Final Results
GlaxoSmithKline PLC
12 February 2003
Issued: 12th February 2003, London
Preliminary Announcement of Results for the Year Ended 31st December 2002
GSK DELIVERS BUSINESS PERFORMANCE* EPS OF 78.3 PENCE - GROWTH OF 13% CER
DIVERSE PHARMACEUTICALS PORTFOLIO DRIVES EARNINGS GROWTH
DESPITE GENERIC COMPETITION TO AUGMENTIN
GlaxoSmithKline plc (GSK) today announces its results for the year ended 31st December 2002. The full UK GAAP results
(statutory results) are presented under "Profit and loss account" on pages 8 and 9. The business performance and
statutory results are summarised below and the commentary which follows is on a business performance basis unless
otherwise stated.
FINANCIAL RESULTS
2002 Increase Q4 2002 Increase
£m CER% £% £m CER% £%
------ ------ ------ ------ ------ ------
Sales 21,212 7% 4% 5,668 7% 1%
Business performance*
Trading profit 6,694 15% 11% 1,705 5% (1%)
Profit before tax 6,517 11% 6% 1,709 7% (1%)
Earnings per share 78.3p 13% 8% 20.7p 9% 1%
Statutory results
Trading profit 5,662 26% 21% 1,326 8% -
Profit before tax 5,506 28% 22% 1,333 9% -
Earnings per share 66.2p 38% 32% 16.0p 8% (1%)
2002 HIGHLIGHTS
• Strong pharmaceutical growth with global sales of nearly £18 billion and US growth of 13%, despite generic
competition to Augmentin. Key factors driving this ongoing performance are fast-growing therapeutic franchises,
new products, and innovative lifecycle management strategies.
• Continued financial strength with total sales up 7% and trading profit growth of 15%, driven by cost saving
programmes and efficient business management.
• Excellent free cash flow of £5.4 billion.
• R&D organisation making good progress, with an R&D update meeting planned for the end of 2003.
• Guidance of high single digit percentage growth in 2003 business performance* EPS re-confirmed.
• Weak US dollar and other currencies significantly impacted performance in 2002 in sterling terms.
* Business performance, which is the primary measure used by management, is presented after excluding merger items,
integration and restructuring costs and disposals of subsidiaries. Management believes that exclusion of these
non-recurring items provides a better comparison of business performance for the periods presented. The 2003 forecast
is on a business performance basis at constant exchange rates (CER) and assumes GSK successfully defends its
intellectual property surrounding Paxil in the USA - see "Legal proceedings" on page 23. All financial commentaries
are on a business performance basis and growth rates are at CER unless otherwise stated.
Results for 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation -
total " on page 16.
2002 OVERVIEW
Business performance earnings per share (EPS) grew by 13%, delivering on guidance and demonstrating the continued
financial strength that will provide the company with a sound platform for the future. GSK's solid financial
performance is built on a broad portfolio of products that boosted global pharmaceutical sales 8% to nearly £18
billion, and US pharmaceutical sales growth to 13%.
While total sales were up 7%, trading profit grew 15%, driven by cost-saving programmes and operational efficiencies.
The Group's financial strength is also enhanced by a robust free cash flow of £5.4 billion.
"Despite a challenging environment and losses to generic competition, GSK has delivered a very solid financial
performance," said Dr. Jean-Pierre Garnier, Chief Executive Officer of GlaxoSmithKline. "We're excited about the
progress being made by our innovative R&D organisation in moving our promising early pipeline through clinical
development, and we expect to provide investors with a detailed R&D update towards the end of the year."
GROWING A BROAD PORTFOLIO OF PRODUCTS
Pharmaceutical highlights for 2002: Pharmaceutical sales grew 8% to nearly £18 billion. In the USA, which represented
54% of GSK's total pharmaceutical business, sales grew 13%. All major therapeutic franchises in the USA delivered
double-digit percentage sales growth, except anti-bacterials (down 22% as a result of generic competition to Augmentin
and Ceftin). In Europe, sales grew 2% with growth from new products, such as Seretide and Trizivir, being offset by
declines in some older products and by the impact of government healthcare reforms in Italy. Sales in International
markets increased 4%, with good performances in Middle East and Africa, Canada and Asia Pacific offsetting weakness in
Latin America principally in Mexico.
Multiple Fast Growing Therapeutic Franchises
Across the Group's portfolio of products, six major therapeutic areas experienced double-digit percentage growth for
the year, including the fast growing franchises: CNS (£4.5 billion) up 17%; respiratory
(£4.0 billion), up 16%; anti-virals (£2.3 billion), up 12%, and vaccines (£1.1 billion), up 16%.
CNS: Sales of Seroxat/Paxil, GSK's leading product for depression and anxiety disorders, was the driver of growth in
the CNS therapy area, with sales of £2 billion, up 15% globally and 18% in the USA. International sales of Paxil grew
27% to £267 million led by continued strong growth in Japan, where the product was launched only two years ago.
Sales of Wellbutrin, for depression, grew 42% to £882 million, reflecting increased physician awareness of the
product's outstanding efficacy and favourable side effect profile.
GSK's medicine for epilepsy, Lamictal, continued to grow across all regions achieving sales of £438 million, up 27%.
Respiratory: GSK continues to be the global leader in respiratory pharmaceuticals with sales of its three key products
- Seretide/Advair, Flixotide and Serevent - amounting to nearly £3 billion (up 25%).
Sales of Seretide/Advair, GSK's second largest product, grew 96% to £1.6 billion. Advair is now the US asthma market
leader in new prescriptions after less than two years on the market. Seretide also continued to perform strongly in
Europe (up 36%) and International markets (up 92%).
Anti-virals: HIV medicines grew across all regions and totalled £1.5 billion in sales, up 13%. Sales of Trizivir,
GSK's new triple combination therapy, grew 95% to £315 million.
Valtrex for herpes continued to benefit from its convenient once-daily dosing for suppressive therapy and achieved
strong sales growth of 26% worldwide and 35% in the USA.
Vaccines: Sales of vaccines grew 16%, supported by the Hepatitis franchise, up 12% to £483 million, with total sales
in Europe growing 17%. US sales grew 16% from the launch of Twinrix and continued growth in Havrix, driven by new
state mandates requiring Hepatitis A vaccination by school age children.
Infanrix (GSK's DTPa range of combination vaccines) grew 8% to £254 million. Priorix and Tritanrix grew 29% and 54%,
respectively.
Metabolic/GI: Worldwide sales for the metabolic/GI category were £1.4 billion, up 1%. The Avandia franchise (Avandia
and Avandamet) grew 19% for the year with US sales up 15% to £688 million. Since its approval by the FDA in May 1999,
Avandia has been used by over 4 million patients worldwide.
Zantac sales were £382 million (down 21%) with declines in most markets.
Cardiovascular: In 2002, Coreg sales grew 27% to £306 million, benefiting throughout the year from its new indication
for the treatment of severe heart failure.
Oncology: Sales of Zofran grew 22% to £708 million, driven by a strong US performance, up 28% to £525 million.
Anti-bacterials: Anti-bacterial sales declined 12% worldwide and 22% in the USA. Augmentin's US sales were down 20%
in the year as a result of generic competition that began in the third quarter. Four generic versions of Augmentin
have been introduced in the USA following a decision by the US District Court for Eastern Virginia that held invalid
GSK's patents on Augmentin expiring in 2002, 2017 and 2018. A hearing on GSK's appeal of the Court's decisions has
been scheduled for 5th March 2003.
US sales of Ceftin declined 80%, due to generic competition which began during the first quarter.
New Products and Innovative Product Strategies Provide Fuel for Future Growth
GSK's new products - now 27% of total pharmaceutical sales - achieved excellent sales growth of 36%. Innovative
lifecycle management strategies also supported the Group's growth in pharmaceutical sales, notably through product
launches such as Augmentin ES, Augmentin XR and Paxil CR.
2002 launches
Launched in April, Paxil CR continues to gain acceptance due to its strong tolerability profile, and it now represents
31% of all new US prescriptions for Paxil in just 10 months.
In the USA, GSK's two new antibiotics (Augmentin ES, for children, and Augmentin XR, for adults) are performing well.
The ES formulation, launched in the fourth quarter of 2001, now represents 49% of all branded and generic Augmentin
paediatric prescriptions. Based on the most recent weekly prescription data, the XR formulation, launched in October,
now represents 14% of all branded and generic Augmentin adult prescriptions.
Avandamet, a combination of Avandia and metformin HCI, expanded the Avandia metabolic franchise with its US launch in
the fourth quarter. Avandamet for the treatment of type 2 diabetes is the first medicine that targets insulin
resistance and decreases glucose production in one convenient pill.
2002/2003 Regulatory Activity and Launches
In August, the Group filed an sNDA for Lamictal seeking the first-ever indication for long-term management of
depressive episodes in bipolar disorder. In January 2003, the FDA approved the use of Lamictal for the treatment of
partial seizures in paediatric patients aged two years and above.
In October, GSK filed an sNDA for Valtrex seeking the first-ever indication to reduce the risk of transmission of
genital herpes.
In November, Levitra (vardenafil) a new agent for the treatment of erectile dysfunction, received a positive opinion
from the European Committee for Proprietary Medicinal Products (CPMP). The first launch in Europe is planned for March
2003. The FDA issued an approvable letter for Levitra in 2002, and launch is expected in the USA in 2003. Levitra was
researched and developed by Bayer AG and will be co-promoted with GSK.
In December, GSK filed NDAs for Ariflo for Chronic Obstructive Pulmonary Disease (COPD) and "908", a protease
inhibitor, for the treatment of HIV.
In January 2003, GSK launched Avodart (dutasteride), a DHT inhibitor, for the treatment of symptomatic benign prostatic
hyperplasia (BPH), in the USA. GSK plans to market Avodart in all major European countries with launches in the first
half of 2003.
Also in January 2003, the Cardiovascular and Renal Drugs Advisory Committee of the FDA unanimously supported the use of
Coreg in patients who have had a heart attack and who have left ventricular dysfunction. The recommendation was based
on data that showed early long-term treatment of these patients with Coreg could reduce the risk of death by 23%.
In the USA, GSK's new Pediarix vaccine was launched in January 2003. Pediarix adds protection against hepatitis B and
poliomyelitis to the Infanrix combination, and results in up to six fewer injections for infants.
In January 2003, GSK received a positive opinion from the European CPMP for the use of Seretide as a new treatment for
COPD. The company expects European marketing authorisation within the next few months followed by launches across
Europe during the first half of 2003.
Fourth Quarter 2002
Global pharmaceutical sales growth in the quarter was 7% reflecting strong reported US sales growth of 14% but weaker
Europe and International performances.
US growth benefited in the quarter from increases in wholesaler stocks on some products to more normal operating
levels, and a year-end review of customer discount and rebate provisions. Underlying US sales growth for the quarter
was estimated to be in the high single digit range; a robust performance despite generic competition to Augmentin.
This was a quarter where a number of non-recurring items made it a poor indicator of expense trends for the future.
Cost of goods reduced 13% compared to last year reflecting the benefits of the manufacturing rationalisation programme,
pricing and product mix, and the absence of stock write-offs charged in the previous year.
Selling, general and administration costs increased 14% compared to the previous year, well above their normal rate of
growth. This reflected higher levels of both advertising and promotional costs in the US to support product launches,
and certain restructuring costs in respect of the Group's operational excellence programme.
R&D costs increased 24% over last year largely as a result of above normal one off expenses associated with external
collaborations and phasing of clinical trial costs.
The impact of the factors discussed above led to a trading profit growth of only 5%, which was below the rate of sales
growth of 7%.
Consumer Healthcare: 2002 Sales of £3.2 billion, Up 2%; Trading Profit Growth of 5%
Over-the-counter medicine sales were £1,586 million, up 4%. During the fourth quarter the US smoking control franchise
launched GSK's new NiQuitin Lozenge, Commit, following approval of the product by the FDA. Clinical studies show the
Commit lozenge can help smokers who have tried to quit before.
Oral care sales were down 2% to £1,052 million. Growth from Sensodyne, Polident and Poligrip was offset by weak sales
for Aquafresh. Nutritional healthcare products grew 3% to £579 million.
R&D ORGANISATION ON TRACK TO DELIVER
Today GSK issued an updated pipeline chart, which includes 123 projects in clinical development, comprising 61 NCEs, 23
new vaccines and 39 line extensions. The pipeline also shows that Avodart, a DHT inhibitor for the treatment of
symptomatic BPH, is now in Phase III for the prevention of prostate cancer.
As part of the merger, GSK formed six new, therapeutically focused, Centres of Excellence for Drug Discovery (CEDDs).
These were established to take responsibility for product development through to Proof of Concept. The CEDDs are
nimble and entrepreneurial, with the range of skills and scale of resources required to drive mid-stage development
projects through to their key decision-point, before large - scale phase III clinical trials.
Pipeline Activity
After two years of activity by the restructured R&D organisation, GSK is seeing significant progress as the company
advances its early stage pipeline through clinical development. GSK plans to launch the following 12 new products and
line extensions over the next two years:
NEW PRODUCTS
• Alvimopan, an oral mu-opoid antagonist, for post operative ileus
• Ariflo, a novel PDE IV inhibitor for treatment of COPD
• Bexxar, a new radioimmunotherapy for treatment of non-Hodgkin's lymphoma
• Levitra, a new agent for the treatment of erectile dysfunction
• Nesiritide (in EU only), for treatment of acute heart failure
• "908", a new protease inhibitor for use in the treatment of HIV
• Wellbutrin XL, a once-daily formulation of bupropion hydrochloride for depression
LINE EXTENSIONS
• Coreg, for the treatment of heart attack patients who have impaired cardiac function
• Lamictal, for long-term management of depressive episodes in bipolar disorder
• Seretide/Advair, for treatment of COPD
• Seretide/Advair, for treatment of asthma in paediatric patients
• Valtrex, to reduce the risk of transmission of genital herpes.
Partner of Choice
Leveraging the size and quality of its global R&D organisation and sales and marketing teams, GSK continues to build on
its reputation as the partner of choice for both large and small companies. Since GSK was formed in December 2000, the
Group has signed 24 major external collaborations; 16 for products in clinical development and a further 8 for products
at the pre-clinical stage. In the fourth quarter of 2002 and early 2003, GSK signed alliances with:
• Theravance, Inc. to develop novel medicines containing long-acting Beta2 agonists (LABA) for the treatment of
respiratory diseases. Phase I clinical studies have already started.
• Ono for the development of a cellular chemokine receptor (CCR5) antagonist currently in development for
treatment of HIV infection, as well as back-up and follow-on compounds. GSK plans to initiate Phase I clinical studies
in the USA in the first half of 2003.
STRONG FINANCIALS PROVIDE FOUNDATION FOR THE FUTURE
Merger and Restructuring
GSK has made good progress with its merger and manufacturing restructuring plans and remains on track to deliver
forecast total annual merger and manufacturing restructuring savings of £1.8 billion by 2003, excluding benefits from
the Block Drug acquisition. The estimated cost of achieving this remains around £3.8 billion, of which £3.4 billion
had been charged by 31st December 2002.
Net costs of £1,011 million were incurred in the year in respect of merger and manufacturing restructuring. After tax
relief of £299 million, the net charge was £712 million.
Trading Profit and Earnings Per Share
Business performance trading profit was £6,694 million with a growth of 15%, stronger than sales growth of 7%,
demonstrating an improved trading margin. This margin improved 2.1 points to 31.6% compared with 2001, principally due
to cost savings derived from merger integration, manufacturing restructuring and other initiatives.
Other operating expenses were £111 million in the year compared with £37 million income in 2001. The year on year
movement reflects higher provisions in 2002 for product liability and other claims, and lower 2002 proceeds from
disposals and equity investment sales. In addition, there was no profit on the disposal of businesses in 2002 (2001:
£96 million).
Full year business performance EPS of 78.3 pence increased 13% in CER terms and 8% in sterling terms. The adverse
currency impact on EPS of 5% in the year reflected the significant weakening of the US dollar relative to last year and
compares to a 3% adverse currency impact on sales. This difference principally arises from a different mix of
currencies in profits compared with sales.
Total results, which include merger and manufacturing restructuring costs, delivered trading profit of £5,662 million
on sales of £21,212 million. Taken together with other expenses, taxation and product divestments this resulted in EPS
of 66.2 pence compared with 50.3 pence in 2001 and a diluted EPS of 66.0 pence compared with 49.9 pence in 2001.
Merger and manufacturing restructuring costs were lower in 2002 than in 2001 and as a result, the sterling based growth
in EPS of 32% was significantly higher than the CER based growth in business performance EPS despite the overall
negative impact of currencies in 2002.
Pensions
The Group continues to account for pension arrangements in accordance with SSAP 24. Under the transitional provisions
of FRS 17 the disclosed pension assets and liabilities of the Group at 31st December 2002 show a net deficit of
approximately £1.3 billion after allowing for deferred taxation (31st December 2001: £457 million). In the fourth
quarter 2002 special cash contributions of £320 million were made to reduce the funding deficit.
The company will review this position annually and will make further contributions as appropriate. Pension service
costs will be higher in 2003 and this has been taken account of in the company's earnings guidance.
Currencies
The 2002 results are based on average exchange rates of £1/$1.50 and £1/Euro 1.59. Since the year-end there has been
further strengthening of sterling against the US dollar and a weakening against the Euro and at 31st January 2003, the
exchange rates were £1/$1.64 and £1/Euro 1.53. If exchange rates were to hold at these levels for the remainder of
2003 the negative currency impact on earnings per share growth would be approximately 6% for the full year.
Dividend
The Board has declared a fourth interim dividend of 13 pence per share making a total for the year of 40 pence per
share. This compares with a dividend of 39 pence for 2001. The equivalent dividend receivable by ADR holders is
41.868 cents per ADS based on an exchange rate of £1/$1.61032. The dividend will have an ex-dividend date of 19th
February 2003 and will be paid on 17th April 2003 to shareholders and to ADR holders of record on 21st February 2003.
Earnings Guidance for 2003
GSK's guidance for business performance growth in earnings per share 2003 remains high single digit percentage growth.
This guidance assumes GSK successfully defends its intellectual property surrounding Paxil in the USA - see "Legal
proceedings" on page 23. Business performance is at constant exchange rates and excludes merger items, integration and
restructuring costs and disposals of subsidiaries.
Share Buy-Back Programme
In October 2002 GSK commenced a new £4 billion share buy-back programme. This followed the completion of the £4
billion buy-back programme announced in 2001. A total of £2,220 million was spent in 2002 of which £219 million
relates to the new buy-back programme. The exact amount and timing of future purchases will be determined by the
company and is dependent on market conditions and other factors.
GlaxoSmithKline - one of the world's leading research-based pharmaceutical and healthcare companies - is committed to
improving the quality of human life by enabling people to do more, feel better and live longer. For company
information and a copy of the company's updated product development pipeline, visit GSK at www.gsk.com.
High resolution photographs of the results presentation are available to the media, free of charge, at
www.newscast.co.uk (020) 7608 1000.
Enquiries: UK Media Martin Sutton (020) 8047 5502
Siobhan Lavelle (020) 8047 5502
David Mawdsley (020) 8047 5502
US Media Nancy Pekarek (215) 751 7709
Mary Anne Rhyne (919) 483 2839
Patricia Seif (215) 751 7709
European Analyst / Investor Duncan Learmouth (020) 8047 5540
Philip Thomson (020) 8047 5543
Anita Kidgell (020) 8047 5542
US Analyst / Investor Frank Murdolo (215) 751 7002
Tom Curry (215) 751 5419
GSK prepares its financial results in £ sterling. Accordingly this Announcement is issued in £ sterling. A
convenience translation in US$ is also issued. Both £ sterling and US$ versions of the Announcement are available on
GlaxoSmithKline's corporate website at www.gsk.com.
Cautionary statement regarding forward-looking statements
Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions
investors that any forward-looking statements or projections made by the company, including those made in this
Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those
projected. Factors that may affect the Group's operations are discussed in the section "Cautionary statement regarding
forward-looking statements" on pages 25 to 27.
PROFIT AND LOSS ACCOUNT
Year ended 31st December 2002
Merger,
restructuring and
disposal of
subsidiaries
Business performance Total
-------------------- -------------- -------------
2001 2001 2001
2002 (restated) Growth 2002 (restated) 2002 (restated)
£m £m CER% £m £m £m £m
------ ------ ------ ------ ------ ------
Sales:
Pharmaceuticals 17,995 17,205 8 - - 17,995 17,205
Consumer Healthcare 3,217 3,284 2 - - 3,217 3,284
------ ------ ------ ------ ------ ------
SALES 21,212 20,489 7 - - 21,212 20,489
Cost of sales (4,243) (4,430) (2) (366) (303) (4,609) (4,733)
------ ------ ------ ------ ------ ------
Gross profit 16,969 16,059 10 (366) (303) 16,603 15,756
Selling, general and administration (7,543) (7,451) 5 (498) (957) (8,041) (8,408)
Research and development (2,732) (2,555) 9 (168) (96) (2,900) (2,651)
------ ------ ------ ------ ------ ------
Trading profit:
Pharmaceuticals 6,148 5,499 16 (972) (1,231) 5,176 4,268
Consumer Healthcare 546 554 5 (60) (125) 486 429
------ ------ ------ ------ ------ ------
TRADING PROFIT 6,694 6,053 15 (1,032) (1,356) 5,662 4,697
Other operating income/(expense) (111) 37 - - (111) 37
------ ------ ------ ------ ------ ------
Operating profit 6,583 6,090 13 (1,032) (1,356) 5,551 4,734
Product divestments - - 11 - 11 -
Profits of associates 75 71 - - 75 71
Disposal of businesses - 96 10 (296) 10 (200)
------ ------ ------ ------ ------ ------
Profit before interest 6,658 6,257 (1,011) (1,652) 5,647 4,605
Net interest payable (141) (88) - - (141) (88)
------ ------ ------ ------ ------ ------
PROFIT BEFORE TAXATION 6,517 6,169 11 (1,011) (1,652) 5,506 4,517
Taxation (1,760) (1,655) 299 322 (1,461) (1,333)
------ ------ ------ ------ ------ ------
Profit after taxation 4,757 4,514 10 (712) (1,330) 4,045 3,184
Minority interests (110) (97) - - (110) (97)
Preference share dividends (20) (34) - - (20) (34)
------ ------ ------ ------ ------ ------
EARNINGS 4,627 4,383 11 (712) (1,330) 3,915 3,053
------ ------ ------ ------ ------ ------
EARNINGS PER SHARE 78.3p 72.3p 13 66.2p 50.3p
------ ------ ------ ------
Diluted Earnings per share 66.0p 49.9p
------ ------
Weighted average number of shares
(millions)
5,912 6,064 5,912 6,064
------ ------ ------ ------
To illustrate "Business performance", which is the primary measure used by management, merger items, integration and
restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of
profit attributable to shareholders are set out under "Appropriations" on page 18.
Results in 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation -
total" on page 16.
PROFIT AND LOSS ACCOUNT
Three months ended 31st December 2002
Merger,
restructuring and
disposal of
subsidiaries
Business performance Total
-------------------- -------------- -------------
Q4 2001 Q4 2001 Q4 2001
Q4 2002 (restated) Growth Q4 2002 (restated) Q4 2002 (restated)
£m £m CER% £m £m £m £m
------ ------ ------ ------ ------ ------
Sales:
Pharmaceuticals 4,799 4,719 7 - - 4,799 4,719
Consumer Healthcare 869 897 2 - - 869 897
------ ------ ------ ------ ------ ------
SALES 5,668 5,616 7 - - 5,668 5,616
Cost of sales (1,075) (1,264) (13) (178) (162) (1,253) (1,426)
------ ------ ------ ------ ------ ------
Gross profit 4,593 4,352 12 (178) (162) 4,415 4,190
Selling, general and administration (2,041) (1,918) 14 (143) (204) (2,184) (2,122)
Research and development (847) (708) 24 (58) (34) (905) (742)
------ ------ ------ ------ ------ ------
Trading profit:
Pharmaceuticals 1,520 1,535 6 (355) (361) 1,165 1,174
Consumer Healthcare 185 191 4 (24) (39) 161 152
------ ------ ------ ------ ------ ------
TRADING PROFIT 1,705 1,726 5 (379) (400) 1,326 1,326
Other operating income/(expense) 23 5 - - 23 5
------ ------ ------ ------ ------ ------
Operating profit 1,728 1,731 7 (379) (400) 1,349 1,331
Product divestments - - (1) - (1) -
Profits of associates 17 17 - - 17 17
Disposal of businesses - - 4 6 4 6
------ ------ ------ ------ ------ ------
Profit before interest 1,745 1,748 (376) (394) 1,369 1,354
Net interest payable (36) (18) - - (36) (18)
------ ------ ------ ------ ------ ------
PROFIT BEFORE TAXATION 1,709 1,730 7 (376) (394) 1,333 1,336
Taxation (462) (464) 100 139 (362) (325)
------ ------ ------ ------ ------ ------
Profit after taxation 1,247 1,266 6 (276) (255) 971 1,011
Minority interests (31) (29) - - (31) (29)
Preference share dividends (5) (7) - - (5) (7)
------ ------ ------ ------ ------ ------
EARNINGS 1,211 1,230 6 (276) (255) 935 975
------ ------ ------ ------ ------ ------
EARNINGS PER SHARE 20.7p 20.4p 9 16.0p 16.1p
------ ------ ------ ------
Diluted Earnings per share 16.0p 16.0p
------ ------
To illustrate "Business performance", which is the primary measure used by management, merger items, integration and
restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of
profit attributable to shareholders are set out under "Appropriations" on page 18.
Results in 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation -
total" on page 16.
PHARMACEUTICAL SALES
Year ended 31st December 2002
Total USA Europe International
-------------- -------------- ------------- -------------
£m CER% £m CER% £m CER% £m CER%
------ ----- ------ ----- ----- ----- ----- -----
CENTRAL NERVOUS SYSTEM 4,511 17 3,305 21 770 (2) 436 19
Depression 2,937 22 2,275 26 375 (2) 287 26
Seroxat/Paxil 2,055 15 1,413 18 375 (2) 267 27
Wellbutrin 882 42 862 43 - - 20 19
Migraine 888 8 670 11 161 (3) 57 12
Imigran/Imitrex 798 9 616 12 133 (3) 49 11
Naramig/Amerge 90 1 54 2 28 (3) 8 17
Lamictal 438 27 247 44 151 7 40 18
Requip 89 21 47 39 38 4 4 23
Zyban 99 (21) 47 (10) 27 (36) 25 (20)
RESPIRATORY 3,987 16 2,023 28 1,341 4 623 10
Seretide/Advair,
Flixotide/Flovent, Serevent 2,937 25 1,557 38 1,018 8 362 27
Seretide/Advair 1,631 96 876 >100 608 36 147 92
Flixotide/Flovent 783 (12) 387 (14) 219 (18) 177 3
Serevent 523 (17) 294 (20) 191 (15) 38 4
Flixonase/Flonase 534 10 413 15 52 (6) 69 (1)
Ventolin 265 (10) 8 (73) 133 (2) 124 (4)
Becotide 130 (18) - - 105 (15) 25 (30)
ANTI-VIRALS 2,299 12 1,213 18 636 7 450 6
HIV 1,465 13 857 12 462 13 146 16
Combivir 588 1 338 (2) 186 1 64 10
Trizivir 315 95 200 82 103 >100 12 >100
Epivir 295 1 164 6 94 (2) 37 (11)
Retrovir 50 (6) 23 (2) 17 (15) 10 2
Ziagen 173 10 101 7 53 2 19 51
Agenerase 44 (8) 31 (15) 9 12 4 16
Herpes 653 5 309 26 140 (12) 204 (7)
Valtrex 425 26 275 35 73 4 77 20
Zovirax 228 (19) 34 (17) 67 (24) 127 (18)
Zeffix 123 23 12 69 16 34 95 18
ANTI-BACTERIALS 2,210 (12) 975 (22) 696 (2) 539 (4)
Augmentin 1,191 (14) 704 (20) 315 (3) 172 (3)
Zinnat/Ceftin 243 (39) 34 (80) 117 (5) 92 (8)
Fortum 201 (1) 37 (6) 96 4 68 (5)
Amoxil 136 (5) 32 9 45 (12) 59 (7)
METABOLIC AND GASTRO-INTESTINAL
1,429 1 784 12 241 (20) 404 (4)
Avandia 809 19 688 15 42 31 79 65
Zantac 382 (21) 86 (16) 116 (30) 180 (18)
VACCINES 1,080 16 290 16 468 17 322 15
Hepatitis 483 12 211 18 204 10 68 2
Infanrix 254 8 79 14 117 - 58 18
ONCOLOGY & EMESIS 977 21 740 26 152 5 85 8
Zofran 708 22 525 28 117 7 66 8
Hycamtin 94 7 63 10 24 3 7 (2)
CARDIOVASCULAR 655 14 430 16 147 7 78 16
Coreg 306 27 295 27 - - 11 27
ARTHRITIS (Relafen) 23 (84) 8 (93) 6 (38) 9 (21)
OTHER 824 (5) 29 (49) 244 5 551 (5)
---------------- --------------- --------------- ---------------
17,995 8 9,797 13 4,701 2 3,497 4
---------------- --------------- --------------- ---------------
PHARMACEUTICAL SALES
Three months ended 31st December 2002
Total USA Europe International
-------------- -------------- ------------- -------------
£m CER% £m CER% £m CER% £m CER%
------ ----- ----- ----- ----- ----- ----- -----
CENTRAL NERVOUS SYSTEM 1,227 15 900 19 207 (4) 120 20
Depression 813 18 628 21 101 (2) 84 25
Seroxat/Paxil 566 10 386 10 101 (2) 79 25
Wellbutrin 247 42 242 42 - - 5 21
Migraine 233 6 176 12 41 (11) 16 (2)
Imigran/Imitrex 211 8 163 13 35 (10) 13 (5)
Naramig/Amerge 22 (7) 13 (5) 6 (16) 3 17
Lamictal 121 25 67 39 44 11 10 5
Requip 25 64 14 > 100 10 (3) 1 14
Zyban 22 (7) 11 (4) 7 (37) 4 74
RESPIRATORY 1,066 15 529 28 364 4 173 4
Seretide/Advair, Flixotide/
Flovent, Serevent 806 27 425 43 279 8 102 20
Seretide/Advair 460 50 251 71 168 23 41 67
Flixotide/Flovent 211 7 101 25 60 (10) 50 (2)
Serevent 135 1 73 5 51 (7) 11 17
Flixonase/Flonase 122 - 92 1 12 (3) 18 (3)
Ventolin 73 (8) 3 (62) 37 (1) 33 (6)
Becotide 33 (21) - - 27 (13) 6 (42)
ANTI-VIRALS 621 9 326 12 176 10 119 4
HIV 396 13 227 8 130 20 39 19
Combivir 155 4 88 (1) 52 14 15 1
Trizivir 90 46 53 29 32 76 5 > 100
Epivir 80 7 45 8 26 7 9 2
Retrovir 13 (6) 6 (7) 4 (16) 3 16
Ziagen 47 16 27 13 14 1 6 86
Agenerase 11 (6) 8 (4) 2 11 1 (55)
Herpes 175 1 86 18 35 (14) 54 (9)
Valtrex 121 24 79 34 19 (10) 23 28
Zovirax 54 (28) 7 (48) 16 (19) 31 (26)
Zeffix 33 29 3 53 4 16 26 28
ANTI-BACTERIALS 573 (21) 232 (34) 193 (7) 148 (11)
Augmentin 293 (31) 163 (41) 86 (9) 44 (15)
Zinnat/Ceftin 67 (37) 9 (77) 35 (12) 23 (16)
Fortum 53 (7) 10 6 25 (8) 18 (11)
Amoxil 43 13 9 > 100 12 (18) 22 1
METABOLIC AND GASTRO-INTESTINAL
402 32 229 > 100 60 (28) 113 (2)
Avandia 236 > 100 198 > 100 12 15 26 65
Zantac 98 (27) 23 (29) 29 (34) 46 (22)
VACCINES 278 12 65 1 127 24 86 6
Hepatitis 123 10 55 15 52 5 16 12
Infanrix 54 (12) 10 (36) 33 14 11 (29)
ONCOLOGY & EMESIS 268 35 208 49 39 3 21 (4)
Zofran 200 36 154 51 29 2 17 (2)
Hycamtin 23 60 15 > 100 7 9 1 (42)
CARDIOVASCULAR 172 2 112 (1) 39 3 21 18
Coreg 76 (3) 73 (4) - - 3 30
ARTHRITIS (Relafen) 4 (78) 1 (91) 1 (31) 2 (22)
OTHER 188 (20) (10) >(100) 66 7 132 (12)
---------------- ---------------- ---------------- --------------
4,799 7 2,592 14 1,272 1 935 -
--------------- ---------------- ---------------- --------------
CONSUMER HEALTHCARE SALES
Year ended
31st December 2002
---------------------
£m CER%
--------- ---------
Over-the-counter medicines 1,586 4
Analgesics 320 1
Dermatological 188 5
Gastro-intestinal 312 (1)
Respiratory tract 161 2
Smoking control 378 16
Natural wellness support 162 5
Oral care 1,052 (2)
Nutritional healthcare 579 3
--------- ---------
Total 3,217 2
--------- ---------
Three months ended
31st December 2002
---------------------
£m CER%
--------- ---------
Over-the-counter medicines 463 7
Analgesics 85 (4)
Dermatological 49 4
Gastro-intestinal 82 (1)
Respiratory tract 58 6
Smoking control 129 25
Natural wellness support 45 14
Oral care 267 (5)
Nutritional healthcare 139 2
--------- ---------
Total 869 2
--------- ---------
FINANCIAL REVIEW - PROFIT AND LOSS
Pharmaceutical sales
Sales in the year increased by 8%, which represented additional sales of £1,411 million (in CER terms). An analysis of
sales between new products (those launched in a major market within the last five years), franchise products
(established products), and older products (now less actively promoted) is set out below:
2002
----------------------------------------------
£m % total CER% CER £m
--------- --------- --------- ---------
New 4,785 27 36 1,312
Franchise 9,772 54 6 536
Other 3,438 19 (11) (437)
--------- --------- --------- ---------
17,995 100 8 1,411
--------- --------- --------- ---------
The growth of the new products, notably Avandia, Seretide/Advair, Trizivir, and Coreg, and the franchise products,
Paxil/Seroxat, Wellbutrin, Imigran/Imitrex and Zofran, more than offsets the decline of older products such as Zantac.
New products now account for 27% of total pharmaceutical sales.
Regional analysis
Pharmaceutical sales by geographic area 2002
---------------------------------
% total £m CER%
--------- --------- ---------
USA 54 9,797 13
Europe 26 4,701 2
France 867 4
UK 782 (1)
Italy 564 (11)
Germany 549 4
Spain 478 7
Central/Eastern Europe 401 16
Other Europe 1,060 3
International 20 3,497 4
Asia Pacific 1,177 8
Japan 712 3
Latin America 606 (7)
Middle East & Africa 575 11
Canada 427 9
--------- --------- ---------
Total Pharmaceutical Sales 100 17,995 8
--------- --------- ---------
USA
The USA reported 13% sales growth in the year and this business currently represents 54% of total pharmaceutical sales.
Sales growth in the central nervous system products of 21% was driven by Wellbutrin, reflecting increased prescribing
by primary care physicians and psychiatrists, and Paxil following the launch of the CR formulation in April. Advair
maintained its strong growth with sales of £876 million driving the overall respiratory sales growth of 28%. Sales in
the anti-virals therapeutic area grew 18% led by a strong performance of Trizivir, up 82%, which partially drew sales
from its constituent products, and Valtrex, up 35%. Sales of Avandia increased by 15%, benefiting from the launch of
Avandamet in November, but the continued decline in Zantac sales held the metabolic and gastro-intestinal category
growth to 12%. As expected, anti-bacterial sales declined as Augmentin started to experience generic competition in
the second half of the year. In the cardiovascular franchise, Coreg sales increased to £295 million reflecting
improved market share.
Europe
Europe region contributed 26% of pharmaceutical sales. Although overall sales growth in the region was only 2%, good
growth was recorded in several markets including Spain and Central and Eastern Europe, but government healthcare
reforms in Italy adversely affected sales. Seretide, GSK's largest selling product in Europe, reported notable growth
in France, Germany, Spain and the UK, although this was partly offset by expected declines in Serevent and Flixotide.
Trizivir showed strong growth in all of the major markets in the region.
International
Growth of 4% in the International region was driven by the vaccines portfolio, Seretide and Paxil/Seroxat. This
reflected a mixture of good growth in the Middle East and Africa, Canada and Asia Pacific and a decline of 7% in sales
in Latin America, principally because of poor economic conditions in Mexico.
Trading profit - business performance
2002 2001
----------------- ----------------- Growth
£m % of sales £m % of sales CER%
------- ------- ------- ------- -------
Sales 21,212 100 20,489 100 7
Cost of sales (4,243) (20.0) (4,430) (21.6) (2)
Selling, general and administration (7,543) (35.5) (7,451) (36.4) 5
Research and development (2,732) (12.9) (2,555) (12.5) 9
------- ------- ------- ------- -------
Trading profit - business
performance
6,694 31.6 6,053 29.5 15
------- ------- ------- ------- -------
Overall the trading margin improved 2.1% and trading profit grew 15%. The improvement in margin came principally from
cost of sales, which declined 2% and from selling, general and administration costs, which grew only 5%, while sales
grew 7%.
Cost of sales reduced as a percentage of sales as a result of benefits arising from merger and manufacturing
restructuring savings, movements in stock provisions and a favourable regional mix.
Selling, general and administration costs also benefited from cost savings arising from merger integration
implementation and other initiatives. Together these produced a reduction of 0.9 percentage points relative to 2001
for the expenses expressed as a percentage of sales.
Research and development (R&D) increased 9% reflecting increased clinical trial and in-licensing activity and the
reinvestment of merger synergies. Pharmaceuticals R&D expenditure represented 14.6% of pharmaceutical sales in the
year.
Profit before tax - business performance
2002 2001
£m £m
------ ------
Trading profit 6,694 6,053
Other operating income/(expense) (111) 37
Profits of associates 75 71
Disposal of business - 96
Net interest payable (141) (88)
------ ------
Profit before tax - business performance 6,517 6,169
------ ------
Other operating income/(expense) includes litigation costs, costs associated with product liability claims and product
withdrawals, equity investment write-downs due to adverse stock market conditions, royalty income, product disposals
and equity investment sales.
Net interest payable increased compared with 2001 largely as a result of financing the purchase of the company's shares
for cancellation. The benefit of a smaller number of shares in issue is reflected in earnings per share.
Merger items, integration and restructuring costs and disposal of subsidiaries
2002 2001
£m £m
------- -------
Manufacturing and other restructuring (362) (162)
Merger integration costs (610) (1,069)
Block Drug integration costs (60) (125)
------- -------
Effect on operating profit (1,032) (1,356)
Product divestments 11 -
Disposal of businesses 10 (296)
------- -------
Effect on profit before tax (1,011) (1,652)
------- -------
Taxation - total
2001
2002 (restated)
£m £m
------- -------
UK Corporation tax (362) (487)
Overseas taxation (1,070) (899)
Deferred taxation (29) 53
------- -------
Taxation - total (1,461) (1,333)
------- -------
Business performance (1,760) (1,655)
Merger items, integration and restructuring costs
and disposal of subsidiaries 299 322
------- -------
Taxation - total (1,461) (1,333)
------- -------
The charge for taxation on business performance profit amounting to £1,760 million represents an effective tax rate of
27.0%. This represents an increase compared with the effective rate for 2001 which was 26.8%, as restated.
The credit for taxation on merger, restructuring and business disposals amounting to £299 million reflects the actual
tax rate applicable to the transactions in the territories in which they arise.
The integrated nature of the Group's worldwide operations, involving significant investment in research and strategic
manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets,
gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group
companies are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, in
particular the price at which goods should be transferred between Group companies in different tax jurisdictions can
produce conflicting claims from revenue authorities as to the profits that fall to be taxed in individual territories.
Resolution of such issues is a continuing fact-of-life for GlaxoSmithKline.
In the USA, for a number of years, GlaxoSmithKline has had significant open issues relating to transfer pricing. These
issues affect all years from 1989 to the present and concern a number of products, although the most significant
relates to the success of Zantac, in respect of which the claims of the US Internal Revenue Service (IRS) substantially
exceed the Group's estimation of its taxation liabilities. The IRS claims, which are not completely quantified,
continue to be the subject of discussions between the US and UK tax authorities under the competent authority
provisions of the double tax convention between the two countries. Within these discussions there is a wide variation
between the views of the US and UK tax authorities and, exceptionally, they may be unable to reach agreement to settle
the dispute. In the event of the UK and US tax authorities not reaching agreement, the matter may have to be resolved
by litigation.
GlaxoSmithKline uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer
pricing issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe
that it has made adequate provision for the liabilities likely to arise from open assessments.
The Group has implemented the new Financial Reporting Standard, FRS 19 'Deferred tax', in 2002, which requires deferred
tax to be accounted for on a full provision basis rather than a partial provision basis as before. For the full year
2001 the business performance tax charge is increased by £8 million, and the total tax charge by £6 million. The net
deferred tax asset at 31st December 2001 has been reduced by
£127 million.
Save as shown in these accounts, no provision has been made for taxation which would arise on the distribution of
profits retained by overseas subsidiary and associated undertakings, on the grounds that no remittance of profit
retained at 31st December 2002 is required in such a way that incremental tax will arise.
Earnings
2001
(restated)
2002 £m
£m
Net profit attributable to shareholders ------- -------
Earnings 3,915 3,053
Adjustment for merger items, integration and restructuring costs and 712 1,330
disposal of subsidiaries
------- -------
Adjusted earnings 4,627 4,383
------- -------
pence pence
Earnings per share ------- -------
Basic earnings per share 66.2 50.3
Adjustment for merger items, integration and restructuring costs and 12.1 22.0
disposal of subsidiaries
------- -------
Adjusted earnings per share 78.3 72.3
------- -------
In order to illustrate business performance, which is the primary performance measure used by management, adjusted
earnings and adjusted earnings per share are presented after excluding merger items, integration and restructuring
costs and disposal of subsidiaries.
2001
(restated)
2002
£m £m
Appropriations ------- -------
Earnings (profit attributable to shareholders) 3,915 3,053
Dividends (2,346) (2,356)
------- -------
Retained profit 1,569 697
------- -------
pence per 2002 pence per 2001
share £m share £m
Dividends ------ ------ ------ ------
First interim - paid 4th July 2002 9 535 9 546
Second interim - paid 3rd October 2002 9 530 9 546
Third interim - paid 3rd January 2003 9 527 9 546
Fourth interim - payable 17th April 2003 13 754 12 718
------ ------ ------ ------
40 2,346 39 2,356
------ ------ ------ ------
The number of shares in issue, excluding those held by the ESOP Trusts, at 31st December 2002 was
5,843 million (31st December 2001: 5,986 million).
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2002 2001
£m (restated)
£m
------ ------
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 3,915 3,053
Exchange movements on overseas net assets (154) (151)
UK tax on exchange movements (67) -
Unrealised gains on equity investments 7 -
------ ------
TOTAL RECOGNISED GAINS AND LOSSES RELATING
TO THE PERIOD 3,701 2,902
------
Prior period adjustment - implementation of FRS 19 (127)
------
TOTAL RECOGNISED GAINS AND LOSSES 3,574
------
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Year ended 31st December 2002
2002 2001
£m £m
------ ------
BUSINESS PERFORMANCE OPERATING PROFIT 6,583 6,090
Depreciation and other non-cash items 909 713
Increase in working capital (98) (67)
Increase in net liabilities 530 744
------ ------
7,924 7,480
Restructuring/integration costs paid (669) (949)
Merger transaction costs paid - (24)
------ ------
NET CASH INFLOW FROM OPERATING ACTIVITIES 7,255 6,507
Dividends received from associates 2 -
Returns on investment and servicing of finance (237) (191)
Taxation paid (1,633) (1,717)
------ ------
FREE CASH FLOW 5,387 4,599
------ ------
Purchase of tangible fixed assets (1,044) (1,115)
Sale of tangible fixed assets 59 65
Purchase of intangible fixed assets (182) (196)
Sale of intangible fixed assets - 6
------ ------
(1,167) (1,240)
Product divestments (1) (30)
Purchase of own shares for employee share options and awards - (795)
Proceeds from own shares for employee share options 58 194
Purchase of equity investments (75) (47)
Sale of equity investments 65 139
------ ------
Capital expenditure and financial investment (1,120) (1,779)
------ ------
Purchase of businesses (21) (848)
Cash acquired with subsidiary - 45
Business disposals 6 66
Investment in joint ventures and associates (5) (44)
Disposal of interests in associates - 124
------ ------
Acquisitions and disposals (20) (657)
------ ------
Equity dividends paid (2,327) (2,325)
------ ------
NET CASH INFLOW/(OUTFLOW) 1,920 (162)
Issue of ordinary share capital 56 144
Purchase of shares for cancellation (2,220) (1,274)
Net non-cash funds of subsidiary acquired (4) 56
Redemption of preference shares issued by a subsidiary - (457)
Other financing cash flows 135 144
Exchange movements (121) 59
------ ------
INCREASE IN NET DEBT IN PERIOD (234) (1,490)
NET DEBT AT BEGINNING OF PERIOD (2,101) (611)
------ ------
NET DEBT AT END OF PERIOD (2,335) (2,101)
------ ------
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Three months ended 31st December 2002
Q4 2002 Q4 2001
£m £m
------ ------
BUSINESS PERFORMANCE OPERATING PROFIT 1,728 1,731
Depreciation and other non-cash items 271 169
(Increase)/decrease in working capital (48) 32
(Decrease)/increase in net liabilities (197) 110
------ ------
1,754 2,042
Restructuring/integration costs paid (192) (206)
------ ------
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,562 1,836
Dividends received from associates 2 -
Returns on investment and servicing of finance (42) (18)
Taxation paid (503) (468)
------ ------
FREE CASH FLOW 1,019 1,350
------ ------
Purchase of tangible fixed assets (409) (443)
Sale of tangible fixed assets 26 8
Purchase of intangible fixed assets (55) (110)
Sales of intangible fixed assets - 6
------ ------
(438) (539)
Product divestments (1) (5)
Purchase of own shares for employee share options and awards - (336)
Proceeds from own shares for employee share options 4 23
Purchase of equity investments (56) (18)
Sale of equity investments 3 6
------ ------
Capital expenditure and financial investment (488) (869)
------ ------
Purchase of businesses (4) (3)
Business disposals - (1)
Investment in joint ventures and associates - (36)
------ ------
Acquisitions and disposals (4) (40)
------ ------
Equity dividends paid (527) (548)
------ ------
NET CASH OUTFLOW - (107)
Issue of ordinary share capital 8 27
Purchase of shares for cancellation (279) (1,274)
Net non-cash funds of subsidiary acquired (4) (2)
Other financing cash flows 48 86
Exchange movements (8) 9
------ ------
INCREASE IN NET DEBT IN PERIOD (235) (1,261)
NET DEBT AT BEGINNING OF PERIOD (2,100) (840)
------ ------
NET DEBT AT END OF PERIOD (2,335) (2,101)
------ ------
BALANCE SHEET
2001
2002 (restated)
£m £m
------- -------
Goodwill 171 174
Intangible fixed assets 1,637 1,673
Tangible fixed assets 6,649 6,845
Investments 3,121 3,228
------- -------
FIXED ASSETS 11,578 11,920
------- -------
Equity investments 161 185
Stocks 2,080 2,090
Debtors 6,200 6,017
Liquid investments 1,256 1,415
Cash at bank 1,052 716
------- -------
CURRENT ASSETS 10,749 10,423
------- -------
Loans and overdrafts (1,551) (2,124)
Other creditors (7,257) (7,306)
------- -------
CREDITORS: amounts due within one year (8,808) (9,430)
------- -------
NET CURRENT ASSETS 1,941 993
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 13,519 12,913
------- -------
Loans (3,092) (2,108)
Other creditors (206) (190)
------- -------
CREDITORS: amounts due after one year (3,298) (2,298)
------- -------
PROVISIONS FOR LIABILITIES AND CHARGES (2,833) (2,363)
------- -------
NET ASSETS 7,388 8,252
------- -------
Called up share capital 1,506 1,543
Share premium account 224 170
Other reserves 1,905 1,866
Profit and loss account 2,946 3,811
------- -------
EQUITY SHAREHOLDERS' FUNDS 6,581 7,390
Non-equity minority interest 559 621
Equity minority interests 248 241
------- -------
CAPITAL EMPLOYED 7,388 8,252
------- -------
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
2002 2001
£m (restated)
£m
------ ------
Equity shareholders' funds at beginning of period as previously 7,517 7,711
reported
Prior period adjustment - implementation of FRS 19 (127) (121)
------ ------
Equity shareholders' funds at beginning of period as restated 7,390 7,590
Total recognised gains and losses for the period 3,701 2,902
Dividends (2,346) (2,356)
Ordinary shares issued 56 144
Ordinary shares purchased and cancelled (2,220) (1,274)
Exchange movements on goodwill written off to reserves - 28
Goodwill written back - 356
------ ------
Equity shareholders' funds 6,581 7,390
------ ------
FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET
Cash flow
Operating cash flow, after restructuring and integration payments of £669 million, was £7,255 million in 2002. This
represents an increase of £748 million over 2001 and is well in excess of the funds needed for the routine cash flows
of tax, capital expenditure and dividend payments, together amounting to £5,004 million. Receipts of £114 million
arose from the exercise of share options; £58 million from shares held by the Employee Share Ownership Trusts (ESOTs)
and £56 million from new shares. In addition, £2,220 million was spent on purchasing the company's shares for
cancellation.
Net assets
The book value of net assets decreased by £864 million from £8,252 million at 31st December 2001 to
£7,388 million at 31st December 2002. This principally reflects the use of funds for the share buy-back programme.
Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own
shares held by the ESOTs. At 31st December 2002 the ESOTs held 181.3 million GSK ordinary shares, at a carrying value
of £2,826 million and market value of £2,161 million, against the future exercise of share options and share awards.
This valuation shortfall is not considered to represent a permanent diminution in value in the context of the length of
the future period over which the related share options may be exercised. Accordingly no provision has been made. The
carrying value of associates and equity investments was £456 million and the market value was £1,302 million.
Equity shareholders' funds
Equity shareholders' funds decreased from £7,390 million at 31st December 2001 to £6,581 million at 31st December 2002.
The decrease arises from the value of shares purchased and cancelled and exchange movements on overseas net assets
exceeding retained profits.
Legal proceedings
GlaxoSmithKline is involved in various legal and administrative proceedings, principally product liability,
intellectual property, antitrust, and governmental investigations and related private litigation. The outcome of
claims, legal proceedings and other matters in which the Group is involved cannot be predicted with any certainty.
Provision is made for anticipated settlement costs and associated legal and other expenses connected with asserted
claims against GSK where a reasonable estimate can be made of the likely outcome of the dispute. Legal proceedings in
which GSK is involved are described in the Annual Report 2001. Developments since the dates of the Annual Report and
the Results Announcements for the second and third quarters of 2002 are set out below.
In particular, GSK is engaged in patent infringement proceedings with companies marketing or attempting to market
generic versions of a number of the Group's most significant products, including Paxil/Seroxat, Wellbutrin SR/Zyban and
Augmentin. With respect to Paxil, the trial in the Group's action against Apotex in the US District Court for the
Northern District of Illinois for infringement of the Group's patent on paroxetine hydrochloride hemihydrate commenced
last week and is ongoing as of the date of this announcement. In December 2002, the Federal District Court Judge in
the Group's infringement proceeding against Apotex in the Eastern District of Pennsylvania granted in part and denied
in part summary judgement motions filed by Apotex with the result that issues of validity and infringement of three of
four new patents issued to the Group subsequent to the original filing date of the Group's infringement action in the
Northern District of Illinois will move forward towards trial in Philadelphia. GSK has petitioned the District Court
to permit an interim appeal to the US Court of Appeals for the Federal Circuit (CAFC).
On 4th February 2003 the CAFC heard Apotex's appeal from a decision by the US District Court for the District of
Columbia denying Apotex's request that the US Food and Drug Administration be required to delist certain of the Group's
patents for Paxil from the Orange Book. The CAFC has not yet ruled on the matter. In addition, Apotex has applied to
the court in the litigation in the Eastern District of Pennsylvania for an order that GlaxoSmithKline delist certain
patents.
With respect to Wellbutrin SR, on 2nd December 2002 the CAFC heard the Group's appeal from the summary judgement by the
US District Court that Andrx's generic version of Wellbutrin SR does not infringe the Group's patent. The CAFC has not
yet ruled on the matter.
With respect to Augmentin, the hearing date has been scheduled for 5th March 2003 on the Group's appeal from the
decisions of the US District Court for the Eastern Virginia holding the Group's patents expiring in 2002, 2017 and 2018
invalid. Subsequent to the decision by the District Court, four generic versions of Augmentin were introduced in the
USA.
GSK is engaged in product liability litigation, including significant numbers of cases (a number of which are purported
class actions) related to Fastin brand phentermine (fen/phen litigation), PPA decongestant products, vaccines that had
contained thimerosal as a preservative, Baycol, Paxil and Lotronex. With respect to claims regarding discontinuation
of Paxil therapy, in January 2003 a Federal District Court Judge in California denied class action certification
although permitting counsel for the plaintiffs to file one more motion for certification. With respect to Baycol, in
October 2002 GlaxoSmithKline and Bayer Corporation, the principal US subsidiary of Bayer AG, have signed an allocation
agreement under which Bayer Corporation has agreed to pay 95% of all settlements and compensatory damages judgements
with each party retaining responsibility for its own attorney's fees and any punitive damages.
Additionally, GSK is responding to government investigations in the USA into pricing, marketing and reimbursement of
several prescription drug products. These investigations may involve related restitution or civil false claims act
litigation on behalf of the federal or state governments and proceedings initiated against GSK by various groups of
private payers and state attorneys general regarding similar pricing, marketing and distribution issues arising in the
USA.
The company's Directors, having taken legal advice, have established provisions after taking into account insurance and
having regard to the relevant facts and circumstances of each matter and in accordance with accounting requirements.
No provisions have been made for unasserted claims. 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.
EXCHANGE RATES
The results and net assets of the Group, as reported in sterling, are affected by movements in exchange rates between
sterling and overseas currencies. GSK uses the average of exchange rates prevailing during the period to translate the
results and cash flows of overseas Group subsidiary 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, are:
Q4 2002 Q4 2001 2002 2001
Average rates: ------ ------ ------ ------
£/US$ 1.56 1.44 1.50 1.44
£/Euro 1.56 1.61 1.59 1.61
£/Yen 191.00 181.00 188.00 175.00
Period end rates:
£/US$ 1.61 1.45 1.61 1.45
£/Euro 1.54 1.64 1.54 1.64
£/Yen 192.00 190.00 192.00 190.00
During 2002 average sterling exchange rates were stronger against the US dollar and the yen and weaker against the Euro
compared to the same period in 2001. Comparing 2002 period-end rates with 2001 period-end rates, sterling was stronger
against the US dollar and the yen and weaker against the Euro.
ACCOUNTING PRESENTATION AND POLICIES
This unaudited Results Announcement for the year ended 31st December 2002 is prepared in accordance with the accounting
policies applied in 2002. These are unchanged from those set out in the Annual Report 2001, except that during 2002
FRS 19 'Deferred tax' has been implemented by the Group. This FRS requires deferred tax to be accounted for on a full
provision basis, rather than a partial provision basis as in 2001 and earlier years. This change in basis has been
accounted for as a prior period adjustment.
Data for market share and market growth rates relate to the year ended 30th September 2002 (or later where available).
These are GSK estimates based on the most recent data from independent external sources, valued in sterling at relevant
exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.
The profit and loss account, statement of total recognised gains and losses and cash flow statement for the year ended,
and the balance sheet at, 31st December 2001 are an abridged statement, after adjusting for the effects of implementing
FRS 19 on 1st January 2002, of the full Group accounts for that period, which have been delivered to the Registrar of
Companies and on which the report of the auditors was unqualified and did not contain a statement under either section
237 (2) or section 237 (3) of the Companies Act 1985.
Accounting for co-promotional and co-marketing activities
In recognition of the expected launch of Levitra in 2003, GlaxoSmithKline is communicating its accounting policy on
co-promotional and co-marketing activities.
Where GSK co-promotes a product and the third party records the sale, GSK will record its share of revenue as
co-promotion income within turnover. The nature of the co-promotion activities are such that GSK records no cost of
goods sold. Co-promotion income will be separately identifiable from the sales of GSK products.
Where GSK co-markets, sales will be recorded by GSK in turnover as sales of GSK products. Cost of sales will reflect
the purchase cost of the product sold.
GSK's development costs and amortisation of intangible rights will be charged to research and development, and costs
related to selling and marketing will be charged to selling, general and administration expenses.
INVESTOR INFORMATION
Preliminary Announcement of Annual Results 2002
This Announcement was approved by the Board of Directors on Wednesday 12th February 2003.
The profit and loss account and the cash flow statement for the year ended, and the balance sheet at, 31st December
2002 are subject to completion of the audit of the full Group accounts for 2002.
Financial calendar
The company will announce first quarter 2003 results on 30th April 2003. The first interim dividend for 2003 will have
an ex-dividend date of 7th May 2003 and a record date of 9th May 2003 and will be paid on 3rd July 2003.
Annual Report and Annual Review
The Annual Report and the Annual Review will be sent to shareholders on 28th March 2003 and will be available from that
date on the GSK website and from the company's registrar, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex
BN99 6DA. Telephone (Annual Report Orderline) 0870 600 3991
(+44 (0)121 415 7067 from outside the UK).
Annual General Meeting
The Annual General Meeting will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster,
London SW1P 3EE on 19th May 2003.
Internet
This Announcement, and other information about GSK, is available on the World Wide Web at the company's site at:
http://www.gsk.com.
Cautionary statement regarding forward-looking statements
The Group's reports filed with the US Securities and Exchange Commission (the Commission), 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. The factors listed below are those that the Group thinks could cause the Group's
actual results to differ materially from expected and historical results. Other factors besides those listed here could
also adversely affect the Group.
The Group operates in highly competitive businesses. In the pharmaceuticals business, it faces competition both from
proprietary products of large international manufacturers and producers of generic pharmaceuticals. Significant product
innovations, technical advances or the intensification of price competition by competitors could adversely affect the
Group's operating results. Continued consolidation in the pharmaceutical industry could adversely affect the Group's
competitive position, while continued consolidation among the Group's customers may increase pricing pressures.
In particular, 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 typically leads to a dramatic loss of sales and reduces the Group's
revenues and margins for its proprietary products.
Generic drug manufacturers are seeking to market generic versions of a number of the Group's most important products,
including Paxil and Wellbutrin, prior to the expiration of the Group's patents, and may do so for other products in the
future. Generic products competitive with Augmentin were launched in the USA in 2002 and had a significant impact on
the Group's sales and earnings. Efforts by generic manufacturers may involve challenges to the validity of a patent or
the assertion that the alternative compounds do not infringe the Group's patents. If the Group is not successful in
maintaining exclusive rights to market one or more of its major products, particularly in the USA where the Group has
its highest margins and most sales of any country, during the patent protection period, the Group's revenues and
margins would be adversely affected.
In some of the countries in which the Group operates, patent protection may be significantly weaker than in the USA or
the European Union. In addition, in an effort to control public health crises, some developing countries, such as South
Africa and Brazil, have recently announced plans for substantial reductions in the scope of patent protection for
pharmaceutical products. In particular, these countries could facilitate competition within their markets from generic
manufacturers who would otherwise be unable to introduce competing products for a number of years. Any loss of patent
protection is likely to affect adversely the Group's operating results.
Pharmaceutical product prices are subject to controls or pressures in many markets. 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. The Group
cannot predict whether existing controls will increase or new controls will be introduced that will reduce the Group's
margins or affect adversely its ability to introduce new products profitably.
For example, in the USA, where the Group has its highest margins and most sales of any country, pricing pressures could
significantly increase if various proposals under consideration to reform Medicare, or for other federal or state
programmes to control the cost of pharmaceuticals, are adopted. If the Medicare programme were to provide outpatient
pharmaceutical coverage for its beneficiaries, the US government, through its enormous purchasing power under the
programme, could demand discounts that may implicitly create price controls on prescription drugs. Additionally, a
number of states have proposed or implemented various schemes to control prices for their own senior citizens' drug
programmes, including importation from other countries and bulk purchasing of drugs. The growth in the number of
patients covered through large managed care institutions in the USA, which would be likely to increase with Medicare
reform, also increases pricing pressures on the Group's products. These trends may adversely affect the Group's
revenues and margins from sales in the USA.
The Group must comply with a broad range of regulatory controls on the testing, approval, manufacturing and marketing
of many of its pharmaceutical and consumer healthcare products. In some countries, including the USA and those of the
European Union, regulatory controls have become increasingly demanding, increasing not only the cost of product
development but also the time required to reach the market and the uncertainty of successfully doing so. The Group
expects that this trend will continue and will expand to other countries.
Stricter regulatory controls also heighten the risk of withdrawal by regulators of an approval previously granted,
which would reduce revenues and can result in product recalls and product liability lawsuits. In addition, in some
cases the Group may voluntarily cease marketing a product or face declining sales based on concerns about efficacy or
safety, whether or not scientifically justified, even in the absence of regulatory action.
Continued development of commercially viable new 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 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, fail to reach the market or have only limited commercial success as a
result of efficacy or safety concerns, inability to obtain necessary regulatory approvals, difficulty or excessive
costs to manufacture or infringement of patents or other intellectual property rights of others.
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 and excessive verdicts that are not justified by the evidence can occur. 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. Unfavourable resolution of these and similar future
proceedings may be material to the Group's results of operations and cash flows. The Group may also make material
provisions related to legal proceedings, which would reduce its earnings.
Recent loss experience within the insurance industry as a whole, including pharmaceutical product liability exposures,
has increased the cost of insurance coverage for pharmaceutical companies generally, including the Group. In order to
contain insurance costs in 2002 and 2003 the Group has adjusted its coverage profile, accepting a greater degree of
self-insurance in respect of its product liability risk.
The Group is responding to government investigations in the USA into pricing, marketing and reimbursement of several
prescription drug products. These investigations could result in related restitution or civil false claims act
litigation on behalf of the federal or state governments and proceedings initiated against GlaxoSmithKline by or on
behalf of consumers and private payers. Unfavourable resolution of these and any similar future government
investigations may be material to the Group's results of operations and cash flows. The Group may also make material
provisions related to such investigations, which would reduce its earnings.
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.
The Group had eight products with over £700 million ($1.05 billion) in annual global sales in 2002. Among these
products are Paxil/Seroxat and Wellbutrin, with respect to which the Group is currently defending its intellectual
property rights in the USA. If these or any of the Group's other major products were to become subject to a problem
such as loss of patent protection, unexpected side effects, regulatory proceedings, publicity affecting doctor or
patient confidence or pressure from competitive products, or if a new, more effective treatment should be introduced,
the impact on the Group's revenues and operating results could be significant.
The Group conducts a substantial portion of its operations outside the United Kingdom. Fluctuations in exchange rates
between sterling and other currencies, especially the US dollar and the Euro, materially affect the Group's reported
revenues and operating 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. These factors could materially affect the Group's future
results of operations.
The effective tax rate on the Group's earnings benefits from the fact that a portion of its earnings is taxed at more
favourable rates in some jurisdictions outside the United Kingdom. Changes in tax laws or in their application with
respect to matters, such as transfer pricing that relate to the portion of the Group's earnings taxed at more
favourable rates could increase the Group's effective tax rate and adversely affect its net earnings.
New or revised accounting standards and rules promulgated from time to time by UK, US or International accounting
standard-setting boards could have a material adverse impact on the Group's reported financial results.
This information is provided by RNS
The company news service from the London Stock Exchange
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