GSK Annual Report 2002

60 GlaxoSmithKline Operating and financial review and prospects
Financial position and resources
Financial position
A summarised, re-classified presentation of the Group balance
sheet is set out below:
2001
2002 (restated)
£m £m
Goodwill 171 174
Intangible fixed assets 1,637 1,673
Tangible fixed assets 6,649 6,845
Investments 456 477
Working capital 4,880 4,958
Other debtors and creditors (2,695) (2,708)
Provisions (2,091) (1,810)
Taxation (1,449) (1,672)
Deferred taxation 631 744
Net operating assets 8,189 8,681
Own shares 2,826 2,936
Dividends payable (1,292) (1,264)
Net debt (2,335) (2,101)
Net assets 7,388 8,252
Shareholders’ funds 6,581 7,390
Minority interests 807 862
Financing of net assets 7,388 8,252
Investments
GlaxoSmithKline had investments at 31st December 2002 with
a carrying value of £456 million (2001 – £477 million). The market
value at 31st December 2002 was £1,220 million (2001 – £1,819
million). The investments, which include associates and joint
ventures, are mainly in equity shares where the holding derives
directly from the Group’s business, including in connection with a
research collaboration, as access to biotechnology developments
of potential interest, or arising from a business divestment.
Own shares
At 31st December 2002 the ESOTs held 181.3 million
GlaxoSmithKline 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.
Other debtors and creditors
Net other creditors remained in line with 2001 as an increase in
prepaid pension contributions offset increased accruals for
sales-related rebates and returns.
Provisions
The Group carried provisions of £2,833 million at 31st December
2002 in respect of estimated future liabilities, of which some
£921 million related to pensions and other post-retirement
benefits for employees. Provision has been made for tax, legal and
other disputes, indemnified disposal liabilities and the costs of
manufacturing restructuring and merger integration to the extent
that at the balance sheet date an actual or constructive obligation
existed. In the case of merger integration and manufacturing
restructuring the majority of the remaining costs are expected to
be recognised by the end of 2003.
Net debt
Group net debt at 31st December comprised:
2002 2001
£m £m
Cash and liquid investments 2,308 2,131
Borrowings – repayable within one year (1,551) (2,124)
Borrowings – repayable after one year (3,092) (2,108)
Net debt (2,335) (2,101)
Net debt increased in 2002 to £2,335 million primarily due to the
use of cash to fund the purchase of shares by the company for
cancellation totalling £2,220 million and the special cash
contributions of £320 million into the Group’s pension funds.
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 £1,262 million after
allowing for deferred taxation (2001 – £457 million). In the fourth
quarter of 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 by more than £100 million and this has been taken account
of in the earnings guidance.
Shareholders’ funds
A summary of the movements in equity shareholders’ funds is set
out below.
2001
2002 (restated)
£m £m
At beginning of year as previously reported 7,517 7,711
Prior year adjustment -
implementation of FRS 19 (127) (121)
At beginning of year as restated 7,390 7,590
Profit for the year 3,915 3,053
Dividends (2,346) (2,356)
Shares issued on exercise of share options 56 144
Shares purchased and cancelled (2,220) (1,274)
Exchange movements (154) (123)
Goodwill written back – 356
UK tax on exchange movements (67) –
Unrealised gain on equity investment 7 –
At end of year 6,581 7,390
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.
Commitments and contingent liabilities
Financial commitments are summarised in Note 26 to the Financial
statements, ‘Commitments’. Other contingent liabilities and
obligations in respect of short and long term debt are set out in
Note 24, ‘Contingent liabilities’ and Note 25 to the Financial
statements, ‘Net debt’.
Amounts provided for pensions and post-retirement benefits,
restructuring and integration plans and legal, environmental and
other disputes are set out in Note 23 to the Financial statements,
‘Provisions for liabilities and charges’.