GSK Annual Report 2002

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52 GlaxoSmithKline Operating and financial review and prospects Financial trends and ratios 2001 2000 Statutory results 2002 (restated) (restated) £m CER % £m CER % £m Sales - Pharmaceuticals 17,995 8 17,205 9 15,429 Consumer Healthcare 3,217 2 3,284 22 2,650 Total 21,212 7 20,489 11 18,079 Cost of sales (4,609) – (4,733) 19 (3,962) Selling, general and administration (8,041) (1) (8,408) 15 (7,136) Research and development (2,900) 12 (2,651) 3 (2,526) Trading profit 5,662 26 4,697 1 4,455 Profit before taxation 5,506 28 4,517 (28) 6,029 Earnings 3,915 35 3,053 (29) 4,106 Basic earnings per share (pence) 66.2p 38 50.3p (29) 67.7p Merger, restructuring and disposal of subsidiaries Cost of sales (366) (303) (151) Selling, general and administration (498) (957) (404) Research and development (168) (96) (16) Trading profit (1,032) (1,356) (571) Profit before taxation (1,011) (1,652) 702 Earnings (712) (1,330) 452 Business performance results Sales 21,212 7 20,489 11 18,079 Cost of sales (4,243) (2) (4,430) 15 (3,811) Selling, general and administration (7,543) 5 (7,451) 8 (6,732) Research and development (2,732) 9 (2,555) (1) (2,510) Trading profit 6,694 15 6,053 16 5,026 Profit before taxation 6,517 11 6,169 12 5,327 Adjusted earnings 4,627 11 4,383 16 3,654 Adjusted earnings per share (pence) 78.3p 13 72.3p 16 60.2p Research and development – business performance Pharmaceuticals 2,629 2,453 2,435 Consumer Healthcare 103 102 75 Total 2,732 2,555 2,510 Business performance, which is the primary performance measure used by management, is presented after excluding merger items, integration and restructuring costs and the disposal of businesses. Management believes that exclusion of these non-recurring items provides a better comparison of business performance for the periods presented. Accordingly, this information is provided as a supplement to that included in the consolidated statement of profit and loss on pages 76 and 77 prepared in accordance with UK GAAP. Statutory results include these non-recurring items. 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 year adjustment and comparative information has been restated as necessary. Interest Net interest payable 141 88 182 Interest cover 40 times 52 times 34 times Interest cover is calculated as statutory profit before interest divided by net interest payable. Tax rate Business performance 27.0% 26.8% 28.1% Statutory results 26.5% 29.5% 29.0% Borrowings Net debt 2,335 2,101 611 Gearing 24% 20% 6% The gearing ratio is calculated as net debt as a percentage of shareholders’ funds, net debt and minority interests.
2002 Year World economy The world’s economy began 2002 in an upbeat fashion, in the expectation that recent interest rate cuts on both sides of the Atlantic would revive consumer confidence and provide relief to the corporate sector still feeling the effects of the September 11 tragedy. The general optimism proved to be misplaced, as a combination of weaker than anticipated economic growth, corporate scandals, bankruptcies, profit warnings, dividend cuts, the forced selling of equities, soaring stock market volatility, fears of deflation and conflict in the Middle East all took their toll. Share prices across the developed world plunged for the third year running in 2002. After a strong start, the US economy cooled off as the stimulus of interest rate cuts failed to counterbalance negative factors. When in November the Federal Reserve cut the US interest rate to 1.25 per cent, it reached its lowest level in more than 40 years. The European economy fared no better, with most countries experiencing little or no growth. Germany was particularly badly affected, suffering both a stagnant economy and a rise in unemployment to 9.9 per cent. The European Central Bank responded with a 0.5 per cent cut in interest rates to 2.75 per cent in December. The Japanese stock market outperformed all other major stock markets in the first half of 2002, but then fell, ending 2002 at a 20-year low. The outlook for 2003 may be summarised as uncertain. Whilst there have never been four consecutive years of declines in the majority of western stock markets, and most market commentators are anticipating a reasonable level of economic growth in 2003, this is most likely to occur in the second half of the year after a sluggish start. The $600 billion economic package designed to boost the US economy announced by President Bush in January 2003 will hopefully accelerate this. However, there are a number of risks to the timing of economic recovery. Exchange The currencies that most influence the Group’s results are the US Dollar, the Euro and the Japanese Yen. £/Euro £/US$ £/JPY 150 100 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 The pound hit its highest level against the dollar for more than two-and-a-half years, climbing above $1.61 and the Euro gained 17.7 per cent against the dollar in 2002, the first year that the dollar has fallen in value against the euro, as investors weighed up the impact of possible war in Iraq, tensions with North Korea and fears for the US economy. Dec 99 Jun 00 Dec 00 Jun 01 Jun 96 = 100 Dec 01 Jun 02 Dec 02 Operating and financial review and prospects GlaxoSmithKline 53 World market – pharmaceuticals Global pharmaceutical sales increased by 10.6 per cent in 2002 to £268 billion. World market by Value % of Growth geographic region £bn total £% USA 126 47.0 15.3 Europe 67 25.0 9.1 Germany 13 4.9 9.4 France 13 4.9 5.6 UK 9 3.3 12.8 Italy 8 3.0 6.4 Japan 31 11.6 3.3 Asia Pacific 19 7.0 10.0 Latin America 13 4.9 (6.0) Middle East, Africa 7 2.6 15.3 Canada 5 1.9 15.1 Total 268 100.0 10.6 The US market remained buoyant and now represents 47 per cent of the global prescription pharmaceutical market compared to 31 per cent a decade ago. GlaxoSmithKline holds second position in the world pharmaceutical market with a market share of 7.25 per cent, behind Pfizer with a market share of 7.35 per cent. GlaxoSmithKline has eight products in the world’s Top 50 products; these are Augmentin, Avandia, Flixotide, Imigran, Seretide/Advair, Seroxat/Paxil, Wellbutrin and Zofran. World market – Value % of Growth top five therapeutic classes £bn total £% Cardiovascular 46 17.2 9.8 Central nervous system 43 15.9 13.8 Alimentary tract and metabolic 35 13.2 8.9 Anti-infectives (bacterial, viral and fungal) excluding vaccines 30 11.2 6.0 Respiratory 21 7.7 12.0 (Note: Data based on 12 months to 30th September 2002.) Pharmaceutical sales Total pharmaceutical sales in 2002 were £17,995 million compared to £17,205 million in 2001, an increase of eight per cent. Less than one per cent of this overall growth came from price increases. Growth in sterling terms of five per cent was significantly impacted by the weakness of the US dollar and other currencies. Within the Group’s portfolio, sales of new products, those launched in a major market within the last five years, accounted for 27 per cent of total sales and grew by 36 per cent to £4,785 million. Sales of the more established, franchise products amounted to £9,772 million representing 54 per cent of total sales and grew six per cent compared to last year. Sales of older products, now less actively promoted, were £3,438 million, a decline of 11 per cent, representing 19 per cent of total sales. Global pharmaceutical sales in the fourth quarter of 2002 grew seven per cent, (two per cent in sterling terms) reflecting US sales growth of 14 per cent to £2,592 million; whereas in Europe sales growth was weaker at one per cent with sales of £1,272 million, and in International sales were flat at £935 million.
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Do more, feel better, live longer T
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Page 7 and 8: 04 GlaxoSmithKline Joint statement
Page 9 and 10: Products - Pharmaceuticals Descript
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Page 15 and 16: Operating activities Marketing and
Page 17 and 18: Description of business GlaxoSmithK
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Page 41 and 42: Remuneration report GlaxoSmithKline
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Page 53: Operating and financial review and
Page 57 and 58: Pharmaceutical sales by therapeutic
Page 59 and 60: Consumer Healthcare sales 2002 2001
Page 61 and 62: Earnings 2001 2002 (restated) CER%
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Page 73 and 74: Selected financial data UK/US GAAP
Page 75 and 76: Financial statements GlaxoSmithKlin
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Page 79 and 80: Consolidated statement of profit an
Page 81 and 82: Consolidated statement of cash flow
Page 83 and 84: Company balance sheet at 31st Decem
Page 85 and 86: 2 Accounting policies Consolidation
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Page 91 and 92: 7 Merger items, restructuring costs
Page 93 and 94: Notes to the financial statements G
Page 95 and 96: 13 Earnings per share Notes to the
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30 Legal proceedings The Group is i
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30 Legal proceedings continued In F
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30 Legal proceedings continued In 2
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31 Acquisitions and disposals conti
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32 Financial instruments and relate
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32 Financial instruments and relate
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33 Employee costs continued Notes t
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33 Employee costs continued Notes t
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34 Employee share schemes continued
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34 Employee share schemes continued
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37 Reconciliation to US accounting
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Notes to the financial statements G
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38 Principal Group companies Notes
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38 Principal Group companies contin
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Financial record GlaxoSmithKline 14
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Investor information GlaxoSmithKlin
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Shareholder information Ordinary sh
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Share capital GlaxoSmithKline 155 A
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Cross reference to Form 20-F GlaxoS
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Index A Access to healthcare 27 Acc
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Contact details INTERNET Informatio
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