 | 2,915 | ||||||||||||
Cash and cash equivalents acquired |
(5 | ) | (74 | ) | (15 | ) | (94 | ) | ||||||||
Net cash consideration |
472 | 1,993 | 356 | 2,821 | ||||||||||||
Contingent consideration |
– | 152 | 2 | 154 | ||||||||||||
Net purchase consideration |
472 | 2,145 | 358 | 2,975 | ||||||||||||
If the acquisitions of subsidiaries had been made at the beginning of the year, it is estimated
that Group turnover would have increased by £477 million for the year. As some of the acquisitions
have been fully integrated into the GSK business it is not practicable to separately identify the
impact of the acquisitions on the Group profit for the year.
GSK Annual Report 2010
Table of Contents
160
Notes to the financial statements
38 Acquisitions and disposals continued
2008
Acquisitions continued
Sirtris Pharmaceuticals Inc.
On 5th June 2008, the Group acquired 100% of the issued share capital of Sirtris Pharmaceuticals
Inc., a biopharmaceutical company based in Massachusetts, USA for a cash consideration of £376
million. The company is focused on discovering and developing proprietary, orally available, small
molecule drugs with the potential to treat diseases associated with ageing, including metabolic
diseases such as Type 2 diabetes. Sirtris’ drug candidates are designed to mimic certain beneficial
health effects of calorie restriction by activation of sirtuins, a recently discovered class of
enzymes that Sirtris believes control the ageing process. This transaction has been accounted for
by the purchase method of accounting. The goodwill arising on the acquisition reflects the
potential for enabling GSK to enhance its metabolic, neurology, and immuno-inflammation research
efforts by establishing a world-leading presence in the sirtuin field, aided by the existence in
the company of a highly experienced development team that encompasses all aspects of sirtuin
biology. Sirtris Pharmaceuticals Inc. had a turnover of £nil and a loss after tax of £25 million in
2008, of which £nil of turnover and £14 million of loss after tax related to the period after
acquisition and are included in the Group accounts in 2008.
| Book | Fair value | Fair | ||||||||||
| value | adjustment | value | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired |
||||||||||||
Intangible assets |
– | 106 | 106 | |||||||||
Property, plant and equipment |
2 | – | 2 | |||||||||
Other assets including cash and cash equivalents |
86 | – | 86 | |||||||||
Deferred tax provision |
– | (21 | ) | (21 | ) | |||||||
Other liabilities |
(39 | ) | – | (39 | ) | |||||||
| 49 | 85 | 134 | ||||||||||
Goodwill |
– | 242 | 242 | |||||||||
Total consideration |
49 | 327 | 376 | |||||||||
Other acquisitions
Other investments in the year included £140 million in a subsidiary, of which £10 million was
deferred, a further £6 million in a joint venture in which the Group has a 50% share and £2 million
in an associate in which the Group has a 36.8% holding.
| Cash flows | Sirtris | Other | Total | |||||||||
| £m | £m | £m | ||||||||||
Cash consideration |
376 | 139 | 515 | |||||||||
Cash and cash equivalents acquired |
(52 | ) | – | (52 | ) | |||||||
Net cash payment on acquisitions |
324 | 139 | 463 | |||||||||
If the subsidiaries had been acquired at the beginning of 2008, combined Group turnover for the
year would have been £24,373 million and combined Group profit for the year would have been £4,705
million.
GSK Annual Report 2010
Table of Contents
161
Notes to the financial statements
39 Commitments
| Contractual obligations and commitments | 2010 | 2009 | ||||||
| £m | £m | |||||||
Contracted for but not provided in the financial statements: |
||||||||
Intangible assets |
11,762 | 12,280 | ||||||
Property, plant and equipment |
380 | 416 | ||||||
Investments |
37 | 86 | ||||||
Purchase commitments |
1,127 | 82 | ||||||
Business combinations |
285 | – | ||||||
Pensions |
1,095 | 1,460 | ||||||
Other commitments |
242 | 52 | ||||||
Interest on loans |
10,312 | 10,733 | ||||||
Finance lease charges |
16 | 16 | ||||||
| 25,256 | 25,125 | |||||||
The commitments related to intangible assets include milestone payments, which are dependent on
successful clinical development or on meeting specified sales targets, and which represent the
maximum that would be paid if all milestones, however unlikely, are achieved. The amounts are not
risk-adjusted or discounted. A number of commitments were made in 2010 under licensing and other
agreements, including arrangements with Amicus Therapeutics, Amplimmune Inc., Apeiron Biologics AG,
Fondazione Telethon, Isis Pharmaceuticals, Inc. and Shionogi & Co., Limited. These new arrangements
were offset by reduced commitments due on prior year transactions including Actelion
Pharmaceuticals Limited, Targacept, Inc. and Neurosearch A/S which were terminated or curtailed
during the year.
The commitments relating to business combinations reflect three agreements signed in 2010 but not
completed at the balance sheet date.
In 2009, GSK reached an agreement with the trustees of the UK
pension schemes to make additional contributions to eliminate the pension deficit identified at the
31st December 2008 actuarial funding valuation. The table above shows this commitment, but excludes
the normal ongoing annual funding requirement of approximately £130 million.
The Group also has other commitments which principally relate to revenue payments to be made under
licences and other alliances.
Commitments in respect of future interest payable on loans are
disclosed before taking into account the effect of interest rate swaps.
| Commitments under non-cancellable operating leases | 2010 | 2009 | ||||||
| £m | £m | |||||||
Rental payments due within one year |
123 | 111 | ||||||
Rental payments due between one and two years |
73 | 72 | ||||||
Rental payments due between two and three years |
46 | 50 | ||||||
Rental payments due between three and four years |
32 | 21 | ||||||
Rental payments due between four and five years |
25 | 14 | ||||||
Rental payments due after five years |
116 | 69 | ||||||
Total commitments under non-cancellable operating leases |
415 | 337 | ||||||
40 Post balance sheet events
Subsequent to the year end, GSK completed the acquisition of the three business combinations
referred to in Note 39 ‘Commitments’.
Since the year end, GSK has sold its entire shareholding in
Quest Diagnostics Inc. The sale comprised a secondary public offering and an accompanying
repurchase of shares by Quest Diagnostics which together are expected to generate gross proceeds of
$1.1 billion (£0.7 billion) after tax.
On 3rd February 2011, GSK announced that the company has initiated a new long-term share buy-back
programme, and the intention is to repurchase £1-2 billion of shares in 2011, depending on market
conditions. In the period 4th February 2011 to 24th
February 2011, 10.4 million shares were purchased
at a cost of £123.4 million.
GSK Annual Report 2010
Table of Contents
162
Notes to the financial statements
41 Financial instruments and related disclosures
GlaxoSmithKline plc reports in Sterling and pays dividends out of Sterling profits. The role of
Corporate Treasury is to manage and monitor our external and internal funding requirements and
financial risks in support of our strategic objectives. Treasury activities are governed by
policies and procedures approved by the Board of Directors, most recently on 7th October 2010.
A Treasury Management Group (TMG) chaired by our Chief Financial Officer, meets on a monthly basis to
review treasury activities. Its members receive management information relating to treasury activities. Our internal auditors
review the Treasury internal control environment regularly.
GSK uses a variety of financial instruments to finance its operations and derivative financial
instruments to manage risks from these operations. These derivatives, principally comprising
forward foreign currency contracts, interest rate and currency swaps, are used to swap borrowings
and liquid assets into currencies required for Group purposes and to manage exposure to funding
risks from changes in foreign exchange rates and interest rates.
GSK does not hold or issue derivatives for speculative purposes and our Treasury policies
specifically prohibit such activity. All transactions in financial instruments are undertaken to
manage the risks arising from underlying business activities, not for speculation.
Capital management
We manage our capital to ensure that entities in the Group are able to operate as going concerns
and to optimise return to shareholders through an appropriate balance of debt and equity. The Board
reviews the Group’s dividend policy and funding requirements annually.
The capital structure of the Group consists of net debt (see Note 32, ‘Net debt’) and shareholders’
equity (see ‘Consolidated statement of changes in equity’ on page 107).
Our commitment is to use free cash flow to support increasing dividends, undertake share
repurchases or, where returns are more attractive, invest in bolt-on acquisitions. Investment
opportunities will continue to be assessed against strict financial criteria.
GSK operates on a global basis, primarily through subsidiary companies established in the markets
in which we trade. With significant levels of patent or trademark protection, our pharmaceutical
products compete largely on product efficacy or differentiation. Selling margins are sufficient to
cover normal operating costs and our operations are cash generative.
Operating cash flow is used to fund investment in research and development of new products. It is
also used to make routine outflows of capital expenditure, tax, dividends, repayment of maturing
debt and, to the extent determined by the Board, share repurchases. In 2011, as part of a new
long-term share buy-back programme and depending on market conditions and other factors, we expect
to purchase £1-2 billion of shares.
Our policy is to borrow centrally, using a variety of capital market issues and borrowing
facilities, to meet anticipated funding requirements.
These borrowings, together with cash generated from operations, are on-lent, contributed as equity
to certain subsidiaries or used to pay dividends and make acquisitions. GSK did not make any share
repurchases in 2010.
Total capital (equity and net debt) of the Group has decreased from £20,186 million in 2009 to
£18,604 million in 2010. The decrease of £1,582 million arises principally as a result of the
excess of dividend distribution for the year of £3,205 million over earnings attributable to
shareholders of £1,634 million. The Group’s positive cash generation was sufficient to finance the
Group’s acquisitions and payment of legal costs in the year. Net debt continued to reduce in 2010,
reflecting the benefits of our ongoing restructuring programme and the success of our working
capital initiatives.
Liquidity risk
We manage our net borrowing requirements through a portfolio of long-term borrowings, including
bonds, together with short-term finance under the US$10 billion commercial paper programme and $3.9
billion of committed facilities. The facilities were last renewed in October 2010. We consider this
level of committed facilities to be adequate given current liquidity requirements. For further
information on these facilities, please refer to Note 32 to the financial statements, ‘Net debt’.
We also benefit from strong positive cash flow from operating units.
We have a European Medium Term Note programme of £15 billion. At 31st December 2010, we had £8.3
billion of notes in issue under this programme. We also have a US shelf registration statement. At
31st December 2010, we had $10.1 billion (£6.5 billion) of notes in issue under this programme.
The long-term borrowings mature at dates between 2012 and 2042. Our long-term debt ratings have
remained stable since February 2008. Currently we are rated A+ stable outlook by Standard and
Poor’s and A1 stable outlook by Moody’s Investors Service ‘Moody’s’. Our short-term debt ratings
are A-1 and P-1 with Standard and Poor’s and Moody’s respectively.
As well as our committed facilities we also had substantial cash and cash equivalents and liquid
investments, which amounted to £6.2 billion at 31st December 2010. We also benefit from strong
positive cash flow from operating units. The TMG monitors the cash flow forecast on a monthly
basis.
Market risk
Interest rate risk management
The policy on interest rate risk management limits the amount of floating interest payments to a
prescribed percentage of trading profit.
We use a series of interest rate swaps to redenominate one of our external borrowings into the
interest rate coupon required by GSK. The duration of this swap matches the duration of the
principal instrument. Interest rate derivative instruments are accounted for as fair value or cash
flow hedges of the relevant assets or liabilities.
GSK Annual Report 2010
Table of Contents
163
Notes to the financial statements
41 Financial instruments and related disclosures continued
Foreign exchange risk management
Foreign currency transaction exposures arising on internal and external trade flows are not hedged.
The exposure of overseas operating subsidiaries to transaction risk is minimised by matching local
currency income with local currency costs. For this purpose, our internal trading transactions are
matched centrally and we manage inter-company payment terms to reduce foreign currency risk.
Exceptional foreign currency cash flows are hedged selectively under the management of Corporate
Treasury. We manage the cash surpluses or borrowing requirements of subsidiary companies centrally
using forward contracts to hedge future repayments back into the originating currency.
We seek to denominate borrowings in the currencies of our principal assets and cash flows. These
are primarily denominated in US dollars, Euros and Sterling. Certain borrowings can be swapped into
other currencies as required. Borrowings denominated in, or swapped into, foreign currencies that
match investments in overseas Group assets may be treated as a hedge against the relevant assets.
Forward contracts are also used in major currencies to reduce our exposure to our investment in
overseas Group assets (see ‘Net investment hedges’ section of this note for further details). The
TMG reviews the ratio of borrowings to assets for major currencies monthly.
Credit risk
The Group considers its maximum credit risk to be £12,285 million (2009 – £13,434 million) which
is the total of the Group’s financial assets with the exception of ‘Other investments’ which do not
bear credit risk. See page 165 for details on the Group’s total financial assets.
GSK’s greatest concentration of credit risk is £1.3 billion with JP Morgan Chase (Aa1/AA- rated
with Moody’s and Standard and Poor’s respectively), comprising £1.2 billion invested in deposits
and £0.1 billion of derivatives. In 2009, the greatest concentration of credit risk was £1.3
billion of investments in US Treasury and Treasury repo only money market funds which bear credit
exposure to the US Government (Aaa/AAA rated with Moody’s and Standard and Poor’s respectively).
Treasury-related credit risk
GSK has continued to maintain its conservative approach to counterparty risk throughout this
period. A report on relationship banks and their credit ratings is presented annually to the TMG
for approval.
The aggregate credit risk in respect of financial instruments the Group may have with one
counterparty is limited by reference to the long-term credit ratings assigned for that counterparty
by Moody’s and Standard and Poor’s. The table below sets out the credit ratings of counterparties
for liquid investments, cash and cash equivalents and derivatives. The gross asset position on each
derivative contract is considered for the purpose of this table, though, under the ISDA contracts,
the amount at risk is the net position with each counterparty.
The £92 million invested in Baa3/BBB- rated investments includes bank deposits with Allied Irish
Bank and State Bank of India and Indian Government bonds. These counterparties are used either for
local cash management purposes or for local investment purposes where GSK is not the sole
shareholder.
The £27 million invested in Ba1/BB+ rated investments includes Greek Government bonds issued in
lieu of settlement on long outstanding amounts and bank deposits with HDFC Bank, a domestic bank
used in India to invest funds locally.
| Credit rating of counterparty | ||||||||||||||||||||||||||||||||||||||||
| 2010 | Aaa/AAA | Aa2/AA | Aa3/AA- | A1/A+ | A2/A | Baa1/BBB+ | Baa2/BBB | Baa3/BBB- | Ba1/BB+ | Total | ||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
Bank balances and deposits |
– | 1,772 | 1,226 | 2,494 | 67 | 1 | – | 84 | 16 | 5,660 | ||||||||||||||||||||||||||||||
US Treasury and Treasury repo only
money market funds |
360 | – | – | – | – | – | – | – | – | 360 | ||||||||||||||||||||||||||||||
Corporate debt instruments |
– | – | 10 | – | – | – | – | – | – | 10 | ||||||||||||||||||||||||||||||
Government securities |
192 | – | – | – | – | – | – | 8 | 11 | 211 | ||||||||||||||||||||||||||||||
3rd party financial derivatives |
– | 23 | 49 | 100 | – | – | – | – | – | 172 | ||||||||||||||||||||||||||||||
Total |
552 | 1,795 | 1,285 | 2,594 | 67 | 1 | – | 92 | 27 | 6,413 | ||||||||||||||||||||||||||||||
| Credit rating of counterparty | ||||||||||||||||||||||||||||||||||||||||
| 2009 | Aaa/AAA | Aa2/AA | Aa3/AA- | A1/A+ | A2/A | Baa1/BBB+ | Baa2/BBB | Baa3/BBB- | Ba1/BB+ | Total | ||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
Bank balances and deposits |
793 | 1,385 | 1,359 | 1,467 | 102 | – | 27 | 63 | 10 | 5,206 | ||||||||||||||||||||||||||||||
US Treasury and Treasury repo only
money market funds |
1,305 | – | – | – | – | – | – | – | – | 1,305 | ||||||||||||||||||||||||||||||
Corporate debt instruments |
– | – | 10 | – | – | – | – | – | – | 10 | ||||||||||||||||||||||||||||||
Government securities |
237 | – | – | 43 | – | – | – | 11 | 1 | 292 | ||||||||||||||||||||||||||||||
3rd party financial derivatives |
– | 48 | 32 | 106 | – | – | – | – | – | 186 | ||||||||||||||||||||||||||||||
Total |
2,335 | 1,433 | 1,401 | 1,616 | 102 | – | 27 | 74 | 11 | 6,999 | ||||||||||||||||||||||||||||||
The credit ratings in the above tables are as assigned by Moody’s and Standard and Poor’s
respectively. Where the opinion of the two rating agencies differ, GSK assigns the lower rating of
the two to the counterparty. Where local rating agency data is the only source available, the
ratings are converted to global ratings equivalent to those of Moody’s Investor Services or
Standard and Poor’s using published conversion tables.
GSK Annual Report 2010
Table of Contents
164
Notes to the financial statements
41 Financial instruments and related disclosures
continued
continued
Our centrally managed cash reserves amounted to £3.0 billion at 31st December 2010, all available
within 3 months. This excludes £0.9 billion centrally managed cash held by ViiV Healthcare, an 85%
owned subsidiary. The Group may invest centrally managed liquid assets in bank deposits, AAA/Aaa
rated US Treasuries and US Treasury repo only money market funds and short term corporate debt
instruments with a minimum short-term credit rating of A-1/P1.
Global counterparty limits are assigned to each of GSK’s banking and investment counterparties
based on long-term credit ratings from Moody’s and Standard and Poor’s. Corporate Treasury’s usage
of these limits is monitored daily by a Corporate Compliance Officer (CCO) who operates
independently of Corporate Treasury. Any breach of these limits would be reported to the CFO
immediately. The CCO also monitors the credit rating of these counterparties and, when changes in
ratings occur, notifies Corporate Treasury so that changes can be made to investment levels or
authority limits as appropriate.
Wholesale and retail credit risk
In the USA, in line with other pharmaceutical companies, the Group sells its products through a
small number of wholesalers in addition to hospitals, pharmacies, physicians and other groups.
Sales to the three largest wholesalers amount to approximately 85% of the Group’s US pharmaceutical
sales. At 31st December 2010, the Group had trade receivables due from these three wholesalers
totalling £890 million (2009 – £867 million). The Group is exposed to a concentration of credit
risk in respect of these wholesalers such that, if one or more of them encounters financial
difficulty, it could materially and adversely affect the Group’s financial results.
The Group’s credit risk monitoring activities relating to these wholesalers includes review of
their quarterly financial information and Standard & Poor’s credit ratings, development of GSK
internal risk ratings, and establishment and periodic review of credit limits. However, the Group
believes there is no further credit risk provision required in excess of the normal provision for
bad and doubtful debts (see Note 24, ‘Trade and other receivables’). Outside the USA no customer
accounts for more than 5% of the trade receivables balance.
Fair value of financial assets and liabilities
The table on page 165 presents the carrying amounts and the fair values of the Group’s financial
assets and liabilities at 31st December 2010 and 31st December 2009.
The fair values of the financial assets and liabilities are included at the amount at which the
instrument could be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
| • | Cash and cash equivalents – approximates to the carrying amount | |
| • | Liquid investments – based on quoted market prices or calculated based on observable inputs in the case of marketable securities; based on principal amounts in the case of non-marketable securities because of their short repricing periods | |
| • | Other investments – investments traded in an active market determined by reference to the relevant stock exchange quoted bid price; other investments determined by reference to the current market value of similar instruments or by reference to the discounted cash flows of the underlying net assets | |
| • | Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments | |
| • | Long-term loans – based on quoted market prices in the case of the Eurobonds and other fixed rate borrowings; approximates to the carrying amount in the case of floating rate bank loans and other loans | |
| • | Forward exchange contracts – based on market data and exchange rates at the balance sheet date | |
| • | Currency swaps – based on market data at the balance sheet date | |
| • | Interest rate swaps – based on the net present value of discounted cash flows | |
| • | Receivables and payables – approximates to the carrying amount | |
| • | Company-owned life insurance policies – based on cash surrender value | |
| • | Lease obligations – approximates to the carrying amount. |
Fair value of investments in GSK shares
At 31st December 2010, the Employee Share Ownership Plan (ESOP) Trusts held GSK shares with a
carrying value of £845 million (2009 – £1,138 million) with a fair value of £1,308 million (2009
– £1,554 million) based on quoted market price. The shares represent purchases by the ESOP Trusts
to satisfy future exercises of options and awards under employee incentive schemes. The carrying
value, which is the lower of cost or expected proceeds, of these shares has been recognised as a
deduction from other reserves. At 31st December 2010, GSK held Treasury shares at a cost of £6,286
million (2009 – £6,286 million) which has been deducted from retained earnings.
Committed facilities
The Group has committed facilities of $3.9 billion (£2.5 billion)
(2009 – $3.9 billion (£2.4 billion)) of 364 days duration, renewable annually. At 31st December 2010 these were undrawn.
(2009 – $3.9 billion (£2.4 billion)) of 364 days duration, renewable annually. At 31st December 2010 these were undrawn.
GSK Annual Report 2010
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165
Notes to the financial statements
41 Financial instruments and related disclosures continued
| 2010 | 2009 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| value | value | value | value | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Cash and cash equivalents |
6,057 | 6,057 | 6,545 | 6,545 | ||||||||||||
Available-for-sale investments: |
||||||||||||||||
Liquid investments: |
||||||||||||||||
– Government bonds |
172 | 172 | 254 | 254 | ||||||||||||
– other |
12 | 12 | 14 | 14 | ||||||||||||
Total liquid investments |
184 | 184 | 268 | 268 | ||||||||||||
Other investments |
711 | 711 | 454 | 454 | ||||||||||||
Loans and receivables: |
||||||||||||||||
Trade and other receivables and certain Other non-current assets in scope of IAS 39 |
5,667 | 5,667 | 6,271 | 6,271 | ||||||||||||
Financial assets at fair value through profit or loss: |
||||||||||||||||
Other non-current assets |
187 | 187 | 153 | 153 | ||||||||||||
Held-for-trading financial assets: |
||||||||||||||||
Derivatives designated as accounting hedges |
97 | 97 | 104 | 104 | ||||||||||||
Other derivatives |
93 | 93 | 93 | 93 | ||||||||||||
Total financial assets |
12,996 | 12,996 | 13,888 | 13,888 | ||||||||||||
Financial liabilities measured at amortised cost: |
||||||||||||||||
Borrowings: |
||||||||||||||||
– bonds in a designated hedging relationship |
(6,029 | ) | (6,401 | ) | (6,139 | ) | (6,499 | ) | ||||||||
– other bonds |
(8,708 | ) | (9,653 | ) | (9,178 | ) | (9,864 | ) | ||||||||
– commercial paper |
– | – | (621 | ) | (621 | ) | ||||||||||
– bank loans and overdrafts |
(260 | ) | (260 | ) | (182 | ) | (182 | ) | ||||||||
– other loans and private financing |
– | – | (7 | ) | (7 | ) | ||||||||||
– obligations under finance leases |
(103 | ) | (103 | ) | (130 | ) | (130 | ) | ||||||||
Total borrowings |
(15,100 | ) | (16,417 | ) | (16,257 | ) | (17,303 | ) | ||||||||
Trade and
other payables, Other provisions and Other non-current
liabilities in scope of IAS 39 |
(6,590 | ) | (6,590 | ) | (6,051 | ) | (6,051 | ) | ||||||||
Held-for-trading financial liabilities: |
||||||||||||||||
Derivatives designated as accounting hedges |
(23 | ) | (23 | ) | (55 | ) | (55 | ) | ||||||||
Other derivatives |
(170 | ) | (170 | ) | (113 | ) | (113 | ) | ||||||||
Total financial liabilities |
(21,883 | ) | (23,200 | ) | (22,476 | ) | (23,522 | ) | ||||||||
Net financial assets and financial liabilities |
(8,887 | ) | (10,204 | ) | (8,588 | ) | (9,634 | ) | ||||||||
GSK Annual Report 2010
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166
Notes to the financial statements
41 Financial instruments and related disclosures continued
| The following tables categorise the Group’s financial assets and liabilities held at fair value by the valuation methodology applied in determining their fair value. Where possible, quoted prices in active markets are used (Level 1). Where such prices are not available, the asset or liability is classified as Level 2, provided all significant inputs to the valuation model used are based on observable market data. If one or more of the significant inputs to the valuation model is not based on observable market data, the instrument is classified as Level 3. |
| At 31st December 2010 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| £m | £m | £m | £m | |||||||||||||
Financial assets at fair value |
||||||||||||||||
Available–for–sale financial assets: |
||||||||||||||||
Liquid investments |
159 | 25 | – | 184 | ||||||||||||
Other investments |
491 | – | 220 | 711 | ||||||||||||
Financial assets at fair value through profit or loss: |
||||||||||||||||
Other non-current assets |
– | 187 | – | 187 | ||||||||||||
Held–for–trading financial assets: |
||||||||||||||||
Derivatives designated as accounting hedges |
– | 97 | – | 97 | ||||||||||||
Other derivatives |
– | 92 | 1 | 93 | ||||||||||||
| 650 | 401 | 221 | 1,272 | |||||||||||||
Financial liabilities at fair value |
||||||||||||||||
Held–for–trading financial liabilities: |
||||||||||||||||
Derivatives designated as accounting hedges |
– | (23 | ) | – | (23 | ) | ||||||||||
Other derivatives |
– | (169 | ) | (1 | ) | (170 | ) | |||||||||
| – | (192 | ) | (1 | ) | (193 | ) | ||||||||||
| At 31st December 2009 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| £m | £m | £m | £m | |||||||||||||
Financial assets at fair value |
||||||||||||||||
Available–for–sale financial assets: |
||||||||||||||||
Liquid investments |
249 | 19 | – | 268 | ||||||||||||
Other investments |
245 | – | 209 | 454 | ||||||||||||
Financial assets at fair value through profit or loss: |
||||||||||||||||
Other non-current assets |
– | 153 | – | 153 | ||||||||||||
Held–for–trading financial assets: |
||||||||||||||||
Derivatives designated as accounting hedges |
– | 104 | – | 104 | ||||||||||||
Other derivatives |
– | 93 | – | 93 | ||||||||||||
| 494 | 369 | 209 | 1,072 | |||||||||||||
Financial liabilities at fair value |
||||||||||||||||
Held–for–trading financial liabilities: |
||||||||||||||||
Derivatives designated as accounting hedges |
– | (55 | ) | – | (55 | ) | ||||||||||
Other derivatives |
– | (113 | ) | – | (113 | ) | ||||||||||
| – | (168 | ) | – | (168 | ) | |||||||||||
Movements in the year for financial instruments measured using Level 3 valuation methods are presented below:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
At 1st January |
209 | 159 | ||||||
Losses recognised in the income statement |
(13 | ) | (11 | ) | ||||
(Losses)/gains recognised in other comprehensive income |
(1 | ) | 1 | |||||
Additions |
51 | 81 | ||||||
Disposals |
(3 | ) | (4 | ) | ||||
Transfers from Level 3 |
(26 | ) | – | |||||
Exchange |
3 | (17 | ) | |||||
At 31st December |
220 | 209 | ||||||
Net losses of £13 million (2009 – £11 million) attributable to Level 3 financial instruments held
at the end of the year were reported in other operating income. Transfers out of Level 3 of £26
million (2009 – £ nil) relate to equity investments which were listed on stock exchanges during the
year. A reasonably possible change in assumptions is unlikely to result in a material change in the
fair value of the Level 3 instruments.
GSK Annual Report 2010
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167
Notes to the financial statements
41 Financial instruments and related disclosures continued
Trade and other receivables and Other non-current assets in scope of IAS 39
The following table reconciles financial assets within Trade and other receivables and Other
non-current assets which fall within the scope of IAS 39 to the relevant balance sheet amounts. The
financial assets are predominantly non-interest earning. Financial instruments within Other
non-current assets include company-owned life insurance policies. Other assets include tax
receivables, pension surplus balances and prepayments, which are outside the scope of IAS 39.
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Trade and other receivables (Note 24) |
5,793 | 6,492 | ||||||
Other non-current assets (Note 22) |
556 | 583 | ||||||
| 6,349 | 7,075 | |||||||
Analysed as: |
||||||||
Financial assets in scope of IAS 39 |
5,854 | 6,424 | ||||||
Other assets |
495 | 651 | ||||||
| 6,349 | 7,075 | |||||||
The following table shows the age of such financial assets which are past due and for which no
provision for bad or doubtful debts has been made:
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Past due by 1–30 days |
134 | 262 | ||||||
Past due by 31–90 days |
138 | 105 | ||||||
Past due by 91–180 days |
61 | 60 | ||||||
Past due by 181–365 days |
66 | 54 | ||||||
Past due by more than 365 days |
67 | 78 | ||||||
| 466 | 559 | |||||||
Amounts past due by greater than 90 days total £194 million (2009 – £192 million). Of this
balance £127 million (2009 – £132 million) relates to receivables due from state hospital authorities
in certain European countries. Given the profile of our customers, including large wholesalers and
government backed agencies, no further credit risk has been identified with the trade receivables
not past due other than those balances for which an allowance has been made.
Trade and other payables, Other provisions and Other non-current liabilities in scope of IAS 39
The following table reconciles financial liabilities within Trade and other payables, Other
provisions and Other non-current liabilities which fall within the scope of IAS 39 to the relevant
balance sheet amounts. The financial liabilities are predominantly non-interest bearing. Accrued
wages and salaries are included within financial liabilities. Other liabilities include payments on
account, tax and social security payables and provisions which do not constitute contractual
obligations to deliver cash or another financial asset, which are outside the scope of IAS 39.
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Trade and other payables (Note 27) |
(6,888 | ) | (6,772 | ) | ||||
Other provisions (Note 29) |
(5,284 | ) | (3,241 | ) | ||||
Other non-current liabilities (Note 30) |
(594 | ) | (605 | ) | ||||
| (12,766 | ) | (10,618 | ) | |||||
Analysed as: |
||||||||
Financial liabilities in scope of IAS 39 |
(6,590 | ) | (6,051 | ) | ||||
Other liabilities |
(6,176 | ) | (4,567 | ) | ||||
| (12,766 | ) | (10,618 | ) | |||||
GSK Annual Report 2010
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168
Notes to the financial statements
41 Financial instruments and related disclosures continued
Debt interest rate repricing table
The following table sets out the exposure of the Group to interest rates on debt before and after
the effect of interest rate swaps. The maturity analysis of fixed rate debt is stated by
contractual maturity and of floating rate debt by interest rate repricing dates. For the purpose of
this table, debt is defined as all classes of borrowings other than obligations under finance
leases.
| 2010 | 2009 | |||||||||||||||||||||||
| Effect of | Effect of | |||||||||||||||||||||||
| interest | interest | |||||||||||||||||||||||
| Debt | rate swaps | Total | Debt | rate swaps | Total | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Floating and fixed rate debt less than one year |
(259 | ) | (1,049 | ) | (1,308 | ) | (1,431 | ) | (990 | ) | (2,421 | ) | ||||||||||||
Between one and two years |
(2,559 | ) | – | (2,559 | ) | – | – | – | ||||||||||||||||
Between two and three years |
(1,599 | ) | – | (1,599 | ) | (2,647 | ) | – | (2,647 | ) | ||||||||||||||
Between three and four years |
(1,049 | ) | 1,049 | – | (1,548 | ) | – | (1,548 | ) | |||||||||||||||
Between four and five years |
(1,358 | ) | – | (1,358 | ) | (990 | ) | 990 | – | |||||||||||||||
Between five and ten years |
(2,819 | ) | – | (2,819 | ) | (4,205 | ) | – | (4,205 | ) | ||||||||||||||
Greater than ten years |
(5,354 | ) | – | (5,354 | ) | (5,306 | ) | – | (5,306 | ) | ||||||||||||||
Total |
(14,997 | ) | – | (14,997 | ) | (16,127 | ) | – | (16,127 | ) | ||||||||||||||
Original issuance profile: |
||||||||||||||||||||||||
Fixed rate interest |
(14,757 | ) | 1,049 | (13,708 | ) | (14,696 | ) | 990 | (13,706 | ) | ||||||||||||||
Floating rate interest |
(239 | ) | (1,049 | ) | (1,288 | ) | (1,430 | ) | (990 | ) | (2,420 | ) | ||||||||||||
Total interest bearing |
(14,996 | ) | – | (14,996 | ) | (16,126 | ) | – | (16,126 | ) | ||||||||||||||
Non-interest bearing |
(1 | ) | – | (1 | ) | (1 | ) | – | (1 | ) | ||||||||||||||
| (14,997 | ) | – | (14,997 | ) | (16,127 | ) | – | (16,127 | ) | |||||||||||||||
Sensitivity analysis
The sensitivity analysis has been prepared on the assumption that the amount of net debt, the ratio
of fixed to floating interest rates of the debt and derivatives portfolio and the proportion of
financial instruments in foreign currencies are all constant and on the basis of the hedge
designations in place at 31st December.
Financial instruments affected by market risk include borrowings, deposits and derivative financial
instruments. The following analyses are intended to illustrate the sensitivity of such financial
instruments to changes in relevant foreign exchange and interest rates.
Foreign exchange sensitivity
The tables below show the Group’s sensitivity to foreign exchange rates on its US dollar, Euro and
Yen financial instruments excluding obligations under finance leases and certain non-derivative
financial instruments not in net debt and which do not present a material exposure. These three
currencies are the major foreign currencies in which GSK’s financial instruments are denominated.
GSK has considered movements in these currencies over the last three years and has concluded that a
20% movement in rates is a reasonable benchmark. In the table below, financial instruments are only
considered sensitive to foreign exchange rates where they are not in the functional currency of the
entity that holds them. Inter-company loans which are fully hedged to maturity with a currency swap
have been excluded from this analysis.
| 2010 | 2009 | |||||||||||||||
| Increase | Reduction | Increase | Reduction | |||||||||||||
| Non-functional currency foreign exchange exposure | in income | in equity | in income | in equity | ||||||||||||
| £m | £m | £m | £m | |||||||||||||
20% appreciation of the US dollar |
386 | – | 214 | 755 | ||||||||||||
20% appreciation of the Euro |
35 | 1,697 | 72 | 1,779 | ||||||||||||
20% appreciation of the Yen |
– | – | 5 | 45 | ||||||||||||
A 20% depreciation of the stated currencies would have an equal and opposite effect.
The movements in the income statement relate primarily to hedging instruments for US legal
provisions, and to trade payables and trade receivables. Whilst the hedging instruments provide
economic hedges, the related provisions are not financial instruments and therefore are not
included in the table above. The combined sensitivity of these hedging instruments and the
provisions would be insignificant if the provisions were included.
The movements in equity relate to foreign exchange positions used to hedge Group assets denominated
in Euro. The US dollar and Yen positions were closed out in 2010. Therefore, a depreciation on the
currency swap would give rise to a corresponding appreciation on the Group asset. Foreign exchange
sensitivity on Group assets other than financial instruments is not included above.
GSK Annual Report 2010
Table of Contents
169
Notes to the financial statements
41 Financial instruments and related disclosures continued
The table below presents the Group’s sensitivity to foreign exchange rates based on the composition
of net debt adjusting for the effects of foreign exchange derivatives, which are not part of net
debt but affect future currency foreign cash flows. These derivatives relate primarily to foreign exchange
contracts used to hedge the Group’s currency net assets and US legal provisions.
| 2010 | 2009 | |||||||
| Increase/(decrease) | Increase/(decrease) | |||||||
| Impact of foreign exchange movements on net debt | in net debt | in net debt | ||||||
| £m | £m | |||||||
20% appreciation of the US dollar |
851 | 523 | ||||||
20% appreciation of the Euro |
606 | 686 | ||||||
20% appreciation of the Yen |
(13 | ) | 89 | |||||
A 20% depreciation of the stated currencies would have an equal and opposite effect.
Interest rate sensitivity
The table below shows the Group’s sensitivity to interest rates on its floating rate Sterling, US
dollar and Euro financial instruments, being the currencies in which GSK has historically issued
debt and held investments. GSK has considered movements in these interest rates over the last three
years and has concluded that a 2% (200 basis points) increase is a reasonable benchmark. Debt with
a maturity of less than one year is floating rate for this calculation. A 2% (200 basis points)
movement in interest rates is not deemed to have a material effect on equity.
| 2010 | 2009 | |||||||
| Increase/(decrease) | Increase/(decrease) | |||||||
| in income | in income | |||||||
| £m | £m | |||||||
2% (200 basis points) increase in Sterling interest rates |
29 | (2 | ) | |||||
2% (200 basis points) increase in US dollar interest rates |
(18 | ) | 38 | |||||
2% (200 basis points) increase in Euro interest rates |
37 | 18 | ||||||
These interest rates could not be decreased by 2% as they are currently less than 1.0%. The maximum
increase/(decrease) in income would therefore be limited to (£8 million), £2 million and (£11
million) for Sterling, US Dollar and Euro interest rates respectively (2009 – £1 million, (£4
million) and (£2 million)). Interest rate movements on foreign currency derivatives and other
financial instruments not in net debt do not present a material exposure to the Group’s balance
sheet based on a 2% increase or decrease in these interest rates.
Contractual cash flows for non-derivative financial liabilities and derivative instruments
The following is an analysis of the anticipated contractual cash flows including interest payable
for the Group’s non-derivative financial liabilities on an undiscounted basis. The impact of
interest rate swaps has been excluded. For the purpose of this table, debt is defined as all
classes of borrowings except for obligations under finance leases. Interest is calculated based on
debt held at 31st December without taking account of future issuance. Floating rate interest is
estimated using the prevailing interest rate at the balance sheet date. Cash flows in foreign
currencies are translated using spot rates at 31st December.
| Finance charge | Trade payables and | |||||||||||||||||||||||
| Obligations | on obligations | other | ||||||||||||||||||||||
| Interest on | under finance | under finance | liabilities not | |||||||||||||||||||||
| At 31st December 2010 | Debt | debt | leases | leases | in net debt | Total | ||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Due in less than one year |
(259 | ) | (755 | ) | (32 | ) | (5 | ) | (6,280 | ) | (7,331 | ) | ||||||||||||
Between one and two years |
(2,564 | ) | (756 | ) | (27 | ) | (5 | ) | (178 | ) | (3,530 | ) | ||||||||||||
Between two and three years |
(1,603 | ) | (638 | ) | (18 | ) | (3 | ) | (35 | ) | (2,297 | ) | ||||||||||||
Between three and four years |
(962 | ) | (559 | ) | (11 | ) | (2 | ) | (57 | ) | (1,591 | ) | ||||||||||||
Between four and five years |
(1,368 | ) | (538 | ) | (7 | ) | (1 | ) | (7 | ) | (1,921 | ) | ||||||||||||
Between five and ten years |
(2,831 | ) | (2,053 | ) | (8 | ) | – | (21 | ) | (4,913 | ) | |||||||||||||
Greater than ten years |
(5,425 | ) | (5,013 | ) | – | – | (12 | ) | (10,450 | ) | ||||||||||||||
Gross contractual cash flows |
(15,012 | ) | (10,312 | ) | (103 | ) | (16 | ) | (6,590 | ) | (32,033 | ) | ||||||||||||
| Finance charge | Trade payables and | |||||||||||||||||||||||
| Obligations | on obligations | other | ||||||||||||||||||||||
| Interest on | under finance | under finance | liabilities not | |||||||||||||||||||||
| At 31st December 2009 | Debt | debt | leases | leases | in net debt | Total | ||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Due in less than one year |
(1,431 | ) | (757 | ) | (40 | ) | (4 | ) | (5,828 | ) | (8,060 | ) | ||||||||||||
Between one and two years |
– | (753 | ) | (32 | ) | (6 | ) | (161 | ) | (952 | ) | |||||||||||||
Between two and three years |
(2,655 | ) | (754 | ) | (24 | ) | (2 | ) | (28 | ) | (3,463 | ) | ||||||||||||
Between three and four years |
(1,553 | ) | (594 | ) | (14 | ) | (2 | ) | (14 | ) | (2,177 | ) | ||||||||||||
Between four and five years |
(932 | ) | (536 | ) | (5 | ) | (1 | ) | (5 | ) | (1,479 | ) | ||||||||||||
Between five and ten years |
(4,230 | ) | (2,088 | ) | (15 | ) | (1 | ) | (15 | ) | (6,349 | ) | ||||||||||||
Greater than ten years |
(5,382 | ) | (5,251 | ) | – | – | – | (10,633 | ) | |||||||||||||||
Gross contractual cash flows |
(16,183 | ) | (10,733 | ) | (130 | ) | (16 | ) | (6,051 | ) | (33,113 | ) | ||||||||||||
GSK Annual Report 2010
Table of Contents
170
Notes to the financial statements
41 Financial instruments and related disclosures continued
The following table provides an analysis of the anticipated contractual cash flows for the Group’s
derivative instruments, excluding embedded derivatives and equity options which are not material,
using undiscounted cash flows. Cash flows in foreign currencies are translated using spot rates at
31st December. The gross cash flows of foreign exchange contracts are presented for the purposes of
this table, though, in practice, the Group uses standard settlement arrangements to reduce its
liquidity requirements on these instruments.
| 2010 | 2009 | |||||||||||||||
| Receivables | Payables | Receivables | Payables | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Less than one year |
13,555 | (13,511 | ) | 21,341 | (21,318 | ) | ||||||||||
Between one and two years |
288 | (365 | ) | 72 | (51 | ) | ||||||||||
Between two and three years |
31 | (10 | ) | 285 | (321 | ) | ||||||||||
Between three and four years |
14 | (7 | ) | 21 | (19 | ) | ||||||||||
Between four and five years |
– | – | 10 | (11 | ) | |||||||||||
Greater than five years |
– | – | – | – | ||||||||||||
Gross contractual cash flows |
13,888 | (13,893 | ) | 21,729 | (21,720 | ) | ||||||||||
Derivative financial instruments and hedging programmes
The following table sets out the fair values of derivatives held by GSK.
| 2010 | 2009 | |||||||||||||||
| Fair value | Fair value | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Fair value hedges – Interest rate swaps (principal amount – £962 million (2009 – £932 million)) |
97 | – | 68 | – | ||||||||||||
Net investment hedges – Foreign exchange contracts (principal amount – £3,506 million (2009 – £7,756 million)) |
– | (23 | ) | 36 | (55 | ) | ||||||||||
Derivatives designated as accounting hedges |
97 | (23 | ) | 104 | (55 | ) | ||||||||||
Foreign exchange contracts (principal amount – £6,474 million (2009 – £8,568 million)) |
88 | (160 | ) | 89 | (108 | ) | ||||||||||
Embedded and other derivatives |
5 | (10 | ) | 4 | (5 | ) | ||||||||||
Derivatives not designated as accounting hedges |
93 | (170 | ) | 93 | (113 | ) | ||||||||||
Total derivative instruments |
190 | (193 | ) | 197 | (168 | ) | ||||||||||
Analysed as: |
||||||||||||||||
Current |
93 | (188 | ) | 129 | (168 | ) | ||||||||||
Non-current |
97 | (5 | ) | 68 | – | |||||||||||
Total |
190 | (193 | ) | 197 | (168 | ) | ||||||||||
Derivative financial instruments
The principal amount on foreign exchange contracts is the net total of outstanding positions at the
balance sheet date. The majority of contracts are for periods of 12 months or less. At 31st
December 2010, the Group held outstanding foreign exchange contracts consisting primarily of
currency swaps with a total credit fair value of £72 million (2009 – £19 million credit) which
represent hedges of inter-company loans and deposits, but are not designated as accounting hedges.
Changes in fair value are taken to the income statement in the period to offset the exchange gains
and losses on the related inter-company lending and borrowing.
Cash flow hedges
The Group entered into a number of foreign exchange forward contracts and designated them as a cash
flow hedge of the exchange arising on the US dollar purchase consideration of a highly probable
business acquisition. The acquisition occurred in October 2010 and the cash flow hedge matured at
that date. The amount recognised in other comprehensive income in 2010 was removed upon maturity of
the hedge and included in the initial carrying value of goodwill and intangibles recorded on the
acquisition of the entity.
The Group has also entered into a number of foreign exchange forward contracts and designated them
as cash flow hedges of the exchange exposure arising on the GBP equivalent interest cost on Euro
loans issued and settled in July and December 2010.
The net fair value movements on cash flow hedges are disclosed in the consolidated statement of
comprehensive income. No ineffectiveness was recorded on cash flow hedges during 2010.
GSK Annual Report 2010
Table of Contents
171
Notes to the financial statements
Fair value hedges
The Group has designated a series of interest rate swaps as a fair value hedge. The risk being
hedged is the variability of the fair value of the bond arising from interest rate fluctuations.
Gains and losses on fair value hedges are disclosed in Note 12, ‘Finance costs’.
Net investment hedges
During the year, certain foreign exchange contracts were designated as net investment hedges in
respect of the foreign currency translation risk principally arising on consolidation of the
Group’s net investment in its US Dollar, Euro and Yen foreign operations. At 31st December 2010,
the Group held such net investment hedges only in respect of its Euro foreign operations.
In addition, Euro loan capital of €5.85 billion issued in previous years is designated as a net
investment hedge in respect of the foreign currency translation risk principally arising on
consolidation of the Group’s net investment in its Euro operations. Net investment hedge
ineffectiveness is disclosed in Note 11, ‘Finance income’.
42
Employee share schemes
The Group operates share option schemes, whereby options are granted to employees to acquire shares
or ADS in GlaxoSmithKline plc at the grant price, savings-related share option schemes and share
award schemes. In addition, GSK operates the Performance Share Plan, whereby awards are granted to
employees to acquire shares or ADS in GlaxoSmithKline plc at no cost, subject to the achievement by
the Group of specified performance targets and the Share Value Plan, whereby awards are granted to
employees to acquire shares or ADS in GlaxoSmithKline plc at no cost after a three year vesting
period. The granting of restricted share awards has replaced the granting of options to certain
employees as the cost of the scheme more readily equates to the potential gain to be made by the
employee and from 2010 onwards, no further grants will be made under the savings-related share
option schemes.
Grants under share option schemes are normally exercisable between three and ten years from the
date of grant. Grants of restricted shares and share awards are normally exercisable at the end of
the three year vesting/performance period. Grants under savings-related share option schemes are
normally exercisable after three years’ saving. Grants under share option schemes and awards under
the Performance Share Plan are normally granted to employees to acquire shares or ADS in GSK plc
but in some circumstances will be settled in cash.
Options under the share option schemes are granted at the market price ruling at the date of grant.
In accordance with UK practice, the majority of options under the savings-related share option
schemes are granted at a price 20% below the market price ruling at the date of grant. Share
options awarded to the Directors and, with effect from the 2004 grant, the CET are subject to
performance criteria.
Option pricing
For the purposes of valuing options and awards to arrive at the share based payment charge, the
Black-Scholes option pricing model has been used. The assumptions used in the model for 2008, 2009
and 2010 are as follows:
| 2010 | 2009 | 2008 | ||||||||||
Risk-free interest rate |
0.8% – 1.9 | % | 1.4% – 2.9 | % | 1.3% – 4.8 | % | ||||||
Dividend yield |
5.3 | % | 5.2 | % | 4.8 | % | ||||||
Volatility |
26% – 29 | % | 23% – 29 | % | 19% – 24 | % | ||||||
Expected lives of options granted under: |
||||||||||||
Share option schemes |
5 years | 5 years | 5 years | |||||||||
Savings-related share option and share award schemes |
3-4 years | 3-4 years | 3 years | |||||||||
Weighted average share price for grants in the year: |
||||||||||||
Ordinary Shares |
£12.04 | £11.72 | £11.59 | |||||||||
ADS |
$37.29 | $33.73 | $45.02 | |||||||||
Volatility is determined based on the three and five year share price history where appropriate.
The fair value of performance share plan grants take into account market conditions. Expected lives
of options were determined based on weighted average historic exercises of options.
GSK Annual Report 2010
Table of Contents
172
Notes to the financial statements
42 Employee share schemes continued
| Options outstanding | Share option | Share option | Savings-related | |||||||||||||||||||||||||
| schemes – shares | schemes – ADS | share option schemes | ||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||
| Number | exercise | fair | Number | exercise | fair | Number | exercise | fair | ||||||||||||||||||||
| 000 | price | value | 000 | price | value | 000 | price | value | ||||||||||||||||||||
At 1st January 2008 |
149,041 | £15.38 | 77,274 | $49.91 | 8,538 | £11.02 | ||||||||||||||||||||||
Options granted |
11,314 | £11.50 | £1.32 | 7,690 | $44.89 | $3.84 | 5,570 | £9.51 | £2.56 | |||||||||||||||||||
Options exercised |
(2,198 | ) | £11.84 | (1,989 | ) | $42.18 | (453 | ) | £10.26 | |||||||||||||||||||
Options lapsed |
(21,602 | ) | £16.52 | (7,497 | ) | $53.13 | (2,401 | ) | £10.67 | |||||||||||||||||||
At 31st December 2008 |
136,555 | £14.93 | 75,478 | $49.29 | 11,254 | £10.38 | ||||||||||||||||||||||
Options granted |
11,393 | £11.76 | £1.16 | 7,741 | $33.68 | $3.41 | 1,648 | £9.72 | £2.22 | |||||||||||||||||||
Options exercised |
(2,660 | ) | £11.80 | (353 | ) | $37.03 | (1,460 | ) | £11.34 | |||||||||||||||||||
Options lapsed |
(21,269 | ) | £17.18 | (9,447 | ) | $55.64 | (3,377 | ) | £11.09 | |||||||||||||||||||
At 31st December 2009 |
124,019 | £14.32 | 73,419 | $46.88 | 8,065 | £9.77 | ||||||||||||||||||||||
Options granted |
11,257 | £12.04 | £1.19 | 7,384 | $37.29 | $3.95 | – | – | – | |||||||||||||||||||
Options exercised |
(3,625 | ) | £11.86 | (916 | ) | $36.59 | (1,310 | ) | £10.45 | |||||||||||||||||||
Options lapsed |
(21,551 | ) | £15.10 | (7,776 | ) | $49.62 | (800 | ) | £10.02 | |||||||||||||||||||
At 31st December 2010 |
110,100 | £14.02 | 72,111 | $45.73 | 5,955 | £9.59 | ||||||||||||||||||||||
Range of exercise prices |
£10.76 | – | £19.40 | $33.42 | – | $58.00 | £9.51 | – | £10.50 | |||||||||||||||||||
Weighted average market
price on exercise |
£12.39 | $38.71 | £12.46 | |||||||||||||||||||||||||
Weighted average remaining
contractual life |
4.19 years | 4.39 years | 1.52 years | |||||||||||||||||||||||||
| Options
outstanding at 31st December 2010 |
Share option | Share option | Savings-related | |||||||||||||||||||||||||||||||||
| schemes – shares | schemes – ADS | share option schemes | ||||||||||||||||||||||||||||||||||
| Weighted | Latest | Weighted | Latest | Weighted | Latest | |||||||||||||||||||||||||||||||
| Number | exercise | exercise | Number | exercise | exercise | Number | Exercise | exercise | ||||||||||||||||||||||||||||
| Year of grant | 000 | price | date | 000 | price | date | 000 | price | date | |||||||||||||||||||||||||||
2001 |
29,047 | £18.13 | 29.11.11 | 18,244 | $51.85 | 28.11.11 | – | – | – | |||||||||||||||||||||||||||
2002 |
11,414 | £11.98 | 03.12.12 | 4,727 | $37.68 | 03.12.12 | – | – | – | |||||||||||||||||||||||||||
2003 |
16,256 | £12.67 | 16.12.13 | 9,186 | $43.54 | 16.12.13 | – | – | – | |||||||||||||||||||||||||||
2004 |
5,074 | £11.23 | 03.12.14 | 5,516 | $43.17 | 02.12.14 | – | – | – | |||||||||||||||||||||||||||
2005 |
155 | £13.07 | 02.11.15 | 374 | $47.31 | 02.11.15 | – | – | – | |||||||||||||||||||||||||||
2006 |
6,979 | £14.69 | 28.11.16 | 5,427 | $51.32 | 28.07.16 | – | – | – | |||||||||||||||||||||||||||
2007 |
9,041 | £14.81 | 25.07.17 | 7,061 | $57.54 | 25.07.17 | 175 | £10.50 | 25.04.11 | |||||||||||||||||||||||||||
2008 |
10,306 | £11.50 | 27.07.18 | 7,196 | $44.90 | 05.11.18 | 4,351 | £9.51 | 23.04.12 | |||||||||||||||||||||||||||
2009 |
10,827 | £11.76 | 22.07.19 | 7,228 | $33.68 | 22.07.19 | 1,429 | £9.72 | 22.04.13 | |||||||||||||||||||||||||||
2010 |
11,001 | £12.04 | 21.07.20 | 7,152 | $37.29 | 21.07.20 | – | – | – | |||||||||||||||||||||||||||
Total |
110,100 | £14.02 | 72,111 | $45.73 | 5,995 | £9.59 | ||||||||||||||||||||||||||||||
Options normally become exercisable from three years from the date of grant but may, under certain
circumstances, vest earlier as set out within the various scheme rules.
| ||||||||||||||||||||||||||||||||||||
There has been no change in the effective exercise price of any outstanding options during the
year.
| ||||||||||||||||||||||||||||||||||||
| Options exercisable | Share option | Share option | Savings-related | |||||||||||||||||||||||||||||||||
| schemes – shares | schemes – ADS | share option schemes | ||||||||||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||
| Number | exercise | Number | exercise | Number | exercise | |||||||||||||||||||||||||||||||
| 000 | price | 000 | price | 000 | price | |||||||||||||||||||||||||||||||
At 31st December 2008 |
109,207 | £15.29 | 55,384 | $48.57 | 3,248 | £11.45 | ||||||||||||||||||||||||||||||
At 31st December 2009 |
94,967 | £14.86 | 53,493 | $47.63 | 254 | £11.40 | ||||||||||||||||||||||||||||||
At 31st December 2010 |
81,362 | £14.80 | 53,831 | $48.26 | 175 | £10.50 | ||||||||||||||||||||||||||||||
GSK Annual Report 2010
Table of Contents
173
Notes to the financial statements
42 Employee share schemes continued
GlaxoSmithKline share award schemes
Performance Share Plan
Performance Share Plan
The Group operates a Performance Share Plan whereby awards are granted to Directors and senior
executives at no cost. The percentage of each award that vests is based upon the performance of the
Group over a three year measurement period. Awards granted to Directors and members of the CET
prior to 2009 are subject to a single performance condition which compares GSK’s TSR over the
period with the TSR of companies in the comparator group over the same period. For awards granted
in 2009 and 2010 to Directors and members of the CET, 40% of the award is based on the achievement
of adjusted free cash flow targets over a three year measurement period. The
remaining 60% of the award is based on relative TSR performance
against a comparator group as described on pages 85 and 87. Half of the
TSR element of each award is measured over three years and half over four years.
For those awards made to all other eligible employees prior to 2009 the performance conditions
consist of two parts, each of which applies to 50% of the award. The first part of the performance
condition compares GSK’s EPS growth to the increase in the UK Retail Prices Index over the three
year measurement period. The second part of the performance condition compares GSK’s TSR over the
period with the TSR of companies in the comparator group over the same period. For awards granted
from 2009 onwards, the first part of the performance condition continues to be based on EPS. The
second part of the performance condition is based on strategic or operational business measures,
over a three year measurement period, specific to the employee’s business area.
| Number of shares and ADS issuable | Shares | Weighted | ADS | Weighted | ||||||||||||
| Number (000) | fair value | Number (000) | fair value | |||||||||||||
At 1st January 2008 |
5,731 | 4,327 | ||||||||||||||
Awards granted |
2,834 | £7.77 | 1,467 | $27.99 | ||||||||||||
Awards exercised |
(1,519 | ) | (1,516 | ) | ||||||||||||
Awards cancelled |
(511 | ) | (420 | ) | ||||||||||||
At 31st December 2008 |
6,535 | 3,858 | ||||||||||||||
Awards granted |
3,365 | £8.80 | 1,392 | $29.45 | ||||||||||||
Awards exercised |
(1,270 | ) | (21 | ) | ||||||||||||
Awards cancelled |
(1,024 | ) | (1,497 | ) | ||||||||||||
At 31st December 2009 |
7,606 | 3,732 | ||||||||||||||
Awards granted |
3,812 | £9.13 | 1,624 | $29.91 | ||||||||||||
Awards exercised |
(440 | ) | (386 | ) | ||||||||||||
Awards cancelled |
(2,085 | ) | (1,357 | ) | ||||||||||||
At 31st December 2010 |
8,893 | 3,613 | ||||||||||||||
Share Value Plan
The Group operates a Share Value Plan whereby awards are granted, in the form of shares, to certain
employees at no cost. The awards vest after three years. There are no performance criteria
attached.
| Shares | Weighted | ADS | Weighted | |||||||||||||
| Number (000) | fair value | Number (000) | fair value | |||||||||||||
At 1st January 2008 |
9,634 | 8,283 | ||||||||||||||
Awards granted |
5,572 | £9.85 | 4,640 | $36.46 | ||||||||||||
Awards exercised |
(926 | ) | (931 | ) | ||||||||||||
Awards cancelled |
(592 | ) | (630 | ) | ||||||||||||
At 31st December 2008 |
13,688 | 11,362 | ||||||||||||||
Awards granted |
5,572 | £9.86 | 4,291 | $30.53 | ||||||||||||
Awards exercised |
(4,345 | ) | (3,783 | ) | ||||||||||||
Awards cancelled |
(680 | ) | (561 | ) | ||||||||||||
At 31st December 2009 |
14,235 | 11,309 | ||||||||||||||
Awards granted |
5,844 | £10.04 | 4,355 | $31.30 | ||||||||||||
Awards exercised |
(4,993 | ) | (3,939 | ) | ||||||||||||
Awards cancelled |
(834 | ) | (747 | ) | ||||||||||||
At 31st December 2010 |
14,252 | 10,978 | ||||||||||||||
GSK Annual Report 2010
Table of Contents
174
Notes to the financial statements
42 Employee share schemes continued
Deferred Investment Award Plan
The Group operates a Deferred Investment Award Plan whereby awards are granted, in the form of
notional shares, to certain senior executives at no cost. Awards typically vest over a three-year
period commencing on the fourth anniversary from date of grant with 50% of the award initially
vesting and then 25% in each of the subsequent two years. There are no performance criteria
attached.
| Number of shares and ADS issuable | Shares | Weighted | ADS | Weighted | ||||||||||||
| Number (000) | fair value | Number (000) | fair value | |||||||||||||
At 1st January 2008 |
224 | 96 | ||||||||||||||
Awards granted |
334 | £11.70 | 70 | $43.80 | ||||||||||||
Awards exercised |
(20 | ) | (20 | ) | ||||||||||||
Awards cancelled |
– | (27 | ) | |||||||||||||
At 31st December 2008 |
538 | 119 | ||||||||||||||
Awards granted |
46 | £12.04 | 132 | $31.94 | ||||||||||||
Awards exercised |
(15 | ) | (32 | ) | ||||||||||||
Awards cancelled |
(20 | ) | (10 | ) | ||||||||||||
At 31st December 2009 |
549 | 209 | ||||||||||||||
Awards granted |
290 | £12.20 | 96 | $36.85 | ||||||||||||
Awards exercised |
(72 | ) | (9 | ) | ||||||||||||
Awards cancelled |
(23 | ) | (16 | ) | ||||||||||||
At 31st December 2010 |
744 | 280 | ||||||||||||||
Employee Share Ownership Plan Trusts
The Group sponsors Employee Share Ownership Plan (ESOP) Trusts to acquire and hold shares in
GlaxoSmithKline plc to satisfy awards made under employee incentive plans and options granted under
employee share option schemes. The trustees of the ESOP Trusts purchase shares on the open market
with finance provided by the Group by way of loans or contributions. Costs of running the ESOP
Trusts are charged to the income statement. Shares held by the ESOP Trusts are deducted from other
reserves and held at the value of proceeds receivable from employees on exercise. If there is
deemed to be a permanent diminution in value this is reflected by a transfer to retained earnings.
The Trusts also acquire and hold shares to meet notional dividends re-invested on deferred awards
under the SmithKline Beecham Mid-Term Incentive Plan. The trustees have waived their rights to
dividends on the shares held by the ESOP Trusts.
| Shares held for share award schemes | 2010 | 2009 | ||||||
Number of shares (‘000) |
51,125 | 57,197 | ||||||
| £m | £m | |||||||
Nominal value |
13 | 14 | ||||||
Carrying value |
208 | 217 | ||||||
Market value |
634 | 755 | ||||||
| Shares held for share option schemes | 2010 | 2009 | ||||||
Number of shares (‘000) |
54,347 | 60,538 | ||||||
| £m | £m | |||||||
Nominal value |
14 | 15 | ||||||
Carrying value |
637 | 921 | ||||||
Market value |
674 | 799 | ||||||
Table of Contents
175
Notes to the financial statements
43 Principal Group companies
The following represent the principal subsidiary and associated undertakings of the
GlaxoSmithKline Group at 31st December 2010. Details are given of the principal country of
operation, the location of the headquarters, the business sector and the business activities. The
equity share capital of these undertakings is wholly owned by the Group except where its percentage
interest is shown otherwise. All companies are incorporated in their principal country of operation
except where stated.
| Europe | Location | Subsidiary | Sector | Activity | % | |||||||
England
|
Brentford | +GlaxoSmithKline Holdings Limited | Ph,CH | h | ||||||||
| Brentford | +GlaxoSmithKline Holdings (One) Limited | Ph,CH | h | |||||||||
| Brentford | +GlaxoSmithKline Services Unlimited | Ph,CH | s | |||||||||
| Brentford | +GlaxoSmithKline Mercury Limited | Ph | h | |||||||||
| Brentford | GlaxoSmithKline Finance plc | Ph,CH | f | |||||||||
| Brentford | GlaxoSmithKline Capital plc | Ph,CH | f | |||||||||
| Brentford | SmithKline Beecham Limited | Ph,CH | d e h m p r | |||||||||
| Brentford | Wellcome Limited | Ph,CH | h | |||||||||
| Brentford | Glaxo Group Limited | Ph | h | |||||||||
| Brentford | Glaxo Operations UK Limited | Ph | p | |||||||||
| Brentford | GlaxoSmithKline Export Limited | Ph | e | |||||||||
| Brentford | GlaxoSmithKline Research & Development Limited | Ph | d r | |||||||||
| Brentford | GlaxoSmithKline UK Limited | Ph | m p | |||||||||
| Brentford | Glaxochem Pte Ltd (i) | Ph | h | |||||||||
| Brentford | Setfirst Limited | Ph,CH | h | |||||||||
| Brentford | The Wellcome Foundation Limited | Ph | p | |||||||||
| Cambridge | Domantis Limited | Ph | d r | |||||||||
| Brentford | ViiV Healthcare Limited | Ph | h | 85 | ||||||||
| Brentford | ViiV Healthcare UK Limited | Ph | m s | 85 | ||||||||
| Brentford | ViiV Healthcare Trading Services Limited | Ph | e f | 85 | ||||||||
Austria
|
Vienna | GlaxoSmithKline Pharma GmbH | Ph | m | ||||||||
Belgium
|
Genval | GlaxoSmithKline S.A. | Ph | m | ||||||||
| Rixensart | GlaxoSmithKline Biologicals S.A. | Ph | d e m p r | |||||||||
Czech Republic
|
Prague | GlaxoSmithKline s.r.o. | Ph,CH | m | ||||||||
Denmark
|
Orestadt | GlaxoSmithKline Consumer Healthcare A/S | CH | m | ||||||||
| Brøndby | GlaxoSmithKline Pharma A/S | Ph | m | |||||||||
Finland
|
Espoo | GlaxoSmithKline Oy | Ph | m | ||||||||
France
|
Marly le Roi | Groupe GlaxoSmithKline S.A.S. | Ph | h | ||||||||
| Marly le Roi | Laboratoire GlaxoSmithKline S.A.S. | Ph | m r d | |||||||||
| Marly le Roi | Glaxo Wellcome Production S.A.S. | Ph | p | |||||||||
| Marly le Roi | GlaxoSmithKline Sante Grand Public S.A.S. | CH | m | |||||||||
| Marly le Roi | ViiV Healthcare S.A.S. | Ph | m | 85 | ||||||||
| St. Amand Les Eaux | GlaxoSmithKline Biologicals S.A.S. | Ph | p | |||||||||
Germany
|
Buehl | GlaxoSmithKline Consumer Healthcare GmbH & Co. KG | CH | d h m p r s | ||||||||
| Munich | GlaxoSmithKline GmbH & Co. KG | Ph | d h m s | |||||||||
Greece
|
Athens | GlaxoSmithKline A.E.B.E | Ph,CH | m | ||||||||
Hungary
|
Budapest | GlaxoSmithKline Medicine and Healthcare Products Limited | Ph,CH | e m | ||||||||
Italy
|
Verona | GlaxoSmithKline S.p.A. | Ph | d h m | ||||||||
| Milan | GlaxoSmithKline Consumer Healthcare S.p.A. | CH | m | |||||||||
| Verona | GlaxoSmithKline Manufacturing S.p.A. | Ph | p | |||||||||
GSK Annual Report 2010
Table of Contents
176
Notes to the financial statements
43 Principal Group companies continued
| Europe | Location | Subsidiary | Sector | Activity | % | |||||||
Luxembourg
|
Mamer | GlaxoSmithKline International (Luxembourg) S.A.R.L | Ph,CH | f h | ||||||||
Netherlands
|
Zeist | GlaxoSmithKline B.V. | Ph | m | ||||||||
| Zeist | GlaxoSmithKline Consumer Healthcare B.V. | CH | m | |||||||||
Norway
|
Oslo | GlaxoSmithKline AS | Ph | m | ||||||||
Poland
|
Poznan | GlaxoSmithKline Pharmaceuticals S.A. | Ph | p | ||||||||
| Poznan | GSK Services Sp.z o.o. | Ph | m | |||||||||
| Warsaw | GlaxoSmithKline Consumer Healthcare Sp.z o.o. | CH | m e | |||||||||
Portugal
|
Alges | GlaxoSmithKline-Produtos Farmaceuticos, Limitada | Ph | m | ||||||||
Republic of
|
Carrigaline | SmithKline Beecham (Cork) Limited (ii) | Ph | d p r | ||||||||
Ireland
|
Cork | GlaxoSmithKline Trading Services Limited (ii) | Ph | e | ||||||||
| Dublin | GlaxoSmithKline Consumer Healthcare (Ireland) Limited (ii) | CH | m | |||||||||
| Dublin | GlaxoSmithKline (Ireland) Limited | Ph | m | |||||||||
| Dungarvan | Stafford Miller (Ireland) Limited (ii) | CH | p | |||||||||
| Dungarvan | GlaxoSmithKline Dungarvan Limited (ii) | CH | p | |||||||||
Romania
|
Brasov | Europharm Holding S.A. | Ph,CH | s | ||||||||
| Bucharest | GlaxoSmithKline (GSK) S.R.L. | Ph | m r s | |||||||||
Russian
|
Moscow | GlaxoSmithKline Trading ZAO | Ph | m | ||||||||
Federation
|
Moscow | GlaxoSmithKline Healthcare ZAO | CH | m | ||||||||
Spain
|
Madrid | GlaxoSmithKline S.A. | Ph | m | ||||||||
| Madrid | GlaxoSmithKline Consumer Healthcare S.A. | CH | m | |||||||||
| Aranda de Duero | Glaxo Wellcome, S.A. | Ph | p | |||||||||
Sweden
|
Solna | GlaxoSmithKline AB | Ph | m | ||||||||
Switzerland
|
Muenchenbuchsee | GlaxoSmithKline AG | Ph | m | ||||||||
| USA | ||||||||||||
USA
|
Research Triangle Park | Stiefel Laboratories, Inc. | Ph | h m p | ||||||||
| Marietta | Corixa Corporation | Ph | m p | |||||||||
| Philadelphia | GlaxoSmithKline LLC | Ph,CH | d e h m p r s | |||||||||
| Pittsburgh | GlaxoSmithKline Consumer Healthcare, L.P. | CH | m p | 88 | ||||||||
| Pittsburgh | Block Drug Company, Inc. | CH | h m | |||||||||
| Wilmington | GlaxoSmithKline Holdings (Americas) Inc. | Ph,CH | h | |||||||||
| Wilmington | GlaxoSmithKline Capital Inc. | Ph | f | |||||||||
| Cambridge | Sirtris Pharmaceuticals Inc. | Ph | r | |||||||||
| Research Triangle Park | ViiV Healthcare Company | Ph | m | 85 | ||||||||
| Americas | ||||||||||||
Bermuda
|
Hamilton | GlaxoSmithKline Insurance Ltd | Ph,CH | i | ||||||||
Canada
|
Mississauga | GlaxoSmithKline Inc. | Ph | m p r | ||||||||
| Mississauga | GlaxoSmithKline Consumer Healthcare Inc. | CH | m | |||||||||
| Laval | ID Biomedical Corporation | Ph | h | |||||||||
| Quebec City | ID Biomedical Corporation of Quebec | Ph | d m p r | |||||||||
Mexico
|
Delegacion Tlalpan | GlaxoSmithKline Mexico S.A. de C.V. | Ph,CH | e m p s | ||||||||
Puerto Rico
|
Guaynabo | GlaxoSmithKline Puerto Rico Inc. | Ph | m | ||||||||
| Asia Pacific | ||||||||||||
Australia
|
Boronia | GlaxoSmithKline Australia Pty Ltd | Ph,CH | d e m p r | ||||||||
China
|
Beijing | GlaxoSmithKline (China) Investment Co. Ltd | Ph,CH | d h m s | ||||||||
| Hong Kong | GlaxoSmithKline Limited | Ph,CH | m | |||||||||
| Shanghai | GlaxoSmithKline Biologicals (Shanghai) Ltd | Ph | m p | |||||||||
| Tianjin | Sino-American Tianjin Smith Kline & French Laboratories Ltd | CH | d m p r | 55 | ||||||||
GSK Annual Report 2010
Table of Contents
177
Notes to the financial statements
43 Principal Group companies continued
| Asia Pacific | Location | Subsidiary | Sector | Activity | % | |||||||
India
|
Mumbai | GlaxoSmithKline Pharmaceuticals Limited | Ph | m p | 51 | |||||||
| Nabha | GlaxoSmithKline Consumer Healthcare Limited (iii) | CH | d e m p r | 43 | ||||||||
Malaysia
|
Petaling Jaya | GlaxoSmithKline Pharmaceutical Sdn Bhd | Ph | m | ||||||||
| Selangor | GlaxoSmithKline Consumer Healthcare Sdn Bhd | CH | m | |||||||||
New Zealand
|
Auckland | GlaxoSmithKline NZ Limited | Ph,CH | m | ||||||||
Pakistan
|
Karachi | GlaxoSmithKline Pakistan Limited | Ph,CH | m p e | 82 | |||||||
Philippines
|
Makati | GlaxoSmithKline Philippines Inc | Ph,CH | m | ||||||||
Singapore
|
Singapore | Glaxo Wellcome Manufacturing Pte Ltd | Ph | d h p r | ||||||||
| Singapore | GlaxoSmithKline Pte Ltd | Ph,CH | m | |||||||||
South Korea
|
Seoul | GlaxoSmithKline Korea Limited | Ph,CH | m | ||||||||
Thailand
|
Bangkok | GlaxoSmithKline (Thailand) Limited | Ph,CH | m | ||||||||
| Japan | ||||||||||||
Japan
|
Tokyo | GlaxoSmithKline K.K. | Ph,CH | d m p | ||||||||
| Latin America | ||||||||||||
Argentina
|
Buenos Aires | GlaxoSmithKline Argentina S.A. | Ph,CH | d e m p r | ||||||||
| Buenos Aires | Laboratorios Phoenix Sociedad Anonima Industrial Comercial y Financiera | Ph | d e m p | |||||||||
Brazil
|
Rio de Janeiro | GlaxoSmithKline Brasil Limitada | Ph,CH | e m p | ||||||||
Colombia
|
Bogota | GlaxoSmithKline Colombia S.A. | Ph,CH | m | ||||||||
Venezuela
|
Caracas | GlaxoSmithKline Venezuela, C.A. | Ph,CH | m | ||||||||
| Middle East & Africa | ||||||||||||
Egypt
|
Cairo | GlaxoSmithKline S.A.E | Ph | m p | 91 | |||||||
South Africa
|
Johannesburg | GlaxoSmithKline South Africa (Pty) Limited | Ph,CH | e m p | ||||||||
Turkey
|
Istanbul | GlaxoSmithKline llaclari Sanayi ve Ticaret A.S. | Ph,CH | m | ||||||||
| USA | Location | Associate | Sector | Activity | % | |||||||
USA |
Madison | Quest Diagnostics Incorporated (iv) | Clinical testing | 18 | ||||||||
| Middle East & Africa | ||||||||||||
South Africa
|
Johannesburg | Aspen Pharmacare Holdings Limited (iv) | Ph,CH | m p r | 19 | |||||||
| (i) | Incorporated in Singapore. | |
| (ii) | Exempt from the provisions of Section 7 of the Companies (Amendment) Act 1986 (Ireland). | |
| (iii) | Consolidated as a subsidiary undertaking in accordance with Section 1162 (4)(a) of the Companies Act 2006 on the grounds of dominant influence. | |
| (iv) | Equity accounted on the grounds of significant influence. Subsequent to the year-end GSK sold its entire shareholding in Quest Diagnostics Inc. See Note 20 for further details. | |
| + | Directly held wholly owned subsidiary of GlaxoSmithKline plc. |
Key
Business sector:
|
Ph Pharmaceuticals, CH Consumer Healthcare | |
Business activity:
|
d development, e exporting, f finance, h holding company, i insurance, m marketing, p production, r research, s service |
Full details of all Group subsidiary and associated undertakings will be attached to the company’s
Annual Return to be filed with the Registrar of Companies. Each of GlaxoSmithKline Capital Inc. and
GlaxoSmithKline Capital plc is a wholly-owned finance subsidiary of the company, and the company
has fully and unconditionally guaranteed the securities issued by each of GlaxoSmithKline Capital
Inc. and GlaxoSmithKline Capital plc.
GSK Annual Report 2010
Table of Contents
178
Notes to the financial statements
44 Legal proceedings
The Group is involved in significant legal and administrative proceedings, principally
product liability, intellectual property, tax, anti-trust and governmental investigations, as well
as related private litigation. The Group makes provision for these proceedings on a regular basis
as summarised in Note 2, ‘Accounting principles and policies’ and Note 29, ‘Other provisions’.
The Group may become involved in legal proceedings, in respect of
which
it is not possible to make
a reliable estimate of the expected financial effect, if any, that
could result from ultimate
resolution of the proceedings. In these cases,
appropriate disclosures about such cases would be included but no
provision would be made.
Intellectual property claims
include challenges to the validity and enforceability of the Group’s patents on various products or
processes as well as assertions of non-infringement of those patents. A loss in any of these cases
could result in loss of patent protection for the product at issue. The consequences of any such
loss could be a significant decrease in sales of that product and could materially affect future
results of operations for the Group.
Legal expenses incurred and provisions related to legal claims are charged to selling, general and
administration costs. Provisions are made, after taking appropriate legal and other specialist
advice, where an outflow of resources is considered probable and a reliable estimate can be made of
the likely outcome of the dispute. In respect of product liability claims related to certain
products there is sufficient history of claims made and settlements to enable management to make a
reliable estimate of the provision required to cover unasserted claims. In certain cases an
incurred but not reported (IBNR) estimate using actuarial techniques as appropriate is used to
determine and estimate the Group’s exposure, as described in Note 29, ‘Other provisions’. At 31st
December 2010, the Group’s aggregate provision for legal and other disputes (not including tax
matters described in Note 14, ‘Taxation’) was £4.0 billion. The ultimate liability for legal claims
may vary from the amounts provided and is dependent upon the outcome of litigation proceedings,
investigations and possible settlement negotiations. The Group’s
position could change over time,
and, therefore, there can be no assurance that any losses that result from the outcome of any legal
proceedings will not exceed the amount of the provisions reported in the Group’s financial accounts
by a material amount. If this were to happen, it could have a material adverse impact on the
results of operation of the Group in the reporting period in which the judgments are incurred or
the settlements entered into. The most significant of these matters are described below.
Intellectual property
Advair/Seretide
A number of companies have challenged the Group’s patents covering Advair/Seretide in certain
European jurisdictions, including in the UK, Belgium, France, Germany, Ireland and the Netherlands.
As reported previously, the Group’s Seretide combination patent covering the product in the UK was
revoked in 2004. On 23rd February 2010, in actions brought by Mylan, Hexal, Neolab and Ivax, the
Federal Court in Munich revoked the Group’s German Seretide combination patent for lack of
inventive step. The Group has appealed this decision. In the Netherlands, in an action brought by
Sandoz and Hexal, the District Court of The Hague on 26th January 2011 revoked the Supplementary
Protection Certificate (SPC) which extends protection for the product until September 2013. The
Group is determining whether to appeal this decision.
A revocation action against the basic patent covering the Seretide combination in Ireland was filed
in the High Court in Dublin on behalf of Ivax in July 2008. The High Court handed down a decision
on 26th June 2009 finding the patent invalid for obviousness. The Group filed an appeal of this
decision in October 2009. No trial date has been set for the appeal.
An action for revocation of the French Seretide combination patent was filed by Sandoz with the
Tribunal de Grande Instance of Paris. Trial has been scheduled for June 2011. The basic patent
covering the combination product in Seretide expired in September 2010 but is subject to a SPC
which extends protection until September 2013.
In January 2011, Sandoz initiated a revocation action against the Group’s Belgian Seretide patent.
To date, no generic Seretide product has been approved in any major European market despite the
revocation of certain Group patents covering Seretide in some countries.
argatroban
In December 2007, Encysive Pharmaceuticals Inc., Mitsubishi Kasei Corporation and the Group
filed an action in the United States District Court for the Southern District of New York against
Barr Laboratories, Inc. for infringement of Mitsubishi’s pharmaceutical composition patent covering
argatroban. Pursuant to a license from Mitsubishi, Encysive developed
argatroban for the treatment
of heparin-induced thrombocytopenia and holds the New Drug Application approved by the US FDA.
Encysive licensed the US marketing rights for argatroban to the Group. The Mitsubishi patent
expires in June 2014. Barr (now Teva Pharmaceuticals, Inc.) filed an Abbreviated New Drug
Application (ANDA) with the FDA with a certification of invalidity, unenforceability and
non-infringement of the Mitsubishi patent. On 17th June 2010, the Group and its partners prevailed
against Teva, with the trial judge ruling that Mitsubishi’s patent covering the formulation for
injectable argatroban was infringed and not invalid. As a result of the Court’s decision, Teva is
precluded from launching its generic product until 20th June 2014, the expiration date of the
patent. Teva appealed the decision to the Court of Appeals for the Federal Circuit.
Arzerra
In October 2009, the Group filed an action in the United States District Court for the
Southern District of Florida for a declaration that US Patent No. 6,331,415 (the so-called ‘Cabilly
II’ patent), which is owned jointly by Genentech, Inc. and City of Hope, is invalid, unenforceable,
or not infringed by the Group’s product Arzerra (ofatumumab). Arzerra was approved by the FDA for
chronic lymphocytic leukaemia (an orphan indication) in October 2009. In February 2010, the Group
voluntarily dismissed the case and filed a new case in the United States District Court for the
Northern District of California where the suit is currently pending.
On 23rd
March 2010, Genentech and Biogen Idec filed suit against the Group in the United States
District Court for the Southern District of California alleging that the Group’s sale of
Arzerra induces and contributes to infringement of US Patent No. 7,682,612. That patent claims
the treatment of chronic lymphatic leukemia with an anti-CD-20 monoclonal antibody. The case is
in its early stages.
GSK Annual Report 2010
Table of Contents
179
Notes to the financial statements
44 Legal proceedings continued
Avodart
In January 2008, the Group received notice that Barr Laboratories filed an ANDA with the FDA
with an allegation of invalidity of the three patents listed in the Orange Book which cover the
active ingredient in Avodart and its use to treat benign prostatic hyperplasia. Two of these
patents expire in 2013, and one expires in 2015. In February 2008, the Group filed an action in the
United States District Court for the District of Delaware against Barr for infringement of these
patents. In March 2010, the Group and Barr (now Teva Pharmaceuticals, Inc.) reached a settlement of
the litigation. On 12th May 2010, the district court dismissed the case. Pursuant to the
settlement, Teva will obtain a license to enter the US market with a generic dutasteride product in
the fourth quarter of 2015 or earlier under certain circumstances.
In November 2010, Banner Pharmacaps, Inc. sent the Group notice that it had filed an ANDA to market
a generic version of Avodart. Banner’s notification contained a ‘Paragraph IV certification
alleging that two Group patents expiring in 2013 and one patent expiring in 2015 were invalid or
not infringed by Banner’s proposed generic dutasteride product. These patents are the same patents
that were the subject of the Group’s settlement with Teva in March
2010. Since Teva was the first to file a complete ANDA with a
Paragraph IV certification, it holds 180-day exclusivity as to all
later filers. Banner cannot enter the market until the expiration or
forfeiture of Teva’s 180 days of exclusivity. The Group sued Banner
in the United States District Court for the District of Delaware in
January 2011.
In December 2010, Anchen Pharmaceuticals, Inc. sent the Group notices that it had filed ANDAs with
Paragraph IV certifications for Avodart and Jalyn, alleging that the Group patent expiring in 2015
that covers dutasteride was invalid or not infringed by their proposed products. Jalyn is a
combination of dutasteride and tamsulosin and is covered by the same patents that cover Avodart.
Anchen cannot launch its generic Jalyn product before the expiration of the non-challenged patents
in September 2013. Anchen cannot launch its generic Avodart product until the later of September
2013 or expiration or forfeiture of Teva’s 180-day exclusivity. The Group sued Anchen in the United
States District Court for the District of Delaware in January 2011.
Benlysta
In February 2010, the UK Court of Appeal upheld an earlier High Court decision revoking the
Human Genome Sciences (HGS) UK Patent No. EP0939804. The claim for revocation was brought by Eli
Lilly in 2006 on the patent which claims the cytokine BLyS and any antibody that binds to BLyS,
such as Benlysta (belimumab). The Group has a licence to this patent from HGS but was not a party
to these litigation proceedings. The equivalent European patent was upheld in October 2009 on a
final appeal from the European Patent Office following an opposition proceeding filed by Eli Lilly.
This UK decision does not affect the other European patents arising from this same European Patent.
HGS appealed the UK decision. In July 2010, the UK Supreme Court decided that it would hear the
appeal. A hearing date for the appeal has been set for 18th July
2011. This decision will not affect the Group’s or HGS’ ability to
market and sell Benlysta.
Combivir
Patents listed in the Orange Book for Combivir include composition of matter
(3TC/lamivudine), combination (lamivudine and AZT) and lamivudine crystal form patents that expire
in 2010, 2012 and 2016, respectively. In September 2007, the Group received notice that Teva
Pharmaceuticals, Inc. filed an ANDA with the FDA alleging that the combination patent is invalid.
In November 2007, the Group filed an action in the United States District Court for the District of
Delaware against Teva Pharmaceuticals USA Inc. for infringement of the combination patent. In April
2010, the Group and Teva agreed to settle the suit filed by the Group. Under the terms of the
settlement, Teva will obtain a license to enter the US market in the fourth quarter of 2011, or
earlier under certain circumstances. In light of the settlement, the district court dismissed the
case on 26th May 2010.
In July 2008, the Group received notice that Lupin Ltd. filed a certification with the FDA alleging
that the combination patent is invalid or not infringed by its product. Lupin also filed a
certification that the Group’s patent covering the crystal form of lamivudine is invalid or not
infringed. In August 2008, the Group filed suit against Lupin in the United States District Court
for the District of Delaware for infringement of its combination patent. In March 2009, the action
against Lupin was stayed by mutual consent pending resolution of the case against Teva. On 26th May
2010, the Group’s case against Teva, the first ANDA filer, was settled and dismissed. Lupin may
choose to reactivate its case against the Group under the terms of the stay. However, Lupin will
not be able to obtain final approval for its product until the expiration or forfeiture of Teva’s
180-day exclusivity period.
Levitra
The Group participates in the marketing of Levitra pursuant to a co-promotion agreement with
Bayer Healthcare. In July 2009, Bayer brought suit against Teva Pharmaceuticals in the United
States District Court for the District of Delaware for infringement of its patent relating to
Levitra. Teva had filed an ANDA with the FDA with a certification that the patent covering the
active ingredient in Levitra, which expires in 2018, is invalid, unenforceable or not infringed. A
stay against FDA approval was put into effect by the filing of the lawsuit until the earlier of a
decision in the case adverse to Bayer or November 2011. In January 2011, the trial date in the
matter was extended from 31st October 2011 to 27th February 2012, and Teva consented to an
extension of the stay against FDA approval by an amount equal to the extension of the trial date.
The Group is not a party to this suit.
Lovaza
In March 2009, the Group received notice that Teva Pharmaceuticals USA, Inc., Par
Pharmaceutical, Inc., and Apotex Inc., had filed ANDAs with a certification that two patents
covering Lovaza are invalid, unenforceable, or not infringed. The patents expire in 2013 and 2017.
The Group is the licensee under these patents. Pronova Biopharma Norge AS, the owner of the
patents, sued Teva, Par and Apotex in the United States District Court for the District of
Delaware. FDA approval of the ANDAs will be stayed until the earlier of May 2012 or a decision
favourable to one of the generics. Trial has been set by the court for 28th March 2011. The Group
is not a party to these suits.
Three additional patents covering Lovaza were granted to Pronova between March and June 2010.
Pronova sued Teva, Par and Apotex on these patents, and a separate trial has been scheduled for 3rd
January 2012. No additional 30-month stay attached to a suit under these patents.
GSK Annual Report 2010
Table of Contents
180
Notes to the financial statements
44 Legal proceedings continued
Malarone
In August 2009, the Group filed suit in the United States District Court for the District of
Delaware against Glenmark Generics Inc. USA for infringement of its patents related to Malarone.
The Group had received notification that Glenmark had filed an ANDA for Malarone, with
certification alleging that the Group’s patents were invalid, unenforceable, or not infringed.
These patents, which expire in 2014, cover the combination of atovaquone and proguanil
hydrochloride and its use for preventing malaria. The Group settled the case in April 2010. Under
the terms of the settlement agreement, Glenmark has received a
royalty-bearing licence to enter the
market with its product in the third quarter of 2011 or earlier in certain circumstances. The case
was dismissed 24th May 2010.
Paxil/Seroxat
Following a court-ordered mediation in the second quarter of 2010, the Group resolved all
claims by and against Apotex in the Paxil/Seroxat patent
infringement and anti-trust litigation
venued in the US District Court for the Eastern District of Pennsylvania, as well as litigation
brought by Apotex against the Group in Canada. The litigation has been dismissed with respect to
all parties.
Treximet
In October 2008, the Group received a letter from Par Pharmaceuticals that the FDA had
accepted its ANDA for Treximet, which included a certification that patents owned by Pozen, Inc.
relating to Treximet were invalid, unenforceable or not infringed. Pozen’s patents are licensed to
the Group. In November 2008, Pozen filed suit against Par under three of its patents in the
District Court for the Eastern District of Texas. In November 2008, the Group received a letter
from Alphapharm and its designated agent, Mylan Pharmaceuticals, that the FDA had accepted its ANDA
for Treximet, which also included a certification that Pozen’s patents relating to Treximet were
invalid, unenforceable or not infringed. Pozen filed suit against Alphapharm and Mylan in January
2009 for infringement of its patents in the District Court for the Eastern District of Texas. In
2009, Pozen also sued Teva Pharmaceuticals USA, Inc. and Dr. Reddy’s under the same patents in the
same court. A trial was held in October 2010, and the parties are awaiting a decision. Treximet has
data exclusivity that precludes approval of a generic product until April 2011. The Group is not a
party to any of the lawsuits brought by Pozen.
Vesicare
The Group markets Vesicare in the USA under license from Astellas Pharma Inc. In September 2009,
Astellas filed suit against Teva Pharmaceuticals USA, Inc. in the Federal District Court for the
Southern District of New York for infringement of its patent covering the active ingredient in
Vesicare. Astellas had received notice that Teva had filed an ANDA with a certification that the
basic patent, which expires in 2018, was invalid or unenforceable. The parties settled, and the
case was dismissed 28th June 2010. Under the terms of the settlement, Teva will be able to enter
the market in October 2018.
On 15th February 2011, Astellas and the Group announced that the Group will cease promoting
Vesicare in the USA by January 2012.
Product liability
Pre-clinical and clinical trials are conducted during the development of potential products
to determine the safety and efficacy of products for use by humans following approval by regulatory
bodies. Notwithstanding these efforts, when drugs and vaccines are introduced into the marketplace,
unanticipated safety issues may become evident. The Group is currently a defendant in a number of
product liability lawsuits related to the Group’s pharmaceutical and consumer healthcare products.
The most significant of those matters are described below.
Avandia
The Group has been named in product liability lawsuits on behalf of individuals asserting
personal injury claims arising out of the use of Avandia. The federal cases are part of a
multi-district litigation proceeding pending in the United States District Court for the Eastern
District of Pennsylvania. Cases have also been filed in a number of state courts. Cases filed in
state court in Philadelphia have been coordinated in the Mass Tort Program; cases in state court in
California have been coordinated in Los Angeles. Additionally, there are 14 purported class actions
seeking economic damages on behalf of third party payers and consumers asserting claims arising
under various state and federal laws, including
The Racketeer Influenced and Corrupt Organizations Act
(RICO), state unfair trade practices and/or consumer
protection laws.
On 23rd September 2010, the FDA took action on rosiglitazone, keeping all rosiglitazone products on
the market, but requiring additional labeling and restrictions on use to ensure that the benefits
of Avandia continue to outweigh its risks, including a Risk Evaluation and Mitigation Strategy
(REMS) program to ensure the safe use of the medicine. In the EU, the EMA announced on 23 September
2010 that it had determined to suspend the marketing authorisation for rosigilitazone (including
all Avandia products). Regulatory agencies in other countries are reviewing or have taken
regulatory action. The Group is working to implement the decisions of the FDA, EMA and other
regulatory agencies. On 7th February 2011, the FDA announced a change in the labeling for Avandia
to restrict use to those patients already taking a rosiglitazone-containing medicine, to new
patients who are unable to achieve adequate glycemic control with
other diabetes medications,
and to those patients who have decided not to take pioglitazone or
pioglitazone-containing medicines.
The Group has continued to receive a significant number of new product liability cases regarding
Avandia in the USA, in part as a result of the regulatory action taken by FDA and in part based on
other negative publicity concerning the product, and adjusted its provision for potential
settlements accordingly, which provision includes an estimate of future claims. With respect to
such product liability cases in the USA, the Group has reached agreements to settle the majority of
claims pending as of February, 2011
One purported class action on Avandia has been filed in Israel, and briefing of whether to certify
the class action is underway. Eleven class actions are pending in Canada, and are at an early
stage.
GSK Annual Report 2010
Table of Contents
181
Notes to the financial statements
44 Legal proceedings continued
Paxil and Paxil CR
The Group has received
numerous lawsuits and claims alleging that use of Paxil (paroxetine)
has caused a variety of injuries. Many of these lawsuits and claims allege that the use of Paxil
during pregnancy resulted in the birth of a child with birth defects or health issues. Other
lawsuits and claims allege that patients who took Paxil committed or attempted to commit suicide or
acts of violence. Finally, a third group of lawsuits and claims allege that the use of Paxil caused
patients to suffer symptoms on discontinuing treatment with Paxil.
The Group has reached agreements to settle the vast majority of the US claims pending as of
February 2011. Other matters have been dismissed without payment. Some lawsuits remain scheduled
for trial, including nine cases scheduled for trial in the Philadelphia Mass Tort Program in May
and June 2011 concerning use of Paxil during pregnancy. There remains purported class action
litigation in Canada concerning use of Paxil during pregnancy.
A California court granted plaintiffs’ motion to certify a class in a consumer fraud lawsuit
seeking only economic damages, focused on discontinuation symptoms.
In Canada, the Court of Appeal affirmed the Quebec court’s denial of plaintiffs’ motion to certify
a class of patients who allegedly experienced discontinuation symptoms. That litigation is now
concluded.
In the UK, public funding has been withdrawn from the hundreds of claimants who had received
funding to pursue common issues in litigation alleging that paroxetine has caused them to suffer
from withdrawal reactions and dependency. The Legal Services Commission’s decision to withdraw
funding is being appealed to a Special Cases Review Panel by some claimants. Other claimants have
discontinued their claims, and the trial listed to commence in early 2011 in the High Court in
London has been vacated.
Poligrip
Beginning in 2005, a number of product liability lawsuits and claims were filed against the
Group in both state and federal courts in the USA, including purported class actions, alleging that
the zinc in Poligrip causes copper depletion and permanent neurologic injury. The federal cases are
part of the Denture Cream Adhesive multi-district litigation (MDL) in the United States District
Court for the Southern District of Florida which was established in June 2009. Both the Group and
Procter & Gamble are defendants in this litigation. Included in the MDL are purported class actions
asserting economic loss claims under state consumer protection laws and claims for medical
monitoring. With three current exceptions (two state court cases in Pennsylvania and one in New
York), all of the state court cases have been consolidated in the Philadelphia Mass Tort Program.
Purported class actions asserting consumer fraud claims were also filed in Canada. The Group has
reached agreements in principle to settle the vast majority of current cases. The Group has
voluntarily withdrawn all zinc-containing formulations of Poligrip from the market.
Thimerosal
The Group, along with a number of other pharmaceutical companies, has been named as a
defendant in numerous individual personal injury lawsuits in state and federal district courts in
the USA alleging that thimerosal, a preservative used in the manufacture of vaccines, causes
neurodevelopmental disorders and other injuries, including autism.
Two of the cases are purported class actions, although there has been no determination whether any
of those cases will be permitted to proceed as a class action. A number of purported class actions
in other jurisdictions have been withdrawn or dismissed. Plaintiffs seek remedies including
compensatory, punitive and statutory damages as well as the cost of a fund for medical monitoring
and research.
As of the date of this report, in the limited number of cases that have approached trial dates,
vaccine manufacturers and manufacturers of other thimerosal containing medicinal products have been
successful in excluding testimony of plaintiffs’ expert witnesses on causation, specifically on
grounds that plaintiffs have failed to establish that the hypothesised link between thimerosal and
neurodevelopmental disorders is generally accepted as reliable within the relevant scientific
community.
In February 2009, the Office of Special Masters of the United States Court of Federal Claims
rejected the first three of approximately 4,900 autism claims filed under the National Vaccine
Injury Compensation Program (NVICP) on the grounds that claimants failed to produce reliable
scientific evidence linking their vaccinations to their medical conditions, including autism.
The Group was not a party to these proceedings. The findings from them cannot be used as evidence
in the pending lawsuits against the Group. All three decisions were upheld on appeal by the United
States Court of Federal Claims. Two of the three NVICP claimants appealed the rulings to the United
States Court of Appeals for the Federal Circuit which affirmed the decisions of the United States
Court of Federal Claims. The third claimant has elected not to appeal further and has rejected the
decision from the NVICP. This claimant now has the option of filing an action either against the
Group and/or the physician who administered the vaccine in question. As of this date, no such
action has been commenced. The remaining approximately 4,900 NVICP claimants also will ultimately
have the option of pursuing personal injury lawsuits against the vaccine manufacturers, including
the Group.
On 22nd February 2011, the United States Supreme Court issued its decision in Bruesewitz v. Wyeth,
Inc., which involved the issue of whether the National Vaccine Injury Compensation Act (NVICA)
precludes lawsuits against vaccine manufacturers claiming that vaccines covered by the NVICP are
defectively designed. The Supreme Court affirmed the decision of the United States Court of Appeal
for the Third Circuit and held that the NVICA pre-empts all design defect claims against vaccine
manufacturers brought by plaintiffs seeking compensation for injury or death caused by a vaccine’s
side effects.
To date, the Group has not seen an increase in the number of civil lawsuits filed against it
following the announcement of the NVCIP decisions. Since the scope of the Bruesewitz ruling impacts
only the ability of plaintiffs to pursue claims that the design of certain childhood vaccines was
defective because it included the use of thimerosal as a preservative, its impact on the
willingness of plaintiffs to pursue their civil lawsuits based on other legal theories remains
unknown. As of the date of this report, there are no cases scheduled for trial in 2011 in which the
Group is a defendant.
GSK Annual Report 2010
Table of Contents
182
Notes to the financial statements
44 Legal proceedings continued
Sales and marketing and regulation
‘Colorado Investigation’
In February 2004, the Group received a subpoena from the United States Attorney’s office in
Colorado regarding the Group’s sales and promotional practices relating to nine of its largest
selling products, for the period from January 1997 to 2004.
That investigation was later taken over by the United States
Attorney’s office for the District of Massachusetts and
expanded to the present with respect to Advair.
In particular, the government has inquired about
alleged promotion of all of these drugs for off-label uses, as well as Group-sponsored continuing medical
education programmes, other speaker events, special issue boards, advisory boards, speaker training
programmes, clinical studies and related grants, fees, travel and entertainment. Although the
original subpoena was issued from the US Attorney’s office in Colorado, the scope of the inquiry is
nationwide. The Group continues to cooperate with the government in its investigation.
The government is also inquiring about the Group’s response to an October 2002 letter from the
FDA’s Division of Drug Marketing, Advertising and Communication requesting information on the
Group’s alleged promotion of Wellbutrin SR for off-label use. The Group is cooperating with the
investigation and providing the requested information.
Avandia-related matters
The Group is in the process of responding to a United States Department of Justice subpoena it
received in June 2010 seeking documents relating to the development and marketing of Avandia. The
Group has also received Civil Investigative Demands from a number of State Attorneys General
offices relating to the development and marketing Avandia, and is cooperating with these offices.
The Utah Attorney General’s Office and the Louisiana Attorney General’s Office both have filed suit
against the Group asserting various statutory and common law claims relating to the Group’s
development and marketing of Avandia. The suits are in their early days.
UN Oil for Food Programme
Following a United Nations report alleging that bribes had been paid to Iraqi government officials
in connection with the UN Oil for Food Programme, the Group received a subpoena from the SEC in
February 2006 in respect of the Group’s participation in that programme. The United States
Department of Justice (DOJ) also initiated an investigation. In December 2007, the UK Serious Fraud
Office (SFO) issued a formal notice to the Group requiring production of documents related to the
Group’s participation in the programme. On 9th September 2010, the SFO notified the Group that it
had completed its investigation and intends to take no further action. The Group has received no
further contact from the SEC or DOJ in 2010 regarding this matter.
HIV division inquiry
On 26th July 2010, the Group received a subpoena from the Eastern District of New York’s US
Attorney’s Office regarding sales and marketing practices for three HIV products, as well as
educational programs, grants or payments to physicians regarding any drug used to treat
HIV-infected adults. The Group is cooperating with the investigation.
Average wholesale price
The United States Department of Justice, a number of states and putative classes of private payers
have for several years now been investigating and/or bringing civil litigation regarding
allegations that numerous pharmaceutical companies, including the Group, have violated federal or
state fraud and abuse laws as a result of the way ‘average wholesale price’ (AWP) and ‘wholesale
acquisition cost’ (WAC) have been determined and reported for various drugs reimbursed under the
Medicare, Medicaid and other insurance programmes. In 2005, the Group reached a $149 million civil
settlement with the federal government to resolve allegations relating to the pricing and marketing
of Zofran and Kytril. The Group also amended its existing corporate integrity agreement as a
requirement of the settlement. In 2007, the Group received final approval of a $70 million
nationwide private payer class action settlement relating to the Group’s price reporting in an MDL
proceeding in the United States District Court for the District of Massachusetts.
| A number of states, through their respective attorneys general, and most of the counties in New York State have filed civil lawsuits in state and federal courts against the Group and many other drug companies claiming damages and restitution due to AWP and/or WAC price reporting for pharmaceutical products covered by the states’ Medicaid programmes. The states seek recovery on behalf of the states as payers and, in some cases, on behalf of in-state patients as consumers. | ||
| The Group has separately resolved AWP claims by state Medicaid programmes in more than two-thirds of the states through the DOJ Settlement or separate negotiations. Litigation concerning AWP issues is continuing with six states. | ||
| In November 2009, a Kentucky state court jury returned a $661,860 compensatory damages only verdict against the Group in another such case filed by the State of Kentucky. The jury found the Group liable for violating the state’s consumer protection laws, but not liable under the state’s Medicaid fraud and false advertising statutes. In January 2010, the judge in the case awarded the State of Kentucky an additional $5,828,000 in statutory penalties. The Group has settled the case with Kentucky. The judgment was vacated, and the Group denied liability as part of the settlement. |
GSK Annual Report 2010
Table of Contents
183
Notes to the financial statements
44 Legal proceedings continued
Nominal pricing
The Group responded to two letter requests from the United States Senate Committee on Finance,
dated April 2004 and February 2005, for documents and information relating to the nominal price
exception to the best price reporting requirements under the Medicaid Drug Rebate Programme. In
January 2007, the committee released its findings that some pharmaceutical manufacturers
inappropriately used the nominal price exception contrary to the committee’s interpretation of
Congressional intent. In May 2004, the Group was advised by the United States Department of Justice
that it is investigating certain of the Group’s nominal pricing and bundled sales arrangements to
determine whether those arrangements qualify under the exception to the best price reporting
requirements or violate civil statutes or laws.
In March 2008, the Group received a broad letter request from the US Department of Justice seeking
a range of documents relating to all of the Group’s nominal pricing arrangements since 1994 and any
possible bundled sales. The Group is continuing to cooperate in the investigation and produce
documents. The Group has also received subpoenas and requests for documents and information from
Delaware and Michigan related to the Group’s nominal price arrangements. The Group is cooperating
in those investigations and producing responsive documents. In addition to these governmental
investigations, allegations concerning nominal pricing have been made in the 340B Programme
litigation. The Group has not entered into any nominal price arrangements since December 2003.
340B Programme
The Group is defending an action filed in federal court in the United States District Court for the
Northern District of California by the County of Santa Clara and one other county, which seeks to
represent a putative class of hospitals, clinics and other entities in California that are eligible
to receive discounted ‘ceiling prices’ on pharmaceuticals under a federal programme known as the
‘340B Programme.’ Plaintiffs allege that the Group and numerous other pharmaceutical manufacturers
have been setting ‘ceiling prices’ higher than allowed by law and, under the contract that governs
the programme, and have therefore overcharged the entities in California that are eligible to
participate in the 340B Programme.
The lawsuit was dismissed in 2006. It was reinstated in August 2008 following an appeal. The United
States Supreme Court agreed to review the issue of whether 340B entities have standing to sue
manufacturers under the manufacturers’ 340B contract with the government. The trial court stayed
all proceedings in the case until after the Supreme Court’s decision. Oral argument before the
Supreme Court occurred on 19th January 2011. The Supreme Court has not yet issued its decision.
Paxil/Seroxat
Following the Group’s 2004 settlement of a lawsuit filed by the New York State Attorney General’s
office alleging failure to disclose data on the use of Paxil in children and adolescents, similar
cases, some of which purported to be class actions, were filed by private plaintiffs seeking to
recover amounts paid for Paxil purchased for use by patients under the age of 18. Following a class
settlement with consumers in 2007, the United States District Court for the District of Minnesota
in 2008 approved a $40 million class settlement of ensuing lawsuits seeking recovery on behalf of
insurance companies and other third-party payers for payments for
prescriptions of Paxil to children
and adolescents. The Group denied liability in both settlements. In 2009, a similar purported class
action was filed in United States District Court for the District of Minnesota on behalf of all
federal, state and local government entities that paid for prescriptions of Paxil to minors. There
also remains a similar purported class action in Canada seeking economic damages on behalf of
individuals, third party payers and governmental entities that purchased Paxil for use by patients
under the age of 18.
Cidra, Puerto Rico manufacturing site
In April 2005, the Group received a subpoena from the United States Attorney’s Office in Boston
requesting production of records regarding its manufacturing facilities located in Cidra, Puerto
Rico, which have since ceased operations. In addition, in July 2007, the Group learned that the
United States District Court for the District of Massachusetts had unsealed a complaint brought by
a former employee under the federal False Claims Act claiming monetary damages as a result of the
alleged failure of the Cidra facility to comply with FDA Good Manufacturing Processes (GMPs) in the
manufacture of various products.
On 26th October 2010, the Group finalised an agreement with the US Attorney’s Office for the
District of Massachusetts and the US Department of Justice with respect to the investigation of the
Group’s former manufacturing facility in Cidra, Puerto Rico. Under the agreement and as a
comprehensive settlement of pending claims against the Group arising from the investigation, the
Group paid a total of $750 million (£500 million) in civil and criminal penalties, and SB Pharmco
Puerto Rico, Inc., a subsidiary of the Group, pleaded guilty to certain charges. The Group is in
the process of negotiating a Corporate Integrity Agreement with the Office of Inspector General
that will cover manufacturing compliance matters.
The Group has received Civil Investigative Demands and a subpoena from several State Attorneys
General offices relating to the matters at issue in the federal investigation. The enquiries are at
an early stage, and the Group is cooperating with these offices.
SEC/DOJ FCPA Inquiry
The US Securities and Exchange Commission (SEC) and the US Department of Justice (DOJ) are
conducting an industry-wide investigation into whether pharmaceutical companies may have engaged in
violations of the Foreign Corrupt Practices Act relating to the sale of Pharmaceuticals, including
in Argentina, Brazil, Canada, China, Germany, Italy, Poland, Russia and Saudi Arabia. The Group is
one of the companies that have been asked to respond to this inquiry and is cooperating with the
SEC and DOJ.
GSK Annual Report 2010
Table of Contents
184
Notes to the financial statements
44 Legal proceedings continued
Anti-trust/competition
Paxil/Seroxat
As noted previously on page
180, the Group has settled its patent infringement and anti-trust
litigation with Apotex regarding Paxil/ Seroxat, and the litigation has been dismissed as to all
parties.
EU sector inquiry
In January 2008, the European Commission announced an inquiry into certain aspects of competition
in the pharmaceutical sector and initiated inspections at the premises of a number of innovator and
generic pharmaceutical companies, including the Group. The Commission published a preliminary
report in November 2008. The report suggests that defensive patenting strategies may lead to
obstacles to innovation and that innovator companies employ measures to hinder generics coming onto
the market. The final report was issued in July 2009. While not contradicting the preliminary
report, the final report conceded that delays in generic entry were as much the fault of the
regulatory environment as innovator companies’ defensive strategies. In this report, the Commission
stated that it did not attack legitimate patenting practices and identified areas for follow up
scrutiny by the Commission and recommended regulatory reform and improvement.
On 17th January 2011, the Commission requested information from the Group and a number of other
pharmaceutical companies relating to patent settlement agreements affecting European Union and
European Economic Area markets. The request for information is the second monitoring exercise by
the Commission patent settlement agreements in the pharmaceuticals sector. The Group is in the
process of responding to the Commission’s request.
Wellbutrin SR
In December 2004, January 2005 and February 2005, lawsuits, several of which purported to be class
actions, were filed in the United States District Court for the Eastern District of Pennsylvania
against the Group on behalf of direct and indirect purchasers of Wellbutrin SR. The complaints
allege violations of US anti-trust laws through sham litigation and fraud on the patent office by
the Group in obtaining and enforcing patents covering Wellbutrin SR. The complaints followed the
introduction of generic competition to Wellbutrin SR in April 2004, after district and appellate
court rulings that a generic manufacturer did not infringe the Group’s patents. A class of direct
purchasers has been certified. The court recently entered an order granting the motion of the
indirect purchaser plaintiffs to file a renewed motion for class certification. The court has
scheduled trial for 27th June 2011 with regard to the claims of the certified class of direct
purchasers.
Secondary wholesaler
In July 2006, RxUSA Wholesale, Inc., a ‘secondary wholesaler,’ filed suit against the Group and
many other pharmaceutical manufacturers and wholesalers in the United States District Court for the
Eastern District of New York. The complaint alleges that the defendants engaged in a conspiracy to
refuse to supply pharmaceutical products to RxUSA in violation of federal and state anti-trust
laws. The Group’s motion to dismiss the complaint was granted. The United States Court of Appeals
for the Second Circuit affirmed the dismissal of the complaint. The case is now concluded.
Wellbutrin XL
Actions have been filed against Biovail and the Group by purported classes of direct and indirect
purchasers who allege unlawful monopolisation and other anti-trust violations related to the
enforcement of Biovail’s Wellbutrin XL patents and the filing, by Biovail, of citizen petitions.
The Group’s motion to dismiss the amended complaint of the indirect purchasers was granted in
respect of some, but not all, of the claims of the class representatives and many of the claims
asserted by the indirect purchasers. The case has proceeded to discovery with respect to the
remaining claims as well as the ones brought by the purported class of direct purchasers. A class
certification hearing is scheduled for April 2011.
Flonase
Purported direct and indirect purchaser class actions have been filed in the United States District
Court for the Eastern District of Pennsylvania alleging the Group illegally maintained monopoly
power in the ‘market’ for Flonase and charged plaintiffs supra-competitive prices. Additionally, a
suit has been filed by Roxane Laboratories, Inc., a generic competitor, seeking lost profits from
the Group’s alleged actions unlawfully delaying Roxane’s entry into the market. The predicate for
all of these allegations was the filing by the Group of allegedly sham citizen petitions and
subsequent litigation. The motion of the direct purchasers to certify a class was granted by the
court. The Group has successfully narrowed the claims of the purported class of indirect purchasers
through motions to dismiss their complaint and amended complaints. The Group’s motion to dismiss
Roxane’s complaint was denied.
Commercial and corporate
Securities/ERISA class actions
On 6th July 2009, a class action suit brought on behalf of current and former employees of Stiefel
Laboratories, Inc., was filed in United States District Court for the Southern District of Florida.
The complaint alleges that Stiefel and its officers and directors violated US Employee Retirement
Income Security Act (ERISA) and federal and state securities laws by inducing Stiefel employees to
sell their shares in the employee stock plan back to Stiefel at a greatly undervalued price and
without disclosing to employees that Stiefel was about to be sold to the Group. In January 2010,
defendants’ motion to dismiss was granted in part and denied in part. Specifically, while the Court
determined that the ERISA claims against the individual Stiefel defendants as well as the federal
securities claims against the individual defendants and Stiefel could go forward, the Court
dismissed the Florida Securities Act and common law breach of fiduciary duty claims holding that
ERISA pre-empts state and common law, as well as a malpractice claim against Stiefel’s former
accountants. Trial of the remaining claims is scheduled for July 2011.
A putative class action suit was filed against the Group on 27th August 2010 in the United States
District Court for the Southern District of New York. The complaint alleges that the Group and its
officers, directors and certain employees made misleading public statements about Avandia, and that
when these alleged ‘misleading statements’ were exposed, the value of the Group’s stock dropped.
Plaintiff has brought suit on behalf of himself and all other participants in the Group’s
retirement plans, claiming that the Group and the individual defendants breached their fiduciary
duties to plan participants under ERISA.
GSK Annual Report 2010
Table of Contents
185
Notes to the financial statements
44 Legal proceedings continued
Plaintiffs have amended their complaint to add allegations concerning Wellbutrin SR and
Paxil/ and to include additional Group defendants and individual members of the Group’s benefits
committees. The Group filed a motion to dismiss on 4th February 2011.
Wage and hour claims
In December 2006, two purported class actions were filed against the Group on behalf of the entire
Group’s US pharmaceutical sales representatives. These actions, which were filed in or transferred
to the United States District Court for the Central District of California, initially alleged that
those representatives are not ‘exempt’ employees under California law and/or the US Fair Labor
Standards Act (FLSA) and are consequently entitled to overtime pay, among other things.
Plaintiffs subsequently amended their complaints to assert a class action, limited solely to
pharmaceutical sales representatives working in California, and only asserting claims under
California’s wage and hour laws.
The suits seek a variety of compensatory, punitive and statutory damages. The Group moved for
summary judgment dismissing the claims of the putative class representatives on the ground that
they were exempt employees. The Court held that there are appeals pending in the United States
Court of Appeals for the Ninth Circuit in cases involving other manufacturers with virtually the
same factual and legal arguments. It therefore deferred ruling on the summary judgment motion and
stayed any further activity in the case until the appellate court rules in at least one of the
other companies’ pending cases.
A third case, filed in the United States District Court for the District of Arizona in August 2008,
sought to establish a nationwide collective action on behalf of the entire Group’s US
pharmaceutical sales representatives on the ground that those representatives were not exempt
employees under the FLSA. Plaintiffs sought double damages for all overtime allegedly worked by the
Group’s pharmaceutical sales representatives over a three year period. In November 2009, the Court
granted the Group’s motion for summary judgment and dismissed the lawsuit on the ground that the
sales representatives were ‘exempt’ employees under the outside sales exemption to the FLSA.
Plaintiffs appealed the decision to the United States Court of Appeals for the Ninth Circuit. On
14th February 2011, the Ninth Circuit issued an opinion in favour of the Group affirming the
judgment of the United States District Court for the District of Arizona and finding that the
Group’s pharmaceutical sales representatives are exempt employees under the outside sales exemption
to the FLSA and, therefore, not entitled to overtime pay.
In November 2010, a purported class action was filed against the Group in the United States
District Court for the Northern District of New York on behalf of the Group’s pharmaceutical sales
representatives working in New York during the past six years. The plaintiff alleges that these
sales representatives are not ‘exempt’ employees, and, therefore, are entitled to overtime under
the New York wage and hour laws which closely follow the US Fair Labor Standards Act. In January
2011, a plaintiff filed a similar purported class action in Florida state court alleging that the
Group’s pharmaceutical sales representatives are entitled to overtime under the FLSA.
Environmental matters
The Group has been notified of its potential responsibility relating to past operations and its
past waste disposal practices at certain sites, primarily in the USA. Some of these matters are the
subject of litigation, including proceedings initiated by the US federal or state governments for
waste disposal, site remediation costs and tort actions brought by private parties.
The Group has been advised that it may be a responsible party at approximately 28 sites, of which
12 appear on the National Priority List created by the Comprehensive Environmental Response
Compensation and Liability Act (Superfund). These proceedings seek to require the operators of
hazardous waste facilities, transporters of waste to the sites and generators of hazardous waste
disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. In
most instances, the Group is involved as an alleged generator of hazardous waste. Although
Superfund provides that the defendants are jointly and severally liable for cleanup costs, these
proceedings are frequently resolved on the basis of the nature and quantity of waste disposed of by
the generator at the site. The Group’s proportionate liability for cleanup costs has been
substantially determined for about 20 of the sites referred to above.
The Group’s potential liability varies greatly from site to site. While the cost of investigation,
study and remediation at such sites could, over time, be substantial, the Group routinely accrues
amounts related to its share of the liability for such matters.
GSK Annual Report 2010
Table of Contents
186
Financial record
Quarterly trend
An unaudited analysis of the Group results and pharmaceutical sales by therapeutic area is provided
by quarter in Sterling for the financial year 2010.
| Income statement – total | 12 months 2010 | Q4 2010 | ||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||
Turnover – Pharmaceuticals |
23,382 | (2 | ) | (1 | ) | 5,930 | (16 | ) | (14 | ) | ||||||||||||||
– Consumer Healthcare |
5,010 | 5 | 7 | 1,267 | 4 | 7 | ||||||||||||||||||
Total turnover |
28,392 | (1 | ) | – | 7,197 | (13 | ) | (11 | ) | |||||||||||||||
Cost of sales |
(7,592 | ) | 3 | 3 | (2,077 | ) | (2 | ) | (2 | ) | ||||||||||||||
Selling,
general and administration |
(13,053 | ) | 36 | 36 | (4,461 | ) | 48 | 51 | ||||||||||||||||
Research and development |
(4,457 | ) | 8 | 9 | (1,097 | ) | (4 | ) | (3 | ) | ||||||||||||||
Other operating income |
493 | 118 | ||||||||||||||||||||||
Operating profit |
3,783 | (59 | ) | (55 | ) | (320 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Finance income |
116 | 58 | ||||||||||||||||||||||
Finance costs |
(831 | ) | (240 | ) | ||||||||||||||||||||
Profit on disposal of interest in associate |
8 | 8 | ||||||||||||||||||||||
Share of after tax profits of associates and joint ventures |
81 | 18 | ||||||||||||||||||||||
Profit before taxation |
3,157 | (64 | ) | (60 | ) | (476 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Taxation |
(1,304 | ) | (157 | ) | ||||||||||||||||||||
Tax rate % |
41.3 | % | 33.0 | % | ||||||||||||||||||||
Profit after taxation for the period |
1,853 | (71 | ) | (67 | ) | (633 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Profit
attributable to non-controlling interests |
219 | 57 | ||||||||||||||||||||||
Profit attributable to shareholders |
1,634 | (690 | ) | |||||||||||||||||||||
Basic earnings per share (pence) |
32.1 | p | (75 | ) | (71 | ) | (13.6 | )p | (>100 | ) | (>100 | ) | ||||||||||||
Diluted earnings per share (pence) |
31.9 | p | (13.4 | )p | ||||||||||||||||||||
| Income statement – results before major restructuring | ||||||||||||||||||||||||
Total turnover |
28,392 | (1 | ) | – | 7,197 | (13 | ) | (11 | ) | |||||||||||||||
Cost of sales |
(7,405 | ) | 4 | 4 | (1,980 | ) | (6 | ) | (6 | ) | ||||||||||||||
Selling,
general and administration |
(12,388 | ) | 35 | 35 | (4,289 | ) | 51 | 54 | ||||||||||||||||
Research and development |
(3,964 | ) | – | – | (1,083 | ) | (3 | ) | (1 | ) | ||||||||||||||
Other operating income |
493 | 118 | ||||||||||||||||||||||
Operating profit |
5,128 | (48 | ) | (45 | ) | (37 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Finance income |
116 | 58 | ||||||||||||||||||||||
Finance costs |
(828 | ) | (240 | ) | ||||||||||||||||||||
Profit on disposal of interest in associate |
8 | 8 | ||||||||||||||||||||||
Share of after tax profits of associates and joint ventures |
81 | 18 | ||||||||||||||||||||||
Profit before taxation |
4,505 | (52 | ) | (48 | ) | (193 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Taxation |
(1,544 | ) | (134 | ) | ||||||||||||||||||||
Tax rate % |
34.3 | % | 69.4 | % | ||||||||||||||||||||
Profit after taxation for the period |
2,961 | (56 | ) | (53 | ) | (327 | ) | (>100 | ) | (>100 | ) | |||||||||||||
Profit
attributable to non-controlling interests |
219 | 57 | ||||||||||||||||||||||
Profit attributable to shareholders |
2,742 | (384 | ) | |||||||||||||||||||||
Adjusted earnings per share (pence) |
53.9 | p | (59 | ) | (56 | ) | (7.5 | )p | (>100 | ) | (>100 | ) | ||||||||||||
Diluted earnings per share (pence) |
53.5 | p | (7.5 | )p | ||||||||||||||||||||
The calculation of results before major restructuring is described in Note 1 to the financial
statements, ‘Presentation of the financial statements’.
GSK Annual Report 2010
Table of Contents
187
Financial record
| Q3 2010 | Q2 2010 | Q1 2010 | ||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | ||||||||||||||||||||||||||
| 5,553 | (3 | ) | (1 | ) | 5,773 | – | 3 | 6,126 | 14 | 9 | ||||||||||||||||||||||||
| 1,260 | 4 | 8 | 1,252 | 3 | 7 | 1,231 | 9 | 7 | ||||||||||||||||||||||||||
| 6,813 | (2 | ) | 1 | 7,025 | – | 4 | 7,357 | 13 | 9 | |||||||||||||||||||||||||
| (1,906 | ) | 7 | 7 | (1,657 | ) | 4 | 2 | (1,952 | ) | 11 | 9 | |||||||||||||||||||||||
| (2,040 | ) | (9 | ) | (5 | ) | (4,202 | ) | 82 | (83 | ) | (2,350 | ) | 17 | 7 | ||||||||||||||||||||
| (1,004 | ) | 11 | 14 | (1,196 | ) | 21 | (23 | ) | (1,160 | ) | 7 | 3 | ||||||||||||||||||||||
| 95 | 81 | 199 | ||||||||||||||||||||||||||||||||
| 1,958 | (10 | ) | (5 | ) | 51 | (106 | ) | (98 | ) | 2,094 | 22 | 22 | ||||||||||||||||||||||
| 22 | 19 | 17 | ||||||||||||||||||||||||||||||||
| (197 | ) | (189 | ) | (205 | ) | |||||||||||||||||||||||||||||
| – | – | – | ||||||||||||||||||||||||||||||||
| 16 | 22 | 25 | ||||||||||||||||||||||||||||||||
| 1,799 | (11 | ) | (6 | ) | (97 | ) | 1,931 | 15 | 16 | |||||||||||||||||||||||||
| (456 | ) | (155 | ) | (536 | ) | |||||||||||||||||||||||||||||
| 25.3 | % | 159.8 | % | 27.8 | % | |||||||||||||||||||||||||||||
| 1,343 | (8 | ) | (2 | ) | (252 | ) | 1,395 | 19 | 19 | |||||||||||||||||||||||||
| 55 | 52 | 55 | ||||||||||||||||||||||||||||||||
| 1,288 | (304 | ) | 1,340 | |||||||||||||||||||||||||||||||
| 25.3 | p | (10 | ) | (4 | ) | (6.0 | )p | (129 | ) | (121 | ) | 26.4 | p | 18 | 18 | |||||||||||||||||||
| 25.1 | p | (5.9 | )p | 26.1 | p | |||||||||||||||||||||||||||||
| 6,813 | (2 | ) | 1 | 7,025 | – | 4 | 7,357 | 13 | 9 | |||||||||||||||||||||||||
| (1,875 | ) | 9 | 8 | (1,626 | ) | (2 | ) | – | (1,924 | ) | 19 | 17 | ||||||||||||||||||||||
| (1,956 | ) | (9 | ) | (5 | ) | (3,845 | ) | 71 | 73 | (2,298 | ) | 18 | 8 | |||||||||||||||||||||
| (948 | ) | 8 | 10 | (994 | ) | 5 | 8 | (939 | ) | (9 | ) | (13 | ) | |||||||||||||||||||||
| 95 | 81 | 199 | ||||||||||||||||||||||||||||||||
| 2,129 | (9 | ) | (4 | ) | 641 | (80 | ) | (73 | ) | 2,395 | 21 | 21 | ||||||||||||||||||||||
| 22 | 19 | 17 | ||||||||||||||||||||||||||||||||
| (196 | ) | (188 | ) | (204 | ) | |||||||||||||||||||||||||||||
| – | – | – | ||||||||||||||||||||||||||||||||
| 16 | 22 | 25 | ||||||||||||||||||||||||||||||||
| 1,971 | (10 | ) | (5 | ) | 494 | (86 | ) | (78 | ) | 2,233 | 16 | 16 | ||||||||||||||||||||||
| (480 | ) | (312 | ) | (618 | ) | |||||||||||||||||||||||||||||
| 24.4 | % | 63.2 | % | 27.7 | % | |||||||||||||||||||||||||||||
| 1,491 | (5 | ) | 1 | 182 | (96 | ) | (89 | ) | 1,615 | 18 | 18 | |||||||||||||||||||||||
| 55 | 52 | 55 | ||||||||||||||||||||||||||||||||
| 1,436 | 130 | 1,560 | ||||||||||||||||||||||||||||||||
| 28.2 | p | (6 | ) | (1 | ) | 2.6 | p | (99 | ) | (92 | ) | 30.7 | p | 16 | 17 | |||||||||||||||||||
| 28.0 | p | 2.5 | p | 30.4 | p | |||||||||||||||||||||||||||||
GSK Annual Report 2010
Table of Contents
188
Financial record
Quarterly trend
Pharmaceutical turnover – total Group
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Respiratory |
1,917 | (2 | ) | – | 1,726 | 5 | 8 | 1,829 | 2 | 5 | 1,766 | 6 | 2 | |||||||||||||||||||||||||||||||||||
Avamys/Veramyst |
50 | 45 | 52 | 40 | 23 | 29 | 57 | 19 | 21 | 46 | 52 | 48 | ||||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
37 | 3 | 6 | 32 | 11 | 14 | 50 | 21 | 28 | 45 | (30 | ) | (35 | ) | ||||||||||||||||||||||||||||||||||
Flixotide/Flovent |
220 | (5 | ) | (1 | ) | 187 | 7 | 11 | 201 | 1 | 6 | 196 | 5 | 1 | ||||||||||||||||||||||||||||||||||
Seretide/Advair |
1,346 | (4 | ) | (1 | ) | 1,243 | 5 | 8 | 1,286 | – | 3 | 1,264 | 9 | 4 | ||||||||||||||||||||||||||||||||||
Serevent |
50 | (21 | ) | (18 | ) | 48 | (13 | ) | (11 | ) | 52 | (14 | ) | (12 | ) | 51 | (16 | ) | (18 | ) | ||||||||||||||||||||||||||||
Ventolin |
142 | (1 | ) | 2 | 130 | 15 | 18 | 134 | 16 | 20 | 116 | 3 | – | |||||||||||||||||||||||||||||||||||
Zyrtec |
23 | (5 | ) | 5 | 19 | – | 6 | 20 | 6 | 18 | 20 | 17 | 11 | |||||||||||||||||||||||||||||||||||
Anti-virals |
224 | (64 | ) | (62 | ) | 218 | (68 | ) | (65 | ) | 286 | (50 | ) | (47 | ) | 358 | (44 | ) | (46 | ) | ||||||||||||||||||||||||||||
Hepsera |
33 | – | 10 | 32 | 7 | 14 | 34 | 7 | 17 | 29 | 11 | 7 | ||||||||||||||||||||||||||||||||||||
Relenza |
11 | (96 | ) | (96 | ) | 18 | (91 | ) | (90 | ) | 8 | (97 | ) | (87 | ) | 84 | (60 | ) | (62 | ) | ||||||||||||||||||||||||||||
Valtrex |
96 | (60 | ) | (57 | ) | 95 | (75 | ) | (73 | ) | 165 | (59 | ) | (56 | ) | 176 | (46 | ) | (49 | ) | ||||||||||||||||||||||||||||
Zeffix |
64 | 9 | 16 | 55 | (4 | ) | 2 | 62 | 7 | 13 | 52 | 4 | (2 | ) | ||||||||||||||||||||||||||||||||||
Central nervous system |
450 | (14 | ) | (1 | ) | 436 | 1 | 4 | 450 | (4 | ) | – | 417 | (13 | ) | (16 | ) | |||||||||||||||||||||||||||||||
Imigran/Imitrex |
50 | (40 | ) | (38 | ) | 53 | (4 | ) | – | 52 | (25 | ) | (24 | ) | 57 | (9 | ) | (11 | ) | |||||||||||||||||||||||||||||
Lamictal |
130 | (3 | ) | (2 | ) | 131 | 7 | 8 | 123 | 15 | 19 | 120 | (11 | ) | (17 | ) | ||||||||||||||||||||||||||||||||
Requip |
60 | (9 | ) | (8 | ) | 58 | 33 | 35 | 60 | 16 | 18 | 55 | 14 | 10 | ||||||||||||||||||||||||||||||||||
Seroxat/Paxil |
128 | (15 | ) | (8 | ) | 115 | (11 | ) | (4 | ) | 133 | (9 | ) | (4 | ) | 106 | (12 | ) | (16 | ) | ||||||||||||||||||||||||||||
Treximet |
14 | – | – | 13 | (13 | ) | (13 | ) | 16 | 17 | 33 | 13 | 7 | (7 | ) | |||||||||||||||||||||||||||||||||
Wellbutrin |
22 | (5 | ) | – | 18 | 13 | 13 | 21 | (33 | ) | (30 | ) | 20 | (67 | ) | (69 | ) | |||||||||||||||||||||||||||||||
Cardiovascular and urogenital |
696 | 11 | 13 | 650 | 15 | 18 | 654 | 10 | 13 | 570 | 9 | 3 | ||||||||||||||||||||||||||||||||||||
Arixtra |
80 | 8 | 8 | 72 | 17 | 20 | 79 | 28 | 30 | 70 | 25 | 19 | ||||||||||||||||||||||||||||||||||||
Avodart |
177 | 22 | 24 | 156 | 16 | 19 | 157 | 14 | 17 | 139 | 20 | 14 | ||||||||||||||||||||||||||||||||||||
Coreg |
41 | 29 | 32 | 44 | 8 | 13 | 44 | (16 | ) | (14 | ) | 42 | (12 | ) | (18 | ) | ||||||||||||||||||||||||||||||||
Fraxiparine |
55 | (8 | ) | (8 | ) | 54 | – | (4 | ) | 57 | (3 | ) | (2 | ) | 56 | 4 | 2 | |||||||||||||||||||||||||||||||
Lovaza |
147 | 11 | 14 | 138 | 20 | 24 | 138 | 29 | 33 | 107 | 9 | 1 | ||||||||||||||||||||||||||||||||||||
Vesicare |
31 | 3 | 7 | 28 | 8 | 12 | 30 | 12 | 15 | 25 | 13 | 4 | ||||||||||||||||||||||||||||||||||||
Volibris |
16 | >100 | >100 | 11 | 100 | 83 | 10 | >100 | >100 | 9 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Metabolic |
110 | (65 | ) | (63 | ) | 125 | (58 | ) | (56 | ) | 213 | (33 | ) | (30 | ) | 230 | (18 | ) | (22 | ) | ||||||||||||||||||||||||||||
Avandia products |
49 | (76 | ) | (74 | ) | 70 | (65 | ) | (62 | ) | 152 | (26 | ) | (23 | ) | 169 | (10 | ) | (14 | ) | ||||||||||||||||||||||||||||
Bonviva/Boniva |
18 | (73 | ) | (73 | ) | 17 | (70 | ) | (72 | ) | 20 | (70 | ) | (70 | ) | 23 | (63 | ) | (63 | ) | ||||||||||||||||||||||||||||
Anti-bacterials |
370 | (2 | ) | (2 | ) | 333 | (4 | ) | (2 | ) | 337 | (4 | ) | (3 | ) | 356 | (6 | ) | (9 | ) | ||||||||||||||||||||||||||||
Augmentin |
168 | (2 | ) | (3 | ) | 153 | (7 | ) | (6 | ) | 144 | (3 | ) | (1 | ) | 160 | (10 | ) | (14 | ) | ||||||||||||||||||||||||||||
Oncology and emesis |
172 | – | 1 | 172 | 13 | 15 | 175 | 2 | 5 | 169 | 23 | 17 | ||||||||||||||||||||||||||||||||||||
Arzerra |
9 | >100 | >100 | 9 | – | – | 8 | – | – | 5 | – | – | ||||||||||||||||||||||||||||||||||||
Hycamtin |
29 | (36 | ) | (36 | ) | 35 | (15 | ) | (15 | ) | 40 | (12 | ) | (7 | ) | 40 | – | (7 | ) | |||||||||||||||||||||||||||||
Promacta |
10 | 80 | 100 | 7 | >100 | >100 | 8 | >100 | >100 | 6 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
60 | 23 | 25 | 58 | 26 | 26 | 56 | 32 | 37 | 53 | 62 | 56 | ||||||||||||||||||||||||||||||||||||
Votrient |
14 | >100 | >100 | 11 | – | – | 8 | – | – | 5 | – | – | ||||||||||||||||||||||||||||||||||||
Vaccines |
994 | (36 | ) | (35 | ) | 982 | 19 | 22 | 939 | 17 | 24 | 1,411 | >100 | >100 | ||||||||||||||||||||||||||||||||||
Boostrix |
49 | 37 | 40 | 59 | 49 | 51 | 43 | 8 | 10 | 30 | 19 | 15 | ||||||||||||||||||||||||||||||||||||
Cervarix |
67 | 68 | 76 | 48 | 64 | 71 | 50 | (33 | ) | (32 | ) | 77 | 60 | 60 | ||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
69 | 64 | 64 | 167 | 14 | 14 | – | – | – | 5 | (43 | ) | (29 | ) | ||||||||||||||||||||||||||||||||||
Flu pandemic |
161 | (82 | ) | (81 | ) | 58 | >100 | >100 | 275 | >100 | >100 | 698 | >100 | >100 | ||||||||||||||||||||||||||||||||||
Hepatitis |
164 | 5 | 9 | 189 | 9 | 11 | 170 | (16 | ) | (13 | ) | 197 | 38 | 32 | ||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
190 | 24 | 24 | 168 | 1 | 1 | 176 | 14 | 14 | 166 | (3 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||
Rotarix |
79 | 11 | 13 | 52 | (40 | ) | (38 | ) | 39 | (49 | ) | (45 | ) | 65 | 19 | 14 | ||||||||||||||||||||||||||||||||
Synflorix |
48 | (2 | ) | – | 90 | >100 | >100 | 38 | >100 | >100 | 45 | – | – | |||||||||||||||||||||||||||||||||||
Dermatologicals |
288 | 10 | 13 | 272 | 20 | 24 | 262 | >100 | >100 | 265 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Bactroban |
29 | 4 | 4 | 33 | (3 | ) | – | 30 | (6 | ) | (6 | ) | 27 | (7 | ) | (10 | ) | |||||||||||||||||||||||||||||||
Dermovate |
22 | – | – | 18 | – | – | 19 | – | – | 15 | – | – | ||||||||||||||||||||||||||||||||||||
Duac |
27 | 13 | 17 | 33 | 39 | 43 | 29 | – | – | 27 | – | – | ||||||||||||||||||||||||||||||||||||
Soriatane |
17 | – | 6 | 19 | 58 | 58 | 17 | – | – | 18 | – | – | ||||||||||||||||||||||||||||||||||||
Zovirax |
39 | (3 | ) | 3 | 31 | 11 | 15 | 33 | (6 | ) | – | 49 | 61 | 58 | ||||||||||||||||||||||||||||||||||
Other |
306 | 19 | 21 | 238 | 14 | 15 | 239 | 12 | 15 | 211 | 20 | 17 | ||||||||||||||||||||||||||||||||||||
| 5,527 | (17 | ) | (15 | ) | 5,152 | (4 | ) | (1 | ) | 5,384 | – | 4 | 5,753 | 15 | 11 | |||||||||||||||||||||||||||||||||
VIIV Healthcare (HIV) |
403 | (4 | ) | (3 | ) | 401 | (1 | ) | 2 | 389 | 1 | 3 | 373 | (7 | ) | (11 | ) | |||||||||||||||||||||||||||||||
Combivir |
99 | (11 | ) | (9 | ) | 96 | (10 | ) | (6 | ) | 86 | (18 | ) | (16 | ) | 82 | (23 | ) | (27 | ) | ||||||||||||||||||||||||||||
Epivir |
29 | (3 | ) | (3 | ) | 31 | (15 | ) | (9 | ) | 27 | (13 | ) | (13 | ) | 28 | (15 | ) | (18 | ) | ||||||||||||||||||||||||||||
Epzicom/Kivexa |
146 | (3 | ) | (2 | ) | 138 | 3 | 5 | 140 | 8 | 9 | 131 | (1 | ) | (4 | ) | ||||||||||||||||||||||||||||||||
Lexiva |
36 | (18 | ) | (18 | ) | 39 | (12 | ) | (9 | ) | 39 | (12 | ) | (9 | ) | 41 | (8 | ) | (15 | ) | ||||||||||||||||||||||||||||
Selzentry |
22 | >100 | >100 | 20 | – | – | 19 | – | – | 19 | – | – | ||||||||||||||||||||||||||||||||||||
Trizivir |
32 | (35 | ) | (35 | ) | 38 | (21 | ) | (19 | ) | 36 | (29 | ) | (27 | ) | 38 | (27 | ) | (32 | ) | ||||||||||||||||||||||||||||
| 5,930 | (16 | ) | (14 | ) | 5,553 | (3 | ) | (1 | ) | 5,773 | – | 3 | 6,126 | 14 | 9 | |||||||||||||||||||||||||||||||||
Pharmaceutical turnover includes co-promotion income.
GSK Annual Report 2010
Table of Contents
189
Financial record
Quarterly trend
Pharmaceutical turnover – USA
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Respiratory |
875 | (6 | ) | (4 | ) | 846 | 9 | 14 | 868 | 1 | 5 | 805 | 3 | (5 | ) | |||||||||||||||||||||||||||||||||
Avamys/Veramyst |
17 | 7 | 13 | 15 | (7 | ) | – | 20 | 11 | 11 | 17 | (10 | ) | (15 | ) | |||||||||||||||||||||||||||||||||
Flixonase/Flonase |
5 | (17 | ) | (17 | ) | 8 | >100 | >100 | 18 | >100 | >100 | 6 | (40 | ) | (40 | ) | ||||||||||||||||||||||||||||||||
Flixotide/Flovent |
118 | – | 3 | 105 | 19 | 24 | 109 | 8 | 12 | 99 | 8 | – | ||||||||||||||||||||||||||||||||||||
Seretide/Advair |
670 | (7 | ) | (5 | ) | 649 | 6 | 11 | 655 | (3 | ) | 1 | 630 | 4 | (4 | ) | ||||||||||||||||||||||||||||||||
Serevent |
15 | (25 | ) | (25 | ) | 16 | (6 | ) | – | 17 | (6 | ) | (6 | ) | 16 | (11 | ) | (16 | ) | |||||||||||||||||||||||||||||
Ventolin |
49 | – | 2 | 50 | 37 | 43 | 45 | 38 | 41 | 35 | – | (8 | ) | |||||||||||||||||||||||||||||||||||
Zyrtec |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Anti-virals |
41 | (82 | ) | (81 | ) | 57 | (84 | ) | (83 | ) | 118 | (66 | ) | (64 | ) | 154 | (42 | ) | (47 | ) | ||||||||||||||||||||||||||||
Hepsera |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Relenza |
(5 | ) | – | – | 13 | (73 | ) | (71 | ) | 5 | (84 | ) | (74 | ) | 30 | >100 | >100 | |||||||||||||||||||||||||||||||
Valtrex |
24 | (83 | ) | (81 | ) | 27 | (91 | ) | (90 | ) | 94 | (69 | ) | (68 | ) | 107 | (55 | ) | (58 | ) | ||||||||||||||||||||||||||||
Zeffix |
3 | (25 | ) | (25 | ) | 3 | (25 | ) | (25 | ) | 4 | (40 | ) | (20 | ) | 3 | – | (25 | ) | |||||||||||||||||||||||||||||
Central nervous system |
114 | (37 | ) | (36 | ) | 124 | 3 | 8 | 131 | (11 | ) | (8 | ) | 136 | (32 | ) | (37 | ) | ||||||||||||||||||||||||||||||
Imigran/Imitrex |
15 | (65 | ) | (65 | ) | 18 | (11 | ) | (5 | ) | 18 | (45 | ) | (45 | ) | 24 | (11 | ) | (14 | ) | ||||||||||||||||||||||||||||
Lamictal |
66 | (11 | ) | (8 | ) | 70 | 5 | 9 | 60 | 29 | 33 | 61 | (23 | ) | (29 | ) | ||||||||||||||||||||||||||||||||
Requip |
10 | (38 | ) | (38 | ) | 13 | >100 | >100 | 11 | 83 | 83 | 10 | 38 | 25 | ||||||||||||||||||||||||||||||||||
Seroxat/Paxil |
– | (100 | ) | (100 | ) | 5 | – | – | 12 | (8 | ) | (8 | ) | 10 | (29 | ) | (29 | ) | ||||||||||||||||||||||||||||||
Treximet |
14 | – | – | 13 | (13 | ) | (13 | ) | 15 | 25 | 25 | 13 | – | (7 | ) | |||||||||||||||||||||||||||||||||
Wellbutrin |
7 | (30 | ) | (30 | ) | 4 | (25 | ) | – | 5 | (70 | ) | (75 | ) | 8 | (85 | ) | (85 | ) | |||||||||||||||||||||||||||||
Cardiovascular and urogenital |
422 | 10 | 13 | 409 | 17 | 22 | 403 | 8 | 12 | 337 | 6 | (2 | ) | |||||||||||||||||||||||||||||||||||
Arixtra |
49 | 12 | 14 | 43 | 28 | 34 | 46 | 36 | 39 | 39 | 27 | 18 | ||||||||||||||||||||||||||||||||||||
Avodart |
86 | 1 | 4 | 87 | 5 | 9 | 88 | 2 | 6 | 76 | 12 | 4 | ||||||||||||||||||||||||||||||||||||
Coreg |
41 | 29 | 32 | 43 | 8 | 10 | 44 | (16 | ) | (12 | ) | 42 | (12 | ) | (18 | ) | ||||||||||||||||||||||||||||||||
Fraxiparine |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Lovaza |
146 | 11 | 14 | 137 | 20 | 25 | 138 | 29 | 33 | 107 | 10 | 2 | ||||||||||||||||||||||||||||||||||||
Vesicare |
31 | 3 | 7 | 27 | 4 | 8 | 30 | 12 | 15 | 25 | 13 | 4 | ||||||||||||||||||||||||||||||||||||
Volibris |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Metabolic |
40 | (75 | ) | (73 | ) | 32 | (78 | ) | (76 | ) | 77 | (51 | ) | (48 | ) | 89 | (36 | ) | (41 | ) | ||||||||||||||||||||||||||||
Avandia products |
40 | (65 | ) | (63 | ) | 33 | (70 | ) | (66 | ) | 75 | (33 | ) | (30 | ) | 89 | (14 | ) | (21 | ) | ||||||||||||||||||||||||||||
Bonviva/Boniva |
– | (100 | ) | (100 | ) | – | (100 | ) | (100 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||
Anti-bacterials |
16 | (38 | ) | (33 | ) | 14 | (41 | ) | (36 | ) | 21 | (29 | ) | (25 | ) | 24 | (10 | ) | (17 | ) | ||||||||||||||||||||||||||||
Augmentin |
– | (100 | ) | (100 | ) | 1 | (89 | ) | (89 | ) | 2 | (91 | ) | (82 | ) | 8 | (44 | ) | (50 | ) | ||||||||||||||||||||||||||||
Oncology and emesis |
75 | (16 | ) | (13 | ) | 89 | 34 | 39 | 94 | 2 | 7 | 92 | 41 | 31 | ||||||||||||||||||||||||||||||||||
Arzerra |
6 | >100 | 100 | 8 | – | – | 7 | – | – | 5 | – | – | ||||||||||||||||||||||||||||||||||||
Hycamtin |
14 | (46 | ) | (46 | ) | 21 | (17 | ) | (13 | ) | 24 | (4 | ) | – | 24 | – | (8 | ) | ||||||||||||||||||||||||||||||
Promacta |
6 | 20 | 20 | 6 | 100 | 100 | 7 | >100 | >100 | 6 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
17 | 14 | 21 | 18 | 42 | 50 | 18 | – | 6 | 17 | 73 | 55 | ||||||||||||||||||||||||||||||||||||
Votrient |
11 | >100 | >100 | 9 | – | – | 8 | – | – | 5 | – | – | ||||||||||||||||||||||||||||||||||||
Vaccines |
171 | (44 | ) | (42 | ) | 278 | 32 | 35 | 143 | (31 | ) | (27 | ) | 171 | 55 | 44 | ||||||||||||||||||||||||||||||||
Boostrix |
28 | 65 | 65 | 41 | 67 | 71 | 26 | 19 | 24 | 15 | 55 | 36 | ||||||||||||||||||||||||||||||||||||
Cervarix |
1 | (75 | ) | (75 | ) | 4 | – | – | 6 | – | – | 2 | – | – | ||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
28 | >100 | >100 | 81 | 29 | 29 | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||
Flu pandemic |
– | (100 | ) | (100 | ) | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||
Hepatitis |
56 | 6 | 10 | 97 | 39 | 45 | 62 | (33 | ) | (29 | ) | 92 | 92 | 77 | ||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
36 | 30 | 33 | 38 | 23 | 27 | 40 | 3 | 5 | 32 | (13 | ) | (18 | ) | ||||||||||||||||||||||||||||||||||
Rotarix |
21 | 18 | 24 | 17 | (27 | ) | (23 | ) | 9 | (64 | ) | (59 | ) | 27 | 93 | 80 | ||||||||||||||||||||||||||||||||
Synflorix |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Dermatologicals |
94 | 1 | 3 | 93 | 22 | 26 | 74 | >100 | >100 | 97 | 100 | >100 | ||||||||||||||||||||||||||||||||||||
Bactroban |
12 | (14 | ) | (14 | ) | 14 | (7 | ) | (7 | ) | 14 | (13 | ) | (7 | ) | 11 | (20 | ) | (27 | ) | ||||||||||||||||||||||||||||
Dermovate |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Duac |
15 | (7 | ) | – | 20 | 27 | 33 | 15 | – | – | 17 | – | – | |||||||||||||||||||||||||||||||||||
Soriatane |
17 | – | 6 | 19 | 58 | 58 | 17 | – | – | 18 | – | – | ||||||||||||||||||||||||||||||||||||
Zovirax |
14 | 8 | 8 | 8 | 75 | 100 | 5 | 25 | 25 | 26 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Other |
6 | >100 | 100 | 8 | 14 | 14 | 6 | >100 | >100 | 4 | (20 | ) | (20 | ) | ||||||||||||||||||||||||||||||||||
| 1,854 | (22 | ) | (20 | ) | 1,950 | (8 | ) | (4 | ) | 1,935 | (13 | ) | (10 | ) | 1,909 | (1 | ) | (9 | ) | |||||||||||||||||||||||||||||
VIIV Healthcare (HIV) |
163 | (16 | ) | (14 | ) | 162 | (8 | ) | (4 | ) | 176 | 3 | 7 | 159 | (11 | ) | (18 | ) | ||||||||||||||||||||||||||||||
Combivir |
34 | (30 | ) | (28 | ) | 36 | (19 | ) | (16 | ) | 39 | (16 | ) | (11 | ) | 34 | (30 | ) | (36 | ) | ||||||||||||||||||||||||||||
Epivir |
10 | (17 | ) | (17 | ) | 10 | (25 | ) | (17 | ) | 10 | (9 | ) | (9 | ) | 10 | (15 | ) | (23 | ) | ||||||||||||||||||||||||||||
Epzicom/Kivexa |
55 | (16 | ) | (13 | ) | 50 | (8 | ) | (4 | ) | 57 | 10 | 14 | 48 | (10 | ) | (17 | ) | ||||||||||||||||||||||||||||||
Lexiva |
20 | (20 | ) | (20 | ) | 19 | (25 | ) | (21 | ) | 20 | (17 | ) | (13 | ) | 21 | (15 | ) | (22 | ) | ||||||||||||||||||||||||||||
Selzentry |
9 | – | – | 8 | – | – | 9 | – | – | 8 | – | – | ||||||||||||||||||||||||||||||||||||
Trizivir |
16 | (38 | ) | (38 | ) | 19 | (22 | ) | (17 | ) | 19 | (24 | ) | (24 | ) | 19 | (33 | ) | (37 | ) | ||||||||||||||||||||||||||||
Pharmaceutical turnover includes co-promotion income.
GSK Annual Report 2010
Table of Contents
190
Financial record
Quarterly trend
Pharmaceutical turnover – Europe
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Respiratory |
557 | (4 | ) | (6 | ) | 488 | (3 | ) | (5 | ) | 535 | (1 | ) | (3 | ) | 569 | 6 | 4 | ||||||||||||||||||||||||||||||
Avamys/Veramyst |
12 | 9 | 9 | 10 | 11 | 11 | 21 | 31 | 31 | 13 | 56 | 44 | ||||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
10 | (10 | ) | – | 8 | – | (11 | ) | 12 | – | – | 10 | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||
Flixotide/Flovent |
42 | (10 | ) | (14 | ) | 33 | (11 | ) | (13 | ) | 39 | (9 | ) | (9 | ) | 45 | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||
Seretide/Advair |
416 | (3 | ) | (5 | ) | 370 | – | (2 | ) | 392 | – | (2 | ) | 423 | 10 | 7 | ||||||||||||||||||||||||||||||||
Serevent |
24 | (17 | ) | (17 | ) | 24 | (11 | ) | (11 | ) | 24 | (17 | ) | (17 | ) | 26 | (16 | ) | (16 | ) | ||||||||||||||||||||||||||||
Ventolin |
38 | (7 | ) | (10 | ) | 32 | (9 | ) | (9 | ) | 35 | 3 | (3 | ) | 37 | – | – | |||||||||||||||||||||||||||||||
Zyrtec |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Anti-virals |
24 | (73 | ) | (73 | ) | 24 | (71 | ) | (72 | ) | 26 | (64 | ) | (64 | ) | 35 | (78 | ) | (79 | ) | ||||||||||||||||||||||||||||
Hepsera |
1 | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Relenza |
– | – | – | 2 | (95 | ) | (95 | ) | 2 | (96 | ) | (92 | ) | 2 | (97 | ) | (98 | ) | ||||||||||||||||||||||||||||||
Valtrex |
15 | (61 | ) | (63 | ) | 14 | (63 | ) | (63 | ) | 16 | (59 | ) | (59 | ) | 23 | (43 | ) | (45 | ) | ||||||||||||||||||||||||||||
Zeffix |
6 | (14 | ) | (14 | ) | 7 | (14 | ) | – | 6 | (13 | ) | (25 | ) | 7 | – | – | |||||||||||||||||||||||||||||||
Central nervous system |
132 | (8 | ) | (10 | ) | 131 | (4 | ) | (6 | ) | 137 | (3 | ) | (5 | ) | 140 | (2 | ) | (3 | ) | ||||||||||||||||||||||||||||
Imigran/Imitrex |
20 | (20 | ) | (20 | ) | 22 | – | (4 | ) | 21 | (9 | ) | (9 | ) | 22 | (12 | ) | (12 | ) | |||||||||||||||||||||||||||||
Lamictal |
34 | (10 | ) | (13 | ) | 35 | (8 | ) | (8 | ) | 37 | (3 | ) | (3 | ) | 37 | (3 | ) | (5 | ) | ||||||||||||||||||||||||||||
Requip |
33 | (8 | ) | (11 | ) | 32 | – | (6 | ) | 36 | 6 | 3 | 36 | 13 | 13 | |||||||||||||||||||||||||||||||||
Seroxat/Paxil |
19 | (9 | ) | (14 | ) | 19 | (14 | ) | (14 | ) | 22 | (15 | ) | (19 | ) | 22 | (21 | ) | (21 | ) | ||||||||||||||||||||||||||||
Treximet |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Wellbutrin |
11 | 22 | 22 | 10 | 25 | 25 | 9 | 43 | 29 | 9 | 50 | 50 | ||||||||||||||||||||||||||||||||||||
Cardiovascular and urogenital |
159 | 6 | 3 | 144 | 4 | 1 | 154 | 8 | 6 | 153 | 11 | 9 | ||||||||||||||||||||||||||||||||||||
Arixtra |
24 | – | (8 | ) | 22 | (8 | ) | (8 | ) | 27 | 22 | 17 | 26 | 23 | 18 | |||||||||||||||||||||||||||||||||
Avodart |
50 | 31 | 28 | 41 | 19 | 14 | 44 | 19 | 19 | 40 | 17 | 11 | ||||||||||||||||||||||||||||||||||||
Coreg |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Fraxiparine |
38 | (13 | ) | (16 | ) | 34 | (17 | ) | (19 | ) | 39 | (7 | ) | (9 | ) | 43 | – | – | ||||||||||||||||||||||||||||||
Lovaza |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vesicare |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Volibris |
13 | 86 | 86 | 10 | 100 | 100 | 9 | >100 | >100 | 8 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Metabolic |
13 | (80 | ) | (81 | ) | 37 | (42 | ) | (45 | ) | 55 | (23 | ) | (23 | ) | 61 | (7 | ) | (10 | ) | ||||||||||||||||||||||||||||
Avandia products |
(4 | ) | – | – | 20 | (52 | ) | (52 | ) | 34 | (22 | ) | (26 | ) | 38 | (12 | ) | (12 | ) | |||||||||||||||||||||||||||||
Bonviva/Boniva |
14 | (35 | ) | (39 | ) | 13 | (41 | ) | (41 | ) | 17 | (22 | ) | (26 | ) | 20 | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||
Anti-bacterials |
153 | (11 | ) | (13 | ) | 121 | (9 | ) | (12 | ) | 120 | (12 | ) | (14 | ) | 142 | (21 | ) | (22 | ) | ||||||||||||||||||||||||||||
Augmentin |
69 | (13 | ) | (16 | ) | 55 | (16 | ) | (19 | ) | 53 | (13 | ) | (13 | ) | 63 | (23 | ) | (25 | ) | ||||||||||||||||||||||||||||
Oncology and emesis |
55 | 10 | 6 | 49 | (2 | ) | (4 | ) | 47 | (4 | ) | (6 | ) | 50 | – | (2 | ) | |||||||||||||||||||||||||||||||
Arzerra |
3 | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Hycamtin |
12 | (20 | ) | (20 | ) | 11 | (21 | ) | (21 | ) | 12 | (20 | ) | (20 | ) | 13 | (7 | ) | (13 | ) | ||||||||||||||||||||||||||||
Promacta |
3 | – | – | 1 | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
25 | 24 | 19 | 23 | 21 | 21 | 22 | 28 | 22 | 24 | 41 | 41 | ||||||||||||||||||||||||||||||||||||
Votrient |
3 | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vaccines |
393 | (49 | ) | (51 | ) | 310 | (8 | ) | (10 | ) | 365 | 14 | 14 | 613 | >100 | >100 | ||||||||||||||||||||||||||||||||
Boostrix |
11 | – | – | 12 | 9 | 9 | 11 | 10 | 10 | 9 | 25 | 13 | ||||||||||||||||||||||||||||||||||||
Cervarix |
25 | 37 | 32 | 11 | (35 | ) | (35 | ) | 21 | (65 | ) | (67 | ) | 59 | 51 | 51 | ||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
13 | 18 | 18 | 50 | (13 | ) | (17 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||
Flu pandemic |
90 | (82 | ) | (82 | ) | 2 | (50 | ) | (50 | ) | 92 | >100 | >100 | 304 | >100 | >100 | ||||||||||||||||||||||||||||||||
Hepatitis |
63 | – | (2 | ) | 55 | (14 | ) | (15 | ) | 63 | (13 | ) | (13 | ) | 61 | 2 | – | |||||||||||||||||||||||||||||||
Infanrix, Pediarix |
120 | 22 | 19 | 96 | (6 | ) | (9 | ) | 109 | 22 | 20 | 104 | (2 | ) | (5 | ) | ||||||||||||||||||||||||||||||||
Rotarix |
9 | (36 | ) | (36 | ) | 8 | (43 | ) | (43 | ) | 8 | (42 | ) | (33 | ) | 13 | 8 | – | ||||||||||||||||||||||||||||||
Synflorix |
8 | (27 | ) | (27 | ) | 9 | (9 | ) | (18 | ) | 14 | 40 | 40 | 12 | – | – | ||||||||||||||||||||||||||||||||
Dermatologicals |
62 | 14 | 11 | 59 | 15 | 13 | 63 | >100 | >100 | 62 | >100 | 100 | ||||||||||||||||||||||||||||||||||||
Bactroban |
7 | 33 | 17 | 7 | – | – | 7 | – | – | 6 | – | – | ||||||||||||||||||||||||||||||||||||
Dermovate |
5 | – | – | 5 | – | – | 5 | – | – | 4 | – | – | ||||||||||||||||||||||||||||||||||||
Duac |
6 | – | – | 5 | 50 | 25 | 6 | – | – | 6 | – | – | ||||||||||||||||||||||||||||||||||||
Soriatane |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Zovirax |
7 | (14 | ) | – | 6 | – | (14 | ) | 7 | (13 | ) | (13 | ) | 7 | (13 | ) | (13 | ) | ||||||||||||||||||||||||||||||
Other |
99 | – | (3 | ) | 65 | (6 | ) | (7 | ) | 78 | 26 | 18 | 68 | 24 | 24 | |||||||||||||||||||||||||||||||||
| 1,647 | (24 | ) | (26 | ) | 1,428 | (9 | ) | (11 | ) | 1,580 | 1 | (1 | ) | 1,893 | 16 | 13 | ||||||||||||||||||||||||||||||||
VIIV Healthcare (HIV) |
145 | (5 | ) | (6 | ) | 136 | (10 | ) | (12 | ) | 145 | (4 | ) | (6 | ) | 159 | (3 | ) | (5 | ) | ||||||||||||||||||||||||||||
Combivir |
28 | (22 | ) | (24 | ) | 26 | (25 | ) | (28 | ) | 30 | (19 | ) | (19 | ) | 33 | (17 | ) | (20 | ) | ||||||||||||||||||||||||||||
Epivir |
8 | (27 | ) | (27 | ) | 9 | (25 | ) | (25 | ) | 10 | (17 | ) | (17 | ) | 10 | (21 | ) | (29 | ) | ||||||||||||||||||||||||||||
Epzicom/Kivexa |
63 | 2 | – | 57 | (2 | ) | (5 | ) | 61 | 5 | 3 | 64 | 6 | 3 | ||||||||||||||||||||||||||||||||||
Lexiva |
10 | (21 | ) | (29 | ) | 13 | (13 | ) | (13 | ) | 13 | (13 | ) | (19 | ) | 15 | (12 | ) | (12 | ) | ||||||||||||||||||||||||||||
Selzentry |
11 | >100 | >100 | 10 | – | – | 9 | – | – | 11 | – | – | ||||||||||||||||||||||||||||||||||||
Trizivir |
14 | (32 | ) | (26 | ) | 15 | (16 | ) | (21 | ) | 14 | (25 | ) | (30 | ) | 17 | (29 | ) | (11 | ) | ||||||||||||||||||||||||||||
Pharmaceutical turnover includes co-promotion income.
GSK Annual Report 2010
Table of Contents
191
Financial record
Quarterly trend
Pharmaceutical turnover – Emerging Markets
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Respiratory |
162 | 17 | 20 | 145 | 11 | 14 | 166 | 19 | 25 | 143 | 30 | 24 | ||||||||||||||||||||||||||||||||||||
Avamys/Veramyst |
9 | 100 | >100 | 8 | >100 | >100 | 9 | >100 | >100 | 5 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
11 | 38 | 38 | 9 | (11 | ) | – | 10 | 10 | – | 9 | 13 | 13 | |||||||||||||||||||||||||||||||||||
Flixotide/Flovent |
12 | 33 | 33 | 10 | – | 11 | 12 | 50 | 50 | 14 | 75 | 75 | ||||||||||||||||||||||||||||||||||||
Seretide/Advair |
85 | 14 | 18 | 77 | 11 | 17 | 86 | 12 | 18 | 80 | 28 | 23 | ||||||||||||||||||||||||||||||||||||
Serevent |
– | (100 | ) | (100 | ) | 1 | – | – | 1 | – | – | – | – | (100 | ) | |||||||||||||||||||||||||||||||||
Ventolin |
30 | 20 | 20 | 27 | 18 | 23 | 31 | 25 | 29 | 24 | 14 | 9 | ||||||||||||||||||||||||||||||||||||
Zyrtec |
4 | – | – | 4 | (33 | ) | (33 | ) | 4 | 33 | 33 | 2 | 100 | 100 | ||||||||||||||||||||||||||||||||||
Anti-virals |
61 | (13 | ) | (9 | ) | 56 | (10 | ) | (7 | ) | 59 | 10 | 13 | 47 | 9 | – | ||||||||||||||||||||||||||||||||
Hepsera |
15 | 8 | 15 | 16 | 25 | 33 | 15 | 8 | 15 | 12 | – | (8 | ) | |||||||||||||||||||||||||||||||||||
Relenza |
(1 | ) | – | – | 1 | (92 | ) | (92 | ) | – | – | (100 | ) | 1 | – | – | ||||||||||||||||||||||||||||||||
Valtrex |
8 | – | – | 7 | – | 17 | 8 | 33 | 33 | 5 | – | (17 | ) | |||||||||||||||||||||||||||||||||||
Zeffix |
39 | 28 | 34 | 32 | 7 | 10 | 36 | 21 | 24 | 29 | 11 | 4 | ||||||||||||||||||||||||||||||||||||
Central nervous system |
62 | 22 | 24 | 63 | 22 | 24 | 53 | 11 | 13 | 45 | 14 | 7 | ||||||||||||||||||||||||||||||||||||
Imigran/Imitrex |
1 | (50 | ) | (50 | ) | 1 | – | – | 2 | 100 | 100 | 1 | – | – | ||||||||||||||||||||||||||||||||||
Lamictal |
16 | 42 | 33 | 15 | 27 | 36 | 14 | 17 | 17 | 12 | 8 | (8 | ) | |||||||||||||||||||||||||||||||||||
Requip |
1 | – | – | 1 | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Seroxat/Paxil |
19 | 5 | – | 19 | – | – | 20 | (14 | ) | (5 | ) | 15 | – | (12 | ) | |||||||||||||||||||||||||||||||||
Treximet |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Wellbutrin |
4 | 33 | 33 | 3 | 33 | – | 3 | – | 50 | 3 | 50 | 50 | ||||||||||||||||||||||||||||||||||||
Cardiovascular and urogenital |
36 | 28 | 24 | 34 | 21 | 21 | 36 | 26 | 33 | 28 | 25 | 17 | ||||||||||||||||||||||||||||||||||||
Arixtra |
3 | 50 | 50 | 3 | 50 | 50 | 2 | – | – | 2 | 100 | 100 | ||||||||||||||||||||||||||||||||||||
Avodart |
9 | 50 | 50 | 8 | 33 | 33 | 9 | 60 | 80 | 7 | 60 | 40 | ||||||||||||||||||||||||||||||||||||
Coreg |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Fraxiparine |
15 | 25 | 25 | 15 | 27 | 36 | 14 | 40 | 40 | 11 | 22 | 22 | ||||||||||||||||||||||||||||||||||||
Lovaza |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vesicare |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Volibris |
– | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Metabolic |
17 | (43 | ) | (39 | ) | 12 | (61 | ) | (61 | ) | 31 | (9 | ) | (3 | ) | 31 | 18 | 11 | ||||||||||||||||||||||||||||||
Avandia products |
3 | (76 | ) | (82 | ) | 2 | (90 | ) | (90 | ) | 18 | (14 | ) | (14 | ) | 19 | 6 | 6 | ||||||||||||||||||||||||||||||
Bonviva/Boniva |
– | – | (100 | ) | 1 | – | – | 1 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Anti-bacterials |
159 | 14 | 15 | 151 | 7 | 9 | 153 | 8 | 12 | 146 | 11 | 4 | ||||||||||||||||||||||||||||||||||||
Augmentin |
78 | 29 | 26 | 74 | 6 | 9 | 69 | 15 | 17 | 70 | 12 | 4 | ||||||||||||||||||||||||||||||||||||
Oncology and emesis |
17 | 13 | 13 | 17 | 6 | 6 | 16 | – | 14 | 12 | 8 | – | ||||||||||||||||||||||||||||||||||||
Arzerra |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Hycamtin |
1 | – | – | 2 | – | – | 2 | – | – | 2 | 100 | 100 | ||||||||||||||||||||||||||||||||||||
Promacta |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
9 | 50 | 50 | 9 | 29 | 29 | 7 | 17 | 17 | 5 | 67 | 67 | ||||||||||||||||||||||||||||||||||||
Votrient |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vaccines |
260 | 11 | 14 | 216 | 29 | 32 | 179 | 18 | 23 | 272 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Boostrix |
4 | >100 | >100 | 2 | – | – | 1 | (80 | ) | (80 | ) | 2 | 100 | 100 | ||||||||||||||||||||||||||||||||||
Cervarix |
7 | – | – | 8 | 17 | 33 | 6 | 50 | 50 | 4 | (33 | ) | (33 | ) | ||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
20 | 43 | 43 | 19 | 36 | 36 | 1 | (89 | ) | (89 | ) | – | (100 | ) | (100 | ) | ||||||||||||||||||||||||||||||||
Flu pandemic |
25 | (60 | ) | (55 | ) | 6 | – | – | 43 | – | – | 152 | – | – | ||||||||||||||||||||||||||||||||||
Hepatitis |
23 | 17 | 28 | 20 | (9 | ) | (9 | ) | 25 | 9 | 14 | 20 | 17 | 11 | ||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
13 | 56 | 44 | 16 | 7 | 7 | 11 | 11 | 22 | 10 | (8 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||
Rotarix |
45 | 36 | 36 | 20 | (56 | ) | (53 | ) | 20 | (34 | ) | (31 | ) | 17 | (25 | ) | (29 | ) | ||||||||||||||||||||||||||||||
Synflorix |
35 | 13 | 13 | 74 | >100 | >100 | 14 | – | – | 26 | – | – | ||||||||||||||||||||||||||||||||||||
Dermatologicals |
82 | 39 | 44 | 73 | 35 | 40 | 69 | 74 | 82 | 62 | 75 | 72 | ||||||||||||||||||||||||||||||||||||
Bactroban |
7 | 17 | 17 | 8 | 14 | 14 | 7 | 14 | – | 6 | (14 | ) | (14 | ) | ||||||||||||||||||||||||||||||||||
Dermovate |
11 | – | – | 7 | – | – | 7 | – | – | 5 | – | – | ||||||||||||||||||||||||||||||||||||
Duac |
3 | >100 | >100 | 3 | 50 | 50 | 2 | – | – | 3 | – | – | ||||||||||||||||||||||||||||||||||||
Soriatane |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Zovirax |
6 | 20 | 20 | 6 | 20 | 20 | 8 | – | 14 | 6 | – | – | ||||||||||||||||||||||||||||||||||||
Other |
113 | 62 | 64 | 106 | 30 | 34 | 86 | 24 | 26 | 80 | 30 | 27 | ||||||||||||||||||||||||||||||||||||
| 969 | 16 | 19 | 873 | 14 | 17 | 848 | 17 | 22 | 866 | 43 | 36 | |||||||||||||||||||||||||||||||||||||
VIIV Healthcare (HIV) |
50 | 57 | 67 | 59 | 73 | 79 | 19 | (17 | ) | (17 | ) | 18 | – | (5 | ) | |||||||||||||||||||||||||||||||||
Combivir |
26 | 67 | 73 | 24 | 69 | 85 | 7 | (36 | ) | (36 | ) | 6 | (33 | ) | (40 | ) | ||||||||||||||||||||||||||||||||
Epivir |
6 | 25 | 50 | 7 | 75 | 75 | 2 | (33 | ) | (33 | ) | 3 | 50 | 50 | ||||||||||||||||||||||||||||||||||
Epzicom/Kivexa |
9 | 14 | 29 | 12 | 86 | 71 | 6 | 50 | 50 | 2 | – | (33 | ) | |||||||||||||||||||||||||||||||||||
Lexiva |
2 | – | (33 | ) | 7 | >100 | >100 | 2 | 50 | – | 2 | >100 | 100 | |||||||||||||||||||||||||||||||||||
Selzentry |
1 | – | – | – | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Trizivir |
– | (50 | ) | (100 | ) | 3 | (75 | ) | (25 | ) | – | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||
Pharmaceutical turnover includes co-promotion income.
GSK Annual Report 2010
Table of Contents
192
Financial record
Quarterly trend
Pharmaceutical turnover – Rest of World
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Respiratory |
323 | 5 | 17 | 247 | 5 | 17 | 260 | 2 | 15 | 249 | 4 | 8 | ||||||||||||||||||||||||||||||||||||
Avamys/Veramyst |
12 | >100 | >100 | 7 | 50 | 75 | 7 | (30 | ) | (30 | ) | 11 | >100 | >100 | ||||||||||||||||||||||||||||||||||
Flixonase/Flonase |
11 | – | – | 7 | (14 | ) | – | 10 | (33 | ) | 11 | 20 | (41 | ) | (49 | ) | ||||||||||||||||||||||||||||||||
Flixotide/Flovent |
48 | (16 | ) | (2 | ) | 39 | (3 | ) | 5 | 41 | (15 | ) | – | 38 | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||
Seretide/Advair |
175 | 2 | 14 | 147 | 11 | 21 | 153 | 10 | 24 | 131 | 23 | 28 | ||||||||||||||||||||||||||||||||||||
Serevent |
11 | (18 | ) | – | 7 | (36 | ) | (36 | ) | 10 | (18 | ) | (9 | ) | 9 | (18 | ) | (18 | ) | |||||||||||||||||||||||||||||
Ventolin |
25 | (13 | ) | 4 | 21 | 11 | 17 | 23 | (5 | ) | 15 | 20 | – | 5 | ||||||||||||||||||||||||||||||||||
Zyrtec |
19 | (6 | ) | 6 | 15 | 17 | 25 | 16 | – | 14 | 18 | 12 | 6 | |||||||||||||||||||||||||||||||||||
Anti-virals |
98 | (59 | ) | (55 | ) | 81 | (55 | ) | (48 | ) | 83 | (14 | ) | (2 | ) | 122 | (27 | ) | (27 | ) | ||||||||||||||||||||||||||||
Hepsera |
17 | (12 | ) | – | 16 | (6 | ) | – | 19 | 6 | 19 | 17 | 21 | 21 | ||||||||||||||||||||||||||||||||||
Relenza |
17 | (89 | ) | (88 | ) | 2 | (98 | ) | (98 | ) | 1 | – | (92 | ) | 51 | (49 | ) | (50 | ) | |||||||||||||||||||||||||||||
Valtrex |
49 | (2 | ) | 11 | 47 | 8 | 18 | 47 | 2 | 9 | 41 | – | 5 | |||||||||||||||||||||||||||||||||||
Zeffix |
16 | (7 | ) | 7 | 13 | (14 | ) | (7 | ) | 16 | 8 | 23 | 13 | (7 | ) | (7 | ) | |||||||||||||||||||||||||||||||
Central nervous system |
142 | (4 | ) | 9 | 118 | (4 | ) | 4 | 129 | (1 | ) | 11 | 96 | 3 | – | |||||||||||||||||||||||||||||||||
Imigran/Imitrex |
14 | 18 | 27 | 12 | – | 20 | 11 | (9 | ) | – | 10 | – | – | |||||||||||||||||||||||||||||||||||
Lamictal |
14 | 33 | 56 | 11 | 63 | 38 | 12 | 13 | 50 | 10 | 67 | 67 | ||||||||||||||||||||||||||||||||||||
Requip |
16 | 27 | 45 | 12 | (23 | ) | (8 | ) | 12 | 11 | 33 | 9 | – | (10 | ) | |||||||||||||||||||||||||||||||||
Seroxat/Paxil |
90 | (11 | ) | 2 | 72 | (14 | ) | (3 | ) | 79 | (5 | ) | 3 | 59 | (7 | ) | (12 | ) | ||||||||||||||||||||||||||||||
Treximet |
– | – | – | – | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Wellbutrin |
– | – | – | 1 | – | – | 4 | 100 | >100 | – | (50 | ) | – | |||||||||||||||||||||||||||||||||||
Cardiovascular and urogenital |
79 | 23 | 41 | 63 | 28 | 37 | 61 | 19 | 27 | 52 | 21 | 24 | ||||||||||||||||||||||||||||||||||||
Arixtra |
4 | – | 33 | 4 | 100 | 100 | 4 | – | 33 | 3 | – | – | ||||||||||||||||||||||||||||||||||||
Avodart |
32 | 100 | >100 | 20 | 89 | >100 | 16 | 78 | 78 | 16 | 88 | 100 | ||||||||||||||||||||||||||||||||||||
Coreg |
– | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Fraxiparine |
2 | (67 | ) | (33 | ) | 5 | >100 | 67 | 4 | (60 | ) | (20 | ) | 2 | – | (33 | ) | |||||||||||||||||||||||||||||||
Lovaza |
1 | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vesicare |
– | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Volibris |
3 | – | – | – | – | (100 | ) | 1 | – | – | 1 | – | – | |||||||||||||||||||||||||||||||||||
Metabolic |
40 | (32 | ) | (25 | ) | 44 | (28 | ) | (19 | ) | 50 | (8 | ) | (2 | ) | 49 | 2 | 2 | ||||||||||||||||||||||||||||||
Avandia products |
10 | (64 | ) | (60 | ) | 15 | (50 | ) | (42 | ) | 25 | (13 | ) | 4 | 23 | 4 | (4 | ) | ||||||||||||||||||||||||||||||
Bonviva/Boniva |
4 | – | 100 | 3 | 67 | – | 2 | – | 100 | 3 | – | – | ||||||||||||||||||||||||||||||||||||
Anti-bacterials |
42 | (2 | ) | 2 | 47 | – | 12 | 43 | (2 | ) | 2 | 44 | 5 | 10 | ||||||||||||||||||||||||||||||||||
Augmentin |
21 | (10 | ) | 5 | 23 | 24 | 35 | 20 | 33 | 33 | 19 | – | – | |||||||||||||||||||||||||||||||||||
Oncology and emesis |
25 | 41 | 47 | 17 | (17 | ) | (6 | ) | 18 | 21 | 29 | 15 | 27 | 36 | ||||||||||||||||||||||||||||||||||
Arzerra |
– | – | – | – | – | – | 1 | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Hycamtin |
2 | (33 | ) | (33 | ) | 1 | 100 | – | 2 | (50 | ) | – | 1 | – | – | |||||||||||||||||||||||||||||||||
Promacta |
1 | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Tyverb/Tykerb |
9 | 14 | 29 | 8 | 13 | – | 9 | – | – | 7 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Votrient |
– | – | – | 1 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Vaccines |
170 | (28 | ) | (17 | ) | 178 | 81 | >100 | 252 | >100 | >100 | 355 | >100 | >100 | ||||||||||||||||||||||||||||||||||
Boostrix |
6 | (17 | ) | – | 4 | – | – | 5 | 67 | 67 | 4 | (67 | ) | (33 | ) | |||||||||||||||||||||||||||||||||
Cervarix |
34 | >100 | >100 | 25 | >100 | >100 | 17 | >100 | >100 | 12 | >100 | >100 | ||||||||||||||||||||||||||||||||||||
Fluarix, FluLaval |
8 | (33 | ) | (33 | ) | 17 | 50 | 70 | (1 | ) | – | – | 4 | >100 | >100 | |||||||||||||||||||||||||||||||||
Flu pandemic |
46 | (67 | ) | (57 | ) | 49 | >100 | >100 | 140 | – | – | 242 | >100 | >100 | ||||||||||||||||||||||||||||||||||
Hepatitis |
22 | 11 | 22 | 17 | – | 6 | 20 | 29 | 43 | 24 | 22 | 33 | ||||||||||||||||||||||||||||||||||||
Infanrix, Pediarix |
21 | 13 | 31 | 18 | (6 | ) | 6 | 16 | (6 | ) | – | 20 | 13 | 33 | ||||||||||||||||||||||||||||||||||
Rotarix |
4 | (33 | ) | (33 | ) | 7 | 40 | 40 | 2 | (75 | ) | (75 | ) | 8 | 40 | 60 | ||||||||||||||||||||||||||||||||
Synflorix |
5 | (33 | ) | (17 | ) | 7 | >100 | >100 | 10 | >100 | >100 | 7 | – | – | ||||||||||||||||||||||||||||||||||
Dermatologicals |
50 | (12 | ) | (2 | ) | 47 | 2 | 12 | 56 | 76 | 93 | 44 | 95 | 100 | ||||||||||||||||||||||||||||||||||
Bactroban |
3 | – | 50 | 4 | (25 | ) | – | 2 | (33 | ) | (33 | ) | 4 | 100 | 100 | |||||||||||||||||||||||||||||||||
Dermovate |
6 | – | – | 6 | – | – | 7 | – | – | 6 | – | – | ||||||||||||||||||||||||||||||||||||
Duac |
3 | >100 | >100 | 5 | 100 | >100 | 6 | – | – | 1 | – | – | ||||||||||||||||||||||||||||||||||||
Soriatane |
– | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Zovirax |
12 | (15 | ) | (8 | ) | 11 | (9 | ) | – | 13 | (14 | ) | (7 | ) | 10 | (17 | ) | (17 | ) | |||||||||||||||||||||||||||||
Other |
88 | – | 11 | 59 | 14 | 16 | 69 | (17 | ) | (4 | ) | 59 | 11 | 4 | ||||||||||||||||||||||||||||||||||
| 1,057 | (16 | ) | (6 | ) | 901 | (1 | ) | 9 | 1,021 | 16 | 31 | 1,085 | 35 | 35 | ||||||||||||||||||||||||||||||||||
VIIV Healthcare (HIV) |
45 | 5 | 10 | 44 | 6 | 22 | 49 | 24 | 32 | 37 | (5 | ) | – | |||||||||||||||||||||||||||||||||||
Combivir |
11 | – | 10 | 10 | (20 | ) | – | 10 | – | – | 9 | – | 13 | |||||||||||||||||||||||||||||||||||
Epivir |
5 | 100 | 67 | 5 | (33 | ) | (17 | ) | 5 | – | – | 5 | (20 | ) | – | |||||||||||||||||||||||||||||||||
Epzicom/Kivexa |
19 | 19 | 19 | 19 | 23 | 46 | 16 | – | 7 | 17 | 7 | 21 | ||||||||||||||||||||||||||||||||||||
Lexiva |
4 | – | 100 | – | (33 | ) | (100 | ) | 4 | – | 100 | 3 | – | – | ||||||||||||||||||||||||||||||||||
Selzentry |
1 | – | – | 2 | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Trizivir |
2 | – | – | 1 | 100 | – | 3 | (100 | ) | (25 | ) | 1 | >100 | – | ||||||||||||||||||||||||||||||||||
Pharmaceutical turnover includes co-promotion income.
GSK Annual Report 2010
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193
Financial record
Quarterly trend
Consumer Healthcare turnover
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
Over-the-counter medicines |
645 | 1 | 4 | 601 | 1 | 5 | 593 | (2 | ) | 3 | 617 | 11 | 8 | |||||||||||||||||||||||||||||||||||
Oral healthcare |
411 | 7 | 10 | 400 | 4 | 7 | 410 | 9 | 12 | 381 | 5 | 4 | ||||||||||||||||||||||||||||||||||||
Nutritional healthcare |
211 | 7 | 10 | 259 | 12 | 16 | 249 | 6 | 10 | 233 | 12 | 10 | ||||||||||||||||||||||||||||||||||||
| 1,267 | 4 | 7 | 1,260 | 4 | 8 | 1,252 | 3 | 7 | 1,231 | 9 | 7 | |||||||||||||||||||||||||||||||||||||
| Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | |||||||||||||||||||||||||||||||||||||||||||||
| £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | £m | CER% | £% | |||||||||||||||||||||||||||||||||||||
USA |
279 | 5 | 7 | 249 | (4 | ) | – | 263 | – | 4 | 246 | 3 | (5 | ) | ||||||||||||||||||||||||||||||||||
Europe |
503 | (3 | ) | (5 | ) | 491 | (2 | ) | (3 | ) | 493 | (2 | ) | (3 | ) | 471 | 9 | 8 | ||||||||||||||||||||||||||||||
Rest of World |
485 | 13 | 22 | 520 | 15 | (25 | ) | 496 | 11 | 22 | 514 | 13 | 13 | |||||||||||||||||||||||||||||||||||
| 1,267 | 4 | 7 | 1,260 | 4 | 8 | 1,252 | 3 | 7 | 1,231 | 9 | 7 | |||||||||||||||||||||||||||||||||||||
GSK Annual Report 2010
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194
Financial record
Five year record
A record of financial performance is provided, analysed in accordance with current reporting
practice. The information included in the Five year record is prepared in accordance with IFRS as
adopted by the European Union and also with IFRS as issued by the International Accounting
Standards Board.
| Turnover by business segment | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Pharmaceutical |
23,382 | 23,694 | 20,381 | 19,163 | 20,013 | |||||||||||||||
Consumer Healthcare |
5,010 | 4,674 | 3,971 | 3,553 | 3,212 | |||||||||||||||
| 28,392 | 28,368 | 24,352 | 22,716 | 23,225 | ||||||||||||||||
| Pharmaceutical turnover by therapeutic area | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Respiratory |
7,238 | 6,977 | 5,817 | 5,032 | 4,991 | |||||||||||||||
Anti-virals |
1,086 | 2,416 | 1,584 | 1,478 | 1,191 | |||||||||||||||
HIV |
1,566 | 1,605 | 1,513 | 1,442 | 1,515 | |||||||||||||||
Central nervous system |
1,753 | 1,870 | 2,897 | 3,348 | 3,642 | |||||||||||||||
Cardiovascular and urogenital |
2,570 | 2,298 | 1,847 | 1,554 | 1,636 | |||||||||||||||
Metabolic |
678 | 1,181 | 1,191 | 1,508 | 1,870 | |||||||||||||||
Anti-bacterials |
1,396 | 1,457 | 1,301 | 1,213 | 1,271 | |||||||||||||||
Oncology and emesis |
688 | 629 | 496 | 477 | 1,069 | |||||||||||||||
Vaccines |
4,326 | 3,706 | 2,539 | 1,993 | 1,692 | |||||||||||||||
Dermatologicals |
1,087 | 707 | 414 | 375 | 367 | |||||||||||||||
Other |
994 | 848 | 782 | 743 | 769 | |||||||||||||||
| 23,382 | 23,694 | 20,381 | 19,163 | 20,013 | ||||||||||||||||
| Pharmaceutical turnover by geographic area | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
USA |
8,308 | 9,294 | 8,894 | 9,273 | 10,353 | |||||||||||||||
Europe |
7,133 | 7,720 | 6,483 | 5,560 | 5,437 | |||||||||||||||
Emerging Markets |
3,702 | 3,000 | 2,282 | 1,883 | 1,769 | |||||||||||||||
Asia Pacific/Japan |
3,204 | 2,715 | 1,918 | 1,701 | 1,666 | |||||||||||||||
Other |
1,035 | 965 | 804 | 746 | 788 | |||||||||||||||
| 23,382 | 23,694 | 20,381 | 19,163 | 20,013 | ||||||||||||||||
Pharmaceutical turnover includes co-promotion income. In 2010 ViiV Healthcare turnover is included
in the geographic area in which a sale is made.
| Consumer Healthcare turnover | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
OTC medicines |
2,456 | 2,339 | 1,935 | 1,788 | 1,561 | |||||||||||||||
Oral healthcare |
1,602 | 1,484 | 1,240 | 1,049 | 993 | |||||||||||||||
Nutritional healthcare |
952 | 851 | 796 | 716 | 658 | |||||||||||||||
| 5,010 | 4,674 | 3,971 | 3,553 | 3,212 | ||||||||||||||||
GSK Annual Report 2010
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195
Financial record
| Financial results – total | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Turnover |
28,392 | 28,368 | 24,352 | 22,716 | 23,225 | |||||||||||||||
Operating profit |
3,783 | 8,425 | 7,141 | 7,593 | 7,808 | |||||||||||||||
Profit before taxation |
3,157 | 7,891 | 6,659 | 7,452 | 7,799 | |||||||||||||||
Profit after taxation |
1,853 | 5,669 | 4,712 | 5,310 | 5,498 | |||||||||||||||
| pence | pence | pence | pence | pence | ||||||||||||||||
Basic earnings per share |
32.1 | 109.1 | 88.6 | 94.4 | 95.5 | |||||||||||||||
Diluted earnings per share |
31.9 | 108.2 | 88.1 | 93.7 | 94.5 | |||||||||||||||
| Financial results – before major restructuring | 2010 | 2009 | 2008 | |||||||||||||||||
| £m | £m | £m | ||||||||||||||||||
Turnover |
28,392 | 28,368 | 24,352 | |||||||||||||||||
Operating profit |
5,128 | 9,257 | 8,259 | |||||||||||||||||
Profit before taxation |
4,505 | 8,726 | 7,782 | |||||||||||||||||
Profit after taxation |
2,961 | 6,283 | 5,551 | |||||||||||||||||
| pence | pence | pence | ||||||||||||||||||
Adjusted earnings per share |
53.9 | 121.2 | 104.7 | |||||||||||||||||
Adjusted diluted earnings per share |
53.5 | 120.3 | 104.1 | |||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| millions | millions | millions | millions | millions | ||||||||||||||||
Weighted average number of shares in issue: |
||||||||||||||||||||
Basic |
5,085 | 5,069 | 5,195 | 5,524 | 5,643 | |||||||||||||||
Diluted |
5,128 | 5,108 | 5,226 | 5,567 | 5,700 | |||||||||||||||
| % | % | % | % | % | ||||||||||||||||
Return on capital employed |
30.8 | 82.8 | 73.1 | 76.2 | 90.6 | |||||||||||||||
Return on capital employed is calculated as total profit before taxation as a percentage of average
net assets over the year.
| Balance sheet | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Non-current assets |
26,194 | 25,292 | 22,124 | 17,377 | 14,561 | |||||||||||||||
Current assets |
16,036 | 17,570 | 17,269 | 13,626 | 10,992 | |||||||||||||||
Total assets |
42,230 | 42,862 | 39,393 | 31,003 | 25,553 | |||||||||||||||
Current liabilities |
(12,794 | ) | (12,118 | ) | (10,017 | ) | (10,345 | ) | (7,265 | ) | ||||||||||
Non-current liabilities |
(19,691 | ) | (20,002 | ) | (21,058 | ) | (10,748 | ) | (8,640 | ) | ||||||||||
Total liabilities |
(32,485 | ) | (32,120 | ) | (31,075 | ) | (21,093 | ) | (15,905 | ) | ||||||||||
Net assets |
9,745 | 10,742 | 8,318 | 9,910 | 9,648 | |||||||||||||||
Shareholders’ equity |
8,887 | 10,005 | 7,931 | 9,603 | 9,386 | |||||||||||||||
Non-controlling interests |
858 | 737 | 387 | 307 | 262 | |||||||||||||||
Total equity |
9,745 | 10,742 | 8,318 | 9,910 | 9,648 | |||||||||||||||
GSK Annual Report 2010
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196
Financial record
Number of employees
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
USA |
17,555 | 22,594 | 21,176 | 24,838 | 24,726 | |||||||||||||||
Europe |
39,910 | 42,048 | 44,677 | 46,869 | 45,758 | |||||||||||||||
Rest of World: |
||||||||||||||||||||
Asia Pacific, including China |
23,388 | 21,011 | 18,983 | 17,525 | 17,570 | |||||||||||||||
Japan |
3,461 | 3,264 | 3,174 | 3,284 | 3,195 | |||||||||||||||
Middle East, Africa |
3,609 | 3,619 | 3,403 | 3,156 | 3,204 | |||||||||||||||
Latin America |
6,432 | 5,169 | 5,228 | 5,249 | 5,856 | |||||||||||||||
Canada |
2,106 | 2,208 | 2,362 | 2,562 | 2,386 | |||||||||||||||
Rest of World |
38,996 | 35,271 | 33,150 | 31,776 | 32,211 | |||||||||||||||
| 96,461 | 99,913 | 99,003 | 103,483 | 102,695 | ||||||||||||||||
Manufacturing |
30,611 | 31,162 | 32,622 | 33,995 | 33,235 | |||||||||||||||
Selling |
43,918 | 44,621 | 42,430 | 44,499 | 44,484 | |||||||||||||||
Administration |
8,850 | 9,405 | 8,787 | 8,960 | 9,024 | |||||||||||||||
Research and development |
13,082 | 14,725 | 15,164 | 16,029 | 15,952 | |||||||||||||||
| 96,461 | 99,913 | 99,003 | 103,483 | 102,695 | ||||||||||||||||
The geographic distribution of employees in the table above is based on the location of GSK’s
subsidiary companies. The number of employees is the number of permanent employed staff at the end
of the financial period. It excludes those employees who are employed and managed by GSK on a
contract basis.
Exchange rates
As a guide to holders of ADS, the following tables set out, for the periods indicated,
information on the exchange rate of US dollars for Sterling as reported by the Federal Reserve Bank
of New York (‘noon buying rate’)*.
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Average |
1.55 | 1.56 | 1.85 | 2.00 | 1.85 | |||||||||||||||
The average rate for the year is calculated as the average of the noon buying rates for each day of
the year.
| Feb | Jan | Dec | Nov | Oct | Sept | |||||||||||||||||||
| 2011 | 2011 | 2010 | 2010 | 2010 | 2010 | |||||||||||||||||||
High |
1.62 | 1.60 | 1.59 | 1.63 | 1.60 | 1.58 | ||||||||||||||||||
Low |
1.60 | 1.55 | 1.54 | 1.55 | 1.57 | 1.53 | ||||||||||||||||||
| * | On 31st December 2008, the Federal Reserve Bank of New York ceased publishing noon buying rates. The Bank of England 4pm buying rates have been used for subsequent calculations. |
The 4pm buying rate on 24th February 2011 was £1 = US$1.61.
GSK Annual Report 2010
Table of Contents
197
Product development pipeline
| Key | ||||||
†
|
In-license or other alliance relationship with third party | BLA | Biological License Application | |||
S
|
Month of first submission | MAA | Marketing Authorisation Application (Europe) | |||
A
|
Month of first regulatory approval (for MAA, this is the first EU | NDA | New Drug Application (USA) | |||
| approval letter) | Phase I | Evaluation of clinical pharmacology, usually conducted in volunteers | ||||
AL/CR
|
Month Approvable or Complete Response Letter received – indicates | Phase II | Determination of dose and initial evaluation of efficacy, conducted in a | |||
| that ultimately approval may be given subject to resolution of | small number of patients | |||||
| outstanding queries | Phase III | Large comparative study (compound versus placebo and/or established | ||||
PO
|
Month of EU Positive Opinion | treatment) in patients to establish clinical benefit and safety | ||||
TA
|
FDA Tentative Approval | |||||
MAA and NDA/BLA Regulatory milestones shown in the table below are those that have been
achieved. Future filing dates are not included in this list.
| Achieved Regulatory | ||||||||||
| review milestones | ||||||||||
| Compound | Type | Indication | Phase | MAA | NDA/BLA | |||||
| Biopharmaceuticals | ||||||||||
933776
|
beta amyloid monoclonal antibody | Alzheimer’s disorders | I | |||||||
1070806
|
IL18 monoclonal antibody | metabolic disease | I | |||||||
1223249
|
NOGO-A monoclonal antibody | amyotrophic lateral sclerosis & multiple sclerosis | I | |||||||
2401502†
|
domain antibody targetted multi-component vaccine
|
malignant melanoma | I | |||||||
2586881 (APN01)†
|
recombinant human angiotensin converting anzyme 2
|
acute respiratory distress syndrome | I | |||||||
iboctadekin† (+ Doxil)
|
IL18 immunomodulator (+ topoisomerase II inhibitor)
|
ovarian cancer | I | |||||||
otelixizumab†
|
anti-CD3 monoclonal antibody (i.v.) | Graves eye disease | I | |||||||
otelixizumab†
|
anti-CD3 monoclonal antibody (s.c. & i.v.) | rheumatoid arthritis | I | |||||||
otelixizumab†
|
anti-CD3 monoclonal antibody (s.c.) | type 1 diabetes | I | |||||||
249320
|
myelin-associated glycoprotein monoclonal antibody
|
stroke | II | |||||||
315234
|
oncostatin M monoclonal antibody | rheumatoid arthritis | II | |||||||
768974†
|
parathyroid hormone | osteoporosis | II | |||||||
albiglutide†
|
glucagon-like peptide 1 (GLP 1) agonist | heart failure | II | |||||||
Benlysta†
|
anti-B lymphocyte stimulator monoclonal antibody (s.c.)
|
systemic lupus erythematosus | II | |||||||
mepolizumab
|
anti-IL5 monoclonal antibody | severe asthma & nasal polyposis | II | |||||||
ofatumumab†
|
anti-CD20 human monoclonal antibody (s.c.) | multiple sclerosis | II | |||||||
ofatumumab†
|
anti-CD20 human monoclonal antibody (s.c.) | rheumatoid arthritis | II | |||||||
otelixizumab†
|
anti-CD3 monoclonal antibody (i.v.) | myaesthenia gravis | II | |||||||
albiglutide†
|
GLP 1 agonist | type 2 diabetes | III | |||||||
Arzerra†
|
anti-CD20 human monoclonal antibody | chronic lymphocytic leukaemia, first line therapy & use in relapsed patients
|
III | |||||||
Arzerra†
|
anti-CD20 human monoclonal antibody | diffuse large B cell lymphoma (relapsed patients) | III | |||||||
Arzerra†
|
anti-CD20 human monoclonal antibody | follicular lymphoma (refractory & relapsed patients) | III | |||||||
otelixizumab†
|
anti-CD3 monoclonal antibody (i.v.) | type 1 diabetes | III | |||||||
Benlysta†
|
anti-B lymphocyte stimulator monoclonal
antibody (i.v.)
|
systemic lupus erythematosus | Submitted | S: Jun10 | S: Jun10 | |||||
denosumab†
|
anti-receptor activator for nuclear kappa (RANK) ligand human monoclonal antibody
|
bone metastatic disease | Submitted | N/A | N/A | |||||
Arzerra†
|
anti-CD20 human monoclonal antibody | chronic lymphocytic leukaemia (refractory patients) | Approved | A: Apr10 | A: Oct09 | |||||
Prolia†
|
anti-RANK ligand human monoclonal antibody | hormone ablative/chemotherapy bone loss in prostate cancer patients
|
Approved | N/A | N/A | |||||
Prolia†
|
anti-RANK ligand human monoclonal antibody | postmenopausal osteoporosis | Approved | A: May10 | N/A | |||||
| Cardiovascular & Metabolic | ||||||||||
1614235†
|
sodium dependent glucose transport (SGLT1) inhibitor
|
type 2 diabetes | I | |||||||
2245840
|
SIRT1 activator | sarcopaenia (also COPD & psoriasis) | I | |||||||
256073
|
high affinity nicotinic acid receptor (HM74A) agonist
|
metabolic disorders | II | |||||||
557296
|
oxytocin antagonist | premature ejaculation | II | |||||||
1278863
|
prolyl hydroxylase inhibitor | anaemia associated with chronic renal disease | II | |||||||
1278863
|
prolyl hydroxylase inhibitor | peripheral arterial disease | II | |||||||
1292263
|
G-protein coupled receptor 119 (GRP119) agonist
|
metabolic disorders | II | |||||||
1521498
|
mu-opioid receptor inverse agonist | compulsive eating disorders | II | |||||||
2245840
|
SIRT1 activator | type 2 diabetes (also COPD & psoriasis) | II | |||||||
losmapimod
|
p38 kinase inhibitor | cardiovascular disease (also COPD & pain) | II | |||||||
retosiban
|
oxytocin antagonist | threatened pre-term labour | II | |||||||
rilapladib†
|
Lp-PLA2 inhibitor | atherosclerosis | II | |||||||
darapladib†
|
Lp-PLA2 inhibitor | atherosclerosis | III | |||||||
Arixtra
|
synthetic factor Xa inhibitor | treatment of acute coronary syndrome | Approved | A: Aug07 | AL: Feb07 & Sep07 |
|||||
GSK Annual Report 2010
Table of Contents
198
Product development pipeline
| Achieved Regulatory | ||||||||||
| review milestones | ||||||||||
| Compound | Type | Indication | Phase | MAA | NDA/BLA | |||||
Infectious Diseases |
||||||||||
2251052†
|
leucyl t-RNA synthetase inhibitor (oral & i.v.) | bacterial infections | I | |||||||
2336805
|
hepatitis C virus inhibitor | hepatitis C | I | |||||||
2485852
|
hepatitis C virus inhibitor | hepatitis C | I | |||||||
1322322
|
polypeptide deformylase inhibitor | bacterial infections | II | |||||||
tafenoquine†
|
8-aminoquinoline | Plasmodium vivax malaria | II | |||||||
Relenza†
|
neuraminidase inhibitor (i.v.) | influenza | III | |||||||
Neurosciences |
||||||||||
2018682
|
sphingosine-1-phosphate receptor 1 (S1P1) agonist |
multiple sclerosis | I | |||||||
239512
|
histamine H3 antagonist | dementia & schizophrenia | II | |||||||
649868†
|
orexin antagonist | sleep disorders | II | |||||||
742457
|
5HT6 antagonist | dementia | II | |||||||
firategrast†
|
dual alpha4 integrin antagonist (VLA4) | multiple sclerosis | II | |||||||
Horizant†
|
voltage-gated calcium channel modulator | post-herpetic neuralgia | II | N/A | ||||||
losmapimod
|
p38 kinase inhibitor | pain (also cardiovascular disease & COPD) | II | |||||||
orvepitant
|
NK1 antagonist | depression & anxiety | II | |||||||
IPX066†
|
dopamine precursor + DOPA decarboxylase
inhibitor |
Parkinson’s disease | III | N/A | ||||||
Horizant†
|
voltage-gated calcium channel modulator | restless legs syndrome | Submitted | S: Sep08, Jan09 & Oct10 |
||||||
Trobalt/Potiga (retigabine/ezogabine)† |
neuronal potassium channel opener | epilepsy - partial seizures | Submitted | PO: Jan11 | CR: Nov10 | |||||
Oncology |
||||||||||
2110183
|
AKT protein kinase inhibitor | cancer | I | |||||||
2126458
|
Pi3 kinase inhibitor | cancer | I | |||||||
2141795
|
AKT protein kinase inhibitor | cancer | I | |||||||
2256098
|
focal adhesion kinase inhibitor | cancer | I | |||||||
vestipitant
|
NK1 antagonist (i.v.) | post operative nausea & vomiting | I | |||||||
1120212† + BKM120
|
mitogen-activated protein kinase inhibitor
(MEK1/2) + Pi3 alpha kinase inhibitor |
cancer | I | |||||||
1120212†
|
MEK1/2 inhibitor | pancreatic cancer | II | |||||||
1120212† +2118436
|
MEK1/2 inhibitor + BRaf protein kinase inhibitor | metastatic melanoma | II | |||||||
2285921†
|
thrombopoietin receptor agonist | thrombocytopaenia | II | |||||||
foretinib†
|
mesenchymal-epithelial transition factor
(C-met) kinase inhibitor |
papillary renal cell carcinoma and other cancers | II | |||||||
Revolade/Promacta†
|
thrombopoietin receptor agonist | oncology-related thrombocytopaenia | II | |||||||
1120212†
|
MEK1/2 inhibitor | metastatic melanoma | III | |||||||
2118436
|
BRaf protein kinase inhibitor | metastatic melanoma | III | |||||||
Votrient
|
multi-kinase angiogenesis inhibitor | ovarian cancer, maintenance therapy | III | |||||||
Revolade/Promacta†
|
thrombopoietin receptor agonist | chronic liver disease induced thrombocytopaenia | III | |||||||
Revolade/Promacta†
|
thrombopoietin receptor agonist | hepatitis C induced thrombocytopaenia | III | |||||||
Tyverb/Tykerb
|
Her2 and EGFR dual kinase inhibitor | breast cancer, adjuvant therapy | III | |||||||
Tyverb/Tykerb
|
Her2 and EGFR dual kinase inhibitor | gastric cancer | III | |||||||
Tyverb/Tykerb
|
Her2 and EGFR dual kinase inhibitor | head & neck squamous cell carcinoma (resectable disease)
|
III | |||||||
Votrient
|
multi-kinase angiogenesis inhibitor | renal cell cancer, adjuvant therapy | III | |||||||
Votrient
|
multi-kinase angiogenesis inhibitor | sarcoma | III | |||||||
Votrient + Tyverb/Tykerb
|
multi-kinase angiogenesis inhibitor +
Her2 and EGFR dual kinase inhibitor |
inflammatory breast cancer | III | |||||||
Avodart
|
5-alpha reductase inhibitor | reduction in the risk of prostate cancer | Submitted | S: Sep09 & Mar10 | CR: Jan11 | |||||
Duodart/Jalyn
|
5-alpha reductase inhibitor + alpha blocker | benign prostatic hyperplasia - fixed dose combination | Approved | A: Mar10 | A: Jun10 | |||||
Revolade/Promacta†
|
thrombopoietin receptor agonist | idiopathic thrombocytopaenic purpura | Approved | A: Mar10 | A: Nov08 | |||||
Tyverb/Tykerb
|
Her2 and EGFR dual kinase inhibitor | breast cancer, first line therapy | Approved | A: Jun10 | A: Jan10 | |||||
Votrient
|
multi-kinase angiogenesis inhibitor | renal cell cancer | Approved | A: Jun10 | A:Oct09 | |||||
Ophthalmology |
||||||||||
pazopanib
|
multi-kinase angiogenesis inhibitor (oral) | age-related macular degeneration (also cancer indications) | I | |||||||
pazopanib
|
multi-kinase angiogenesis inhibitor (eye drops) | age-related macular degeneration | II | |||||||
GSK Annual Report 2010
Table of Contents
199
Product development pipeline
| Achieved Regulatory | ||||||||||
| review milestones | ||||||||||
| Compound | Type | Indication | Phase | MAA | NDA/BLA | |||||
| Respiratory & Immuno-inflammation | ||||||||||
610677
|
p38 kinase inhibitor (inhaled) | COPD | I | |||||||
705498
|
transient receptor potential vanilloid
(TRPV1) antagonist (topical) |
pruritis | I | |||||||
1322888
|
motilin receptor agonist | delayed gastric emptying | I | |||||||
1325756
|
chemokine receptor (CXCR2) antagonist | COPD | I | |||||||
1440115
|
urotensin antagonist | asthma | I | |||||||
2245840
|
SIRT1 activator | COPD (also type 2 diabetes & sarcopaenia) | I | |||||||
2245840
|
SIRT1 activator | psoriasis (also type 2 diabetes & sarcopaenia) | II | |||||||
256066
|
PDE4 inhibitor (inhaled) | COPD | II | |||||||
656933
|
chemokine receptor (CXCR2) antagonist | cystic fibrosis | II | |||||||
685698
|
glucocorticoid agonist | asthma | II | |||||||
681323
|
p38 kinase inhibitor (i.v.) | acute lung injury & acute respiratory distress syndrome | II | |||||||
705498
|
transient receptor potential vanilloid
(TRPV1) antagonist (intranasal) |
non-allergic rhinitis | II | |||||||
870086
|
novel glucocorticoid agonist (inhaled) | asthma | II | |||||||
870086
|
novel glucocorticoid agonist (topical) | atopic dermatitis | II | |||||||
961081†
|
muscarinic antagonist, beta2 agonist | COPD | II | |||||||
962040
|
motilin receptor agonist | delayed gastric emptying | II | |||||||
1399686
|
anti-inflammatory macrolide conjugate (oral) | inflammatory bowel disease | II | |||||||
2190915†
|
5-lipoxygenase-activating protein (FLAP)
inhibitor |
asthma | II | |||||||
losmapimod
|
p38 kinase inhibitor (oral) | COPD (also cardiovascular disease & pain) | II | |||||||
573719
|
muscarinic acetylcholine antagonist | COPD | III | |||||||
573719 + vilanterol
|
muscarinic acetylcholine antagonist + | COPD | III | |||||||
(642444)†
|
long-acting beta2 agonist | |||||||||
vilanterol (642444)†
|
long-acting beta2 agonist | COPD | III | |||||||
1605786 (CCX282)†
|
CCR9 antagonist | Crohn’s disease | III | |||||||
Relovair |
||||||||||
(vilanterol† + 685698)
|
long-acting beta2 agonist +
glucocorticoid agonist |
asthma | III | |||||||
Relovair |
||||||||||
(vilanterol† + 685698)
|
long-acting beta2 agonist +
glucocorticoid agonist |
COPD | III | |||||||
| Paediatric Vaccines | ||||||||||
Heptavalent combination vaccine |
conjugated | Neisseria meningitis C, Haemophilus influenzae type b,
diphtheria, Hepatitis B, tetanus, pertussis and poliomyelitis
disease prophylaxis
|
II | |||||||
MMR
|
live attenuated | measles, mumps, rubella prophylaxis | II (USA) | A: Oct03 | ||||||
S. pneumoniae paediatric
next generation
|
recombinant – conjugated | Streptococcus pneumoniae disease prophylaxis | II | |||||||
Mosquirix
|
recombinant | malaria prophylaxis (Plasmodium falciparum) | III | N/A | ||||||
Nimenrix (MenACWY-TT)
|
conjugated | Neisseria meningitis groups A, C, W & Y disease prophylaxis
|
Submitted | |||||||
MenHibrix (Hib-MenCY-TT) |
conjugated | Neisseria meningitis groups C & Y & Haemophilus influenzae
type b disease prophylaxis |
Submitted | N/A | CR: Jun10 | |||||
| Other Vaccines | ||||||||||
Flu pandemic†
|
cell-culture based H5N1 vaccine | pandemic influenza prophylaxis | I | |||||||
HIV
|
recombinant | HIV disease prophylaxis | I | |||||||
HIV
|
recombinant | HIV disease immunotherapy | II | |||||||
Tuberculosis
|
recombinant | tuberculosis prophylaxis | II | |||||||
Flu vaccine
|
inactivated split – quadrivalent | seasonal influenza prophylaxis | III | |||||||
Zoster
|
recombinant | Herpes Zoster prevention | III | |||||||
Flu (pre-) pandemic
|
H5N1 inactivated split – monovalent (Quebec) | pre-pandemic & pandemic influenza prophylaxis | Submitted | N/A | S:Jun09 (Canada) |
|||||
Pumarix
|
H5N1 inactivated split – monovalent (Quebec) | pandemic influenza prophylaxis | Submitted | PO: Nov10 | N/A | |||||
GSK Annual Report 2010
Table of Contents
200
Product development pipeline
| Achieved Regulatory | ||||||||||
| review milestones | ||||||||||
| Compound | Type | Indication | Phase | MAA | NDA/BLA | |||||
| Antigen Specific Cancer Immunotherapeutic (ASCI) | ||||||||||
PRAME
|
recombinant | treatment of metastatic melanoma | I | |||||||
PRAME
|
recombinant | treatment of resectable non-small cell lung cancer | I | |||||||
NY-ESO-1
|
recombinant | treatment of metastatic melanoma | I | |||||||
WT1
|
recombinant | treatment of acute myelogenous leukaemia | II | |||||||
MAGE-A3
|
recombinant | treatment of melanoma | III | |||||||
MAGE-A3
|
recombinant | treatment of non-small cell lung cancer | III | |||||||
| Rare Diseases | ||||||||||
2402968†
|
antisense oligonucleotide | Duchenne muscular dystrophy | III | |||||||
2696273†
|
ex-vivo stem cell gene therapy | adenosine deaminase severe combined immune deficiency
(ADA-SCID)
|
III | |||||||
migalastat HCl†
|
pharmacological chaperone | Fabry disease | III | |||||||
| Stiefel (late stage assets only) | ||||||||||
tazarotene foam
|
retinoid foam | acne vulgaris | III | |||||||
Duac low dose
|
clindamycin/benzoyl peroxide gel | acne vulgaris | Submitted | S: Nov10 | ||||||
Sorilux
(calcipotriene foam)
|
vitamin D3 analog | mild to moderate plaque psoriasis | Approved | A: Oct10 | ||||||
itraconazole tablets
|
oral anti-fungal | onychomycosis | Approved | A: Apr10 | ||||||
Veltin
|
antibiotic/retinoid gel | acne vulgaris | Approved | A: Jul10 | ||||||
| HIV (ViiV Healthcare) | ||||||||||
1265744†
|
HIV integrase inhibitor (long-acting formulation) | HIV infections | I | |||||||
2248761†
|
non-nucleoside reverse transcriptase inhibitor | HIV infections | II | |||||||
PF-232798
|
CCR5 antagonist | HIV infections | II | |||||||
UK-453061
|
non-nucleoside reverse transcriptase inhibitor | HIV infections | II | |||||||
1349572†
|
HIV integrase inhibitor | HIV infections | III | |||||||
1349572† + abacavir sulphate + lamivudine |
HIV integrase inhibitor + reverse transcriptase inhibitors (fixed dose combination) |
HIV infections | III | |||||||
Option-based alliances with third parties that include assets in Phase I or later development:
Company
|
Disease Area | Phase | ||
Cancer Research UK
|
cancer | I | ||
ChemoCentryx
|
inflammatory disease | I* & II | ||
Galapagos
|
autoimmune disease | I* | ||
OncoMed Pharmaceuticals
|
oncology | I* | ||
Prosensa Therapeutics
|
neuroscience | I | ||
Ranbaxy Laboratories
|
respiratory | I | ||
Theravance
|
pain | I | ||
Telethon Institute for Gene Therapy
|
stem cell gene therapy | I & II | ||
Affiris
|
Alzheimer’s disease treatment vaccine | II | ||
Nabi
|
nicotine vaccine | III | ||
| * Two assets | ||
GSK Annual Report 2010
Table of Contents
201
Shareholder information
The Ordinary Shares of the company are listed on the London Stock Exchange and on the New York
Stock Exchange (NYSE) in the form of American Depositary Shares (ADS). For details of listed debt
and where it is listed refer to Note 32, ‘Net debt’.
| Share price | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| £ | £ | £ | ||||||||||
At 1st January |
13.20 | 12.85 | 12.79 | |||||||||
High during the year |
13.40 | 13.34 | 13.85 | |||||||||
Low during the year |
10.95 | 9.87 | 9.95 | |||||||||
At 31st December |
12.40 | 13.20 | 12.85 | |||||||||
Increase/(decrease) |
(6.1% | ) | 2.7% | 0.5% | ||||||||
The table above sets out the middle market closing prices. The company’s share price decreased by
6.1% in 2010. This compares with an increase in the FTSE 100 index by 9% during the year. The share
price on 24th February 2011 was £11.78.
Market capitalisation
The market capitalisation, based on shares in issue excluding Treasury shares, of
GlaxoSmithKline at 31st December 2010 was £64 billion. At that date GSK was the sixth largest
company by market capitalisation on the FTSE index.
SmithKline Beecham plc Floating Rate Unsecured Loan Stock 1990/2010
The Loan Stock, which was not listed on any exchange, was redeemed in its entirety at par, i.e.
£1 for every £1 of loan stock held, on 1st June 2010.
Dividends
GSK pays dividends quarterly. It continues to increase cash returns to shareholders through its
dividend policy. Dividends remain an essential component of total shareholder return and GSK is
committed to increasing its dividend over the long-term. Details of the dividends declared, the
amount and the payment dates are given in Note 16 to the financial statements, ‘Dividends’.
Dividends per share
The table below sets out the dividends per share in the last five years.
| Year | pence | |||
2010 |
65 | |||
2009 |
61 | |||
2008 |
57 | |||
2007 |
53 | |||
2006 |
48 | |||
Dividends per ADS
The table below sets out the dividends per ADS in US dollars in the last five years, translated
into US dollars at applicable exchange rates.
| Year | US$ | |||
2010 |
2.04 | |||
2009 |
1.93 | |||
2008 |
2.01 | |||
2007 |
2.14 | |||
2006 |
1.80 | |||
Dividend calendar
| Quarter | Ex-dividend date | Record date | Payment date | |||||||||
Q4 2010 |
9th February 2011 | 11th February 2011 | 7th April 2011 | |||||||||
Q1 2011 |
4th May 2011 | 6th May 2011 | 7th July 2011 | |||||||||
Q2 2011 |
3rd August 2011 | 5th August 2011 | 6th October 2011 | |||||||||
Q3 2011 |
2nd November 2011 | 4th November 2011 | 5th January 2012 | |||||||||
Financial reporting calendar
| Publication | Date | |||
Results announcements |
||||
Quarter 1 |
April 2011 | |||
Quarter 2 |
July 2011 | |||
Quarter 3 |
October 2011 | |||
Preliminary/Quarter 4 |
February 2012 | |||
Annual Report/Summary |
February/March 2012 | |||
Results announcements
Results announcements are issued to the London Stock Exchange and are available on its news
service. Shortly afterwards, they are issued to the media and
sent to the US Securities and Exchange Commission and the NYSE.
Financial reports
GSK publishes an Annual Report and for the shareholder not needing the full detail of the Report, a
Summary document. The Summary is
sent to all shareholders. Shareholders may elect to receive the Annual Report by writing to the
registrars. Alternatively shareholders may elect to receive notification by email of the
publication of financial reports by registering on www.shareview.co.uk.
Copies of previous financial reports are available from the registrars in the UK and from the GSK Response Center in the USA.
GSK Annual Report 2010
Table of Contents
202
Shareholder information
Corporate Responsibility Report
We will publish our 2010 Corporate Responsibilty Report online on 21st March 2011. This will
outline GSK’s approach and performance on responsibility areas including access to medicines,
research and business ethics, environmental sustainability and community investment.
Nature of trading market
The following tables set out, for the periods indicated, the high and low middle market closing
quotations in pence for the shares on the London Stock Exchange, and the high and low last reported
sales prices in US dollars for the ADS on the NYSE.
| Pence per share | ||||||||
| High | Low | |||||||
Quarter ended 31st March 2011* |
1270 | 1128 | ||||||
February 2011* |
1200 | 1128 | ||||||
January 2011 |
1270 | 1129 | ||||||
December 2010 |
1277 | 1231 | ||||||
November 2010 |
1262 | 1212 | ||||||
October 2010 |
1319 | 1221 | ||||||
September 2010 |
1290 | 1249 | ||||||
Quarter ended 31st December 2010 |
1319 | 1212 | ||||||
Quarter ended 30th September 2010 |
1290 | 1095 | ||||||
Quarter ended 30th June 2010 |
1281 | 1119 | ||||||
Quarter ended 31st March 2010 |
1340 | 1196 | ||||||
Quarter ended 31st December 2009 |
1334 | 1219 | ||||||
Quarter ended 30th September 2009 |
1252 | 1063 | ||||||
Quarter ended 30th June 2009 |
1117 | 987 | ||||||
Quarter ended 31st March 2009 |
1305 | 1003 | ||||||
Year ended 31st December 2008 |
1385 | 995 | ||||||
Year ended 31st December 2007 |
1493 | 1160 | ||||||
Year ended 31st December 2006 |
1577 | 1326 | ||||||
| US dollars per ADS | ||||||||
| High | Low | |||||||
Quarter ended 31st March 2011* |
39.86 | 36.33 | ||||||
February 2011* |
39.15 | 36.98 | ||||||
January 2011 |
39.86 | 36.33 | ||||||
December 2010 |
40.04 | 38.66 | ||||||
November 2010 |
40.85 | 38.28 | ||||||
October 2010 |
41.86 | 39.04 | ||||||
September 2010 |
40.47 | 38.78 | ||||||
Quarter ended 31st December 2010 |
41.86 | 38.28 | ||||||
Quarter ended 30th September 2010 |
40.47 | 33.78 | ||||||
Quarter ended 30th June 2010 |
39.57 | 32.34 | ||||||
Quarter ended 31st March 2010 |
42.97 | 37.03 | ||||||
Quarter ended 31st December 2009 |
42.91 | 38.72 | ||||||
Quarter ended 30th September 2009 |
40.03 | 34.36 | ||||||
Quarter ended 30th June 2009 |
36.56 | 29.11 | ||||||
Quarter ended 31st March 2009 |
39.24 | 27.27 | ||||||
Year ended 31st December 2008 |
54.36 | 32.02 | ||||||
Year ended 31st December 2007 |
59.35 | 47.87 | ||||||
Year ended 31st December 2006 |
58.38 | 50.15 | ||||||
| * | to 24th February 2011 |
Taxation
General information concerning the UK and US tax effects of share ownership is set out on page
210 ‘Taxation information for shareholders’.
Annual General Meeting 2011
The Queen Elizabeth II Conference Centre, 5th May 2011 |
||||
Broad Sanctuary, Westminster, |
||||
London SW1P 3EE |
||||
The AGM is the company’s principal forum for communication with private shareholders. In addition
to the formal business there will be a presentation by the Chief Executive Officer on the
performance of the Group and its future development. There will be opportunity for questions to the
Board, and the Chairmen of the Board’s Committees will take questions on matters relating to those
committees.
Investors holding shares through a nominee service should arrange with that nominee service to be
appointed as a corporate representative or proxy in respect of their shareholding in order to
attend and vote at the meeting.
ADR holders wishing to attend the meeting must obtain a proxy from The Bank of New York Mellon
which will enable them to attend and vote on the business to be transacted. ADR holders may
instruct The Bank of New York Mellon as to the way in which the shares represented by their ADR
should be voted by completing and returning the voting card provided by the bank in accordance with
the instructions given.
Documents on display
The Articles of Association of the company and other documents referred to in this Annual
Report are available for inspection at the Registered Office of the company.
Exchange controls and other limitations affecting security holders
There are currently no UK laws, decrees or regulations restricting the import or export of
capital or affecting the remittance of dividends or other payments to holders of the company’s
shares who are non-residents of the UK. There are no limitations relating only to non-residents of
the UK under English law or the company’s Articles of Association on the right to be a holder of,
and to vote in respect of, the company’s shares.
Duplicate publications
Queries relating to receipt of duplicate copies of GSK’s publications should be addressed to
the registrars.
Investor relations
Investor relations may be contacted as follows:
UK
980 Great West Road, Brentford, Middlesex TW8 9GS
Tel: +44 (0)20 8047 5000
Tel: +44 (0)20 8047 5000
USA
One Franklin Plaza, PO Box 7929, Philadelphia PA 19101
Tel: 1 888 825 5249 (US toll free)
Tel: +1 215 751 4000 (outside the USA)
Tel: 1 888 825 5249 (US toll free)
Tel: +1 215 751 4000 (outside the USA)
GSK Annual Report 2010
Table of Contents
203
Shareholder information
Registrar
The company’s registrars are:
Equiniti Limited
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
www.shareview.co.uk
Tel: 0871 384 2991 (inside the UK)
Tel: +44 (0)121 415 7067 (outside the UK)
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
www.shareview.co.uk
Tel: 0871 384 2991 (inside the UK)
Tel: +44 (0)121 415 7067 (outside the UK)
Lines are open from 8.30am to 5.30pm, Monday to Friday.
Equiniti also provides the following services:
| • | Nominee dealing account and Individual Savings Account (SA) | |
| • | GlaxoSmithKline Corporate Sponsored Nominee | |
| • | Shareview service | |
| • | Share dealing service | |
| • | Dividend Reinvestment Plan. |
Share dealing service
Shareholders may trade shares, either held in certificates or in the Corporate Sponsored
Nominee by internet or telephone through Shareview Dealing, a share dealing service provided by
Equiniti Financial Services Limited. For internet deals log on to www.shareview.co.uk/dealing. For
telephone deals call 08456 037 037 (inside the UK only).
For the Investment Account and ISA service, either www.shareview.co.uk/dealing or call 0845 300
0430. Telephone services are available between 8.00am to 6.00pm, Monday to Friday (market trading
hours 8.00am to 4.30pm).
Glaxo Wellcome and SmithKline Beecham Corporate PEPs
The Share Centre Limited
Oxford House, Oxford Road, Aylesbury, Bucks HP21 8SZ
Tel: +44 (0)1296 414141
Oxford House, Oxford Road, Aylesbury, Bucks HP21 8SZ
Tel: +44 (0)1296 414141
ADR programme administrator
The ADR programme is administered by:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
www.bnymellon.com/shareowner
Tel: 1 877 353 1154 (US toll free)
Tel: +1 201 680 6825 (outside the USA)
email: shrrelations@bnymellon.com
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
www.bnymellon.com/shareowner
Tel: 1 877 353 1154 (US toll free)
Tel: +1 201 680 6825 (outside the USA)
email: shrrelations@bnymellon.com
The administrators also provide Global BuyDIRECT, a direct ADS purchase/sale and dividend
reinvestment plan for ADR holders.
GSK Response Center
Tel: 1 888 825 5249 (US toll free)
The provision of the details above is not intended to be an invitation or inducement to engage in
an investment activity. Advice on share dealing should be obtained from a stockbroker or
independent financial adviser.
Analysis of shareholdings at 31st December 2010
| Number of | % of total | % of total | Number of | |||||||||||||
| accounts | accounts | shares | shares | |||||||||||||
Holding of shares |
||||||||||||||||
Up to 1,000 |
112,292 | 71 | 1 | 41,170,410 | ||||||||||||
1,001 to 5,000 |
35,996 | 23 | 1 | 77,156,810 | ||||||||||||
5,001 to 100,000 |
8,144 | 5 | 2 | 117,679,956 | ||||||||||||
100,001 to 1,000,000 |
827 | 1 | 5 | 302,361,401 | ||||||||||||
Over 1,000,000 |
411 | – | 91 | 5,132,089,600 | ||||||||||||
| 157,670 | 100 | 100 | 5,670,458,177 | |||||||||||||
Held by |
||||||||||||||||
Nominee companies |
28,100 | 18 | 74 | 4,195,447,676 | ||||||||||||
Investment and trust companies |
39 | – | – | 1,626,510 | ||||||||||||
Insurance companies |
8 | – | – | 4,834 | ||||||||||||
Individuals and other corporate bodies |
129,521 | 82 | 5 | 252,304,068 | ||||||||||||
BNY (Nominees) Limited |
1 | – | 13 | 746,880,931 | ||||||||||||
Held as Treasury shares by GlaxoSmithKline |
1 | – | 8 | 474,194,158 | ||||||||||||
| 157,670 | 100 | 100 | 5,670,458,177 | |||||||||||||
The Bank of New York Mellon’s holding held through BNY (Nominees) Limited represents the company’s
ADR programme, whereby each ADS represents two Ordinary Shares of 25p nominal value. At 24th
February 2011, BNY (Nominees) Limited held 752,137,377 Ordinary Shares representing 14.50% of the
issued share capital excluding Treasury shares at that date.
At 24th February 2011, the number of holders of shares in the USA was 1,118 with holdings of
1,314,614 shares, and the number of registered holders of the ADR was 32,203 with holdings of
376,067,688 ADR. Certain of these shares and ADR were held by brokers or other nominees. As a
result the number of holders of record or registered holders in the USA is not representative of
the number of beneficial holders or of the residence of beneficial holders.
GSK Annual Report 2010
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204
Taxation information for shareholders
A summary of certain UK tax and US federal income tax consequences for certain holders of
shares and ADR who are citizens of the UK or the USA is set out below. It is not a complete
analysis of all the possible tax consequences of the purchase or ownership of these securities. It
is intended only as a general guide. Holders are advised to consult their advisers with respect to
the tax consequences of the purchase and ownership of their shares or ADR, and the consequences
under state and local tax laws in the USA and the implications of the current UK/US Income Tax
convention.
US holders of ADR generally will be treated as the owners of the underlying shares for the purposes
of the current USA/UK double taxation conventions relating to income and gains (Income Tax
Convention), estate and gift taxes (Estate and Gift Tax Convention) and for the purposes of the US
Internal Revenue Code of 1986, as amended (the Code).
UK shareholders
This summary only applies to a UK resident shareholder that holds shares as capital assets.
Taxation of dividends
UK resident individual shareholders will generally be subject to UK income tax on the full amount
of dividends paid, grossed up for the amount of a one ninth dividend tax credit. The tax credit may
be set against the individual’s income tax liability in respect of the gross dividend, but is not
repayable to shareholders with a tax liability of less than the associated tax credit. For the tax
year 2010-11 and subsequent tax years, an additional rate of income tax on dividends is imposed for
taxpayers whose income is above £150,000. UK resident shareholders that are corporation taxpayers
should note that dividends are generally entitled to exemption from corporation tax. If
shareholders are in any doubt as to their position, they should consult their own professional
advisers.
Taxation of capital gains
UK shareholders may be liable for UK tax on gains on the disposal of shares or ADR. For disposals
by individuals,
and subject to
the availability of any exemption or relief such as the annual exempt amount
a taxable capital gain accruing on a disposal of shares or ADR will
be taxed at 28% if, after all allowable deductions, such
shareholder’s taxable income for the tax year exceeds the basic
rate income tax limit. In other cases, a taxable capital gain accruing
on a disposal of shares or ADR may be taxed at 18% or 28% or at a
combination of both rates.
Corporation taxpayers
may be entitled to an indexation allowance which applies to reduce capital gains to the extent that
such gains arise due to inflation. Indexation allowance may reduce a chargeable gain but will not
create an allowable loss.
Inheritance tax
Individual shareholders may be liable to inheritance tax on the transfer of shares or ADR. Tax may
be charged on the amount by which the value of the shareholder’s estate is reduced as a result of
any transfer by way of gift or other disposal at less than full market value.
If such a gift or other disposal were subject to both UK inheritance tax and US estate or gift tax,
the Estate and Gift Tax Convention would generally provide for tax paid in the USA to be credited
against tax payable in the UK.
Stamp duty
UK stamp duty or stamp duty reserve tax (SDRT) will, subject to certain exemptions, be payable on
the transfer of shares at a rate of 0.5% of the consideration for the
transfer.
US shareholders
This summary only applies to a shareholder (a citizen or resident of the USA or a domestic
corporation or a person that is otherwise subject to US federal income tax on a net income basis in
respect of the shares or ADR) that holds shares or ADR as capital assets, is not resident in the UK
for UK tax purposes and does not hold shares for the purposes of a trade, profession or vocation
that is carried on in the UK through a branch
or agency. The summary also does not address the tax treatment of holders that are subject to
special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities
or currencies, persons that hold shares or ADR as part of an integrated investment (including a
‘straddle’) comprised of a share or ADR and one or more other positions, and persons that own
(directly or indirectly) 10% or more of the voting stock of GSK.
Taxation of dividends
The gross amount of dividends received is treated as foreign source dividend income for US tax
purposes. It is not eligible for the dividend received deduction allowed to US corporations.
Dividends on ADR are payable in US dollars; dividends on shares are payable in Sterling. Dividends
paid in pounds Sterling will be included in income in the US dollar amount calculated by reference
to the exchange rate on the day the dividends are received by the holder. Subject to certain
exceptions for short-term or hedged positions, an individual eligible US holder will be subject to
US taxation at a maximum rate of 15% in respect of qualified dividends received before 2013.
Taxation of capital gains
Generally, US holders will not be subject to UK capital gains tax, but will be subject to US tax on
capital gains realised on the sale or other disposal of shares or ADR. Such gains will be long-term
capital gains (subject to reduced rates of taxation for individual holders) if the shares or ADR
were held for more than one year.
Information reporting and backup withholding
Dividends and payments of the proceeds on a sale of shares or ADR, paid within the USA or through
certain US-related financial intermediaries are subject to information reporting and may be subject
to backup withholding unless the US holder is a corporation or other exempt recipient or provides a
taxpayer identification number and certifies that no loss of exemption has occurred.
Non-US holders generally are not subject to information reporting or backup withholding, but may be
required to provide a certification of their non-US status in connection with payments received.
Any amounts withheld will be allowed as a refund or credit against a holder’s US federal income tax
liability provided the required information is furnished to the IRS.
Estate and gift taxes
Under the Estate and Gift Tax Convention, a US shareholder is not generally subject to UK
inheritance tax.
Stamp duty
UK stamp duty or SDRT will, subject to certain exemptions, be payable on any issue or transfer of
shares to the ADR custodian or depository at a rate of 1.5% of their price (if issued), the amount
of any consideration provided (if transferred on sale), or their value (if transferred for no
consideration).
No SDRT would be payable on the transfer of, or agreement to transfer an ADR. No UK stamp duty
should be payable on the transfer of an ADR provided that any instrument of transfer is executed
and remains at all times outside the UK. Any stamp duty on the transfer of an ADR would be payable
at a rate of 0.5% of the consideration for the transfer. Any sale of the underlying shares would,
subject to certain exceptions, result in liability to UK stamp duty or, as the case may be, SDRT at
a rate of 0.5%.
GSK Annual Report 2010
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205
Glossary of terms
| Terms used in the Annual Report | US equivalent or brief description | |
Accelerated capital allowances
|
Tax allowance in excess of depreciation arising from the purchase of fixed assets that delay the charging and payment of tax. The US equivalent of tax depreciation. | |
American Depositary Receipt (ADR)
|
Receipt evidencing title to an ADS. Each GlaxoSmithKline ADR represents two Ordinary Shares. | |
American Depositary Shares (ADS)
|
Listed on the New York Stock Exchange; represents two Ordinary Shares. | |
Basic earnings per share
|
Basic income per share. | |
Called-up share capital
|
Ordinary Shares, issued and fully paid. | |
CER growth
|
Growth at constant exchange rates. | |
Combined Code
|
Guidelines required by the Listing Rules of the Financial Services Authority to address the principal aspects of Corporate Governance. | |
The company
|
GlaxoSmithKline plc. | |
Currency swap
|
An exchange of two currencies, coupled with a subsequent re-exchange of those currencies, at agreed exchange rates and dates. | |
Defined benefit plan
|
Pension plan with specific employee benefits, often called ‘final salary scheme’. | |
Defined contribution plan
|
Pension plan with specific contributions and a level of pension dependent upon the growth of the pension fund. | |
Derivative financial instrument
|
A financial instrument that derives its value from the price or rate of some underlying item. | |
Diluted earnings per share
|
Diluted income per share. | |
Employee Share Ownership Plan Trusts
|
Trusts established by the Group to satisfy share-based employee incentive plans. | |
Finance lease
|
Capital lease. | |
Freehold
|
Ownership with absolute rights in perpetuity. | |
Gearing ratio
|
Net debt as a percentage of total equity. | |
The Group
|
GlaxoSmithKline plc and its subsidiary undertakings. | |
Hedging
|
The reduction of risk, normally in relation to foreign currency or interest rate movements, by making off-setting commitments. | |
Intangible fixed assets
|
Assets without physical substance, such as computer software, brands, licences, patents, know-how and marketing rights purchased from outside parties. | |
Profit
|
Income. | |
Profit attributable to shareholders
|
Net income. | |
Share capital
|
Ordinary Shares, capital stock or common stock issued and fully paid. | |
Shareholders’ funds
|
Shareholders’ equity. | |
Share option
|
Stock option. | |
Share premium account
|
Additional paid-up capital or paid-in surplus (not distributable). | |
Shares in issue
|
The number of shares outstanding. | |
Subsidiary
|
An entity in which GlaxoSmithKline holds a majority shareholding and/or exercises control. | |
Treasury share
|
Treasury stock. | |
Turnover
|
Revenue. | |
GSK Annual Report 2010
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206
Articles of Association of GlaxoSmithKline
The following is a summary of the principal provisions of the company’s Articles of Association
(the “Articles”). Shareholders should not rely on this summary, but should instead refer to the
current Articles which are filed with the Registrar of Companies in the UK. The Articles contain the fundamental provisions of the company’s constitution,
and the rules for the internal management and control of the company. The company has no statement
of objects in its Articles of Association and accordingly its objects are unrestricted in
accordance with the provisions of the Companies Act 2006.
Articles of Association
(a) Voting
All resolutions put to the vote at general meetings will be decided by poll. On a poll, every
shareholder who is present in person or by proxy shall have one vote for every Ordinary Share of
which he or she is the holder. In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of
the other joint holders, and seniority shall be determined by the order in which the names stand on
the register. Unless the Directors otherwise decide, the right to attend a general meeting and
voting rights may not be exercised by a shareholder who has not paid to the company all calls and
other sums then payable by him or her in respect of his or her Ordinary Shares. The right to attend
a general meeting and voting rights may not be exercised by a shareholder who is subject to an
order under Section 794 of the Companies Act 2006 because he or she has failed to provide the
company with information concerning his or her interests in Ordinary Shares within the prescribed
period, as required by Section 793 of the Companies Act 2006.
(b) Transfer of Ordinary Shares
Any shareholder may transfer his or her Ordinary Shares which are in certificated form by an
instrument of transfer in any usual form or in any other form which the Directors may approve. Such
instrument must be properly signed, stamped or certified and lodged with the company together with
the relevant share certificate(s) and such other evidence as the Directors may reasonably require
to show the right of the transferor to make the transfer.
Any member may transfer title to his or her uncertificated Ordinary Shares by means of a relevant
system, such as CREST.
The transferor of a share is deemed to remain the holder until the transferee’s name is entered on
the register.
The Directors may decline to register any transfer of any Ordinary Share which is not fully paid.
Registration of a transfer of uncertificated Ordinary Shares may be refused in the circumstances
set out in the uncertificated securities rules, and where, in the case of a transfer to joint
holders, the number of joint holders to whom the uncertificated Ordinary Share is to be transferred
exceeds four.
The Articles contain no other restrictions on the transfer of fully paid certificated Ordinary
Shares provided: (i) the instrument of transfer is duly stamped or certified or otherwise shown to
the satisfaction of the Directors to be exempt from stamp duty and is accompanied by the relevant
share certificate and such other evidence of the right to transfer as the Directors may reasonably
require; (ii) the transfer, if to joint transferees, is in favour of not more than four
transferees; (ii) the instrument of transfer is in respect of only one class of shares; and (iii)
the holder of the Ordinary Shares is not subject to an order under Section 794 of the Companies Act
2006. Notice of refusal to register a transfer must be sent to the transferee within two months of
the instrument of transfer being lodged. The Directors may decline to register a transfer of
Ordinary Shares by a person holding 0.25 per cent. or more of the existing Ordinary Shares if such
person is subject to an order under Section 794 Companies Act 2006, after failure to provide the
company with information concerning interests in those Ordinary Shares required to be provided
under Section 793 of the Companies Act 2006, unless the transfer is carried out pursuant to an
arm’s length sale.
Provisions in the Articles will not apply to uncertificated Ordinary Shares to the extent that they
are inconsistent with:
| (i) | the holding of Ordinary Shares in uncertificated form; | |
| (ii) | the transfer of title to Ordinary Shares by means of a system such as CREST; and | |
| (iii) | any provisions of the relevant regulations. |
(c) Dividends and distribution of assets on liquidation
The profits of the company which are available for distribution and permitted by law to be
distributed and which the company may by ordinary resolution from time to time declare, upon the
recommendation of the Directors, to distribute by way of dividend, in respect of any accounting
reference period shall be distributed by way of dividend among holders of Ordinary Shares.
If in their opinion the company’s financial position justifies such payments, the Directors may, as
far as any applicable legislation allows, pay interim dividends on shares of any class of such
amounts and in respect of such periods as they think fit. Except in so far as the rights attaching
to, or the terms of issue of, any share otherwise provide, all dividends will be declared,
apportioned and paid pro rata according to the amounts paid up on the shares during any portion of
the period in respect of which the dividend is paid. As the company has only one class of Ordinary
Shares, the holders of such Ordinary Shares will be entitled to participate in any surplus assets
in a winding-up in proportion to their shareholdings.
(d) Variation of rights and changes in capital
Subject to the provisions of any statute (including any orders, regulations or other subordinate
legislation made under it) from time to time in force concerning companies in so far as it applies
to the company (the “Companies Acts”), the rights attached to any class of shares may be varied
with the written consent of the holders of three-quarters in nominal value of the issued shares of
that class (excluding any shares of that class held as treasury shares) or with the sanction of a
special resolution passed at a separate meeting of the holders of shares of that class. At every
such separate meeting, the provisions of the Articles relating to general meetings shall apply,
except the necessary quorum shall be at least two persons holding or representing as proxy at least
one-third in nominal value of the issued shares of the relevant class (but provided that at any
adjourned meeting any holder of shares of the relevant class present in person or by proxy shall be
a quorum).
GSK Annual Report 2010
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Articles of Association of GlaxoSmithKline
The rights conferred upon the holders of any Ordinary Shares shall not, unless otherwise expressly
provided in the rights attaching to those Ordinary Shares, be deemed to be varied by the creation
or issue of further shares ranking pari passu with them.
(e) Unclaimed dividends
All dividends or other sums payable on or in respect of any Ordinary Shares which remain unclaimed
may be invested or otherwise made use of by the Directors for the benefit of the company until
claimed. Unless the Directors decide otherwise, any dividend or other sums payable on or in respect
of any Ordinary Shares unclaimed after a period of twelve years from the date when declared or became
due for payment will be forfeited and revert to the company. The company may stop sending dividend
cheques or warrants by post, or employ such other means of payment in respect of any Ordinary
Shares, if at least two consecutive payments have remained uncashed or are returned undelivered or
if one payment has remained uncashed or is returned undelivered and the company cannot establish a
new address for the holder after making reasonable enquiries; however, in either case, the company
must resume sending cheques or warrants or employ such other means of payment if the holder or any
person entitled to the Ordinary Shares by transmission requests the resumption.
(f) Untraced shareholders
The company may sell any Ordinary Shares in the company after advertising its intention and waiting
for three months if the Ordinary Shares have been in issue for at least ten years and during that
period at least three dividends have become payable on them and have not been claimed and, so far
as any Director is aware, the company has not received any communication from the holder of the
Ordinary Shares or any person entitled to them by transmission. Upon any such sale, the company
will become indebted to the former holder of the Ordinary Shares or the person entitled to them by
transmission for an amount equal to the net proceeds of sale.
(g) Limitations on rights of non-resident or foreign shareholders
There are no limitations imposed by the Articles on the rights of non-resident or foreign
shareholders except that there is no requirement for the company to serve notices on shareholders
outside the United Kingdom and the United States, if no address in the United States or United
Kingdom has been provided to the company.
(h) General meetings of shareholders
The Articles rely on the Companies Act 2006 provisions dealing with the calling of general meeting.
The company is required by the Companies Act 2006 to hold an annual general meeting each year.
General meetings of shareholders may be called as necessary by the Directors and must be called
promptly upon receipt of a requisition from shareholders. Under the Companies Act 2006, an annual
general meeting must be called by notice of at least twenty one days. A general meeting other than an
annual general meeting may be called on not less than fourteen clear days’ notice provided a special
resolution reducing the notice period to fourteen clear days has been passed at the immediately preceding
annual general meeting or a general meeting held since that annual general meeting.
(i) Conflicts of interest
The Directors may, subject to the provisions of the Articles, authorise any matter which would
otherwise involve a Director breaching his or her duty under the Companies Acts to avoid conflicts
of interest (each a “Conflict”). A Director seeking authorisation in respect of a Conflict shall
declare to the other Directors the nature and extent of his or her Conflict as soon as is
reasonably practicable and shall provide the other Directors with such details of the matter as are
necessary to decide how to address the Conflict. The board may resolve to authorise the relevant
Director in relation to any matter the subject of a Conflict, save that the relevant Director and
any other Director with a similar interest shall not count towards the quorum nor vote on any
resolution giving such authority, and, if the other Directors so decide, shall be excluded from any
meeting of the Directors while the Conflict is under consideration.
(j) Other
Conflicts of interest
Subject to the provisions of the Companies Acts, and provided the nature and extent of a Director’s
interest has been declared to the Directors, a Director may:
| (i) | be party to, or otherwise interested in, any contract with the company, or in which the company has a direct or indirect interest, | |
| (ii) | hold any other office or place of profit with the company (except that of auditor) in conjunction with his office of director for such period and upon such terms, including remuneration, as the Directors may decide; | |
| (iii) | act by himself or through a firm with which he is associated in a professional capacity for the company or any other company in which the company may be interested (otherwise than as auditor); | |
| (iv) | be or become a director of, or employed by, or otherwise be interested in any holding company or subsidiary company of the company or any other company in which the company may be interested; and | |
| (v) | be or become a director of any other company in which the company does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his appointment as director of that other company. |
No contract in which a Director is interested shall be liable to be avoided, and any
Director who is so interested is not liable to account to the company or its shareholders for any
benefit realised by the contract by reason of the Director holding that office or of the fiduciary
relationship thereby established. However, no Director may vote on, or be counted in the quorum in
relation to any resolution of the board relating specifically to his or her own appointment
(including remuneration) or the terms of his or her termination of appointment or relating to any
contract in which he or she has an interest (subject to certain exceptions).
Subject to the Companies Acts, the company may by ordinary resolution suspend or relax to any
extent the provisions relating to directors’ interests or restrictions on voting or ratify any
transaction not duly authorised by reason of a contravention of such provisions.
GSK Annual Report 2010
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208
Articles of Association of GlaxoSmithKline
(k) Directors’ remuneration
Each of the Directors will be paid a fee at such rate as may from time to time be determined by the
Directors, but the total fees paid to all of the Directors for acting as Directors (including
amounts paid to any Director who acts as chairman or is chairman of, or serves on any committee of
the Board of Directors but excluding any amounts paid under any other provision of the Articles)
shall not exceed the higher of: (i) £3 million a year; and (ii) any higher amount as the company
may by ordinary resolution decide. Such fees may be satisfied in cash or in shares or any other
non-cash form. Any Director who is appointed to any executive office, acts as chairman, acts as
senior independent director, acts as a scientific/medical expert on the board, serves on any
committee of the Directors or performs any other services which the Directors consider to extend
beyond the ordinary services of a Director shall be entitled to receive such remuneration (whether
by way of salary, commission or otherwise) as the Directors may decide. Each Director may be paid
reasonable travelling, hotel and other incidental expenses he or she incurs in attending and
returning from meetings of the Directors or committees of the Directors, or general meetings of the
company, or otherwise incurred in connection with the performance of his or her duties for the
company.
(l) Pensions and gratuities for Directors
The Directors or any committee authorised by the Directors may provide benefits by the payment of
gratuities, pensions or insurance or in any other manner for any Director or former Director or
their relations, connected persons or dependants, but no benefits (except those provided for by the
Articles) may be granted to or in respect of a Director or former Director who has not been
employed by or held an executive office or place of profit under the company or any of its
subsidiary undertakings or their respective predecessors in business without the approval of an
ordinary resolution of the company.
(m) Borrowing
powers
Subject to the provisions of the Companies
Act 2006, the Directors may exercise all the company’s powers to borrow money; to mortgage or
charge all or any of the company’s undertaking, property (present and future), and uncalled
capital; to issue debentures and other securities; and to give security either outright or as
collateral security for any debt, liability or obligation of the company or of any third party.
(n) Retirement and removal of Directors
A Director is subject to re-election at every annual general meeting of the company if he or she:
(i) held office at the time of the two previous annual general meetings and did not retire by
rotation at either of them; (ii) has held office for a continuous period of nine years or more; or
(iii) he or she has been appointed by the Directors since the last annual general meeting.
The company may by special resolution remove any Director before the expiration of his or her
period of office. No Director is required to retire by reason of his or her age, nor do any special
formalities apply to the appointment or re-election of any Director who is over any age limit. No
shareholding qualification for Directors shall be required.
(o) Vacation of office
The office of a director shall be vacated if:
| (i) | he resigns or offers to resign and the board resolves to accept such offer; | |
| (ii) | his resignation is requested by all of the other directors and all of the other directors are not less than three in number; | |
| (iii) | he is or has been suffering from mental or physical ill health and the board resolves that his office be vacated; | |
| (iv) | he is absent without permission of the board from meetings of the board (whether or not an alternate director appointed by him attends) for six consecutive months and the board resolves that his office is vacated; | |
| (v) | he becomes bankrupt or compounds with his creditors generally; | |
| (vi) | he is prohibited by law from being a director; | |
| (vii) | he is removed from office pursuant to the Articles or the Companies Acts. |
(p) Share rights
Subject to any rights attached to existing shares, shares may be issued with such rights and
restrictions as the company may by ordinary resolution decide, or, if there is no such resolution
or so far as it does not make specific provision, as the board may decide. Such rights and
restrictions shall apply as if they were set out in the Articles. Redeemable shares may be issued,
subject to any rights attached to existing shares. The board may determine the terms, conditions
and manner of redemption of any redeemable share so issued. Such terms and conditions shall apply
to the relevant shares as if they were set out in the Articles. Subject to the Articles, any
resolution passed by the shareholders and other shareholders’ rights, the Board may decide how to
deal with any shares in the company.
GSK Annual Report 2010
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Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice
On 4th November 2003, the New York Stock Exchange (the “NYSE”) adopted new corporate governance
standards. The application of the NYSE’s standards is restricted for foreign companies, recognising
that they have to comply with domestic requirements. As a foreign private issuer, GlaxoSmithKline
plc (“GlaxoSmithKline” or the “Company”) must comply with the following NYSE standards:
| 1. | the Company must satisfy the audit committee requirements of the Securities and Exchange Commission (the “SEC”); | |
| 2. | the Chief Executive Officer (the “CEO”) must promptly notify the NYSE in writing
after any executive officer of the Company becomes aware of any non-compliance with any applicable provisions of the NYSE’s corporate governance standards; |
|
| 3. | the Company must submit an annual
affirmation to the NYSE affirming GlaxoSmithKline’s compliance with applicable NYSE corporate
governance standards, and submit interim affirmations to the NYSE notifying it of specified changes
to the audit committee or a change to the status of the Company as a foreign private issuer; and |
|
| 4. | the Company must provide a brief description of any significant differences between its corporate governance practices and those followed by US companies under the NYSE listing standards. |
As a Company listed on the London Stock Exchange, GlaxoSmithKline is required to comply with the UK
Listing Authority Listing Rules and to report non-compliance with the UK Corporate Governance Code,
which came into effect for the Company from 1st January 2011, formerly the Combined Code on
Corporate Governance (the “UK Corporate Governance Code”).
The table below discloses differences between GlaxoSmithKline’s current domestic corporate
governance practices, which are based on the UK Corporate Governance Code that came into effect
from 1st January 2011 and which therefore differs in certain respects from GlaxoSmithKline’s
practices during 2010, and the NYSE corporate governance standards applicable to US companies.
| NYSE | Description of differences between GlaxoSmithKline’s governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
Director Independence |
||
1. Listed companies must have a majority of
independent directors.
|
GlaxoSmithKline complies with the equivalent domestic requirements contained in the UK Corporate Governance Code (formerly the Combined Code). A new edition of the UK Corporate Governance Code, for reporting years beginning on or after 29th June 2010 was issued in June 2010. | |
| The UK Corporate Governance Code provides that the board of directors of GlaxoSmithKline (the “Board”) and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively (B.1). The Board should include an appropriate combination of Executive and Non-Executive Directors (and, in particular, independent Non-Executive Directors) such that no individual or small group of individuals can dominate the Board’s decision taking (B.1). At least half the Board, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent (B.1.2). The roles of Chairman and Chief Executive should not be exercised by the same individual. The division of responsibilities between the Chairman and Chief Executive should be clearly established, set down in writing and agreed by the Board (A.2.1). | ||
| The Board considers that Professor Sir Roy Anderson, Dr Burns, Mr Culp, Sir Crispin Davis, Sir Deryck Maughan, Mr James Murdoch, Dr Podolsky, Mr de Swaan and Sir Robert Wilson are “independent” under the UK Corporate Governance Code. | ||
| A majority of the Board members are “independent” Non-Executive Directors and, in accordance with the recommendations of the UK Corporate Governance Code, the Board has appointed one of the “independent” Non-Executive Directors as Senior Independent Director to provide a sounding board for the Chairman and act as an intermediary for other Non-Executive Directors where necessary (A.4.1). | ||
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| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
2. In order to tighten the definition of “independent director” for
purposes of these standards: (a) No director qualifies as “independent” unless the board of
directors affirmatively determines that the director has no material
relationship with the listed company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with
the company). (b) In addition, a director is not independent if: (i) The director is, or has been within the last three years, an
employee of the listed company, or an immediate family
member is, or has been within the last three years, an executive
officer, of the listed company. (ii) The director has received, or has an immediate family member
who has received, during any twelve-month period within the
last three years, more than $120,000 in direct compensation
from the listed company, other than director and committee
fees and pension or other forms of deferred compensation for
prior service (provided such compensation is not contingent in
any way on continued service). (iii) (A) The director is a current partner or employee of a firm that is
the listed company’s internal or external auditor; (B) the director
has an immediate family member who is a current partner of
such a firm; (C) the director has an immediate family member
who is a current employee of such a firm and who personally
works on the listed company’s audit; or (D) the director or an
immediate family member was within the last three years a
partner or employee of such a firm and personally worked on
the listed company’s audit within that time. (iv) The director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of the listed company’s present
executive officers at the same time serves or served on that
company’s compensation committee. (v) The director is a current employee, or an immediate family
member is a current executive officer, of a company that has
made payments to, or received payments from, the listed
company for property or services in an amount which, in any of
the last three fiscal years, exceeds the greater of $1 million, or
2% of such other company’s consolidated gross revenues. (For the purposes of these standards “executive officer” is defined to have the meaning specified for the term “officer” in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended the “Exchange Act”). |
GlaxoSmithKline complies with the corresponding domestic
requirements contained in the UK Corporate Governance Code,
which sets out the principles for the Company to determine
whether a director is “independent”. The Board is required to determine and state its reasons for the determination of whether directors are independent in character and judgment and whether there are relationships or circumstances which are likely to affect, or could affect, the directors’ judgment. In undertaking this process, the Board is required, amongst other factors, to consider if the director: (a) has been an employee of GlaxoSmithKline within the last five
years; (b) has, or has had within the last three years, a material business
relationship with the Company either directly or as a partner,
shareholder, director or senior employee of a body that has such
a relationship with the Company; (c) has received or receives additional remuneration from the
Company apart from a director’s fee, participates in the
Company’s share option or a performance-related pay scheme,
or is a member of the Company’s pension scheme; (d) has close family ties with any of the Company’s advisers,
directors or senior employees; (e) holds cross-directorships or has significant links with other
directors through involvement in other companies or bodies; (f) represents a significant shareholder; or (g) has served on the Board for more than nine years from the date
of his or her first election (B.1.1). The Board considers all its Non-Executive Directors to be independent in character and judgment and has concluded that all its Non-Executive Directors are independent in accordance with the UK Corporate Governance Code. A new requirement introduced by the UK Corporate Governance Code is that all Directors should be subject to annual election by shareholders. GlaxoSmithKline intends to comply with this requirement at its 2011 Annual General Meeting. The UK Corporate Governance Code also provides that the Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual Directors (B.6). In addition, the evaluation of the Board should be externally facilitated at least every three years and a statement should be made available of whether an external facilitator has any other connection with the Company (B.6.2). All Directors should receive an induction on joining the Board (B.4). The Chairman should regularly review and agree with each Director their training and development needs (B.4.2). |
|
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| NYSE | Description of differences between GlaxoSmithKline’s governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
3. To empower non-management directors to serve as a more
effective check on management, the non-management
directors of each listed company must meet at regularly
scheduled executive sessions without management.
|
GlaxoSmithKline complies with the equivalent domestic requirements set out in the UK Corporate Governance Code, which requires that the Chairman of GlaxoSmithKline should hold meetings with the Non-Executive Directors without executives present. The Non-Executive Directors, led by the senior independent director, also meet without the Chairman present to appraise the Chairman’s performance (A.4.2). | |
| The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors (A.3) and, in particular, ensuring constructive relations between Executive and Non-Executive Directors (A.3). In addition, the Chairman is responsible for ensuring that all Directors are made aware of shareholders’ concerns (E.1). | ||
| Nominating/corporate governance committee | ||
4.
(a) Listed companies must have a nominating/corporate
governance committee composed entirely of independent
directors. (b) The nominating/corporate governance committee must have
a written charter that addresses: (i) the committee’s purpose and responsibilities
– which, at minimum, must be to: identify individuals
qualified to become board members, consistent with criteria
approved by the board, and to select, or to recommend that the
board select, the director nominees for the next annual
meeting of shareholders; develop and recommend to the
board a set of corporate governance guidelines applicable
to the corporation; and oversee the evaluation of the
board and management; and (ii) an annual performance evaluation of
the committee. |
GlaxoSmithKline complies with the corresponding domestic
requirements set out in the UK Corporate Governance Code,
which requires that GlaxoSmithKline should have a Nominations
Committee that is comprised of a majority of independent Non-
Executive Directors (B.2.1). GlaxoSmithKline’s Nominations Committee has written terms of reference in accordance with the UK Corporate Governance Code. The terms of reference are available and explain the Nominations Committee’s role and the authority delegated to it by the Board (B.2.1). The Nominations Committee reviews the structure, size, diversity (including gender diversity), and composition of the Board and appointment of members to the Board and the Corporate Executive Team (the “CET”), and makes recommendations to the Board as appropriate. The Committee also monitors the planning of succession for the Board and Senior Management. In compliance with the UK Corporate Governance Code, the terms and conditions of appointment of Non-Executive Directors are available for inspection (B.3.2). The UK Corporate Governance Code requires that a separate section in the Company’s Annual Report describe the work of the Nominations Committee in discharging its duties, including the process it has used in relation to Board appointments (B.2.4). The Board is responsible for regularly reviewing its corporate governance standards and practices. The Company Secretary oversees corporate governance matters for the Group. The Company Secretary is responsible for advising the Board through the Chairman on all corporate governance matters. Domestic requirements do not mandate that GlaxoSmithKline establish a corporate governance committee |
|
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| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
Management resources and compensation committee |
||
5.
(a) Listed companies must have a compensation committee
composed entirely of independent directors. (b) The compensation committee must have a written charter
that addresses: (i) the committee’s purpose and responsibilities – which, at
minimum, must be to have direct responsibility to: (A) review and approve corporate goals and objectives
relevant to CEO compensation, evaluate the CEO’s
performance in light of those goals and objectives,
and, either as a committee or together with the other
independent directors (as directed by the board),
determine and approve the CEO’s compensation level
based on this evaluation; (B) make recommendations to the board with respect
to non-CEO executive officer compensation, and
incentive-compensation and equity-based plans that
are subject to board approval; and (C) prepare the disclosure required by item 407(e)(5)
or Regulation S-K under the Exchange Act; (ii) an annual performance evaluation of the compensation
committee. |
GlaxoSmithKline complies with the equivalent domestic requirements
set out in the UK Corporate Governance Code, which requires that
GlaxoSmithKline should have a Remuneration Committee that is
comprised of at least three “independent” Non-Executive Directors in
addition to the Chairman (D.2.1). GlaxoSmithKline’s Remuneration Committee has written terms of reference in accordance with the UK Corporate Governance Code (D.2.1). The Remuneration Committee determines the terms of service and remuneration of the Executive Directors and members of the CET and, with the assistance of external independent advisers, it evaluates and makes recommendations to the Board on overall executive remuneration policy (the Chairman and the CEO are responsible for evaluating and making recommendations to the Board on the remuneration of Non-Executive Directors). The UK Corporate Governance Code provides that the Remuneration Committee: (a) should consult with the Chairman and/or CEO about their
proposals relating to the remuneration of other Executive Directors
(D.2) and should delegate responsibility for setting remuneration
for all Executive Directors and the Chairman, including pension
rights and any compensation payments (D.2.2); (b) should recommend and monitor the level and structure of
remuneration for senior management (D.2.2); (c) should consider what compensation commitments (including pension contributions and all other elements) the directors’ terms
of appointment would entail in the event of early termination
(D.1.4.); (d) should invite shareholders specifically to approve all new long-term
incentive schemes and significant changes to existing schemes
(D.2.4.); (e) should judge where to position the Company relative to other
companies and should be sensitive to pay and employment
conditions elsewhere in the group, especially when determining
annual salary increases (D.1); and (f) should consider whether the Directors should be eligible for
annual bonuses and benefits under long-term incentive schemes
(Schedule A), bearing in mind that performance-related elements
of Executive Directors’ remuneration should be designed to
promote the long-term success of the Company (D.1 and D.1.1). The UK Corporate Governance Code requires that payouts under incentive schemes should be subject to non-financial performance criteria where appropriate and compatible with the Company’s risk policies and systems (Schedule A). In addition, remuneration of Non-Executive Directors should not include performance-related elements (D.1.3). |
|
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plc’s corporate governance practice
| NYSE | Description of differences between GlaxoSmithKline’s governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
Audit & Risk committee |
||
6. Listed companies must have an audit committee that
satisfies the requirements of Rule 10A-3 under the Exchange
Act.
|
GlaxoSmithKline complies with equivalent domestic requirements set out in the UK Corporate Governance Code, which require that GlaxoSmithKline have an Audit Committee that is comprised entirely of “independent” Non-Executive Directors (C.3.1). The Board should satisfy itself that at least one member of the Audit Committee has recent and relevant financial experience. The Board of Directors approved and adopted new terms of reference and accepted proposals to change the name of the Committee to the Audit & Risk Committee with effect from 10th December 2009; | |
| The UK Corporate Governance Code provides that the Audit Committee: |
||
(a) monitors the integrity of the financial statements of the Company
and any formal announcements relating to the Company’s financial
performance, reviewing significant financial reporting judgments
contained in them (C.3.2); |
||
(b) review the Company’s internal financial controls and internal
control and risk management systems; |
||
(c) monitor and review the effectiveness of the Company’s internal
audit function (C.3.2); |
||
(d) make recommendations to the Board, for it to put to the
shareholders for their approval in general meeting, in relation
to the appointment, re-appointment and removal of the
external auditor and to approve the remuneration and terms of
engagement of the external auditor (C.3.2); |
||
(e) review and monitor the external auditor’s independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory requirements
(C.3.2); |
||
(f) develop and implement policy on the engagement of external
auditors to supply non-audit services, taking into account relevant
ethical guidance regarding the provision of non-audit services by the
external audit firm, and to report to the Board, identifying any matters
in respect of which it considers that action or improvement is needed
and making recommendations as to the steps to be taken (C.3.2); |
||
(g) review arrangements by which the staff of the company may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters (C.3.4) |
||
| GlaxoSmithKline’s Audit & Risk Committee meets the requirements of the Sarbanes-Oxley Act of 2002 in that: | ||
• each member of the Audit & Risk Committee is deemed to be
“independent” in accordance with the Securities Exchange Act of
1934, as amended, and applicable NYSE and UK requirements; |
||
• the Audit & Risk Committee, amongst other things, is responsible
for recommending the appointment, compensation, maintenance
of independence and oversight of the work of any registered public
accounting firm engaged for the purpose of preparing or issuing
an audit report or performing other audit, review or attest services
for the Company, and each such accounting firm must report
directly to the Audit & Risk Committee; |
||
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plc’s corporate governance practice
| NYSE | Description of differences between GlaxoSmithKline's governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
6. continued
|
• the Audit & Risk Committee has established a procedure for
the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters, and
for the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters; |
|
• the Audit & Risk Committee has the authority to engage
independent counsel and other advisors as it determines necessary
to carry out its duties; and |
||
• GlaxoSmithKline must provide appropriate funding for the Audit
& Risk Committee. |
||
| The Board has determined that Mr de Swaan has the appropriate qualifications and background to be an “Audit Committee Financial Expert” as defined in rules promulgated by the SEC under the Sarbanes-Oxley Act of 2002. | ||
7. |
||
(a) The audit committee must have a minimum of three members.
All audit committee members must satisfy the requirements
for independence set out in Section 303 A.02 and, in the
absence of an applicable exemption, Rule 10A-3(b)(1) under
the Exchange Act. (b) The audit committee must have a written charter that
addresses: (i) the committee’s purpose – which, at minimum, must be
to: (A) assist board oversight of (1) the integrity of the
listed company’s financial statements, (2) the listed
company’s compliance with legal and regulatory
requirements, (3) the independent auditor’s
qualifications and independence, and (4) the
performance of the listed company’s internal audit
function and independent auditors; and (B) prepare the disclosure required by Item 407(d)(3)(i) of
Regulation S-K under the Exchange Act; (ii) an annual performance evaluation of the audit committee;
and (iii) the duties and responsibilities of the audit committee –
which, at a minimum, must include those set out in Rule
10A-3(b)(2), (3), (4) and (5) of the Exchange Act as well
as to: (A) at least annually, obtain and review a report by the
independent auditor describing: the firm’s internal
quality-control procedures; any material issues
raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry
or investigation by governmental or professional authorities, within the preceding five years, respecting
one or more independent audits carried out by the
firm, and any steps taken to deal with any such
issues; and (to assess the auditor’s independence) all
relationships between the independent auditor and the
listed company;
|
GlaxoSmithKline complies with the equivalent domestic requirements
set out in the UK Corporate Governance Code, which require that
the Audit Committee should be comprised of a minimum of three
“independent” Non-Executive Directors. GlaxoSmithKline’s Audit & Risk Committee has written terms of reference in accordance with the UK Corporate Governance Code (C.3.3). The Committee’s main responsibilities include reviewing the financial reporting process, the system of internal control and overseeing the identification and management of risks, the external and internal process and for monitoring compliance with laws, regulations and ethical codes of practice, including review throughout the year of integrated assurance reports comprising business unit and associated consolidated internal audit reports. The UK Corporate Governance Code requires that a separate section in the Company’s Annual Report describe the work of the Committee in discharging its duties (C.3.3). Please see section 6 above for a description of the main role and responsibilities of the Audit & Risk Committee. |
|
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| NYSE | Description of differences between GlaxoSmithKline’s governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
7. continued |
||
(B) meet to review and
discuss the listed company’s
annual audited financial statements and quarterly
financial statements with management and the
independent auditor, including reviewing the listed
company’s specific disclosures under “Management’s
Discussion and Analysis of Financial Condition and
Results of Operations”; |
||
(C) discuss the listed
company’s earnings press releases,
as well as financial information and earnings guidance
provided to analysts and rating agencies; |
||
(D) discuss policies
with respect to risk assessment and
risk
management; |
||
(E) meet separately,
periodically, with management, with
internal auditors (or other personnel responsible for
the internal audit function) and with independent
auditors; |
||
(F) review with the
independent auditor any audit
problems or difficulties and management’s response; |
||
(G) set clear hiring
policies for employees or former
employees of the independent auditors; and |
||
(H) report regularly to
the board of directors. |
||
(c) Each listed company must have an internal audit
function. |
||
8. Shareholders must be given the opportunity to vote on all
equity-compensation plans and material revisions thereto,
except for employment inducement awards, certain grants,
plans and amendments in the context of mergers and
acquisitions, and certain specific types of plans. |
GlaxoSmithKline complies with corresponding domestic requirements in the Listing Rules of the UK Listing Authority, which mandate that the Company must seek shareholder approval for employee share schemes (D.2.4 and Listing Rule 9.4). Please see section 5(d) above. | |
Corporate governance guidelines |
||
9. Listed companies must adopt and disclose corporate
governance guidelines.
|
GlaxoSmithKline complies with corresponding domestic requirements in the Listing Rules of the UK Listing Authority and the UK Corporate Governance Code, which require that GlaxoSmithKline include an explanation in its Annual Report of how it complies with the principles of the UK Corporate Governance Code and that it confirm that it complies with the Code’s provisions or, where it does not, provide an explanation of why it does not comply (Listing Rule 9.8.6). In addition, for accounting periods beginning on or after 29th June 2008, issuers are required to make certain mandatory corporate governance statements in the Directors’ Report in accordance with new UK Disclosure and Transparency Rules, DTR 7, which was issued by the UK Financial Services Authority to implement the eighth Company Law Directive; GlaxoSmithKline complies with these requirements in its 2010 Annual Report. | |
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Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline
plc’s corporate governance practice
| NYSE | Description of differences between GlaxoSmithKline’s governance | |
| Corporate Governance Standards | practice and the NYSE Corporate Governance Standards | |
10. Listed companies must adopt and disclose a code of business
conduct and ethics for directors, officers and employees, and
promptly disclose any waivers of the code for directors or
executive officers.
|
GlaxoSmithKline’s Code of Conduct for all employees, including the CEO, CFO and other senior financial officers, is available. | |
Description of significant differences |
||
11. Listed foreign private issuers must disclose any significant
ways in which their corporate governance practices differ
from those followed by domestic companies under NYSE
listing standards.
|
GlaxoSmithKline fulfills this requirement by publishing this document. GlaxoSmithKline fulfils this requirement by including this disclosure on its annual report on Form 20-F. | |
Listed foreign private issuers are required to provide this
disclosure in the English language and in their annual reports
filed on Form 20-F. |
||
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American Depositary Shares
Fees and charges payable by ADR holders
The Bank of New York Mellon serves as the depositary (the “Depositary”) for GlaxoSmithKline
plc’s American Depositary Receipt (“ADR”) programme. Pursuant to the deposit agreement between GSK,
the Depositary and owners and holders of ADRs (the “Deposit Agreement”), ADR holders may be
required to pay various fees to the Depositary, and the Depositary may refuse to provide any
service for which a fee is assessed until the applicable fee has been paid. In particular, the
Depositary, under the terms of the Deposit Agreement, shall charge a fee of $0.05 or less per ADR
(or portion thereof) for (i) the issuance, execution and delivery of ADRs or (ii) the withdrawal of
shares underlying the ADRs. In addition, ADR holders may be required under the Deposit Agreement to
pay the Depositary (i) any tax, duty, governmental charge or fee or stock transfer or registration
fee arising in connection with the foregoing transactions or otherwise, (ii) any expense resulting
from the conversion of a foreign currency into U.S. dollars and (iii) the expense of certain
communications made, at the request of the ADR holder, by cable, telex or facsimile. The Depositary
may (i) withhold dividends or other distributions or sell any or all of the shares underlying the
ADRs in order to satisfy any tax or governmental charge and (ii) deduct from any cash distribution
any tax payable thereon or the cost of any currency conversion.
Direct and indirect payments by the Depositary
The Depositary reimburses GSK for certain expenses it incurs in connection with the ADR
programme, subject to a ceiling agreed between GSK and the Depositary from time to time. The
Depositary has also agreed to waive certain standard fees associated with the administration of the
programme.
The table below sets forth the amount of such payments received during 2010 and 2011 in respect of
the year ended 31 December 2010 and such payments claimed but not yet received in respect of the
year ended 31 December 2010 as well as such payments received during 2010 in respect of the year
ended 31 December 2009. GSK was also reimbursed £400,000 by the Depositary in 2010 in respect of
amounts to which the Company was contractually entitled, but which it had not previously claimed,
in respect of the period 2004 to 2009. This amount was used to offset a portion of GSK’s audit fees
for 2010. The portion of this amount relating to 2009 is not included in the table below.
| Received during 2010 | Received during 2010 and 2011 | Claimed in respect of 2010 | ||||||||||
| Direct and indirect payments by the Depositary | in respect of 2009 | in respect of 2010 | but not yet received | |||||||||
Reimbursement of NYSE listing fees |
– | $350,483 | – | |||||||||
Reimbursement of legal fees claimed in US dollars |
$333,735 | $225,000 | $200,000 | |||||||||
Reimbursement of legal fees claimed in Sterling |
£23,268 | £91,198.25 | – | |||||||||
Reimbursement of PCAOB fees |
$161,700 | $177,500 | – | |||||||||
Reimbursement of Annual Report production costs1 |
£300,437 | £216,208.94 | – | |||||||||
Reimbursement of Investor Relations expenses2 |
$294,084 | $321,306.19 | $103,477.16 | |||||||||
Distribution of annual general meeting materials |
– | $427,480.94 | – | |||||||||
Tabulation of voting instructions cards |
– | $32,533.90 | – | |||||||||
Reimbursement of other programme-related expenditures
claimed in US dollars |
$16,050 | $5,852.20 | $3,030.90 | |||||||||
Reimbursement of
other programme-related expenditures claimed in Sterling |
£32,280 | – | £7,099.35 | |||||||||
| 1 | Annual report production costs include SEC filing fees. | |
| 2 | Investor relations expenses include travel expenses, fees of investor relations consultants, expenses involved in arranging investor relations meetings and telephone expenses. |
GSK Annual Report 2010
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218
| Exhibit No. | Description | |
1.1
|
Memorandum and Articles of Association of the Registrant as in effect on the date hereof. | |
2.1
|
Deposit Agreement among the Registrant and The Bank of New York, as Depositary, and the holders from time to time of the American Depositary Receipts issued thereunder, including the form of American Depositary Receipt, is incorporated by reference to the Registration Statement on Form F-6 (No. 333-148017) filed with the Commission on December 12, 2007. | |
4.1
|
UK Service Agreement between GlaxoSmithKline Services Unlimited and Julian Heslop is incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 20-F filed with the Commission on March 3, 2006. | |
4.2
|
Service Agreement between SmithKline Beecham Corporation and Moncef Slaoui is incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 20-F filed with the Commission on February 29, 2008. | |
4.3
|
Amendment to Service Agreement between GlaxoSmithKline LLC (formerly known as SmithKline Beecham Corporation) and Moncef Slaoui dated December 21, 2010. | |
4.4
|
UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty is incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 20-F filed with the Commission on February 29, 2008. | |
4.5
|
Amendment to UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty dated June 18, 2008 is incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 20-F filed with the Commission on March 4, 2009. | |
4.6
|
Amendment to UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty dated February 4, 2010 is incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 20-F filed with the Commission on March 1,2010. | |
4.7
|
UK Service Agreement between GlaxoSmithKline Services Unlimited and Simon Dingemans dated September 8, 2010 | |
8.1
|
A list of the Registrant’s principal subsidiaries is incorporated by reference to pages 175 to 177 of this Annual Report on Form 20-F. | |
12.1
|
Certification Required by Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 – Andrew Witty. | |
12.2
|
Certification Required by Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 – Julian Heslop. | |
13.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). | |
15.1
|
Consent of PricewaterhouseCoopers LLP. | |
GSK Annual Report 2010
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219
History and development of the company
GlaxoSmithKline plc is a public limited company incorporated on 6th December 1999 under
English law. Its shares are listed on the London Stock Exchange and the New York Stock
Exchange. On 27th December 2000 the company acquired Glaxo Wellcome plc and SmithKline Beecham
plc, both English public limited companies, by way of a scheme of arrangement for the merger of
the two companies. GSK and its subsidiaries and associates constitute a major global healthcare
group engaged in the creation, discovery, development, manufacture and marketing of
pharmaceutical and consumer health-related products.
Annual Report and Summary
This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December
2010, prepared in accordance with United Kingdom requirements. It was approved by the Board of
Directors on 1st March 2011 and published on 2nd March 2011.
A summary of the year, intended for the shareholder not needing the full detail of the Annual
Report, is produced as a separate document and issued to all shareholders. The summary does not
constitute a set of summary financial statements as defined by section 428 of the Companies Act
2006. The Annual Report is issued to shareholders who have elected to receive it.
In this Report ‘GlaxoSmithKline’, the ‘Group’ or ‘GSK’ means GlaxoSmithKline plc and its
subsidiaries; the ‘company’ means GlaxoSmithKline plc; ‘GlaxoSmithKline share’ means an Ordinary
Share of GlaxoSmithKline plc of 25p; American Depositary Shares (ADS) each represent two
GlaxoSmithKline shares.
Brand names
Brand names appearing in italics throughout this report are trademarks either owned by and/or
licensed to GlaxoSmithKline or associated companies, with the exception of Benlysta, a trademark of
Human Genome Science, Boniva/Bonviva, a trademark of Roche,
Botox, a trademark of Allergan,
Levitra, a trademark of Bayer, NicoDerm, a trademark of Elan, Johnson & Johnson, Merrell, Novartis,
Sanofi-Aventis or GlaxoSmithKline, Potiga, a trademark of Valeant, Prolia, a trademark of Amgen,
Vesicare, a trademark of Astellas Pharmaceuticals in many countries and of Yamanouchi
Pharmaceuticals in certain countries and Volibris, a trademark of Gilead, all of which are used in
certain countries under licence by the Group.
Exchange rates
The Group operates in many countries and earns revenues and incurs costs in many currencies.
The results of the Group, as reported in Sterling, are affected by movements in exchange rates
between Sterling and other currencies. Average exchange rates prevailing during the period are used
to translate the results and cash flows of overseas subsidiaries, associates and joint ventures
into Sterling. Period end rates are used to translate the net assets of those entities.
The currencies that most influence the Group’s results remain the US dollar, the Euro, the Yen and
Sterling. Details of the exchange rates used by the Group are given in Note 5 ‘Exchange Rates’ on
page 116.
During 2010, average Sterling exchange rates were stronger against the Euro but weaker against the
US dollar and the Yen compared with 2009. Year end Sterling exchange rates were also stronger
against the Euro but weaker against the US dollar and the Yen.
New Directors
GlaxoSmithKline
plc announced on
4th March
2011 that Ms Judy Lewent and Ms Stacey
Cartwright have been appointed as Non-Executive Directors and will join the Board of
Directors of the company with effect from
1st April
2011. On appointment they will both become members of GSK’s Audit & Risk Committee. Ms Lewent is the former Executive
Vice President and Chief Financial Officer of Merck & Co., Inc. and now serves on the
boards of three listed Companies and Ms Cartwright is Executive Vice
President, Chief Financial Officer of Burberry Group plc.
GSK Annual Report 2010
Table of Contents
220
Cross reference to Form 20-F
This table has been provided as a cross reference from the information included in this Annual
Report to the requirements of Form 20-F.
| Item | Page | |||
1
|
Identity of directors, senior management and advisers | n/a | ||
2
|
Offer statistics and expected timetable | n/a | ||
3
|
Key information | |||
A
|
Selected financial data | 194-196 | ||
D
|
Risk factors | 53-57 | ||
4
|
Information on the company | |||
A
|
History and development of the company | 155-157,219 | ||
B
|
Business overview | |||
| Products | 14-17 | |||
| Economy and market | 20,22-27,34-36 | |||
| Manufacture and supply | 19 | |||
| Marketing and distribution | 19,40,164 | |||
| Intellectual property | 14-16 | |||
| Competition | 14-17 | |||
| Regulation | 18 | |||
| Research and development | 10-13,28 | |||
| Environmental sustainability | 32 | |||
| Responsible business and community investment | 29-31 | |||
C
|
Organisational structure | 175-177 | ||
D
|
Property, plant and equipment | 41 | ||
| Note 6 – Segment information | 117-121 | |||
| Note 17 – Property, plant and equipment | 130-131 | |||
4A
|
Unresolved staff comments | n/a | ||
5
|
Operating and financial review and prospects | |||
A
|
Operating results | |||
| 2010 and 2009 | 22-28,34-40 | |||
| 2009 and 2008 | 47-52 | |||
B
|
Liquidity and capital resources | 41-46 | ||
C
|
Research and development, patents and licenses, etc. | 10-17 | ||
D
|
Trend information | 34-40 | ||
E
|
Off-balance sheet arrangements | n/a | ||
F
|
Tabular disclosure of contractual obligations | 43 | ||
6
|
Directors, senior management and employees | |||
A
|
Directors and senior management | 58-63 | ||
B
|
Compensation | |||
| Remuneration Report | 81-101 | |||
C
|
Board practices | |||
| Corporate governance | 62-80 | |||
D
|
Employees | 33 | ||
| Note 10 – Employee costs | 125 | |||
| Note 28 – Pensions and post-employment benefits | 140-148 | |||
| Financial record | 196 | |||
E
|
Share ownership | |||
| Note 42 – Employee share schemes | 171-174 | |||
| Share options | 91 | |||
| Incentive plans | 87-88 | |||
| Directors’ interests | 96 | |||
7
|
Major shareholders and related party transactions | |||
A
|
Major shareholders | 65,69,201 | ||
B
|
Related party transactions | |||
| Note 35 – Related party transactions | 154 | |||
| Item | Page | |||
8
|
Financial information | |||
A
|
Consolidated statements and other financial information Financial statements | See item 18 | ||
| Dividend policy | 4 | |||
| Note 44 – Legal proceedings | 178-185 | |||
B
|
Significant changes | |||
| Note 40 – Post balance sheet events | 161 | |||
9
|
The offer and listing | |||
A
|
Offer and listing details | |||
| Share price listing | 201,202 | |||
C
|
Markets | 202 | ||
10
|
Additional information | |||
B
|
Articles of Association | 206-208 | ||
C
|
Material contracts | n/a | ||
D
|
Exchange controls | 202 | ||
E
|
Taxation | 204 | ||
H
|
Documents on display | 202 | ||
11
|
Quantitative and qualitative disclosures about market risk | |||
| Treasury policies | 45-46 | |||
| Note 41 – Financial instruments and related disclosures | 162-171 | |||
12
|
Description of securities other than equity securities | |||
D
|
American Depositary Shares | 217 | ||
13
|
Defaults, dividend arrearages and delinquencies | n/a | ||
14
|
Material modifications to the rights of security holders and use of proceeds | n/a | ||
15
|
Controls and procedures | 71-73,79 | ||
16
|
[Reserved] | |||
16A
|
Audit Committee financial expert | 75 | ||
16B
|
Code of ethics | 77 | ||
16C
|
Principal accountant fees and services | |||
| Note 9 – Operating profit | 124 | |||
16D
|
Exemptions from the listing standard for audit committees | |||
| n/a | ||||
16E
|
Purchases of equity securities by the issuer and affiliated purchasers | |||
| Note 33 – Share capital and share premium account | 152 | |||
16F
|
Change in registrants’ certifying accountant | n/a | ||
16G
|
Corporate Governance | 209-216 | ||
17
|
Financial statements | n/a | ||
18
|
Financial statements | |||
| Report of Independent Regulated Public Accounting Firm | 103 | |||
| Consolidated income statement | 104-105 | |||
| Consolidated statement of comprehensive income | 104-105 | |||
| Consolidated balance sheet | 106 | |||
| Consolidated statement of changes in equity | 107 | |||
| Consolidated cash flow statement | 108 | |||
| Notes to the financial statements | 109-185 | |||
19
|
Exhibits | Footnote (i), 218 |
||
| Footnote (i) – see the company’s Form 20-F filing with the Securities and Exchange Commission. | ||||
GSK Annual Report 2010
Table of Contents
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Table of Contents
Signature
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| GlaxoSmithKline plc |
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| March 4, 2011 | By: | /s/ Julian Heslop | ||
| Julian Heslop | ||||
| Chief Financial Officer | ||||
