Annual Report 2019

Annual Report

2019

Contents

Strategic report

Our business model 01

Chairman’s statement 03

CEO’s statement 04

Financial performance 06

Our long-term priorities 09

Our culture 10

Key performance indicators 11

Industry trends 12

Stakeholder engagement 15

Pharmaceuticals 17

Vaccines 23

Consumer Healthcare 27

Trust 30

Risk management 43

Group ﬁnancial review 49

Corporate Governance

Chairman’s Governance statement 76

Our Board 78

Our Corporate Executive Team 82

Responsible leadership 84

Division of responsibilities 90

Composition, succession

and evaluation 92

Nominations Committee report 92

Audit, risk and internal control 96

Audit & Risk Committee report 96

Science Committee report 107

Corporate Responsibility

Committee report 109

Section 172 statement 111

Directors' report 113

Remuneration report

Chairman’s annual statement 116

Annual report on remuneration 119

2020 Remuneration policy summary 140

2020 Remuneration policy report 141

Financial statements

Directors’ statement of

responsibilities 152

Independent Auditor’s report 154

Financial statements 166

Notes to the ﬁnancial statements 170

Financial statements of

GlaxoSmithKline plc prepared

under UK GAAP 252

Investor information

Quarterly trend 258

Five-year record 263

Product development pipeline 269

Products, competition and

intellectual property 272

Principal risks and uncertainties 275

Share capital and share price 288

Dividends 290

Financial calendar 291

Annual General Meeting 2020 291

Tax information for shareholders 292

Shareholder services and contacts 294

US law and regulation 296

Group companies 299

Glossary of terms 311

Cautionary statement

See the inside back cover of this document for the cautionary statement regarding

forward-looking statements.

Non-IFRS measures

We use a number of adjusted, non-IFRS, measures to report the performance of our business.

Total reported results represent the Group's overall performance under IFRS. Adjusted results,

pro-forma growth rates and other non-IFRS measures may be considered in addition to, but not

as a substitute for or superior to, information presented in accordance with IFRS. Adjusted results

and other non-IFRS measures are deﬁned on pages 50 to 52 and reconciliations to the nearest

IFRS measures are on pages 62 and 65.

We believe that Adjusted results, when considered together with Total results, provide investors,

analysts and other stakeholders with helpful complementary information to understand better

the ﬁnancial performance and position of the Group from period to period, and allow the Group's

performance to be more easily compared against the majority of its peer companies. These

measures are also used by management for planning and reporting purposes. They may not

be directly comparable with similarly described measures used by other companies.

Our purpose

To improve the quality of human life by helping people do more, feel better,

live longer.

Our goal

To become one of the world’s most innovative, best-performing and trusted

healthcare companies.

Our strategy

To bring differentiated, high-quality and needed healthcare products

to as many people as possible, with our three global businesses, scientiﬁc

and technical know-how and talented people.

Our long-term priorities

Our priorities are underpinned by our ambition to build a more performance-

focused culture, aligned to our values and expectations.

Innovation

We invest in scientiﬁc and technical excellence to develop and launch

a pipeline of new products that meet the needs of patients, payers

and consumers.

Performance

We deliver growth-based performance by investing effectively in our

business, developing our people and executing competitively.

Trust

We are a responsible company and commit to use our science and

technology to address health needs, make our products affordable

and available and to be a modern employer.

Our values and expectations

Our values – patient focus, transparency, respect and integrity.

Our expectations – courage, accountability, development and teamwork.

We are a science-led

global healthcare company

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Our business model

We have three global businesses that discover, develop and

manufacture innovative medicines, vaccines and consumer healthcare

products. Every day, we help improve the health of millions of people

around the world.

Pharmaceuticals

Our Pharmaceuticals business has

a broad portfolio of innovative and

established medicines in respiratory,

HIV, immuno-inﬂammation and oncology.

We are strengthening our R&D pipeline

through a focus on immunology, human

genetics and advanced technologies

to help us identify transformational

new medicines for patients.

Read more below

Performance

– Total 2019 turnover £17.6 billion,

up 2% AER, ﬂat at CER

– Strengthened capabilities in

specialty care medicine

– Changed sales incentive

programme to recruit and retain

representatives with the best

expertise and experience

– Supply chain productivity up

by more than 20% since 2016

Read more below

Performance

– Total 2019 turnover £7.2 billion,

up 21% AER, up 19% CER

primarily driven by growth

in Shingrix

– Optimised our supply chain

to increase Shingrix production

capabilities

– Received authorisation of Shingrix

in China for the prevention

of shingles in adults aged 50

and over

Read more below

Performance

– Total 2019 turnover £9.0 billion,

up 17% AER, up 17% CER,

up 2% proforma

– Completed joint venture with

Pﬁzer that combined our consumer

healthcare businesses; on track to

deliver synergies of £500 million

total annual cost savings by 2022

Read more on pages 30 to 42

Progress against our long-term priorities

1 Based on Nicholas Hall's DB6 Global OTC Database 2018.

GSK Annual Report 2019

Building industry-leading capabilities

Our Consumer Sensory Labs around the world enable us

to listen to, understand and meet the needs of consumers.

Every year, we carry out research involving around 10,000

consumers either in one of our three Consumer Sensory

Labs or in consumers’ homes to gain deeper understanding

of consumer reactions to products during the development

process to help improve our brands and develop new ones.

In 2019, we added a Consumer Sensory Lab facility in the

US through our joint venture and during 2020, we plan to

open a new Lab in China to further enhance our capabilities.

Through our research, we found that consumers in India

and China are increasingly looking for products that combine

science and natural or traditional approaches. Leveraging

these insights we developed Sensodyne Herbal Multi-Care

toothpaste for the relief of sensitive teeth which captures the

ﬂavours of eucalyptus and fennel.

The increasing use of digital technology is revolutionising the

way consumers buy and use healthcare products. We are using

the joint venture with Pﬁzer as an opportunity to further build our

digital innovation capabilities and evolve our Digital Innovation

Hub. The team will develop innovations that are focused on

creating platforms and business models that will meet the

future healthcare needs of consumers.

Performance

Consumer Healthcare sales in 2019 were £8,995 million, up

17% AER and 17% CER. On a pro-forma basis, sales grew 2%,

driven by strong performance in the oral health category, partly

offset by a decline in skin health. Mid year we completed the joint

venture with Pﬁzer, creating a leading Consumer Healthcare

business.

We are leveraging the joint venture integration as a catalyst to

accelerate growth and drive innovation. We are sharpening our

strategic resource allocation to ensure we focus our investments

on the right markets and brands so that we can generate the

strongest growth and highest returns. Our power brand portfolio

has expanded with the addition of Advil and Centrum alongside

our seven other power brands including Sensodyne, Voltaren

and Theraﬂu. Our local star brands are geographically

concentrated in one or more key markets, such as TUMS,

Emergen-C and ChapStick in the US, or Caltrate and Fenbid

in China. Together, power brands and local stars will drive

performance of Consumer Healthcare and reinforce our global

leadership in pain relief, respiratory, wellness and therapeutic

oral health.

We are redeﬁning our operating model to reﬂect the global and

local nature of our brands, moving accountabilities and decision

making closer to consumers and customers to accelerate our

speed to market and leverage the scale and expertise of our

global portfolio. We are also investing in key capabilities such

as digital, data and analytics, and sustainability, to unlock growth

and ensure that we meet the expectations of consumers and

customers.

Creating a world-leading Consumer Healthcare company

Since completing the transaction with Pﬁzer to create a new

Consumer Healthcare Joint Venture on 31 July 2019, we have

made good progress towards integrating the two businesses.

On Day 1 of the joint venture, we completed legal closes in 15

markets, including our two biggest markets, the US and China,

all together accounting for more than 80% of Pﬁzer Consumer

Healthcare revenues. Following the close, no business continuity

issues or signiﬁcant employee experience issues were reported,

and we completed the appointment of approximately 500 critical

leadership roles. By the end of 2019 we completed legal closes

of the joint venture in 40% of the local markets and continue to

work towards local closes in remaining markets during 2020.

At the same time as announcing the joint venture, we announced

our intention to separate Consumer Healthcare via a demerger

within around three years of closing the transaction. Through the

‘Future Ready’ programme, planning work has begun to prepare

for our future separation and is focused on building the key

technology infrastructure and support functions necessary to

operate as a standalone company. This work will continue in

parallel with integration of the joint venture and delivery of

planned savings.

We are on track to deliver £0.5 billion synergies by 2022.

Synergies are expected to be achieved from a number of areas,

including network rationalisation, logistics and infrastructure,

advertising and marketing, sales and distribution and functional

support. Up to 25% of the cost savings generated are intended

to be reinvested in the joint venture to support innovation and

other growth opportunities. Overall, the Consumer Healthcare

joint venture is targeting an adjusted operating margin

percentage in the mid-to-high 20s by 2022.

Work is continuing to secure required regulatory approvals for

the proposed sale of Horlicks and other consumer health food

drinks brands to Unilever, as announced in December 2018

following a strategic review of our nutrition portfolio. We are also

progressing with the proposed merger of our 72.5% stake in

GlaxoSmithKline Consumer Healthcare Limited in India with

Hindustan Unilever Limited, which would allow Hindustan

Unilever Limited to sell and distribute our OTC and oral health

brands in India through a distribution arrangement. The

transaction is expected to be ﬁnalised around the end of

Q1 2020, subject to approvals.

Consumer Healthcare continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Leading for growth

As we create our new business, we are evolving our culture

to put consumers and customers at the heart of every decision

we take, build leadership capabilities and drive performance.

In the second half of 2019, we took steps to deﬁne the

behaviours and mindsets required to embed effective decision

making, clarity of accountability and courageous straight talk.

Our top 100 leaders are building strong ownership and

are acting as culture ambassadors across the business.

We deployed a streamlined decision making tool designed

to help identify the single point of accountability, and we plan

to roll this out during 2020. We have also implemented High

Performing Team development programmes to around 91 of our

most senior leadership teams, with an emphasis on straight talk

and decision making. We are actively listening and taking action

on employee feedback and on the perception and evolution of

our culture, integration planning and engagement through our

quarterly Consumer Healthcare Pulse surveys and the annual

GSK employee survey (see pages 35 to 36).

Digital transformation

By putting digital technology at the heart of our business,

we aim to deliver more meaningful interactions with consumers,

fuel brand growth and achieve efﬁciency savings. In 2019, we

continued to accelerate our digital transformation and prioritise

building our digital capabilities, including hiring expert new talent.

We launched a three-year Asia Paciﬁc Digital Accelerator

programme to drive sales through digital commerce and promote

a digital-ﬁrst culture within the region. The programme integrates

external digital experts into GSK Consumer Healthcare’s team

in different countries across Asia Paciﬁc to enhance digital

capabilities, build internal capacity and embed agile ways

of working.

We have made progress transforming our marketing model and

capabilities in strategically important areas, most notably through

the creation of the cutting-edge marketing services team which

leverages technology solutions, data and strategic partnerships

to provide specialist marketing capabilities at scale to improve

the quality and effectiveness of marketing campaigns.

By combining our anonymised ﬁrst-party data with Google’s

second-party data and leveraging additional technology

platforms, we identify signals that help us target speciﬁc

audiences, based on their behaviours, with dynamic and

relevant content across media platforms.

We have rolled out a new technology platform in 92 markets

which enables us to track media spend in real time, enabling

us to optimise campaign performance, target audiences with

greater precision and create valuable ﬁrst party data. Together,

the insights provided through these platforms are delivering an

improved consumer experience with more personalised content

and efﬁciency savings.

Winning with shoppers, customers and experts

Expert endorsement builds trust in our brands and drives

shopper purchase decisions. Sensodyne retains its unequalled

number one leadership position with dentists as a brand

recommended most often for sensitivity in 70% of markets

in which we compete. Of our OTC brands, 70% are sold in

pharmacies. We continued to prioritise our relationships with

dentists and pharmacists and to invest in information that

supports our products. In 2019, our expert sales representatives

called on 400,000 dentists in over 90 markets to share relevant

science-based information.

We have Shopper Science Labs in the UK, US and Singapore

that use state-of-the-art technology to track shopper behaviour

in real time to provide us with rich insights on consumers’

shopping habits around the world. We have additional satellite

lab facilities located in Canada, South Africa and Mexico and

by the headquarters of our major US retail partners.

In 2019, we leveraged our Shopper Science Labs to strengthen

our customer relationships, developing an ecommerce

evaluation tool that enables us to overlay digital content and

integrate digital prototyping tools with key retailer websites,

including Amazon.com and Tesco.com, to simulate a realistic

ecommerce shopping experience with shoppers.

Creating a simpler, competitive supply chain

We continue to drive strong improvement in service to our

customers with continued excellent on-time, in-full service levels.

This has allowed our supply chain to focus on opportunities

for driving more value for the business, consumers and the

environment by eliminating waste, packaging and costs.

The joint venture has provided a renewed focus on cost saving

initiatives with a leaner structure in non-manufacturing site teams

to drive synergy savings and increase speed of decision making.

This includes the optimisation of our manufacturing network

– consolidating and maximising capacity in our own sites and

streamlining the number of contract manufacturers (CMOs) we

use to ensure we have the right balance of trusted, cost-efﬁcient

manufacturing, with clear business continuity plans in place

to manage supply stability. During 2019, we announced the

closure of Agbara, Nigeria and Dehiwala, Sri Lanka.

In our supply chain, we have consolidated accountability

for end-to-end operations in our Regions and built closer

partnerships with the local commercial and R&D teams to drive

local innovation and signiﬁcantly improve supply chain agility.

Making more products, more frequently, in smaller batches,

allows for less inventory, and enables us to respond more

quickly and effectively to changing consumer demand.

Consumer Healthcare continued

GSK Annual Report 2019

Our purpose is to help people do more, feel better and live longer

Using our science and

technology to address

health needs

New medical innovations

Develop differentiated, high-quality

and needed medicines, vaccines

and consumer healthcare products

to improve health

Global health

Improve global health impact through

R&D for infectious diseases that

affect children and young people

in developing countries focusing

on HIV, malaria and TB

Health security

Help the world to better prepare

for future disease outbreaks with

pandemic potential, and tackle

antimicrobial resistance

Being a responsible business

Reliable supply

Commit to quality, safety

and reliable supply of our

products for patients and

consumers

Ethics and values

Operate an ethical, values-

driven culture, in which any

issues are responded to

swiftly and transparently

Data and engagement

Use data responsibly and

transparently. Improve

patient and scientiﬁc

engagement

Environment

Reduce our environmental

impact by one quarter by

2030

Making our products

affordable and available

Pricing

Improve the health of millions of

people each year by making our

products available at responsible

prices that are sustainable for our

business

Product reach

Use access strategies to reach

800 million underserved people

in developing countries with our

products by 2025

Healthcare access

Partner to improve disease

prevention, awareness and access

to healthcare services by 12 million

people by 2025

Being a modern

employer

Engaged people

Achieve and maintain a competitive

employee engagement score by

2022

Inclusion and diversity

Accelerate our progress on inclusion

and diversity, aiming for over 37%

female representation in senior roles

and recognition in global LGBT+

indices, by 2022

Health, wellbeing and development

Be a leading company in how we

support employee health, wellbeing

and personal development

Trust is one of our three long-term priorities and is essential to how we

achieve our purpose, drive long-term growth and add value for society

and our shareholders.

Trust

Our commitments on Trust

Society has high expectations of businesses, with people

rightly expecting companies to behave responsibly and

contribute to tackling societal challenges. Operating

responsibly brings direct beneﬁts to society but also creates

value for our shareholders. It supports our ability to attract

and retain talent, manage costs and build trust with patients

and consumers, our customers, payers and stakeholders

who inﬂuence our licence to operate. We have mechanisms

to help us identify and respond to our different stakeholder

groups (summarised on pages 15 to 16).

The 13 commitments detailed above support our Trust

priority in driving progress in the key areas where we can

make a signiﬁcant impact, and ensuring that we are running

our business in a responsible way.

These commitments seek to address the most material topics

relevant to our stakeholders and to our business, and are

designed to help us respond to challenges and opportunities

within our industry and society more broadly (see pages

12 to 14). They contribute to many of the UN Sustainable

Development Goals (SDGs). As a science-led, global

healthcare company, our biggest contribution is towards Goal

3: ensure healthy lives and promote well being for all at all ages.

Our Corporate Responsibility (CR) Committee forms an

important part of the Board’s oversight of our Trust priority. The

Committee provides ongoing scrutiny on progress against our

commitments and how the company is addressing the evolving

views and expectations of our broad range of stakeholders.

The Corporate Executive Team and senior management oversee

implementation of our Trust commitments and report regularly

to the CR Committee (see pages 109 to 110).

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Science and technology

We are committed to using our science and technology to

address health needs. Innovation is at the core of who we are

and what we do, and we have a unique opportunity to impact

global health – from the prevention and treatment of infectious

diseases to urgent public health threats, such as the growing

resistance to antibiotics.

New medical innovations

The biggest impact that we can have as a science-led, global

healthcare company is to successfully discover and develop

innovative products. We are using cutting-edge science and

technology to develop differentiated, high-quality and needed

medicines, vaccines and consumer healthcare products to

improve health. Read more about innovation within our three

businesses on pages 17, 23, and 27.

Global health

Our commitment is to improve our global health impact through

R&D for infectious diseases that affect children and young

people in developing countries focusing on HIV, malaria and TB.

Our early discovery work also allows us to pursue promising

scientiﬁc leads in other developing world diseases, such as

Chagas disease, leishmaniasis and sleeping sickness.

We need to ensure a sustainable, collaborative model for

translating scientiﬁc discoveries into beneﬁt for the most

vulnerable patients. To ensure the ongoing sustainability

of our investment in global health science, and in the interests

of products reaching patients more quickly, we seek

development partnerships. Where appropriate, to maximise

impact we transfer our technology to third party organisations

with the right capability and focus. For example, in 2019 we

transferred our Ebola and Marburg vaccine candidates to

the Sabin Vaccines Institute. We believe these transfers

will help ensure that the vaccine candidate technologies

can be developed faster and more efﬁciently brought to

those who need them.

Tuberculosis

TB is the leading cause of death through infectious disease

worldwide and represents a signiﬁcant public health threat.

An effective vaccine against TB will have a marked impact

on the disease’s control – including drug-resistant TB –

through interruption of transmission. It will also help to

achieve the World Health Organization (WHO) target

of ending the TB epidemic by 2035.

In 2019, the ﬁnal phase IIb results of our candidate vaccine,

developed in partnership with IAVI, conﬁrmed primary ﬁndings

that the vaccine candidate showed reduced risk of developing

pulmonary TB by half in HIV-negative adults with latent TB

infection. In January 2020, we announced the licensing of this

asset to the Bill & Melinda Gates Medical Research Institute

for its continued development for low income countries with

high TB burden, in line with our global health strategy.

We have a world-leading portfolio of ﬁrst-in-class medicines

for TB, spanning different mechanisms. In combination with

other medicines, these may be contenders to transform the

TB landscape as part of a new TB regimen that is effective in

all patients, even those with resistance to the currently-available

TB medicines.

In February 2020, we joined the Partnership to Accelerate

New TB Treatments (PAN-TB). This collaboration, involving

other companies and the Bill & Melinda Gates Foundation,

aims to accelerate the development of a treatment course for

any form of TB, even multi-drug resistant forms of the infection,

and create a course that is shorter, less complicated, and easier

to tolerate than existing options.

Malaria

Our work to ﬁght malaria ranges from developing medicines and

vaccines to working with partners to strengthen health systems.

Our RTS,S vaccine is the ﬁrst vaccine to help protect children

against the deadliest form of malaria, P. falciparum. In 2019,

the WHO-coordinated pilot implementation programme led

by local ministries of health, and in partnership with PATH and

GSK, launched in selected regions of Malawi, Ghana and

Kenya. Every year until 2023, at least 360,000 children are

expected to receive the vaccine. We have committed to

donating up to 10 million doses and are undertaking additional

post-approval pharmacovigilance, effectiveness and impact

studies. We are currently working with the WHO and PATH,

Gavi and other potential funders to ensure a sustainable supply

of the vaccine for a potential broad implementation beyond

the pilot.

Tafenoquine (Krintafel/Kozenis), our single dose radical cure

treatment for P. vivax malaria, developed in partnership with

Medicines for Malaria Venture, received regulatory approval

in malaria endemic countries Brazil, in 2019, and Thailand,

in early 2020.

Trust continued

External benchmarking

– DJSI: top of the pharmaceutical industry group for the 2019

Dow Jones Sustainability Index.

– ATMI: top of the Access to Medicine Index, and leading the

industry in the 2020 Antimicrobial Resistance Benchmark.

– FTSE4Good: member of the FTSE4Good Index since 2004.

– CDP: in 2019 received a score of ‘B’ in CDP Climate

Change and CDP Water, and named CDP Supplier

Engagement Leader.

Our approach to reporting

In this Trust section, we report progress against our 13

commitments. We also publish online detailed information on

our contribution to the SDGs, along with an ESG performance

summary with current and historical data, and our UN Global

Compact Communication on Progress, Global Reporting

Initiative index, Sustainability Accounting Standards Board

index and assurance statements.

GSK.com: Responsibility reports and data • Our contribution to the SDGs

GSK Annual Report 2019

HIV

Through ViiV Healthcare, we are committed to developing

and delivering HIV treatment formulations optimised speciﬁcally

for infants and children under the age of 15. This is driven by

the WHO-led Paediatric ARV Drug Optimisation priorities.

In 2019, we continued to progress our clinical development

programmes for paediatric formulations of dolutegravir,

in partnership with the International Maternal Paediatric

Adolescent AIDS Clinical Trials Network and the Paediatric

European Network for Treatment of AIDS.

In December 2019, we ﬁled FDA and EU regulatory

submissions, seeking approval of the ﬁrst-ever 5mg

dispersible-tablet formulation of dolutegravir, as well as

a simpliﬁed dosing regimen to optimise use of the existing

dolutegravir 50mg ﬁlm-coated tablet in paediatric HIV patients.

These submissions will be the gateway to regulatory

submissions in low- and middle-income countries, as well

as providing regulatory references for generic manufacturers

to register their paediatric formulations under voluntary

licensing agreements.

Through our public-private partnership with the Clinton

Health Access Initiative, Unitaid and two generic manufacturers

(Mylan and Macleods), we are expediting the development,

registration and market entry of generic formulations of

paediatric dolutegravir in resource-limited settings. The aim

of this project is to reduce the gap between our dispersible

tablet formulation being available and the generic dispersible

tablet formulations being available to children in developing

countries to months rather than years.

Other developing world diseases

We pursue the most promising scientiﬁc leads in other areas

beyond TB, malaria and HIV, both within GSK and through our

Tres Cantos Open Lab in Spain and GSK Vaccines Institute

for Global Health (GVGH) in Italy.

The Tres Cantos Open Lab furthers R&D for diseases in the

developing world by offering external researchers the potential

to access GSK’s compound library, screening tools and

scientiﬁc expertise. As well as supporting research into TB

and malaria, projects include neglected tropical diseases

such as Chagas disease, leishmaniasis and sleeping sickness.

The GVGH aims to discover effective and affordable vaccines

for high-burden infectious diseases in developing countries.

Around 40 scientists focus on translating laboratory concepts

into high-quality vaccines. Current areas of work include

shigella, invasive nontyphoidal salmonella, typhoid and

paratyphoid fever, and Group A streptococcus.

In February 2020, the Indian health regulatory authorities

approved a new vaccine to help protect children against

typhoid fever. This had ﬁrst been developed by the GVGH

and then transferred in 2013 to Indian vaccine company,

Biological E, once proof-of-concept had been demonstrated.

This is the ﬁrst licensing of a vaccine created in the GVGH’s

labs and successfully further developed and brought to market

through an effective partnership.

GSK.com: Inside the GVGH

Health security

We are using our vaccines, medicines and scientiﬁc know-how

to help the world better prepare for future disease outbreaks with

pandemic potential, and to tackle antimicrobial resistance (AMR).

Pandemic preparedness

GSK is committed to playing our part to prepare for, and

respond to, pandemics. We work with governments to support

their pandemic readiness plans, and we support the Pandemic

Inﬂuenza Preparedness Agreement adopted by WHO member

states in 2011. In the event of a declared pandemic, we will

provide the WHO with real-time access to our pandemic

inﬂuenza vaccines and antivirals for the world’s poorest

countries. These commitments are a combination of donations

and tiered prices depending on the country’s gross national

income (GNI). GSK supports the WHO’s pandemic

preparedness activities, including the Global Inﬂuenza

Surveillance and Response System – a worldwide network

able to rapidly identify and respond to inﬂuenza outbreaks

including those with pandemic potential.

In February 2020 GSK announced two new collaborations

to make our established pandemic vaccine adjuvant platform

technology available to enhance the global efforts to develop a

vaccine against the 2019 novel coronavirus (SARS-CoV-2). The

use of an adjuvant, which is added to some vaccines to enhance

the immune response, is of particular importance in a pandemic

situation since it can reduce the amount of antigen required per

dose, allowing more vaccine doses to be produced and made

available to more people. The ﬁrst collaboration announced is

with the Coalition for Epidemic Preparedness Innovations (CEPI)

and the University of Queensland, and the second collaboration

is with China-based Clover Biopharmaceuticals.

Addressing antimicrobial resistance

AMR is one of the biggest health challenges facing the world.

We are playing a leading role in the industry’s response and

GSK once again ranked ﬁrst in the Access to Medicine

Foundation’s 2020 AMR Benchmark for our 2019 performance.

Vaccines play a critical role in avoiding the need for antibiotics,

by preventing bacterial, viral and other infections. Our vaccines

against diseases such as diphtheria, meningitis, pneumonia

and pertussis have protected tens of millions of individuals from

bacterial infections, which are major drivers of direct antibiotic

prescribing.

In addition, our vaccines for non-bacterial infections, like

inﬂuenza, rotavirus and malaria, can also prevent unnecessary

or avoidable prescribing of antibiotics due to secondary

infections. We are committed to researching and developing

new vaccines to prevent and mitigate AMR infections and

reduce avoidable antibiotic use.

We are one of only a few pharmaceutical companies who

actively research and develop new antibiotics to treat resistant

infections. In our Pharmaceutical pipeline, gepotidacin is the

ﬁrst in a new chemical class of antibiotics with a mechanism

distinct from any currently approved antibiotic. This progressed

to phase III clinical research in October 2019 and is being

studied to treat patients with uncomplicated urinary tract

infection and urogenital gonorrhoea, many of whom contract

strains resistant to existing treatments.

Trust continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

However, R&D for many other types of bacterial infections is

not economically sustainable under current market conditions.

Governments recognise the need for ﬁnancial support.

We have partnered with the US Government’s Biomedical

Advanced Research and Development Authority and the

Defense Threat Reduction Agency. We also support public-

private partnerships that aim to speed up the discovery and

development of new medicines to treat or prevent resistant

bacterial infections through collaboration and capability

building.

Through our Survey of Antibiotic Resistance (SOAR)

programme, we analyse antibiotic resistance at a local level.

We share our ﬁndings with healthcare professionals (HCPs)

and public health bodies to inform the development of local

antibiotic prescribing guidelines. We are one of the few

companies sharing our AMR surveillance data publicly, through

the open data platform run by the Wellcome Trust and Open

Data Institute. In addition, in 2019 we trained 32,841 HCPs

across 65 countries on the appropriate use of antibiotics.

In 2019, we started to implement the new global limits for

reducing antibiotic discharge from manufacturing into the

environment across our own antibiotic factories and suppliers.

We are on track to meet these new global limits by the end

of 2021. For more on how we address pharmaceuticals

in the environment see the Environment section on page 41.

GSK.com: Preparing for future disease threats

Affordability and availability

We are making our products affordable and available to more

people around the world through responsible pricing, and

strategic access programmes and partnerships.

Pricing

We aim to improve the health of millions of people each year

by making our products available at responsible prices that

are sustainable for our business.

We recognise that pricing of pharmaceutical medicines and

vaccines is an important issue in both developed and developing

countries, and we understand patient and payer concerns

about affordability. When setting the price of our medicines

in developed markets, we apply a value-based approach to

balance reward for innovation with access and affordability.

We aim to bring truly differentiated, innovative products that

bring highly-effective health outcomes for patients and payers,

so that even those products with a high cost will bring value

to patients and healthcare systems. By investing in genetics,

genomics, big data and AI we are accelerating the pace at

which we develop transformational medicines, prioritising those

molecules with a higher probability of success – we know that

genetically-validated drug candidates are twice as likely to

become registered medicines, improving the productivity

of our R&D investment.

We price our medicines according to the value and outcomes

they bring to patients, providers and payers, while being

sensitive to market and societal expectations.

In the US, the pricing of all our product launches – including our

most recent launches of Dovato, Nucala Autoinjector, Trelegy

Ellipta, Shingrix and Juluca – incorporate speciﬁc market

dynamics unique to the product, as well as the proﬁle of the new

medicine or vaccine in the context of existing treatment options.

Over the last ﬁve years, the average net price

for our products

in the US has fallen by 4% per year while the average list price

rose by 6.4% per year. In 2019, the average net price across our

US portfolio decreased by around 5% while the average list

price rose by 2.5%. At the product level, the largest single

increase in list price taken was 5% and that resulted in

a 4.2% increase in net price. We offer various types of patient

assistance to help ensure appropriate access to our medicines.

In 2019, we provided prescribed medicines and vaccines

to over 123,000 eligible uninsured patients through our

Patient Assistance Programme.

In Europe, we engage with governments and payers to work

towards sustainable health systems that support ongoing

innovation. For example, the pricing of Trelegy Ellipta reﬂects

economic value by demonstrating cost-effectiveness and

innovation within an acceptable budget, and offering a potential

cost-saving compared with alternatives.

In developing countries, we use innovative pricing structures

as part of our access strategies to extend product reach

(see pages 33 to 34). Our tiered pricing model for vaccines, for

example, is based on four widely recognised World Bank GNI

country classiﬁcations of high income, upper middle income,

lower middle income and low income. Price ceilings and price

ﬂoors exist for each tier, with ceilings and ﬂoors progressively

decreasing through the tiers from high to low income countries.

In least developed and low-income countries, we do not ﬁle

patents for our medicines, and do not enforce historic patents.

This allows generic companies to manufacture and supply

generic versions of GSK medicines in those countries.

GSK.com: Pricing and access strategies

Product reach

We aim to use access strategies to reach 800 million

underserved people in developing countries with our products

by 2025. These strategies include tiered pricing, product

donations and voluntary licensing agreements to extend access

through generic manufacturers. Since we set the target in 2018,

our products have reached over 192 million people through

these access strategies.

Our tiered pricing principles mean that we reserve our lowest

vaccines prices for organisations such as Gavi, the Vaccine

Alliance, which supports countries with a GNI per head of less

than $1,630. For example, our Rotarix vaccine is available in

39 Gavi countries to protect against rotavirus.

Trust continued

1 Price aer discounts, rebates or other allowances.

2 Total excludes reach through albendazole donations which

will be assessed in 2025.

GSK Annual Report 2019

In 2019, we provided our pneumococcal vaccine, Synﬂorix, to

10 Gavi-eligible countries at a discounted price, reaching over

20 million people.

We are committed to delivering 720 million

doses of Synﬂorix to Gavi via the current Advanced Market

Commitments contract.

In 2019, we distributed around 120,000 doses of our vaccine

Cervarix in Zimbabwe in support of its multi-age cohort

vaccination programme protecting around 54,000 girls against

human papillomavirus.

We also delivered over 200 million

doses of oral polio vaccine to UNICEF in support of the Global

Polio Eradication Initiative, reaching over 40 million children.

We continue to innovate to help improve access to vaccines

in low-resource settings, and in 2020, we introduced the

new multi-monodose blow-ﬁll seal presentation of our vaccine

against rotavirus. This was introduced for the ﬁrst time, in

Myanmar, with the support of Gavi. This new presentation

helps reduce cold chain volume by 30%, resulting in lower

cold chain and transportation costs.

In July 2019, ViiV Healthcare marked the ﬁfth anniversary

of its voluntary licensing agreements with the Medicines Patent

Pool and Aurobindo Pharma. These agreements currently allow

18 generic manufacturers to produce and sell low cost single

or ﬁxed dose combination products containing dolutegravir for

adults and children in countries with the highest burden of HIV.

This totals 94 and 121 countries for the adult and paediatric

agreements respectively, in addition to any country where

there is no granted patent in force. By the end of 2019, at

least 6.9 million people living with HIV, across 85 countries

in the developing world, had access to a generic dolutegravir-

containing product, made possible because of these licensing

agreements.

In 2019, ViiV Healthcare continued to donate several

antiretroviral medicines to Venezuela, a country facing a

profound shortage of basic medicines. We were the ﬁrst

pharmaceutical company to donate antiretrovirals to the

people living with HIV in this humanitarian crisis. Since February

2018 we have donated over 275,000 packs of antiretrovirals.

GSK has also donated over 360,000 vaccines to Colombia

to protect Venezuelan migrants in transit or residing in the

national territory against rotavirus, pneumococcus, diphtheria,

pertussis and tetanus.

Since 1999, we have donated over 9 billion albendazole tablets

to the WHO – including 890 million in 2019 – to support efforts

to end lymphatic ﬁlariasis (LF) and control intestinal worms

(soil transmitted helminths) in school-age children. This has

beneﬁted patients in 92 countries around the world. GSK

remains committed to continuing to donate albendazole tablets

until LF is eliminated as a public health problem globally.

Through our partnerships with Americares, Direct Relief,

IHP UK and MAP International, nearly 178,000 units of GSK

medicines were distributed for humanitarian and emergency

response in 51 countries.

GSK.com: Pricing and access strategies

Healthcare access

We aim to partner to improve disease prevention, awareness

and access to healthcare services for 12 million people by 2025.

Since we set the target in 2018 we have reached nearly 8 million

people through these partnerships.

Since 2010, ViiV Healthcare has invested over £60 million into

more than 750 Positive Action grants to address HIV stigma

and support HIV education and prevention. In 2019 alone, our

Positive Action for Children programme directly reached almost

640,000 people. We are committed to supporting partnerships

to end AIDS and further ViiV Healthcare’s mission of leaving no

person living with HIV behind.

We are partnering with Comic Relief to complement our

efforts to combat malaria through R&D (see page 31). We have

25 projects in Africa and South East Asia which aim to improve

malaria awareness and prevention efforts, and get treatment

to the people who need it. Together, through partnerships with

local and international organisations, we reached more than

1.1 million people in 2019, including health workers, private

providers, and vulnerable populations such as pregnant

women and children under ﬁve.

In 2019, through our partnerships with Amref Health Africa,

CARE International and Save the Children, we helped to train

over 18,000 frontline health workers, and approximately two

million people were directly reached with a health worker,

healthcare service or health facility.

Our partnership with Save the Children aims to help reduce

child mortality. In 2019, the partnership reached approximately

114,000 children under ﬁve (almost 3 million children since

2013) with interventions including: widening immunisation

coverage, accelerating access treatments and strengthening

healthcare systems. In 2019, we also launched a new

programme in Nigeria focused on preventing infectious

disease in children.

In 2019, 3,500 children received free, life-changing surgery

and comprehensive cleft care through our partnership with

Smile Train. Together with the World Dental Federation and

Smile Train, we have launched a new two-year project to

improve oral health guidance and ongoing care for children

with clefts. In India, we also funded the Smile Train Toll-Free

Cleft help-line, which provides people with information about

cleft treatment and support.

Trust continued

1 People reached/protected is calculated by dividing the total number

of doses supplied to Gavi or UNICEF by the number of doses needed

to complete a full schedule of vaccination allowing for WHO estimates

of wastage.

2 Health worker data is estimated based on 2018 reach through the same

partner programmes and level of funding. Final 2019 data is expected

to be available in April 2020.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Our Allied Against Dengue campaign in India and South

East Asia was created to bring together key stakeholders

and partners to prevent and treat outbreaks of dengue fever,

a potentially fatal mosquito-borne disease. In 2019, we

trained over 3,700 healthcare workers and reached over

147,000 people through a range of programmes to mobilise

communities and promote behaviour change.

Our global contribution to community health programmes

amounted to £263 million

in 2019. This includes cash, product

donations and the volunteering time of our employees to help

improve healthcare access.

GSK.com: Prevention, awareness and infrastructure

ViiVHealthcare.com: Positive Action programmes

Modern employer

As a modern employer, we believe that a strong employee

experience is critical to attract, retain and motivate the

best people to support our business now and in the future.

We launched our modern employer ambition in 2018, focusing

on inclusion and diversity, health and wellbeing and employee

development. The aim is to ensure our people are empowered

to be themselves, feel good and keep growing at GSK.

Engaged people

Employee engagement is an important barometer to gauge how

our people feel about working at GSK. We aim to achieve and

maintain a competitive employee engagement score by 2022.

We survey our employees to get feedback about how we

are doing on our long-term priorities and culture change.

In 2019, we had a good response rate for both surveys

(81% in April and 78% in September) and we achieved

our highest engagement score in ten years in April (80%),

and maintained a strong score in September (78%).

We continue to drive engagement through Let’s Talk sessions

with our executive teams and Workplace – our collaborative

online platform. This enables two-way informal communication

and collaboration, discussing topics that matter to both

employees and GSK, sharing knowledge and perspectives

to support greater understanding and faster, more effective

decision-making across the organisation. In any given month,

71% of our employees are actively connecting to the platform

to get their work done and 77% are reading content from the

company and business unit groups.

Inclusion and diversity

We believe strongly in inclusion and diversity. Not only is it the

right way to do business, but it also leads to business success,

unleashing the enormous potential of the differing knowledge,

experiences and styles of our people, enhancing our ability to

respond to the differing needs of our patients and consumers.

Our employees should be able to bring their authentic selves

to work. We were encouraged by the results of our employee

survey in September 2019, which included the question

‘I can be my authentic self when working at GSK’ which

received a favourable score of 76%, and 81% said that

they feel respected at work.

At GSK, we have four diversity councils (covering gender,

ethnicity, LGBT+ and disability), each chaired by an executive

team member. The councils support our inclusion and diversity

agenda, with input from our employee resource groups.

We are committed to improving ethnic representation at

all levels in GSK, and work with our new ethnicity council

to remove barriers, increase understanding and ensure

equal opportunities.

Our goal is to be recognised in global LGBT+ indices and

in 2019 LGBT+ rights group, Stonewall, recognised GSK

in its Top Global Employers list. In the UK, Stonewall also

named our employee resource group for LGBT+ employees

and allies as the best in the UK. In the US, GSK was named

Best Place to Work for LGBT equality for the fourth consecutive

year in Human Rights Campaign’s Corporate Equality Index.

In addition, we are signatories to the UK Department for

International Development’s Charter for Change, joining other

organisations with a common aim to ensure rights, freedoms,

dignity and inclusion for people with disabilities.

Gender diversity

Our goal is that by 2022 we will have over 37% female

representation in senior roles.

The percentage of women in management has continued

to rise at GSK. In 2019, women represented 47% of all

management roles (45% in 2018), and 36% of senior

management roles – VP and above – up from 33% in 2018.

The latest Hampton-Alexander Review of FTSE 100 companies

found that GSK had the third highest proportion of women on

the Board (an increase from sixth in 2018) with 45.5% female

representation. It also found that we had exceeded the target

of 33% women on the Board and in the direct reports to the

Corporate Executive Team.

GSK is one of 12 prominent healthcare and life science

companies to join the Healthcare Businesswomen’s Association

Gender Parity Collaborative in the US. This was launched in

2018 to foster measurable gender parity progress in the industry.

We are improving gender balance by encouraging and

supporting more women to develop as leaders. In 2019, we

provided 130 high-performing female managers with coaching

and support through our Accelerating Difference programme.

We also recruit and support women early in their careers, with

women representing 38% of our apprentices and 58% of our

graduates in 2019. As a result of our efforts to develop our

female employees during the year, three women from GSK were

included in the Women’s Engineering Society Top 50 Women

in Engineering: current and former apprentices, and GSK

India was named by Avtar as among the best companies

for women to work for.

Trust continued

1 Figure includes contributions from the Tesaro portfolio.

GSK Annual Report 2019

We have a long-standing commitment to fair and equal pay.

We conduct country-based reviews and ensure all markets

have clear guidance, tools and support to ensure pay equity.

If unexplainable differences are detected, these are addressed

through our compensation processes.

We published our third UK gender pay gap report for 2019. Our

gender pay gap for all permanent UK-based GSK employees is

2.43% (mean), outperforming the national average of 16.2%. We

remain committed to improving gender balanced representation

and the application of fair and equitable pay practices to ensure

equal opportunities and equal pay for equal work.

Women in management (%)

2019 2018 2017 2016

SVP/VP

36 33 31 30

Director

44 43 43 42

Manager

49 48 47 46

All employees

47 45 44 43

Employees by gender (number)

Male Female Total

Board

6 5 11

Management*

9,861 8,619 18,480

All employees

54,690 44,747 99,437

* Management: senior managers as deﬁned in the Companies Act 2006

(Strategic Report and Directors’ Report) Regulations 2013 which includes

persons responsible for planning, directing or controlling the activities

of the company, or a strategically signiﬁcant part of the company, other

than the Board, including directors, or undertakings included in the

consolidated accounts.

Health, wellbeing and development

We aim to be a leading company in supporting employee health,

wellbeing and development.

Health and wellbeing

Our global, comprehensive preventive healthcare package for

our employees – and their eligible dependants – includes up

to 40 preventative healthcare services at little or no extra cost

to participants. We provide programmes to help our people

take control of their health, manage their energy levels and

adopt healthier behaviours.

In 2019, more than 15,000 employees took part in our

energy and resilience programmes. We also expanded our

personalised digital health platform from the original 5,000

employees in Belgium, to over 10,000 employees in Singapore,

Mexico, Spain, France, Switzerland, Australia and New Zealand.

We understand how important it is that employees have

ﬂexibility to manage their lives, so everyone can thrive and

do great things at work and home. Our largest markets have

formal ﬂexible working and carer policies and all our markets

are reviewing their competitiveness in this area. Our aim

is to differentiate ourselves. For example, in 2019 the US

implemented care of family member paid leave, which is

above industry standards in the US.

For the fourth year in a row, GSK increased participation

levels in the Virgin Pulse Global Challenge with over 17,000

participants across 67 countries. We were once again named

the Most Active Organisation, with our people collectively

taking more than 20 billion steps.

We consider mental wellbeing to be just as important as

physical wellbeing and raised awareness of this issue on

World Mental Health Day, encouraging people to seek

support through our 24-hour, conﬁdential Employee Assistance

Programme and other resources. We have also launched

‘Mental Health Matters’ training for line managers. This is

helping them to increase their awareness, skills and knowledge,

so they can better support their teams.

Preventing injuries and illnesses at work is also fundamental

to our people’s health and wellbeing. Approximately 20,000

employees drive on company sales business and in 2019,

unfortunately one of our commercial salesforce died in a motor

vehicle accident in Kenya. To try to prevent these sorts of tragic

accidents from happening, we run a driver safety programme

to help employees protect themselves and their families,

combining online learning with practical road safety activities.

In 2019, roughly 19,000 drivers across 65 countries were

trained on driver safety. Our reportable injury and illness rate

continued to decline from 0.23 per 100,000 hours worked

in 2018, to 0.22 in 2019. This remains comparable with

other leading companies in our sector.

Employee development

We want our people to keep growing at every stage of their

working lives.

We expect all of our employees to have a development plan

agreed with their manager. To support our employees to take

ownership of their development, all employees have access

to a new development portal with resources that are most

relevant to their roles, development needs and interests.

In addition, GSK continues to meet its commitment as a

member of the 5% Club, a group of UK companies committed

to hiring young people in development programmes into at

least 5% of UK roles. We currently have 799 people on

our graduate and MBA programmes globally and 398 in

apprenticeships in UK, US, Canada, Ireland, Singapore

and Belgium.

We have a strong focus on improving the effectiveness of our

people managers. One80 is part of our performance system

and is critical to holding managers accountable for how they

manage the performance and development of their team.

Employees provide feedback on their manager through

14 questions which measure leadership effectiveness in

three key areas: knowing their people, delivering results and

maximising potential. In 2019, 9,000 managers participated

in One80 and more than 60,000 employees provided

feedback to their manager.

We also introduced a new leadership development programme

for ﬁrst-line leaders. This training consists of ﬁve virtual modules,

with a strong emphasis on conversations that matter, developing

for performance, and leading high performing teams. The

programme was piloted in 2019 with 845 leader participants.

The programme will be rolled out across GSK in 2020 in

support of continued leadership development.

GSK.com: Employee engagement • Learning and development

Trust continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Reliable supply

Ensuring a high-quality, safe and reliable supply of our products

for patients and consumers is a priority for all three of our

businesses (see pages 22, 26 and 29). Product shortages can

happen for a variety of reasons, including supply disruptions

and unexpected demand.

Our robust quality management systems support continuous

improvement, helping us to maintain high standards for product

quality and safety and comply with relevant regulations,

including those on Good Manufacturing Practice, Good

Laboratory Practice, Good Pharmacovigilance Practice

and Good Clinical Practice. Of the 196 external regulatory

inspections at our Pharmaceutical, Vaccines and Consumer

Healthcare manufacturing sites and local operating companies

in 2019, most found no issues or resulted in only minor

observations. We address every issue, however minor,

and regulatory authorities have accepted our proposed

plans for corrective actions.

In late summer 2019, GSK was contacted by regulatory

authorities regarding the detection of NDMA, a potential

human carcinogen, in Zantac (ranitidine) products. Based

on information received and correspondence with regulatory

authorities, GSK made the decision in mid-September to

initiate a voluntary recall (pharmacy/retail level recall) of Zantac

products in all markets as a precautionary action. Since then,

a number of recalls have been initiated by API suppliers, as well

as other pharmaceutical companies who hold market authority

in various countries, including the US. GSK discontinued

making and selling prescription Zantac tablets in 2017 and

discontinued making and selling over-the-counter Zantac

in 1998 in the US. Several regulatory authorities have reviewed

the ﬁndings and/or are conducting their own tests including

the FDA. We are continuing to work with them.

In 2019, we conducted 1,542 audits of our suppliers’ quality

processes and 225 audits of clinical studies run by, or on behalf

of GSK, to assess their quality and safety. Where we identify

areas that require improvement, we engage with the relevant third

parties to develop improvement plans and track their progress.

If signiﬁcant issues are identiﬁed and remain unresolved, we

may choose to suspend or terminate work with a third party.

Detecting, assessing, understanding and preventing adverse

effects or any other drug-related problem (pharmacovigilance)

is important in evaluating the safety of pharmaceutical products.

We work with the WHO and other partners to enhance systems

for reporting these. Through external collaborations such as

TransCelerate, the European Federation of Pharmaceutical

Industries and Associations and the Innovative Medicines

Initiative, we are working with others to promote harmonised

approaches and procedures for the clinical development and

safety evaluation of drugs, and to implement key regulations.

Counterfeit products present a risk to patient safety. We support

efforts to prevent the manufacture and distribution of counterfeit

GSK products by working closely with government bodies,

international organisations (such as the World Customs

Organization and the WHO), customs authorities and industry

associations. We also conduct our own investigations and work

with enforcement agencies to tackle counterfeit GSK products.

GSK is implementing serialisation to drive traceability across

the supply chain. Through increased supply chain visibility and

increased communications with government systems, we are

helping both to raise the visibility of our products to prevent theft,

counterfeiting and stock diversion, and also to allow our systems

to authenticate product at the point of dispense.

GSK.com: Patient safety and reliable supply

Ethics and values

We are committed to creating an ethical, values-driven culture,

in which any issues are responded to swiftly and transparently.

We expect everyone at GSK to live our values and expectations,

speak up if they have any concerns, engage appropriately with

stakeholders and respect human rights. We also extend these

ethical expectations to the third parties with whom we work.

Living our values and expectations

Together, our values (patient focus, integrity, respect and

transparency) and expectations (courage, accountability,

development and teamwork) help us to create the culture we

want. In our 2019 employee survey, 86% of employees agreed

that their work environment encouraged ethical behaviour even

in the face of pressures to meet business objectives.

Every GSK employee and complementary worker is required

to complete the Living Our Values and Expectations mandatory

training annually. In 2019, 98.5% of our employees and 92.4%

of our complementary workers completed the training,

covering content including our Code of Conduct, human

safety information reporting and reporting misconduct.

Employees who fail to complete the course may face

disciplinary action, as deﬁned and permitted by local

labour laws.

Throughout 2019, we assessed 17 different parts of the

business against a values maturity matrix to understand

how well our values and expectations are embedded.

Additionally, individual areas of the business have been

using the insights from those assessments to inform plans

that further integrate our values into ways of working at GSK.

Trust continued

GSK Annual Report 2019

Examples include increasing opportunities for engagement

with leadership teams to improve trust, and strengthening

our people managers’ capability to lead employees through

times of change while delivering at pace.

Our mandatory anti-bribery and corruption (ABAC) training

is more tailored, consisting of two modules – one for high-risk

employees and one for everyone else. Both modules focus

on principles to help employees deepen their understanding

of where ABAC risks may lie, recognising conﬂicts of interest,

and how to report and mitigate any risks or conﬂicts. As of

December 2019, 97% of employees and 90% of contract

workers completed ABAC training.

GSK.com: Ethics and values

Reporting and investigating concerns

We encourage people to speak up if they have any concerns

relating to unethical conduct or behaviour that is inconsistent

with our values – or if they simply want to ask a question about

how to apply our Code of Conduct.

Anyone inside or outside GSK can raise concerns or speak

to an independent third party through our integrity lines,

conﬁdentially or anonymously, without fear of retaliation.

We take every reported concern very seriously and review

each one to understand whether a formal investigation is

warranted. If our investigations show that an employee has

breached our policies, we take appropriate disciplinary action.

In 2019, 2,423 employees were accused of misconduct

(2,842 in 2018). We reviewed all of these cases, and initiated

1,891 formal investigations (1,805 in 2018) with most relating

to behaviour in the workplace. As a result, 798 employees were

disciplined for policy violations (940 in 2018), of whom 202

were dismissed or voluntarily left the organisation (115 in 2018)

and 596 received a documented warning (656 in 2018). In other

instances, action short of a documented warning was taken.

Employees disciplined in 2019: breakdown of types

of policy violation (%)

Policy area 2019 2018

Behaviour in the workplace

35% 17%

Mandatory training completion

18% 29%

Good manufacturing and distribution practices

17% 10%

Marketing and promotional activities

8% 8%

Expenses

5% 3%

Other*

17% 33%

* Representative of remaining policy violation types.

Increased focus on completing mandatory training and

improved classiﬁcation of concerns altered the distribution

of policy violations when compared to 2018.

Political engagement

Everyone working for, or on behalf of, GSK must follow our

Code of Conduct in their interactions with political stakeholders.

Additionally, our selection process for public policy groups

includes criteria to ensure those groups share our values.

We spent $4.4 million on federal lobbying activities in the

US in 2019, which are registered on the US Federal Lobbying

Washington DC, and the cost of travel and consulting. The cost

of representing our interests to EU institutions, published on the

EU Transparency Register, was €1.64 million.

We also publish

a list of our memberships in trade associations that may lobby

indirectly on our behalf.

GSK does not make corporate political contributions. Our

US employees may support individual candidates or political

groups ﬁnancially through a Political Action Committee, which

contributed $265,185 to state and federal candidates in 2019.

A breakdown of this spend is available online.

GSK.com: Public policy and patient advocacy • Trade association

membership list • Criteria for working with Public Policy Groups

Human rights

GSK is committed to upholding the Universal Declaration of

Human Rights and the core standards set out by the International

Labour Organization. We strive to ensure that respect for human

rights is embedded and integrated across our global business

and conduct regular assessments, informed by external experts,

of the human rights impacts associated with our activities.

Building on the ﬁndings of our 2018 corporate-level human

rights assessment, over the past year we have focused on

strengthening our approach to managing labour rights risks

in the supply chain. We carried out an initial review of labour

rights risks associated with our sourcing activities and, with

the support of fair labour NGO Verité, are now building on

this work to identify parts of our supply chain that represent

the greatest potential for modern slavery risks. We also updated

our third-party labour rights standards to include the expectation

that recruitment costs should be borne by the employer and

that no worker should pay for a job (a practice that can lead to

forced labour).

Progress in each of our other priority human rights areas

(access to healthcare, research practices, patient safety,

environment, health and safety, and privacy) is outlined

in the relevant sections of this report.

GSK.com: Human rights • Modern Slavery Act statement

Trust continued

1 These are the latest available ﬁgures, 2019 ﬁgures are expected to be

available in April 2020 for submission to the EU’s Transparency Register.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Working with third parties

Our Third-Party Oversight programme strengthens our supply

chain risk management by driving improvements in our global

network of third parties. This includes suppliers, distributors

and other organisations with which there is a transfer of value.

We want to ensure that the third parties we work with share our

values and ethical and business standards. Our third-party risk

assessment and mitigation programme has been embedded

globally and continues to be further simpliﬁed and reﬁned to

make it easier to engage third parties appropriately.

During 2019, over 14,000 risk assessments were completed,

and more than 800 third parties identiﬁed as high risk have

undergone detailed independent assessments by EcoVadis.

During 2019, we continued to work with our third-party

suppliers to reduce Environment, Health and Safety (EHS)

risks and conducted over 40 audits on EHS and ethics.

We also expanded our third-party EHS team to include

dedicated EHS professionals within the team based in

the countries where our priority suppliers are located.

Priority suppliers are those with whom we have signiﬁcant spend,

that support signiﬁcant revenue and/or are medically or R&D

critical to the business. This has enabled us to provide more

proactive support through engagement visits designed to build

capability in areas of improvement identiﬁed through EcoVadis

assessments or audits.

Our Buying Goods & Services transformation programme is

also delivering improved guidance, integration and compliance

for internal GSK users and our third parties. The programme

includes a new sourcing platform, launched in 2019, making

it easier for our suppliers to engage with us.

GSK.com: Ethics and values

Data and engagement

Data is becoming increasingly central to our business and the

healthcare industry more broadly. Our digital, data and analytics

strategy harnesses the power of data and technology to

strengthen our business and make a real difference to patients

around the world. We believe this will help our scientists

develop innovative medicines more quickly, and with higher

probability of success than ever before. It will enhance clinical

studies and improve interaction with healthcare providers,

customers and consumers.

Using data responsibly and transparently

With the privilege of using individuals’ personal information

comes the responsibility of treating this data ethically. We are

committed to using data responsibly and transparently, and

engaging with patients and healthcare providers to help meet

patient needs. This includes managing data carefully, sharing

the results of our clinical studies, integrating patient insights

into our product development, and providing healthcare

professionals with relevant and accurate information when

they need it.

Data privacy

We recognise that people are increasingly concerned about

the protection and appropriate use of personal information,

particularly when this is related to health. New regulations

around the world have also increased requirements on how

companies use personal information. Loss or inappropriate

use of personal information could have a serious impact,

both for individuals affected and for businesses, and we

take our responsibility for data privacy seriously.

We have developed a comprehensive approach to privacy,

including training that drives an understanding that everyone

at GSK is personally responsible for the correct handling

of personal information. We apply a set of privacy principles

to ensure that our use of personal information is kept to

the minimum necessary and is fair, transparent, accurate

and secure.

In 2019, we combined our privacy training with the mandatory

Code of Conduct training. Approximately 32,000 individuals

completed our Privacy Foundation training, which includes

new hires, contingent workers, and those returning from leave

of absence. This explains our privacy principles to help them

understand how to apply them in their daily work. It also raises

awareness of why privacy matters for all those who handle

personal data.

Personnel who handle personal information in R&D and HR

globally have received tailored privacy training to understand

their obligations under the Binding Corporate Rules, which

enable the internal transfer of EU HR and R&D data across

all GSK afﬁliates. Throughout 2019, people in key roles across

the organisation continued to undergo certiﬁcation from the

International Association of Privacy Professionals (IAPP) to

increase expertise and enable us to make informed decisions

about handling personal data. The number of people with

this certiﬁcation at GSK has increased from 47 in 2018

to 66 in 2019.

Trust continued

GSK Annual Report 2019

The protection of individuals’ data and privacy is a high priority

in our exclusive collaboration with 23andMe. This collaboration

combines 23andMe’s genetic expertise and advanced data

science skills with GSK’s extensive scientiﬁc capabilities and

scale, to enhance the discovery and development of entirely

new medicines and potential cures. 23andMe customers

can choose to participate in research and contribute their

information to the unique and dynamic database for the purpose

of advancing scientiﬁc research. Participation is voluntary and

customers are required to consent afﬁrmatively to their data

being used for research. Should they choose to participate,

their information is aggregated so no individual will be

identiﬁable to GSK.

Clinical trial transparency

As part of our long-standing commitment to data transparency

for our clinical studies, we have published 2,605 clinical study

reports (108 in 2019) and 6,106 summaries of results (123 in

2019) – both positive and negative – from our studies on our

clinical study register.

We also share anonymised patient-level data from our studies

with external researchers. We have listed 2,477 studies for data

sharing via www.vivli.org and www.clinicalstudydatarequest.com.

We launched this six years ago to facilitate innovative data-driven

research, and it is now used by multiple other study sponsors

and funders. External researchers are granted data access

based on a review of the scientiﬁc merit of their research

proposal by an independent panel. Access to GSK study

data has been approved for 157 proposals since 2013.

GSK.com and online: GSK Privacy Notice • GSK Clinical Study Register

Patient and scientiﬁc engagement

To improve the delivery of ground-breaking new therapies,

we are strengthening our focus on patients’ needs by seeking

their insights across the business. We continue to support

several initiatives that are empowering patients to get more

involved in the development of medicines through training,

tools and dialogue – such as the European Patients’ Academy

on Therapeutic Innovation (EUPATI).

In 2019, we held Patient Advocacy Leaders Summits in

Portugal, Japan and Switzerland. Representatives of patient

organisations also provide insights through our European

Health Advisory Board and our Respiratory Health Board.

We now have new patient panels covering hepatitis, chronic

kidney disease and rheumatoid arthritis, as well as an

Oncology Patient Council.

To improve engagement with patients involved in our clinical

studies, we have developed patient engagement plans for key

assets and set up a dedicated patient panel as a key part of our

internal governance process. This allows patients to input into

the development of our research protocols, to improve patient

experience during the study, and we keep them informed about

the results after the study is completed.

We ensure the inclusion of diverse populations in our clinical

studies so the data we generate represents as many people

as possible. By including individuals of different demographics

by age (elderly/frail and paediatric groups), sex, ethnicity and

race, we can capture potential variability in the responses

to our medicines and vaccines. This helps us to characterise

a more robust beneﬁt-risk proﬁle, generate greater insight for

the prescribing information and ensure the right patient gets

the right medicine – this is particularly important as we move

towards precision medicine.

In 2019, we made changes to our in-house trials to improve

the diversity of participants, including ensuring teams develop

plans on target populations (based on sex, age, race or

ethnicity) that need to be targeted for recruitment at each stage

of the lifecycle of the molecule. We also asked our third-party

preferred vendors to provide a plan for how they will deliver

improved recruitment and retention of diverse populations

for our full-service outsourced trials.

Through our engagement with healthcare professionals (HCPs),

we aim to provide information on our products in the way that

best suits them. For a limited time after we have new medicines

or signiﬁcant new data, we allow payment to experts to speak

about the scientiﬁc evidence, the diseases they treat and their

own clinical experience. We disclose annually the individual

level of payments to HCPs when legally permitted, or otherwise

on an aggregate basis.

In 2019, we also updated our salesforce incentives policy as

our portfolio has evolved, with a growing shift towards innovative

specialty care medicines. This is an area requiring high levels

of expertise to deliver information to specialised HCPs, and

one where there is strong competition for talent. See page 22

for further details of this policy change.

GSK.com: Operating responsibly

Trust continued

1 New methodology introduced for 2019.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Environment

We are committed to reducing our environmental impact

by one quarter by 2030, cutting greenhouse gas emissions,

reducing water impact and redirecting waste to beneﬁcial use.

This commitment is underpinned by ﬁve environmental

commitments for 2030 (set against a 2016 baseline) to:

– reduce operational carbon emissions (Scope 1 and 2)

by 20%;

– reduce value chain carbon emissions (Scope 3) by 25%

per £billion revenue;

– source 60% of electricity from renewable sources,

with an interim target of 30% by 2020;

– reduce total water use at each high-risk site by 30%;

– ensure all waste is repurposed to beneﬁcial uses.

Carbon

We are committed to playing our part to address climate

change. Our overall value chain carbon footprint is made up

of Scope 1 and 2 emissions from our own operations (8%)

and Scope 3 emissions from our supplier base (48%),

logistics (4%) and the use of our products (40%) – mostly

metered dose inhalers.

We are accredited by the Science Based Targets initiative

for a set of Scope 1, 2 and 3 targets, in line with a level of

decarbonisation required to keep the global temperature

increase to 2°C. We made good progress against these

commitments in 2019.

In 2019, we lowered our Scope 1 and 2 emissions

by 4%

through continued deployment of energy efﬁciency programmes

across our operating sites. Globally, around 5% of our electricity

came from renewable sources. We plan to expand this and by

2020, through a combination of green certiﬁcates and on-site

renewable generation, over 30% of our global electricity needs

will be decarbonised across the UK, US and Europe.

In 2018 (our latest available data)

, absolute Scope 3 emissions

decreased by 10% vs 2017 and by 4% per £1 billion revenue,

mainly from reduced emissions associated with raw materials.

This represents a reduction of 17% per £1 billion revenue

since our 2016 baseline year. We recognise achievements

by our suppliers to reduce their environmental impacts through

our annual Supplier Environmental Sustainability Awards.

In 2019, the winners were a supplier that encourages

excellence in agricultural practices in India, and a UK energy

provider that creates clean energy and is inspiring the next

generation of scientists and engineers to be innovative in

tackling climate change.

Carbon emissions

plus intensity ratios (as per regulations)

‘000 tonnes CO

e 2019 2018 2017

Scope 1 emissions

800 825 892

Scope 2 emissions

523 549 607

Scope 3 emissions

Available in

2020 report

16,335 18,152

Intensity ratios 2019 2018 2017

Scope 1 and 2 emissions/

sales revenue (tonnes

e/£m)

39.2 44.6 49.6

Scope 1 and 2 emissions/

FTE (tonnes CO

e/FTE)

13.3 14.4 15.2

Scope 3 emissions/£bn

revenue (million tonnes

e/£bn revenue)

Available in

2020 report

0.53 0.6

Emissions from the use of our inhaler products fell by 6%

in 2019 mainly from a reduction in the amount of Ventolin

produced. Our new portfolio of inhaled medicines is delivered

via the Ellipta dry powder inhaler (DPI), which has a lifecycle

carbon footprint around 24 times lower than a propellant-based

inhaler.

We support efforts to promote low carbon inhalers where

possible. In the UK, for example, the NHS has adopted a

commitment to increase DPI prescribing in its Long-Term Plan,

and in 2019 GSK ran a public information campaign on the

different footprint of inhalers (www.lowcarboninhalers.co.uk),

encouraging patients to discuss inhaler options with their

healthcare professional. GSK is also supporting similar low

carbon inhaler initiatives in Belgium and Sweden.

We benchmark our performance externally, and in 2019

we scored B in CDP Climate.

Climate resilience

In 2019, we carried out scenario analyses for ﬁve products

and their supply chains against the Task Force on Climate-

related Financial Disclosures (TCFD) framework guidelines.

We used a business as usual scenario and a low carbon

scenario to identify potential areas of risk and opportunity

that climate change presents to our business (see page 46).

Trust continued

1 All reductions are against our existing portfolio, excluding the Pﬁzer sites

that joined in August.

2 2019 ﬁgures are expected to be available in 2020.

3 Carbon emissions are calculated according to the Greenhouse Gas

Protocol: A Corporate Accounting and Reporting Standard (revised edition).

4 2017 and 2018 ﬁgures for scope 2 emissions from electricity restated

based on the updated IEA emission factors published in 2018.

5 For one year's treatment, use of propellant-based inhalers results

in a carbon footprint of 228kg CO

e compared with 9.6kg CO

e from

using Ellipta dry powder inhalers.

GSK Annual Report 2019

Water

Our goal is to reduce our total water use at each high-risk

site by 30% by 2030. While climate change must be tackled

at a global level, water challenges are much more localised.

All our vaccine, pharmaceutical and consumer healthcare

manufacturing sites have completed risk assessments and

are implementing actions to ensure compliance with our water

stewardship standard by 2020. These assessments identiﬁed

10 high-risk sites that used 0.7 million cubic metres of water

in 2019 (6% of our total water use). This risk rating is based

on water scarcity, local water quality, health and social risks,

and regulatory and reputational risks.

These sites are working on strategies to reduce their water

impact, and are making good progress. For example, our site

in Cape Town, South Africa (an area affected by drought)

initiated water recovery and rainwater harvesting projects.

Their water saving measures across the year saved 1,740m

water – 9% of the site’s annual water use. One of our sites in

Karachi, Pakistan has also successfully implemented projects

to reduce water used in cooling towers and to shorten cleaning

cycles where excess water was being used. These activities

decreased the amount of water used for cleaning by 60%,

and helped reduce the site’s water footprint by 4%.

Waste

By the end of 2020, we aim for 100% of our sites to send

zero waste to landﬁll. This avoids harmful environmental impacts

from landﬁll and keeps materials, such as solvents, in circulation

for use in new products. In 2019, less than 3% of our waste

was sent to landﬁll (excluding the newly-joined Pﬁzer consumer

healthcare sites), with 73 sites achieving and maintaining zero

waste to landﬁll. We have cut the amount of waste we produce

by 14% since 2016, generating a total of 117,000 tonnes in

2019. This includes 23,000 tonnes of hazardous waste and

3,100 tonnes sent to landﬁll.

Our longer-term goal is that, by 2030, 100% of our waste will

be directed to beneﬁcial use, either to recycling, or incinerating

waste with energy recovery. In 2019, 79% of our waste was

recycled or incinerated with energy recovery.

Paper and palm oil

We are committed to moving towards deforestation-free

sourcing for all key commodities purchased directly by GSK

or indirectly on our behalf by 2030. This is a challenge due to

the complex nature of our supply chains, but we have reached

94% for paper packaging and 70% for palm oil from sustainable

sources by volume. We are working with the Roundtable for

Sustainable Palm Oil to purchase book & claim credits, and

with the Rainforest Alliance to audit and assure our supply

chain. To date, we have focused on paper packaging, palm oil

and palm oil derivatives, and have developed supplier selection

criteria, as well as sourcing standards in conjunction with the

Rainforest Alliance.

Plastic

The packaging of our products plays an important role in

delivering safe, stable and trusted medicines, vaccines and

consumer healthcare products. However, we recognise the

impact that plastic packaging has on the environment.

We are working on a plan to reduce our plastic packaging,

making it recyclable, and exploring how we increase use of

recycled plastic content, recognising that medical regulations

around the world place signiﬁcant constraints on the use of

recycled materials. Our Vaccines business is removing PVC

from all packaging by the end of 2020 and we have developed

a new pump for Flonase/Sensimist which reduces the amount

of plastic used in the device by 12%.

While we have completed a review of our plastic use across

the business – which found that 70% of our plastic footprint is

associated with our Consumer Healthcare products – this took

place before the integration of the Pﬁzer consumer healthcare

business. We are now updating this to include the impact of

the joint venture. We are also implementing initiatives to reduce,

and remove where possible, single use plastics across all GSK

ofﬁces worldwide and have already eliminated 2.1 million items

of plastic from our food and refreshment outlets.

Pharmaceuticals in the environment

We are committed to ensuring that our compounds do

not adversely affect people or the environment. We carry

out environmental testing on all our pharmaceuticals, and use

this data in risk assessments to evaluate potential for harm.

We take steps to minimise the risk of any active pharmaceutical

ingredients, including antibiotics, entering the environment as

a result of our manufacturing processes.

GSK is part of the AMR Industry Alliance launched in 2017

and is a signatory to the Industry Roadmap for Progress on

Combating AMR. For more on our efforts to combat AMR,

see page 32. We have publicly committed to minimise antibiotic

discharge in our supply chain and to ensure that manufacturing-

related discharges are negligible by the end of 2021. In 2019,

through the Pharmaceutical Supply Chain Initiative, we shared

guidance and best practice on managing antibiotic discharges

from manufacturing with our suppliers.

GSK.com: Environment

Trust continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Risk management

Our risk management framework is well embedded and continually

reviewed. Board-level oversight is provided by our Audit and Risk Committee,

assisted by our Risk Oversight and Compliance Council.

The framework enables the Board to identify, evaluate and

manage principal risks and is designed to support our long-term

priorities. The framework provides for an effective hierarchy of

Risk Management and Compliance Boards within each of our

businesses which promotes the ‘tone from the top’, establishes

the risk culture and oversees the effective cascade and

escalation of information regarding our internal controls.

Along with our values, expectations and Speak Up processes,

it ensures that the risks associated with our business activities

are actively and effectively identiﬁed and mitigated and provides

reasonable assurance against material misstatement or loss.

We conduct an annual conﬁrmation exercise to ensure that

our risk management approach is consistent across GSK,

which reinforces leader accountability.

During 2019, the Audit and Risk Committee considered

GSK’s risks and the strategies to address them. In doing

so it drew on annual business unit risk and assurance update

reports, strategy papers for our most signiﬁcant risks, and an

annual risk review.

Each principal risk is overseen by a CET-level risk owner

to ensure proportionate controls are in place, with clear plans

assigned to address any gaps.

GSK considers both current and emerging risks as part of

its risk management framework. GSK deﬁnes emerging risks

as those which are on the three-year horizon. We may not yet

have adequate information about their impact or likelihood

and therefore these may warrant further investigation before

inclusion in our list of principal risks.

Emerging risk assessments are performed as part of the remit

of our Risk Management and Compliance Boards at all levels

of the organisation. Additionally, at the global level we perform

an annual PESTLE analysis of the political, economic, social,

technological, legal and environmental trends from the external

environment to identify emerging risks.

Each year, the CET conducts a formal risk review to consider

emerging risks and whether sufﬁcient information is available

to support their inclusion in our principal risks list. This review is

supported by extensive analysis of external trends and insights,

senior level interviews and recommendations from GSK’s key

risk intelligence groups and risk management boards.

In 2019 the CET agreed to escalate two new risks to

standalone principal risks for 2020 – Environmental

sustainability and Non-promotional engagement. Work is

also underway to establish appropriate reporting for a

Transformation risk in recognition of the signiﬁcant

transformation associated with our intention to separate

GSK’s Consumer Healthcare business.

We list our principal risks on pages 44 and 45, with our

assessment of the external macro environment and the risk

exposure following mitigation. The risks are not in order of

signiﬁcance.

Risks associated with the proposed separation

of GSK’s Consumer Healthcare business

A separation of our Consumer Healthcare business may

be dependent on a number of factors that are outside GSK’s

control, including any required shareholder and regulatory

approvals, favourable conditions in public equity markets

and public or private debt markets and changes in applicable

law and regulation. Therefore, there can be no certainty that

a separation will be completed as proposed (or at all).

In addition, if a separation is completed, there can be no

assurance that either GSK or Consumer Healthcare will

realise the expected beneﬁts of separation or that the separation

will not adversely affect GSK or Consumer Healthcare or the

value or liquidity of their respective shares.

Risks associated with the coronavirus outbreak

The potential impact of the coronavirus outbreak on GSK's

trading performance and supply continuity remains uncertain.

Up to the date of this Report, the outbreak has not had a

material impact on the trading results of the Group. However,

we continue to monitor the situation closely, including the

potential impacts on trading results, our supply continuity

and our employees.

The situation could change at any time and there can be no

assurance that the coronavirus outbreak will not have a material

adverse impact on the future results of the Group.

Viability statement, see page 47

ARC Report, see page 96

Principal risks and uncertainties, see page 275

Internal Control Framework, see page 105

GSK Annual Report 2019

Risk Assessment and mitigation activities

Patient safety

The macro risk level remains high. Developments in data interrogation present potential

beneﬁts for Patient safety but the volume of data to be analysed presents a signiﬁcant

challenge which intensiﬁes when coupled with fragmented regulatory requirements.

There are increasing expectations that technology will deliver safer innovative medicines

with less risks.

GSK's exposure remains unchanged. We have deployed a new operating model

for safety activities involving a simpler central safety organisation and outsourcing

of local pharmacovigilance activities. Both deployments have passed successful

audits indicating we should expect a lower risk in steady state during H2 2020.

Product quality

The macro risk level remains unchanged despite continued concerns over drug

shortages and security and the uncertainty and complexity associated with Brexit.

GSK’s exposure remains unchanged. The beneﬁts of our ongoing investment and

improvement initiatives in manufacturing facilities, operating systems and training

are reﬂected in our quality performance metrics and inspection outcomes.

Financial controls

and reporting

The macro risk level has increased. There is signiﬁcant political uncertainty and

increasing societal expectations of ﬁnancial reporting and the role of auditors, as well

as highly sophisticated fraudsters enabled by the speed of technological change.

GSK’s exposure has been maintained at current levels despite the increase in external

risk exposure as a result of the beneﬁts of our previous transformation programmes,

the strengthening of controls by leveraging technology and centralising processes,

enhancing monitoring and maintaining effective tax and treasury strategies.

Anti-bribery and

corruption (ABAC)

The macro risk level remains unchanged as we continue to see legal frameworks similar

to the UK and US develop in emerging economies; high standards are expected of

individuals and corporations aided by improved technology and increased enforcement.

The GSK exposure remains unchanged. We have appropriate controls in place such

as training, awareness raising, and strong monitoring around transactions and payments

to third parties. We plan to continue with pre and post-transaction ABAC due diligence,

increasing the capabilities in the business on monitoring, oversight and red ﬂag resolution

of third parties. We continue to understand and assess our money-laundering risk

exposure and mitigate any existing risk.

Commercial practices

The macro risk level is increasing with increased pricing pressure, greater retailer

and online competition from a broader set of competitors, an evolving digital landscape

and increased scrutiny of marketing practices in the industry.

GSK’s exposure has marginally increased as we integrate Tesaro and our Consumer

Healthcare Joint Venture with Pﬁzer. We continue to invest in proportionate controls,

training and monitoring as we embed our new HCP engagement model and salesforce

incentives programme (see page 22).

Risk management continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Risk Assessment and mitigation activities

Privacy

The macro risk level has increased due to the diversity of data privacy legislation and

limited harmonisation occurring, despite Europe’s adoption of GDPR. Multi-nationals

have challenges to standardise their data privacy approach with the high local

variation and rise of enforcement by regulators.

GSK’s exposure remains constant following the successful deployment of our

Privacy Operating Model in the EU and prioritised deployment in the rest of the

world progressing well.

Research practices

The macro risk level has increased as regulators are adapting to new technological

advancements as well as introducing changes regarding data privacy, animal welfare

and human biological samples which have yet to be fully announced and the

requirements for implementation understood.

GSK's exposure remains unchanged. Increasing regulatory expectations are being offset

by risk mitigation actions to embed and monitor additional controls and further enhance

and monitor the quality culture, with a particular focus on data integrity and access and

beneﬁt sharing (Nagoya Protocol).

Third party oversight

The macro risk level has increased due to growing numbers of countries with varying

regulation and manufacturing standards requiring local production, which increases

the number of third parties we have to assess and continuously oversee.

The GSK exposure remains unchanged. Our third-party risk assessment and mitigation

programme has been embedded and continues to be further simpliﬁed and reﬁned to

make it easier to engage third parties appropriately.

Environment,

health and safety

and sustainability

The macro risk level has increased due to greater emphasis on environmental controls

from regulators, activists and stakeholders across our direct operations and supply

chain. An emerging area of focus is post-consumption waste associated with medicines.

There are ever-more stringent regulations and standards in developed as well as

developing countries.

The GSK risk exposure remains unchanged as we continue to focus on more appropriate

control over our supply chain, particularly of our active pharmaceutical ingredient (API)

suppliers.

Information security

The macro risk level continues to increase as a result of an increasing digital footprint,

reﬂecting a large multi-national organisation, combined with more sophisticated

hacking threats.

The GSK risk exposure remains unchanged with the development of controls to increase

cyber operations and threat intelligence capabilities; mitigation to protect critical

information systems and applications, and enhancements to security of operational

technology systems and networks offsetting some risk.

Supply continuity

The macro risk level remains unchanged with the ongoing evolution of stringent

regulatory expectations including continued regulatory focus on contract manufacturers.

Brexit continues to provide uncertainty.

The GSK risk exposure level remains unchanged. We have improved risk management

of our supplier portfolio, reduced the complexity of our networks and improved our crisis

and continuity management framework. However, reduced inventories, threats posed by

cyberattacks and global emergencies such as the coronavirus outbreak, and the quality

of incoming materials present ongoing supply risks.

Risk management continued

GSK Annual Report 2019

Risk management continued

Climate-related ﬁnancial disclosure

Here we provide GSK’s ﬁrst voluntary disclosure against the

recommendations of the Taskforce for Climate-related Financial

Disclosure (TCFD), an initiative of the Financial Stability Board,

which promotes the disclosure of climate change risk.

Governance

The Board has oversight and responsibility for the management

of climate change risks with support from the CET. The Board’s

Corporate Responsibility Committee (CRC) oversees GSK’s

Environmental Sustainability enterprise risk and progress

against our environmental targets (see CRC Report on

page 109).

Regis Simard, President, Pharmaceuticals Supply Chain,

has management responsibility for environment, health & safety

and sustainability (including climate change risk). He is on the

CET and reports directly to the CEO.

Strategy

Trust is one of our three long-term priorities and reducing our

environmental impact is an important part of the Trust priority

(see metrics and targets).

To gain a better understanding of how climate change might

impact our business, in 2019, we completed scenario analyses

for ﬁve key products from across our Vaccines, Pharmaceuticals

and Consumer Healthcare businesses. The two scenarios were:

– business-as-usual: we assumed little to no mitigation

leading to 3-5°C of warming by 2100;

– low-carbon: we assumed that the global temperature

increase by 2100 is limited to well below 2°C by rapid

changes in legislation and technology.

The study was conducted by an independent third party and

used internationally recognised data sets such as those from

the Intergovernmental Panel on Climate Change. The potential

physical risks of a changing climate such as ﬂooding, as well

as the risks associated with a transition to a low-carbon

economy such as international climate policy and carbon

pricing were analysed. The analysis looked at the implications

for GSK manufacturing facilities, suppliers and raw materials

providers for each of the ﬁve products. The assessment did

not consider any actions that GSK might take to mitigate or

adapt to the ﬁndings.

The analysis showed that in both scenarios there is likely

to be some ﬁnancial risks which would need to be managed,

but none that would materially impact our business model.

The key impacts for both scenarios were:

– Flood-related disruptions at our own manufacturing sites

and in our supply chain;

– Water stress leading to increased expenditure and disruption

at both our own manufacturing sites and in our supply chain;

– Higher temperatures affecting the quality and availability

of some raw materials;

– Increased costs of fossil fuels.

These ﬁndings represent an initial assessment and we plan

to use them to understand the impacts further and to develop

action plans to help mitigate these risks, embed sustainability

into strategy and review opportunities.

Risk management

In 2019, Environmental Sustainability, which includes climate

change risks, became a standalone Principal Risk to the

business for 2020 (previously managed as a sub-risk of

Environment, Health & Safety and Sustainability) (see page 43).

Risks related to climate change are managed at different levels

of the organisation, depending on the nature of the risk.

Risks and opportunities associated with GSK’s energy, water

and waste reduction programmes are managed by the Climate

Change and Energy Reduction Team, with representatives

from each of GSK’s three business units and relevant support

functions meeting quarterly.

Operational risks and opportunities at asset or site level are

identiﬁed, assessed and managed by GSK’s business units

through their risk management teams.

Metrics and targets

Our goal is to reduce our environmental impact by one quarter

by 2030. This goal is underpinned by ﬁve environmental targets

for carbon (Scopes 1, 2 and 3) renewable electricity sources,

water and waste (see pages 41 and 42).

We have been accredited by the Science Based Targets

Initiative for a set of Scope 1, 2 and 3 targets in line with

the decarbonisation required to keep global temperature

increases to 2

We are also committed to moving towards deforestation-free

sourcing for all key commodities and are working with partners

such as the Roundtable for Sustainable Palm Oil and the

Rainforest Alliance.

More detail on the progress we are making towards achieving

our targets can be found on page 42, and in our public

response to the CDP questionnaire.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Viability statement

In accordance with provision 31 of the 2018 revision

of the Code, GSK has assessed the prospects of the

Company over a longer period than the 12 months required

by the ‘Going Concern’ provision. The Directors conﬁrm that

they have a reasonable expectation that GSK will continue to

operate and meet its liabilities, as they fall due, over the next

three years. The Directors’ assessment has been made with

reference to GSK’s current position and prospects, our

strategy, the Board’s risk appetite and GSK’s principal risks

and how these are managed, as detailed on pages 44 and

45 in the Strategic report.

The Board reviews our internal controls and risk management

policies and approves our governance structure and code

of conduct. It also appraises and approves major ﬁnancing,

investment and licensing decisions, and evaluates and monitors

the performance and prospects of GSK as a whole. The focus

is largely on improving our long-term ﬁnancial performance

through delivery of our company and three business strategies

and aligned Innovation, Performance and Trust priorities.

The Board reviews GSK’s strategy and makes signiﬁcant

capital investment decisions over a long-term time horizon,

based on a multi-year assessment of return on capital, the

performance of the company and three business units, and

the market opportunity in the pharmaceutical, vaccines and

consumer sectors. This approach is aligned to GSK’s model

of achieving balanced growth by investing in high quality,

innovative products for patients, consumers and healthcare

providers. However, since many internal and external parameters

become increasingly unpredictable over longer time horizons,

GSK focuses its detailed, bottom-up Plan on a three-year cycle.

The Plan is reviewed at least annually by the Directors, who

approve business forecasts showing expected ﬁnancial impact.

The Directors believe that a three-year assessment period for

the Viability statement is most appropriate as it aligns with the

company’s well established business planning processes

that balance the long-term nature of investments in the

pharmaceutical, vaccines and consumer sectors with an

assessment of the period over which analysis of near-term

business performance is realistically visible.

The Plan has been stress tested in a series of robust operational

and principal risk downside scenarios as part of the Board’s

review on risk. These include the potential effects of Brexit,

which are not expected to be material, although there may be

some short-term disruption. The downside scenarios consider

GSK’s cash ﬂows, sustainability of dividends, funding strategy,

insurance provision and recovery as well as other key ﬁnancial

ratios over the period. These metrics have been subject to

sensitivity analysis, which involves ﬂexing a number of the main

assumptions underlying the forecasts both individually and in

combination, along with mitigating actions that could realistically

be taken to avoid or reduce the impact or occurrence of the

underlying risk.

The following hypothetical downside scenarios have been

evaluated:

Scenario 1: Business performance risks. These include key

performance risks, including lower sales from new products;

greater adverse impact from generic competition and other

competitive launches to other GSK products; as well as

possible supply and manufacturing challenges.

Scenario 2: External and macroeconomic risks. This scenario

reﬂects incremental risks to the business driven by outside

factors, such as more intense competition, increased pricing

pressure in both the US and Europe as well as the potential

impact of material negative changes in the macro-economic

and healthcare environment.

Scenario 3: Principal risks. This scenario includes a severe

assessment of the potential loss impact from the principal

risks related to patient safety, product quality, supply chain

continuity as well as anti-bribery and corruption and any

consequent regulatory actions or ﬁnes, all of which could

fundamentally threaten our operations. This would include any

potential severe impact of coronavirus if this were to materialise.

These risks are managed through mitigating activities described

on pages 275 to 287.

Scenario 4: Put option exercise. This scenario evaluates the

additional funding requirements assuming the earliest potential

exercise of the outstanding put option held by our partner in the

HIV business.

The future separation of the Consumer Healthcare Joint Venture

with Pﬁzer, if approved by the Board, may potentially occur

within the period covered by the viability assessment. We have

considered this scenario and have concluded that there is no

material impact to viability for the Group or resultant separate

companies over the three-year period of this assessment.

The three-year review also makes certain assumptions about

the normal level of capital recycling likely to occur and considers

whether additional ﬁnancing facilities will be required and the

respective level of funding ﬂexibility and headroom.

The results of this stress testing show that certain combinations

of these hypothetical scenarios could increase funding

demands on GSK and require mitigating changes to the

Group’s funding strategy. However, in light of the liquidity

available to the Group and based on this analysis, the Directors

have a reasonable expectation that, even under these most

severe stress tests, the company will be able to continue in

operation and meet its liabilities as they fall due over the

three-year period of assessment.

Risk management continued

GSK Annual Report 2019

Risk management continued

Our preparations for Brexit

In preparing for the UK’s exit from the EU (Brexit), our

overriding priority has been to maintain continuity of supply

of our medicines, vaccines and consumer healthcare products

to people in the UK and EU. We took a risk-based approach

to planning and mitigation and now have in place a new post-

Brexit operating model. As part of the new model we have

arranged for the retesting and certiﬁcation of our medicines

and consumer products in Europe where required and have

completed relevant marketing authorisation transfers, updated

packaging and secured additional warehousing for our

products. We continue to support our employees in obtaining

settled status or equivalent in both the UK and Europe. Normal

change processes will be used to manage outstanding tax and

customs activities, which depend on the new borders being in

place between the UK and EU.

We anticipate subsequent and ongoing costs arising from

Brexit could include further customs duties and will include

the cost of duplicate testing and release of our products.

We continue to estimate these potential costs at approximately

£50 million per year. As more details emerge on how our

business will need to adapt to the future UK-EU relationship,

the assumptions underlying these forecasts could change,

with consequent adjustments up or down. As part of the Brexit

process, GSK has been engaging with Governments in both

the UK and EU27, as well as Brussels institutions, to discuss

our preparations, alongside our ambitions for the new UK/EU

relationship. We will continue to review our plans and any

potential ﬁnancial impact as negotiations and regulations

develop and we remain ready for all outcomes in December

2020. Over the longer term, we continue to believe that Brexit

will not have a material impact on our business.

Non-ﬁnancial information statement

The following aligns to the non-ﬁnancial reporting requirements contained in sections 414CA and 414CB

of the Companies Act 2006.

Description of the business model

How we create value 09

Social matters

Global health 31

Health security 32

Affordability and availability 33

Employees

Employee engagement 35

Diversity 35

Wellbeing and development 36

Gender pay gap 36

Living our values and expectations 37

Board diversity 36

Human rights

Human rights 38

Data and engagement 39

Third parties 39

Anti-corruption and bribery

Living our values and expectations 37

Reporting and investigating concerns 38

Anti-bribery and corruption 38

Environmental matters

Carbon, water and waste 41

Policy, due diligence and outcomes

Summary of our principal risks 44

Principal risks and uncertainties 275

Viability statement 47

Audit & Risk Committee report 96

Non-ﬁnancial key performance

indicators

Key performance indicators 11

Our policies

All of our public policies, codes and

standards are available on gsk.com

GSK Annual Report 2019

In this section

Reporting framework 50

Our approach to tax 53

Financial performance 54

Adjusting items 62

Cash generation and conversion 65

Financial position and resources 66

Treasury policies 71

Critical accounting policies 72

Group

ﬁnancial

review

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Total and Adjusted results

The Group ﬁnancial review discusses the operating and

ﬁnancial performance of the Group, its cash ﬂows and ﬁnancial

position and our resources. The results for each year are

compared primarily with the results of the preceding year.

Total results

Total reported results represent the Group’s overall

performance.

GSK also uses a number of adjusted, non-IFRS, measures to

report the performance of its business. Adjusted results and

other non-IFRS measures may be considered in addition to,

but not as a substitute for or superior to, information presented

in accordance with IFRS. Adjusted results are deﬁned below

and other non-IFRS measures are deﬁned on page 52.

GSK believes that Adjusted results, when considered together

with Total results, provide investors, analysts and other

stakeholders with helpful complementary information to

understand better the ﬁnancial performance and position

of the Group from period to period, and allow the Group’s

performance to be more easily compared against the majority

of its peer companies. These measures are also used by

management for planning and reporting purposes. They may

not be directly comparable with similarly described measures

used by other companies.

GSK encourages investors and analysts not to rely on any

single ﬁnancial measure but to review GSK’s Annual Reports,

including the ﬁnancial statements and notes, in their entirety.

GSK is committed to continuously improving its ﬁnancial

reporting, in line with evolving regulatory requirements and

best practice.

Adjusted results

Adjusted results exclude the following items from Total results,

together with the tax effects of all of these items:

– amortisation of intangible assets (excluding computer

software)

– impairment of intangible assets (excluding computer

software) and goodwill

– Major restructuring costs, which include impairments of

tangible assets and computer software, (under speciﬁc

Board-approved programmes that are structural, of a

signiﬁcant scale and where the costs of individual or related

projects exceed £25 million) including integration costs

following material acquisitions

– transaction-related accounting or other adjustments related

to signiﬁcant acquisitions

– proceeds and costs of disposals of associates, products

and businesses; signiﬁcant legal charges (net of insurance

recoveries) and expenses on the settlement of litigation and

government investigations; other operating income other

than royalty income, and other items.

Costs for all other ordinary course smaller scale restructuring

and legal charges and expenses are retained within both Total

and Adjusted results.

As Adjusted results include the beneﬁts of Major restructuring

programmes but exclude signiﬁcant costs (such as signiﬁcant

legal, major restructuring and transaction items), they should

not be regarded as a complete picture of the Group’s ﬁnancial

performance, which is presented in its Total results. The

exclusion of other Adjusting items may result in Adjusted

earnings being materially higher or lower than Total earnings.

In particular, when signiﬁcant impairments, restructuring

charges and legal costs are excluded, Adjusted earnings

will be higher than Total earnings.

GSK is undertaking a number of Major restructuring

programmes in response to signiﬁcant changes in the Group’s

trading environment or overall strategy, or following material

acquisitions. Costs, both cash and non-cash, of these

programmes are provided for as individual elements

are approved and meet the accounting recognition criteria.

As a result, charges may be incurred over a number of years

following the initiation of a Major restructuring programme.

The Group has also initiated a two-year Separation Preparation

programme to prepare GSK for separation into two new

leading companies in biopharma and consumer healthcare.

From time to time, the Group divests non-core investments,

products and businesses and records the proﬁt or loss on

disposal as an Adjusting item. The most notable divestment in

the past ﬁve years was the disposal of the Oncology business

as one element of the three-part transaction with Novartis in

2015.

Signiﬁcant legal charges and expenses are those arising from

the settlement of litigation or government investigations that

are not in the normal course and are materially larger than more

regularly occurring individual matters. They also include certain

major legacy matters.

Reconciliations between Total and Adjusted results, providing

further information on the key Adjusting items for 2018 and

2019 are set out on page 62 and for the ﬁve years to 2019 are

set out on pages 266 to 268.

GSK provides earnings guidance to the investor community on

the basis of Adjusted results. This is in line with peer companies

and expectations of the investor community, supporting easier

comparison of the Group’s performance with its peers. GSK is

not able to give guidance for Total results as it cannot reliably

forecast certain material elements of the Total results,

particularly the future fair value movements on contingent

consideration and put options that can and have given rise to

signiﬁcant adjustments driven by external factors such as

currency and other movements in capital markets.

Reporting framework

Group ﬁnancial review

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Historical record of Adjusting items

The reconciliations between Total and Adjusted operating proﬁt over the last ﬁve years can be summarised as follows:

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Total operating proﬁt 6,961 5,483 4,087 2,598 10,322

Intangible asset amortisation 777 580 591 588 563

Intangible asset impairment 83 116 688 20 206

Major restructuring 1,105 809 1,056 970 1,891

Transaction-related items 345 1,977 1,599 3,919 2,238

Divestments, signiﬁcant legal and other items (299) (220) (119) (424) (9,561)

US tax reform – – 666 – –

Adjusted operating proﬁt 8,972 8,745 8,568 7,671 5,659

The analysis of the impact of transaction-related items on operating proﬁt for each of the last ﬁve years is as follows:

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Novartis Consumer Healthcare Joint Venture put option – 658 986 1,133 83

Contingent consideration on former Shionogi-ViiV Healthcare JV (including Shionogi preferential dividends) 31 1,188 556 2,162 1,874

ViiV Healthcare put options and Pﬁzer preferential dividends (234) (58) (126) 577 –

Contingent consideration on former Novartis Vaccines business 76 58 101 69 10 8

Release of fair value uplift on acquired Pﬁzer inventory 366 – – – –

Other adjustments 106 131 82 (22) 173

Transaction-related items 345 1,977 1,599 3,919 2,238

Full reconciliations between Total and Adjusted results for 2015–2019 are set out on pages 266 to 268. Further explanations on

the Adjusting items for 2019 are reported on page 62.

Reporting framework continued

Non-controlling interests in ViiV Healthcare

Trading proﬁt allocations

Because ViiV Healthcare is a subsidiary of the Group, 100%

of its operating results (turnover, operating proﬁt, proﬁt after tax)

are included within the Group income statement and then a

portion of the earnings is allocated to the non-controlling

interests owned by the other shareholders, in line with their

respective equity shareholdings (Pﬁzer 11.7% and Shionogi

10%). Each of the shareholders, including GSK, is also entitled

to preferential dividends determined by the performance of

certain products that each shareholder contributed. As the

relative performance of these products changes over time,

the proportion of the overall earnings of ViiV Healthcare

allocated to each shareholder will change. In particular, the

increasing proportion of sales of dolutegravir-containing

products has a favourable impact on the proportion of the

preferential dividends that is allocated to GSK. Adjusting items

are allocated to shareholders based on their equity interests.

GSK was entitled to approximately 85% of the Total earnings

and 82% of the Adjusted earnings of ViiV Healthcare for 2019.

Remeasurements of the liabilities for the preferential dividends

allocated to Pﬁzer and Shionogi are included within other

operating income.

Acquisition-related arrangements

As consideration for the acquisition of Shionogi’s interest in

the former Shionogi-ViiV Healthcare joint venture in 2012,

Shionogi received the 10% equity stake in ViiV Healthcare.

ViiV Healthcare also agreed to pay additional future cash

consideration to Shionogi, contingent on the future sales

performance of the products being developed by that joint

venture, principally dolutegravir. Under IFRS 3 ‘Business

combinations’, GSK was required to provide for the estimated

fair value of this contingent consideration at the time of

acquisition and is required to update the liability to the latest

estimate of fair value at each subsequent period end. The

liability for the contingent consideration recognised in the

balance sheet at the date of acquisition was £659 million.

Subsequent remeasurements are reﬂected within other

operating income/expense and within Adjusting items in

the income statement in each period, and at 31 December

2019, the liability, which is discounted at 8.5%, stood at

£5,103 million, on a post-tax basis.

Cash payments to settle the contingent consideration are

made to Shionogi by ViiV Healthcare each quarter, based on

the actual sales performance of the relevant products in the

previous quarter. These payments reduce the balance sheet

liability and hence are not recorded in the income statement.

The cash payments made to Shionogi by ViiV Healthcare in

2019 were £865 million.

Because the liability is required to be recorded at the fair value

of estimated future payments, there is a signiﬁcant timing

difference between the charges that are recorded in the Total

income statement to reﬂect movements in the fair value of the

liability and the actual cash payments made to settle the liability.

Group ﬁnancial review continued

GSK Annual Report 2019

The cash payments are reﬂected in the cash ﬂow statement

partly in operating cash ﬂows and partly within investing

activities. The tax relief on these payments is reﬂected in the

Group’s Adjusting items as part of the tax charge. The part of

each payment relating to the original estimate of the fair value

of the contingent consideration on the acquisition of the

Shionogi-ViiV Healthcare joint venture in 2012 of £659 million

is reported within investing activities in the cash ﬂow statement

and the part of each payment relating to the increase in the

liability since the acquisition is reported within operating cash

ﬂows.

Movements in contingent consideration payable to Shionogi

were as follows:

2019

£m

2018

£m

Contingent consideration at beginning of the year 5,937 5,542

Remeasurement through income statement 31 1,188

Cash payments: operating cash ﬂows (767) (703)

Cash payments: investing activities (98) (90)

Contingent consideration at end of the year 5,103 5,937

Of the contingent consideration payable (on a post-tax basis)

to Shionogi at 31 December 2019, £730 million (31 December

2018 – £815 million) is expected to be paid within one year.

Exit rights

Pﬁzer may request an IPO of ViiV Healthcare at any time and if

either GSK does not consent to such IPO or an offering is not

completed within nine months, Pﬁzer could require GSK to

acquire its shareholding. Under the original agreements, GSK

had the unconditional right, so long as it made no subsequent

distribution to its shareholders, to withhold its consent to the

exercise of the Pﬁzer put option and, as a result, in accordance

with IFRS, GSK did not recognise a liability for the put option

on its balance sheet. However, during Q1 2016, GSK notiﬁed

Pﬁzer that it had irrevocably given up this right and accordingly

recognised the liability for the put option on the Group’s balance

sheet during Q1 2016 at an initial value of £1,070 million.

Consistent with this revised treatment, at the end of Q1 2016

GSK also recognised liabilities for the future preferential

dividends anticipated to become payable to Pﬁzer and Shionogi

on the Group’s balance sheet.

The closing balances of the liabilities related to Pﬁzer’s

shareholding are as follows:

2019

£m

2018

£m

Pﬁzer put option 1,011 1,240

Pﬁzer preferential dividend 4 15

Under the original agreements, Shionogi could also have

requested GSK to acquire its shareholding in ViiV Healthcare

in six-month windows commencing in 2017, 2020 and 2022.

GSK had the unconditional right, so long as it made no

subsequent distribution to its shareholders, to withhold its

consent to the exercise of the Shionogi put option and, as a

result, GSK did not recognise a liability for the put option on its

balance sheet.

However, during Q1 2016, GSK notiﬁed Shionogi that it had

irrevocably given up this right and accordingly recognised the

liability for the put option on the Group’s balance sheet during

Q1 2016 at an initial value of £926 million. In Q4 2016,

Shionogi irrevocably agreed to waive its put option and as a

result GSK de-recognised the liability for this put option on the

Group’s balance sheet directly to equity. The value of the

liability was £1,244 million when it was de-recognised.

GSK also has a call option over Shionogi’s shareholding in

ViiV Healthcare, which under the original agreements was

exercisable in six-month windows commencing in 2027, 2030

and 2032. GSK has now irrevocably agreed to waive the ﬁrst

two exercise windows, but the last six-month window in 2032

remains. As this call option is at fair value, it has no value for

accounting purposes.

Free cash ﬂow

Free cash ﬂow is deﬁned as the net cash inﬂow from operating

activities less capital expenditure on property, plant and

equipment and intangible assets, contingent consideration

payments, net ﬁnance costs, and dividends paid to non-

controlling interests plus proceeds from the sale of property,

plant and equipment and intangible assets, and dividends

received from joint ventures and associates. It is used by

management for planning and reporting purposes and in

discussions with and presentations to investment analysts

and rating agencies. Free cash ﬂow growth is calculated

on a reported basis. A reconciliation of net cash inﬂow from

operations to free cash ﬂow is set out on page 65.

CER and AER 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 comparative period. CER% represents growth at

constant exchange rates. £% or AER% represents growth at

actual exchange rates.

Pro-forma growth

The acquisition of the Pﬁzer consumer healthcare business

completed on 31 July 2019 and so GSK’s reported results

include ﬁve months of results of the former Pﬁzer consumer

healthcare business from 1 August 2019.

The Group has presented pro-forma growth rates at CER

for turnover, Adjusted operating proﬁt and operating proﬁt by

business taking account of this transaction. Pro-forma growth

rates at CER for 2019 are calculated comparing reported

results for 2019, calculated applying the exchange rates used

in the comparative period, with the results for 2018, adjusted

to include the equivalent ﬁve months of results of the former

Pﬁzer consumer healthcare business, as consolidated (in US$)

and included in Pﬁzer’s US GAAP results.

Reporting framework continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Our approach to tax

We understand our responsibility to pay an appropriate amount

of tax, and fully support efforts to ensure that companies are

appropriately transparent about how their tax affairs are

managed. Tax is an important element of the economic

contribution we bring to the countries in which we operate.

We do not engage in artiﬁcial tax arrangements – those without

business or commercial substance. We do not seek to avoid

tax by the use of ‘tax havens’ or transactions we would not fully

disclose to a tax authority. We have a zero tolerance approach

to tax evasion and the facilitation of tax evasion.

We have a substantial business and employment presence

in many countries around the globe and we pay a signiﬁcant

amount of tax, including corporation and other business taxes,

as well as tax associated with our employees. At the same time,

we have a responsibility to our shareholders to be ﬁnancially

efﬁcient and deliver a sustainable tax rate. As part of this

approach we look to align our investment strategies to those

countries where we already have substantial economic activity,

and where government policies promote regimes which are

attractive to business investment and R&D activity and are

transparent in their intent and available to all relevant tax payers.

Examples include the UK Patent Box and Research and

Development Expenditure Credit.

Tax risk is managed through robust internal policies and

processes to ensure that we have alignment across our

business and compliance with tax legislation. Our Audit & Risk

Committee and the Board are responsible for approving our

tax policies and risk management approach. We seek to

maintain open, positive relationships with governments and

tax authorities worldwide and we welcome constructive

debate on taxation policy.

In 2019, the Group corporate tax charge was £953 million

(2018 – £754 million) on proﬁts before tax of £6,221 million

(2018 – £4,800 million) representing an effective tax rate of

15.3% (2018 – 15.7%). We made cash tax payments of

£1,512 million in the year (2018 – £1,326 million). In addition

to the taxes we pay on our proﬁts, we pay duties, levies,

transactional and employment taxes.

Our Adjusted tax rate for 2019 was 16.0% (2018 – 19.0%).

The rate has beneﬁtted from the settlement of open tax

positions in key territories. Subject to any material changes

in our product mix, or other material changes in tax regulations

or laws in the countries in which we operate, the Group’s

average effective Adjusted tax rate in the medium term is

expected to be around 19%.

The Group’s Total tax rate of 15.3% (2018 – 15.7%) for 2019

was lower than the Adjusted tax rate as the Total tax charge

includes the tax effect of fair value accounting movements on

the Group’s put option liabilities to ViiV Healthcare and on

hedges against shares in Hindustan Unilever Limited to be

received on disposal of Horlicks and other Consumer

Healthcare brands, and a re-assessment of estimates of

uncertain tax positions following the settlement of a number

of open issues with tax authorities.

In 2019, an ongoing public focus on the tax affairs of

multinational companies has included a major project of the

Organisation for Economic Co-operation and Development

(OECD) on ‘Addressing the Tax Challenges of the Digitalisation

of the Economy’. GSK welcomes the OECD’s efforts to identify

a long-term, sustainable and consensus driven solution to the

tax challenges resulting from digitalisation and has been active

in providing relevant business input to assist in the successful

delivery of the aims of the project. In order to create a long-

lasting, stable and certain business environment for both

taxpayers and Governments, a multilateral consensus-based

approach, grounded in clearly deﬁned and accepted principles,

is critical and the incentive to innovate must not be diluted.

A continued focus on tax reform during 2019 has been driven

by the OECD’s Base Erosion and Proﬁt Shifting (BEPS) project

and European Commission initiatives such as ﬁscal state aid

investigations and the introduction of ‘Mandatory Disclosure’

rules. The outputs from the OECD BEPS projects clariﬁed the

important principle that tax should be paid on proﬁts throughout

the supply chain, where the proﬁt-making activity takes place.

GSK is subject to taxation throughout its supply chain.

GSK supports the BEPS proposals, in particular the

implementation of the OECD’s recommendations on ‘Country

by Country Reporting’, including the exchange of this data

between tax authorities. This data, validated against existing

information held on taxpayers, will support their ability to ensure

that multinational groups pay an appropriate amount of tax.

The detailed tax implications of Brexit are dependent on the

outcome of negotiations between the UK and EU, and are

therefore currently unknown. We continue to work with the

Government to ensure the UK retains a trading relationship

with the EU that allows us to supply our products as swiftly

as we do today to patients and consumers, with zero tariffs on

goods, minimal customs procedures and no VAT cash ﬂow

cost on cross-border trade. The direct tax implications, in

particular, are expected to be limited for GSK while the indirect

tax implications may be more signiﬁcant, including potential

customs duty costs and additional transaction or administrative

costs associated with managing import and export obligations

on the movement of goods between the UK and the EU and

between the UK/EU and the rest of the world. Our approach

to Brexit is set out on page 48.

Our Tax Strategy is set out in detail within the Public Policy

positions section of our website. Further details about our

corporate tax charges for the year are set out on page 189.

Group ﬁnancial review continued

GSK Annual Report 2019

Adjusted operating proﬁt (£bn)

£9.0bn

Total operating proﬁt (£bn)

£7. 0 bn

£33.8bn

Financial performance

AER growth

CER growth

–%

Pro-forma

CER growth

(3)%

4 6 8 10

2019

2018

2017

9.0

8.7

8.6

AER growth

27%

CER growth

23%

4 6 8 10

2019

2018

2017

7.0

5.5

4.1

GSK uses a number of adjusted, non-IFRS, measures to report

the performance of its business. Adjusted results and other

non-IFRS measures may be considered in addition to, but not

as a substitute for or superior to, information presented in

accordance with IFRS. Adjusted results and other non-IFRS

measures are deﬁned on pages 50 to 52.

The Total results of the Group are set out below.

2019 2018 Growth

% of % of

£m turnover £m turnover £% CER%

Turnover 33,754 100 30,821 100 10 8

Cost of sales (11,863) (35.1) (10,241) (33.2) 16 16

Selling, general and

administration (11,402) (33.8) (9,915) (32.2) 15 13

Research and

development (4,568) (13.5) (3,893) (12.6) 17 15

Royalty income 351 1.1 299 1.0 17 17

Other operating

income/(expense) 689 1.9 (1,588) (5.2)

Operating proﬁt 6,961 20.6 5,483 17. 8 27 23

Net ﬁnance costs (814) (717)

Proﬁt on disposal of

interest in associates – 3

Share of after-tax

proﬁts of associates

and joint ventures

74 31

Proﬁt before taxation 6,221 4,800 30 25

Taxation (953) (754)

Proﬁt after taxation

for the year

5,268 4,046 30 26

Proﬁt attributable to

shareholders 4,645 3,623

Earnings per share (p) 93.9 73.7 27 23

Earnings per ADS

(US$) 2.40 1.96

The Adjusted results for the Group are set out below.

Reconciliations between Total results and Adjusted results for

2019 and 2018 are set out on page 62.

2019 2018 Growth

% of % of

£m turnover £m turnover £% CER%

Turnover 33,754 100 30,821 100 10 8

Cost of sales (10,079) (29.9) (9,178) (29.8) 10 10

Selling, general and

administration (10,715) (31.7) (9,462) (30.7) 13 12

Research and

development (4,339) (12.9) (3,735) (12.1) 16 14

Royalty income 351 1.1 299 1.0 17 17

Adjusted operating

proﬁt 8,972 26.6 8,745 28.4 3 –

Adjusted proﬁt

attributable to

shareholders 6,131 5,869 4 1

Adjusted earnings

per share (p)

123.9 119.4 4 1

Group turnover (£bn)

AER growth

10%

CER growth

Pro-forma

CER growth

0 5 10 15 20 25 30

2019

2018

2017

33.8

30.8

30.2

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Pharmaceuticals turnover

2019

£m

2018

(revised)

£m

Growth

£%

Growth

CER%

Respiratory 3,081 2,612 18 15

HIV 4,854 4,722 3 1

Immuno-inﬂammation 613 472 30 25

Oncology 230 – – –

Established Pharmaceuticals 8,776 9,463 (7) (8)

17,554 17,269 2 –

Pharmaceuticals turnover in the year was £17,554 million, up

2% AER, but ﬂat at CER. HIV sales were up 3% AER, 1% CER,

to £4,854 million, with growth in Juluca and Dovato partly offset

by declines in Triumeq and Tivicay. Respiratory sales were up

18% AER, 15% CER, to £3,081 million, on growth of Trelegy

Ellipta and Nucala. Sales of Established Pharmaceuticals were

£8,776 million, down 7% AER, 8% CER, including the impact

of loss of exclusivity of Advair.

In the US, sales declined 1% AER, 4% CER. Continued growth

of Nucala, Trelegy Ellipta and Benlysta was more than offset

by the decline in Established Products including the loss of

exclusivity of Advair. Excluding Advair and Relvar/Breo Ellipta,

which were impacted by genericisation of the ICS/LABA

market, growth was 13% AER, 9% CER. In Europe, sales grew

1% AER, 2% CER, with strong growth in Respiratory partly

offset by a decline in Established Pharmaceuticals. International

grew 5% AER, 4% CER, with growth in all therapy areas.

Turnover (£bn)

£17.6 bn

52% of Group turnover

AER growth

CER growth

–%

0 5 10 15 20

2019

2018

2017

17.6

17.3

Pharmaceuticals

Financial performance continued

Group turnover by business

2019

£m

2018

£m

Growth

£%

Growth

CER%

Pharmaceuticals 17,554 17,269 2 –

Vaccines 7, 15 7 5,894 21 19

Consumer Healthcare 8,995

7,658

17 17

Group turnover 33,706 30,821 9 8

Corporate and other

unallocated turnover 48 –

33,754 30,821 10 8

Pro-forma growth 4

Group turnover by geographic region

2019

£m

2018

£m

Growth

£%

Growth

CER%

US 13,890 11,982 16 12

Europe 8,069 7,973 1 2

International 11,795 10,866 9 9

33,754 30,821 10 8

Group turnover for the year increased 10% AER, 8% CER

to £33,754 million, with growth delivered by Vaccines and

Consumer Healthcare, and Pharmaceuticals ﬂat at CER.

Pro-forma turnover growth for the Group was 4% CER.

Pharmaceuticals turnover in the year was £17,554 million,

up 2% AER, but ﬂat at CER. HIV sales were up 3% AER,

1% CER, to £4,854 million and Respiratory sales were up

18% AER, 15% CER, to £3,081 million. Sales of Established

Pharmaceuticals were £8,776 million, down 7% AER, 8% CER.

Vaccines turnover grew 21% AER, 19% CER to £7,157 million,

primarily driven by growth in sales of Shingrix. Meningitis

vaccines also contributed signiﬁcantly to growth.

Pharmaceuticals and Vaccines Innovation sales (sales

of products launched in the last ﬁve years) amounted to

£3.8 billion in 2019, driven by sales of Shingrix, Trelegy

Ellipta and Nucala.

Consumer Healthcare sales grew 17% AER, 17% CER to

£8,995 million. On a pro-forma basis, sales grew 2%, driven

by strong performance in the Oral health category, partly offset

by a decline in Skin health.

Consumer Healthcare Innovation sales (sales of products

new to market in the last three years) amounted to 12% of

Consumer Healthcare sales, reﬂecting continued focus on

Oral health innovations.

Group turnover

Group ﬁnancial review continued

GSK Annual Report 2019

Respiratory

Total Respiratory sales were up 18% AER, 15% CER, with

strong growth in all regions. Ellipta product sales grew 13%

AER, 10% CER, with Europe up 26% AER, 27% CER and

International up 29% AER, 27% CER on Trelegy and Relvar/

Breo growth. Nucala was up 36% AER, 37% CER in Europe

and 56% AER, 50% CER in International. In the US, Trelegy

Ellipta and Nucala growth offset the decline in Relvar/Breo

Ellipta on post generic ICS/LABA price pressure.

Sales of Nucala were £768 million in the year and grew 36%

AER, 33% CER, with US sales of £453 million up 33% AER,

28% CER, including the impact of the new at-home use

application.

Sales of Ellipta products were up 13% AER, 10% CER to

£2,313 million driven by growth in Europe and International

regions. In the US, sales grew 4% AER, but were ﬂat at CER,

reﬂecting continued competitive pricing pressures for ICS/

LABAs, post generic Advair. In Europe, sales grew 26% AER,

27% CER, and in International by 29% AER, 27% CER. Sales

of Trelegy Ellipta contributed £518 million globally in the year,

driven by an increase in US market share.

Relvar/Breo Ellipta sales were down 11% AER, 13% CER,

driven by the US, where Relvar/Breo Ellipta declined 34% AER,

37% CER as a result of competitive pricing pressures and the

impact of generic Advair on the US ICS/LABA market. In

Europe and International, Relvar/Breo Ellipta continued to

grow, up 11% AER, 12% CER in Europe, and 21% AER,

19% CER in International.

HIV

HIV sales grew 3% AER, 1% CER to £4,854 million in the year.

The dolutegravir franchise grew 5% AER, 2% CER, delivering

sales of £4,633 million. The remaining portfolio, £221 million

and 5% of total HIV sales, declined 27% AER, 27% CER and

reduced the overall HIV growth by two percentage points at

AER and one percentage point at CER.

Sales of dolutegravir products were £4,633 million, with

Triumeq and Tivicay delivering sales of £2,549 million and

£1,662 million, respectively. The two-drug regimens, Juluca

and Dovato, delivered sales of £422 million in the year with

combined growth more than offsetting the decline in the

three-drug regimen, Triumeq, which reﬂected the impact of

competition as well as the transition of the business to

the new portfolio.

In the US, following the launch of Dovato in April 2019,

combined sales of the two-drug regimens were £350 million.

Total dolutegravir sales grew 4% AER but were ﬂat at CER,

reﬂecting a year-on-year share decline as the business

transitions to the new two-drug portfolio, offset by a net price

beneﬁt. In Europe, total dolutegravir sales were ﬂat at AER and

ﬂat at CER, with strong growth in market share offsetting price

erosion and higher clawback payments. Dovato and Juluca

reported combined sales of £65 million. International grew

strongly with total dolutegravir sales growth of 22% AER,

22% CER, driven by Tivicay and Triumeq.

Oncology

Sales of Zejula, were £229 million in the period from the date of

acquisition, comprising £134 million in the US and £95 million

in Europe.

Immuno-inﬂammation

Sales of Benlysta in the year were up 30% AER, 25% CER to

£613 million, including sales of the sub-cutaneous formulation

of £268 million. In the US, Benlysta grew 27% AER, 23% CER

to £535 million.

Established Pharmaceuticals

Sales of Established Pharmaceuticals in the year were £8,776

million, down 7% AER, 8% CER.

Established Respiratory products declined 10% AER, 11%

CER to £3,900 million, with the decline in Advair/Seretide

partly offset by higher sales of Ventolin, Flovent and allergy

products. In the US, a generic version of Advair was launched in

February, resulting in a 54% AER, 56% CER decline in the year.

In Europe, Seretide sales were down 16% AER, 16% CER to

£502 million, reﬂecting continued competition from generic

products and the transition of the Respiratory portfolio to newer

products. In International, sales of Seretide were ﬂat at AER but

down 1% CER. Globally, Ventolin grew by 27% AER, 25%

CER, driven by the strong uptake of an authorised generic

version in the US.

The remainder of the Established Pharmaceuticals portfolio

declined 5% AER, 6% CER to £4,876 million, including

Lamictal down 8% AER, 10% CER to £566 million on generic

competition and lower sales of Viread in International. These

declines were partly offset by Augmentin, up 6% AER,

6% CER to £602 million in the year, driven by strong growth

in International.

Financial performance continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Inﬂuenza

Fluarix/FluLaval sales were up 3% AER, 1% CER to

£541 million, reﬂecting strong sales execution in the US,

partly offset by increased price competition in the US and

lower demand in Europe.

Shingles

Shingrix recorded sales of £1,810 million, primarily driven

by continued strong uptake and the favourable beneﬁt of

prior-period rebate adjustments in the US. Germany and

Canada also contributed to growth.

Established Vaccines

Sales of DTPa-containing vaccines (Infanrix, Pediarix and

Boostrix) grew 10% AER, 8% CER. Infanrix/Pediarix sales

grew 8% AER, 6% CER to £733 million, reﬂecting favourable

year-on-year US CDC stockpile movements and stronger

demand in International, partly offset by competitive pressures

in Europe. Boostrix sales were up 13% AER, 11% CER to

£584 million mainly due to strong demand in International

together with share gains and higher demand in the US.

Hepatitis vaccines grew 8% AER, 6% CER to £874 million,

primarily due to favourable year-on-year CDC stockpile

movements and the continued beneﬁt from a competitor supply

shortage in the US, partly offset by supply constraints and lower

demand in Europe.

Synﬂorix sales grew 10% AER, 11% CER to £468 million,

primarily due to stronger demand in International.

Rotarix sales were up 7% AER, 6% CER to £558 million,

reﬂecting stronger demand in International and the US

together with favourable phasing in International.

MMRV vaccines sales declined 24% AER, 23% CER to

£232 million, largely driven by supply constraints in Europe

and International.

Cervarix sales were down 64% AER, 64% CER to £50 million,

reﬂecting lower demand and expected returns due to competitive

pressure in China, together with lower demand elsewhere in

International.

Turnover (£bn)

£7. 2bn

21% of Group turnover

AER growth

21%

CER growth

19%

0 2 4 6 8 10

2019

2018

2017

7.2

5.9

5.2

Vaccines

Vaccines turnover

2019

£m

2018

£m

Growth

£%

Growth

CER%

Meningitis

1,018 881 16 15

Inﬂuenza

541 523 3 1

Shingles 1,810 784 >100 >100

Established Vaccines

3,788 3,706 2 1

7, 15 7 5,894 21 19

Vaccines turnover grew 21% AER, 19% CER to £7,157 million,

primarily driven by growth in sales of Shingrix. Meningitis

vaccines also contributed to growth mainly due to Bexsero

demand and share gains in the US together with stronger

demand in International. Established Vaccines grew 2% AER,

1% CER to £3,788 million, primarily reﬂecting strong growth

in Boostrix, Hepatitis vaccines, Synﬂorix and Infanrix/Pediarix,

partly offset by lower Cervarix sales in International and supply

constraints in MMRV vaccines.

Meningitis

Meningitis sales grew 16% AER, 15% CER to £1,018 million.

Bexsero sales grew 16% AER, 16% CER to £679 million,

driven by demand and share gains in the US together with

stronger demand in International and Europe, partly offset by

the completion of the vaccination of catch-up cohorts in

certain markets in Europe. Menveo grew 15% AER, 13% CER,

primarily reﬂecting improved supply and higher demand in

International.

Financial performance continued

Group ﬁnancial review continued

GSK Annual Report 2019

Wellness

Wellness sales grew 15% AER, 14% CER to £4,526 million

for the year. On a pro-forma basis, sales were ﬂat, with growth

in Pain relief offset by a decline in Respiratory and the phasing

out of low-margin contract manufacturing. Pain relief beneﬁted

from continued strong performance of Panadol and Advil

with the latter reﬂecting ongoing recovery from now resolved

supply issues. Voltaren saw weaker performance and was

also impacted by retail stock movements. Respiratory sales

declined as growth in Flonase was more than offset by weaker

performance in Theraﬂu, following a strong cold and ﬂu

comparator in 2018. Growth was also impacted by a decline

in other Respiratory brands.

Oral health

Oral health sales grew 7% AER, 7% CER to £2,673 million.

Sensodyne saw double-digit, broad-based growth, with strong

performance in the US and India beneﬁting from new product

innovations. Gum health grew in double digits with broad-based

growth, while Denture care grew in mid-single digits. Oral

health growth was also impacted by a decline in sales of

non-strategic brands.

Nutrition

Nutrition sales grew 83% AER, 81% CER to £1,176 million,

largely due to the inclusion of the Pﬁzer vitamins, minerals and

supplements portfolio. On a pro-forma basis, sales were ﬂat,

reﬂecting the strong performance of Horlicks, offset by declines

in other Nutrition products due to the alignment of in-market

inventory levels of some Pﬁzer brands. Growth was also

impacted by the divestment of Horlicks and Maxinutrition

in the UK.

Skin health

Skin health sales grew 7% AER, 7% CER to £620 million,

largely due to the addition of ChapStick from the Pﬁzer portfolio.

On a pro-forma basis, sales declined in mid-single digits, largely

due to divestments of small tail brands in the US and UK.

Consumer Healthcare turnover

2019

£m

2018

£m

Growth

£%

Growth

CER%

Wellness 4,526 3,940 15 14

Oral health 2,673 2,496 7 7

Nutrition 1,176 643 83 81

Skin health 620 579 7 7

8,995 7,658 17 17

2019

£m

2018

£m

Growth

£%

Growth

CER%

US 2,583 1,828 41 36

Europe 2,456 2,340 5 6

International 3,956 3,490 13 14

8,995 7,658 17 17

Pro-forma growth 2

Consumer Healthcare sales grew 17% AER, 17% CER in

2019 to £8,995 million. On a pro-forma basis, sales grew 2%,

driven by strong performance in the Oral health category, partly

offset by a decline in Skin health. At a regional level, growth

was driven by the US and International following the acquisition

of the Pﬁzer portfolio, while on a pro-forma basis growth was

driven primarily by the International region with strong

performance in India and China.

Divestments and the phasing out of low-margin contract

manufacturing had a negative impact on pro-forma growth

of approximately one percentage point.

Sales of the Consumer Healthcare business included ﬁve

months of Pﬁzer brand sales arising after the creation of the

joint venture. The Pﬁzer brands have been included in the

existing categories and geographic regions used to report

Consumer Healthcare sales. GSK expects to revise this

category structure for reporting from Q1 2020 onwards.

Turnover (£bn)

£9.0bn

27% of Group turnover

AER growth

17%

CER growth

17%

Pro-forma

CER growth

0 2 4 6 8 10

2019

2018

2017

9.0

7.7

7.8

Consumer Healthcare

Financial performance continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Cost of sales

2019

£m

2018

£m

Growth

£%

Growth

CER%

Total cost of sales (11,863) (10,241) 16 16

Adjusted cost of sales (10,079) (9,178) 10 10

Total cost of sales as a percentage of turnover was 35.1%,

1.9 percentage points higher at AER and 2.4 percentage points

higher in CER terms compared with 2018. This reﬂected an

increase in the costs of Major restructuring programmes,

primarily as a result of write-downs in a number of manufacturing

sites, the unwind of the fair market value uplift on inventory

arising on completion of the Consumer Healthcare Joint Venture

with Pﬁzer and increased amortisation of intangible assets.

Excluding these and other Adjusting items, Adjusted cost of

sales as a percentage of turnover was 29.9%, 0.1 percentage

points higher at AER and 0.5 percentage points higher at CER

compared with 2018. On a pro-forma basis, Adjusted cost of

sales as a percentage of turnover was 29.9%, 0.3 percentage

points higher at CER, than in 2018. This reﬂected continued

adverse pricing pressure in Pharmaceuticals, particularly in

Respiratory, an unfavourable product mix in Pharmaceuticals

and a number of non-restructuring related write-downs in

manufacturing sites. This was partly offset by a more favourable

product mix in Vaccines, primarily due to growth of Shingrix in

the US, a favourable impact of inventory adjustments in Vaccines

and a further contribution from integration and restructuring

savings in Pharmaceuticals and Consumer Healthcare.

Selling, general and administration

2019

£m

2018

£m

Growth

£%

Growth

CER%

Total selling, general and

administration (11,402) (9,915) 15 13

Adjusted selling, general and

administration (10,715) (9,462) 13 12

Total SG&A costs as a percentage of turnover were 33.8%,

1.6 percentage points higher at AER and 1.6 percentage points

higher at CER compared with 2018. This included increased

signiﬁcant legal charges arising from the settlement of existing

matters and provisions for ongoing litigation, costs related to

the acquisition of the Pﬁzer consumer healthcare business and

a reversal of an indemnity receivable from Novartis following a

tax settlement, with an equivalent release of a tax provision

which was reﬂected in the tax charge, as well as increased

restructuring costs.

Excluding these and other Adjusting items, Adjusted SG&A

costs as a percentage of turnover were 31.7%, 1.0 percentage

point higher at AER than in 2018 and 1.0 percentage point

higher on a CER basis. On a pro-forma basis, Adjusted SG&A

costs as a percentage of turnover was 31.7%, 0.8 percentage

points higher at CER, compared with 2018.

The growth in Adjusted SG&A costs of 13% AER, 12% CER

and 7% CER on a pro-forma basis reﬂected increased

investment resulting from the acquisition of Tesaro and in

promotional product support, particularly for new launches in

Vaccines, Respiratory and HIV, as well as increased costs for

a number of legal settlements.

This was partly offset by the continuing beneﬁt of restructuring

in Pharmaceuticals and the tight control of ongoing costs,

particularly in non-promotional spending across all three

businesses.

Research and development

2019

£m

2018

£m

Growth

£%

Growth

CER%

Total research and development (4,568) (3,893) 17 15

Adjusted research and development (4,339) (3,735) 16 14

Total R&D expenditure was £4,568 million, 13.5% of turnover,

up 17% AER, 15% CER. Adjusted R&D expenditure was

£4,339 million, 12.9% of turnover, 16% higher at AER, 14%

higher at CER than in 2018. On a pro-forma basis, Adjusted

R&D expenditure grew 13% CER compared with 2018.

Pharmaceuticals R&D expenditure was £3,348 million, up

19% AER, 16% CER, with a signiﬁcant increase in study and

clinical trial material investment in Oncology compared with

2018. This reﬂected the progression of assets from the Tesaro

acquisition, primarily Zejula and dostarlimab, and a number of

other programmes, including belantamab mafodotin, NY-ESO,

ICOS and bintrafusp alfa, as well as increased spending on the

progression of key non-Oncology assets, such as aGM-CSF

for rheumatoid arthritis. This was partly offset by savings from

the early phase portfolio reprioritisation in late 2018. R&D

expenditure in Vaccines and Consumer Healthcare was

£718 million and £273 million, respectively.

Royalty income

Royalty income was £351 million (2018 – £299 million), up

17% AER, 17% CER, primarily reﬂecting increased royalties

on sales of Gardasil.

Other operating income/(expense)

Net other operating income of £689 million (2018 – £1,588

million expense) primarily reﬂected the proﬁt on disposal of

rabies and tick-borne encephalitis vaccines (£306 million) and

a number of other asset disposals, together with an increase in

value of the shares in Hindustan Unilever Limited to be received

on the disposal of Horlicks and other Consumer Healthcare

brands. The cumulative increase in value since the signing

of the proposed transaction was £240 million.

Other income also included accounting credits of £127 million

(2018 – £1,846 million expense) arising from the

remeasurement of the contingent consideration liabilities related

to the acquisitions of the former Shionogi-ViiV Healthcare joint

venture and the former Novartis Vaccines business and the

liabilities for the Pﬁzer put option and Pﬁzer and Shionogi

preferential dividends in ViiV Healthcare. This included a

remeasurement charge of £31 million (2018 – £1,188 million)

for the contingent consideration liability due to Shionogi,

primarily arising from the unwind of the discounting, partly offset

by changes in exchange rate assumptions and sales forecasts.

2018 also included a remeasurement charge of £658 million in

relation to the Consumer Healthcare put option.

Financial performance continued

Group ﬁnancial review continued

GSK Annual Report 2019

Operating proﬁt

Total operating proﬁt was £6,961 million in 2019 compared

with £5,483 million in 2018. Reduced remeasurement charges

on the contingent consideration liabilities, no Consumer

Healthcare put option charge, increased proﬁts on disposals

and an increase in value of the shares in Hindustan Unilever

Limited to be received on the disposal of Horlicks and other

Consumer Healthcare brands were partly offset by increased

charges for Major restructuring, primarily arising from write-

downs in a number of manufacturing sites and costs to integrate

the Consumer Healthcare Joint Venture, and increased

signiﬁcant legal charges.

Excluding these and other Adjusting items, Adjusted operating

proﬁt was £8,972 million, 3% higher than 2018 at AER but

ﬂat at CER on a turnover increase of 8% CER. The Adjusted

operating margin of 26.6% was 1.8 percentage points lower at

AER, and 2.1 percentage points lower on a CER basis than in

2018. On a pro-forma basis, Adjusted operating proﬁt was 3%

lower at CER on a turnover increase of 4% CER. The Adjusted

pro-forma operating margin of 26.6% was 1.9 percentage

points lower on a CER basis than in 2018.

The reduction in pro-forma Adjusted operating proﬁt primarily

reﬂected continuing price pressure, particularly in Respiratory,

including the impact of the launch of a generic version of Advair

in the US in February 2019, investment in R&D including a

signiﬁcant increase in Oncology investment, partly on the

assets from the Tesaro acquisition, and investments in

promotional product support, particularly for new launches

in Vaccines, HIV and Respiratory. This was partly offset by

the beneﬁt from sales growth, particularly in Vaccines, a

more favourable mix in Vaccines and Consumer Healthcare,

favourable inventory adjustments in Vaccines and the continued

beneﬁt of restructuring with tight control of ongoing costs

across all three businesses.

Contingent consideration cash payments which are made

to Shionogi and other companies reduce the balance sheet

liability and hence are not recorded in the income statement.

Total contingent consideration cash payments in 2019

amounted to £893 million (2018 – £1,137 million), including

payments to Shionogi of £865 million (2018 – £793 million).

Operating proﬁt by business

Pharmaceuticals operating proﬁt was £4,595 million, down

20% AER, 22% CER with turnover ﬂat at CER. The operating

margin of 26.2% was 7.1 percentage points lower at AER than

in 2018 and 7.2 percentage points lower on a CER basis. This

primarily reﬂected the increase in cost of sales percentage

due to the continued impact of lower prices, particularly in

Respiratory, including the impact of the launch of a generic

version of Advair in the US in February 2019, an unfavourable

product mix, primarily as a result of the decline in Advair and

growth in lower margin products, a signiﬁcant increase in

Oncology R&D and investment in new product support and

targeted priority markets, together with a number of non-

restructuring related write-downs in manufacturing sites and

higher legal costs.

This was partly offset by the continued beneﬁt of restructuring

and tight control of ongoing costs and the beneﬁts of

re-prioritisation of the R&D portfolio.

Vaccines operating proﬁt was £2,966 million, 53% AER, 46%

CER higher than in 2018 on a turnover increase of 19% CER.

The operating margin of 41.4% was 8.5 percentage points

higher at AER than in 2018 and 7.3 percentage points higher on

a CER basis. This was primarily driven by enhanced operating

leverage from strong sales growth, particularly Shingrix in the

US, improved product mix and higher royalty income. Increased

SG&A investment to support business growth was partly offset

by income from one-off settlements.

Consumer Healthcare operating proﬁt was £1,874 million, up

24% AER, 22% CER higher on a turnover increase of 17%

CER. On a pro-forma basis, operating proﬁt was £1,874 million,

4% CER higher on a turnover increase of 2% CER. The

operating margin of 20.8% was 1.0 percentage point higher

at AER and 0.9 percentage points higher on a CER basis

than in 2018. The pro-forma operating margin of 20.8% was

0.5 percentage points higher on a CER basis. This primarily

reﬂected continued manufacturing restructuring savings,

improved growth from higher margin power brands and the

divestment of lower margin tail products, as well as tight control

of other operating expenses, partly offset by increased

investment in promotion.

Net ﬁnance costs

Finance income

2019

£m

2018

(revised)

£m

Interest and other income 79 74

Fair value movements 19 7

98 81

Finance expense

Interest expense (840) (715)

Unwinding of discounts on provisions (8) (15)

Remeasurements and fair value movements (1) 3

Finance expense on lease liabilities (39) (2)

Other ﬁnance expense (24) (69)

(912) (798)

Total net ﬁnance costs were £814 million compared with

£717 million in 2018. Adjusted net ﬁnance costs were

£810 million compared with £698 million in 2018. The increase

primarily reﬂected higher debt levels following the acquisition

from Novartis of its stake in the Consumer Healthcare Joint

Venture in June 2018 and the acquisition of Tesaro in January

2019, as well as an adverse comparison with a one-off

accounting adjustment of £20 million to amortisation of interest

charges in 2018. This was partly offset by the beneﬁt from older

bonds being reﬁnanced at lower interest rates, a fair value gain

on interest rate swaps and interest of £23 million in Q3 2018 on

an historic tax settlement. Following the introduction of IFRS 16,

‘Leases’, ﬁnance costs included an unwind of the discount on

the lease liability of £39 million in the year.

Financial performance continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Share of after-tax proﬁts of associates and joint ventures

The share of after-tax proﬁts of associates was £74 million

(2018 – £31 million). This included a one-off adjustment of

£51 million to reﬂect GSK’s share of increased after-tax proﬁts

of Innoviva primarily as a result of a non-recurring income tax

beneﬁt.

Proﬁt before tax

Taking account of net ﬁnance costs and the share of proﬁts of

associates, proﬁt before taxation was £6,221 million compared

with £4,800 million in 2018.

Taxation

2019

£m

2018

£m

UK current year charge 149 234

Rest of world current year charge 1,407 1,426

Charge in respect of prior periods (420) (492)

Total current taxation 1,136 1,168

Total deferred taxation (183) (414)

Taxation on total proﬁts 953 754

The charge of £953 million represented an effective tax rate

on Total results of 15.3% (2018 – 15.7%) and reﬂected the

different tax effects of the various Adjusting items. Tax on

Adjusted proﬁt amounted to £1,318 million and represented an

effective Adjusted tax rate of 16.0% (2018 – 19.0%), reﬂecting

the impact of the settlement of a number of open issues with

tax authorities.

Issues related to taxation are described in Note 14, to the

ﬁnancial statements ‘Taxation’. The Group continues to believe

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.

Non-controlling interests

The allocation of Total earnings to non-controlling interests

amounted to £623 million (2018 – £423 million). The increase

was primarily due to an increased allocation of ViiV Healthcare

proﬁts of £482 million (2018 – £251 million) and higher net

proﬁts in some of the Group’s other entities with non-controlling

interests. This was partly offset by the lower allocation of

Consumer Healthcare proﬁts of £70 million (2018 – £117

million) following the buyout of Novartis’ interest in June 2018

and the completion of the new Consumer Healthcare Joint

Venture with Pﬁzer on 31 July 2019, and which included the

unwind of the fair value uplift on acquired inventory.

The allocation of Adjusted earnings to non-controlling interests

amounted to £787 million (2018 – £674 million). The increase

in allocation reﬂected an increased allocation of Consumer

Healthcare proﬁts of £204 million (2018 – £118 million), an

increased allocation of ViiV Healthcare proﬁts of £512 million

(2018 – £501 million) and higher net proﬁts in some of the

Group’s other entities with non-controlling interests.

Earnings per share

Total earnings per share was 93.9p, compared with 73.7p in

2018. The increase in earnings per share primarily reﬂected

reduced remeasurement charges on the contingent

consideration liabilities and put options, an increase in the

value of the shares in Hindustan Unilever Limited to be received

on the disposal of Horlicks and other Consumer Healthcare

brands, a reduced effective tax rate and the increased share

of after-tax proﬁt of the associate Innoviva.

Adjusted EPS of 123.9p compared with 119.4p in 2018, up

4% AER, 1% CER, with Adjusted operating proﬁt ﬂat at CER.

The improvement primarily resulted from a reduced effective

tax rate and an increased share of after-tax proﬁts of associates

as a result of a non-recurring income tax beneﬁt in Innoviva,

partly offset by increased net ﬁnance costs and a higher

non-controlling interest allocation of Consumer Healthcare

proﬁts.

Dividends

The Board declared four interim dividends resulting in a total

dividend for the year of 80 pence, in line with the dividend

declared for 2018. See Note 16 to the ﬁnancial statements,

‘Dividends’.

Dividend policy

GSK recognises the importance of dividends to shareholders

and aims to distribute regular dividend payments that will be

determined primarily with reference to the free cash ﬂow

generated by the business after funding the investment

necessary to support the Group’s future growth.

The Board intends to maintain the dividend for 2020 at the

current level of 80p per share, subject to any material change

in the external environment or performance expectations.

Over time, as free cash ﬂow strengthens, it intends to build

free cash ﬂow cover of the annual dividend to a target range

of 1.25 - 1.50x, before returning the dividend to growth.

Outlook

Our outlook for 2020 reﬂects our expectations for growth in key

new products, and the start of a two-year period in which we

will continue to increase investment in these products and in our

R&D pipeline, alongside implementation of our new programme

which will prepare the Group for separation.

In 2020 we expect Adjusted EPS to decline in the range of

-1% to -4% at CER. This guidance excludes any impact in 2020

from any further material divestments beyond those previously

announced and any potential impact on our business from the

coronavirus outbreak.

All expectations, guidance and targets regarding future

performance and dividend payments should be read together

with ‘Cautionary statement regarding forward-looking

statements’ and ‘Assumptions related to 2016-2020 outlook’

on the inside back cover.

Financial performance continued

Group ﬁnancial review continued

GSK Annual Report 2019

Adjusted results reconciliation

31 December 2019

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 33,754 33,754

Cost of sales (11,863) 713 30 658 383 – (10,079)

Gross proﬁt 21,891 713 30 658 383 – 23,675

Selling, general and administration (11,402) 4 332 104 247 (10,715)

Research and development (4,568) 64 49 114 2 (4,339)

Royalty income 351 351

Other operating (expense)/income 689 1 (142) (548) –

Operating proﬁt 6,961 777 83 1,105 345 (299) 8,972

Net ﬁnance costs (814) 5 (1) (810)

Share of after-tax proﬁts of associates and joint ventures 74 74

Proﬁt before taxation 6,221 777 83 1,110 345 (300) 8,236

Taxation (953) (156) (17) (208) (124) 140 (1,318)

Tax rate 15.3% 16.0%

Proﬁt after taxation 5,268 621 66 902 221 (160) 6,918

Proﬁt attributable to non-controlling interests 623 164 787

Proﬁt attributable to shareholders 4,645 621 66 902 57 (160) 6,131

Earnings per share 93.9p 12.6p 1.3p 18.2p 1.2p (3.3)p 123.9p

Weighted average number of shares (millions) 4,947 4,947

Adjusted results reconciliation

31 December 2018

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 30,821 30,821

Cost of sales (10,241) 536 69 443 15 – (9,178)

Gross proﬁt 20,580 536 69 443 15 – 21,643

Selling, general and administration (9,915) 2 315 98 38 (9,462)

Research and development (3,893) 44 45 49 20 (3,735)

Royalty income 299 299

Other operating (expense)/income (1,588) 2 1,864 (278) –

Operating proﬁt 5,483 580 116 809 1,977 (220) 8,745

Net ﬁnance costs (717) 4 (3) 18 (698)

Proﬁt on disposal of associates 3 (3) –

Share of after-tax proﬁts of associates and joint ventures 31 31

Proﬁt before taxation 4,800 580 116 813 1,974 (205) 8,078

Taxation (754) (109) (19) (170) (239) (244) (1,535)

Tax rate 15.7% 19.0%

Proﬁt after taxation 4,046 471 97 643 1,735 (449) 6,543

Proﬁt attributable to non-controlling interests 423 251 674

Proﬁt attributable to shareholders 3,623 471 97 643 1,484 (449) 5,869

Earnings per share 73.7p 9.6p 2.0p 13.1p 30.2p (9.2)p 119.4p

Weighted average number of shares (millions) 4,914 4,914

Adjusting items

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Major restructuring and integration

Within the Pharmaceuticals sector, the highly-regulated

manufacturing operations and supply chains and long life-cycle

of the business mean that restructuring programmes, particularly

those that involve the rationalisation or closure of manufacturing

or R&D sites, are likely to take several years to complete.

Major restructuring costs are those related to speciﬁc Board-

approved Major restructuring programmes and are excluded

from Adjusted results. Major restructuring programmes,

including integration costs following material acquisitions, are

those that are structural and are of a signiﬁcant scale where the

costs of individual or related projects exceed £25 million. Other

ordinary course smaller-scale restructuring costs are retained

within Total and Adjusted results.

Total Major restructuring charges incurred in 2019 were

£1,105 million (2018 – £809 million), analysed as follows:

2019 2018

Cash

£m

Non-

cash

£m

Total

£m

Cash

£m

Non-

cash

£m

Total

£m

2018 major

restructuring

programme

(incl. Tesaro) 227 572 799 279 90 369

Consumer

Healthcare Joint

Venture integration

programme 248 4 252 – – –

Combined

restructuring

and integration

programme 10 44 54 330 110 440

485 620 1,105 609 200 809

Cash charges primarily arose from restructuring of the

manufacturing organisation, R&D and some administrative

functions as well as the integration of Tesaro under the 2018

major restructuring programme and integration costs under the

Consumer Healthcare Joint Venture integration programme.

Non-cash charges under the 2018 major restructuring

programme primarily related to announced plans to restructure

the manufacturing network.

Total cash payments made in 2019 were £645 million,

£316 million for the existing Combined restructuring and

integration programme (2018 – £528 million) and £164 million

(2018 – £9 million) under the 2018 major restructuring

programme including the settlement of certain charges accrued

in previous quarters and a further £165 million relating to the

Consumer Healthcare Joint Venture integration programme.

The analysis of Major restructuring charges by business was

as follows:

2019

£m

2018

£m

Pharmaceuticals 651 563

Vaccines 58 104

Consumer Healthcare 321 72

1,030 739

Corporate and central functions 75 70

Total Major restructuring charges 1,105 809

The analysis of Major restructuring charges by Income

statement line was as follows:

2019

£m

2018

£m

Cost of sales 658 443

Selling, general and administration 332 315

Research and development 114 49

Other operating income/(expense) 1 2

Total Major restructuring charges 1,105 809

The Combined restructuring and integration programme

delivered incremental annual cost savings in the year of

£0.3 billion. The 2018 major restructuring programme delivered

incremental cost savings in the year of £0.2 billion.

Total cash charges for the Combined restructuring and

integration programme are now expected to be approximately

£4.0 billion with non-cash charges of £1.4 billion. The total of

£5.4 billion represents a reduction of £0.3 billion from the

originally approved £5.7 billion. The programme has now

delivered approximately £4.2 billion of annual savings, including

an estimated currency beneﬁt of £0.2 billion. The programme is

expected to deliver by the end of 2020 total annual savings of

£4.3 billion on a constant currency basis, including an

estimated beneﬁt of £0.2 billion from currency on the basis of

2019 average exchange rates. The programme is substantially

complete and therefore GSK will cease external reporting of

total costs and beneﬁts of the Combined restructuring and

integration programme from 2020 onwards.

The Group acquired Tesaro in January 2019, and is expected

to incur around £50 million of integration and restructuring

cash costs, leading to annual cost-saving beneﬁts of around

£50 million. This has been added to and reported as part of the

existing 2018 major restructuring programme.

The 2018 major restructuring programme, now including

Tesaro, is expected to cost £1.75 billion over the period to

2021, with cash costs of £0.85 billion and non-cash costs of

£0.9 billion, and is expected to deliver annual savings of around

£450 million by 2021 (at 2019 rates). These savings are

intended to be fully re-invested to help fund targeted increases

in R&D and commercial support of new products.

The completion of the new Consumer Healthcare Joint Venture

with Pﬁzer is expected to realise substantial cost synergies,

generating total annual cost savings of £0.5 billion by 2022

for expected cash costs of £0.7 billion and non-cash charges

of £0.3 billion, plus additional capital expenditure of £0.2 billion.

Up to 25% of the cost savings are intended to be reinvested

in the business to support innovation and other growth

opportunities.

The Group has initiated a two-year Separation Preparation

programme to prepare for the separation of GSK into two

companies: New GSK, a biopharma company with an R&D

approach focused on science related to the immune system,

the use of genetics and new technologies, and a new leader in

Consumer Healthcare.

Adjusting items continued

Group ﬁnancial review continued

GSK Annual Report 2019

The programme aims to:

– drive a common approach to R&D with improved capital

allocation

– align and improve the capabilities and efﬁciency of global

support functions to support New GSK

– further optimise the supply chain and product portfolio,

including the divestment of non-core assets. A strategic

review of prescription dermatology is underway

– prepare Consumer Healthcare to operate as a standalone

company

The programme will target delivery of £0.7 billion of annual

savings by 2022 and £0.8 billion by 2023, with total costs

estimated at £2.4 billion, of which £1.6 billion is expected to

be cash costs. The proceeds of anticipated divestments are

largely expected to cover the cash costs of the programme.

Additional one-time costs to prepare Consumer Healthcare

for separation are estimated at £600-700 million, excluding

transaction costs.

Transaction-related adjustments

Transaction-related adjustments resulted in a net charge of

£345 million (2018 – £1,977 million). This included a net

£127 million accounting credit for the remeasurement of the

contingent consideration liabilities related to the acquisitions

of the former Shionogi-ViiV Healthcare joint venture and the

former Novartis Vaccines business and the liabilities for the

Pﬁzer put option and Pﬁzer and Shionogi preferential

dividends in ViiV Healthcare.

Charge/(credit)

2019

£m

2018

£m

Consumer Healthcare Joint Venture put option – 658

Contingent consideration on former Shionogi-ViiV

Healthcare Joint Venture (including Shionogi

preferential dividends) 31 1,188

ViiV Healthcare put options and Pﬁzer preferential

dividends (234) (58)

Contingent consideration on former Novartis

Vaccines business 76 58

Release of fair value uplift on acquired Pﬁzer

inventory 366 –

Other adjustments 106 131

Total transaction-related charges 345 1,977

The £31 million charge relating to the contingent consideration

for the former Shionogi-ViiV Healthcare joint venture represented

an increase in the valuation of the contingent consideration due

to Shionogi, primarily as a result of a £435 million unwind of the

discount, partly offset by updated exchange rate assumptions

and adjustments to sales forecasts. The £234 million credit

relating to the ViiV Healthcare put options and Pﬁzer preferential

dividends represented a reduction in the valuation of the put

option as a result of adjustments to multiples and sales forecasts

as well as updated exchange rate assumptions.

Other adjustments included transaction costs arising on

completion of the Consumer Healthcare Joint Venture with Pﬁzer,

as well as a reversal of an indemnity receivable from Novartis

following a tax settlement, with an equivalent release

of a tax provision. An explanation of the accounting for the

non-controlling interests in ViiV Healthcare is set out on page 51.

Divestments, signiﬁcant legal charges and other items

Divestments and other items included a proﬁt on disposal of

rabies and tick-borne encephalitis vaccines (£306 million), a

gain in the year of £143 million arising from the increase in value

of the shares in Hindustan Unilever Limited to be received on

the disposal of Horlicks and other Consumer Healthcare

brands, as well as equity investment impairments and certain

other Adjusting items together with the proﬁt on a number of

asset disposals. A charge of £251 million (2018 – £33 million)

for signiﬁcant legal matters included the settlement of existing

matters as well as provisions for ongoing litigation. Signiﬁcant

legal cash payments were £294 million (2018 – £39 million).

Pro-forma growth reconciliations

The tables below set out reconciliations between reported CER

growth rates and pro-forma CER growth rates and between

reported margin percentages and pro-forma margin percentages.

Reported

growth rate

CER%

Adjustment to

include

August to

December

2018 results

of Pﬁzer

consumer

healthcare

business

Pro-forma

growth rate

CER%

Group

Turnover 8 (4) 4

Adjusted cost of sales 10 (5) 5

Adjusted selling, general and

administration 12 (5) 7

Adjusted research and development 14 (1) 13

Adjusted operating proﬁt – (3) (3)

Consumer Healthcare

Turnover 17 (15) 2

Wellness sales 14 (14) –

Nutrition sales 81 (81) –

Skin health sales 7 (12) (5)

Operating proﬁt 22 (18) 4

The 2018 pro-forma ﬁnancial information used as the basis for

the pro-forma growth rates has been calculated as follows:

GSK

reported

results

2018

£bn

August to

December

2018 results

of Pﬁzer

consumer

healthcare

business

£bn

Pro-forma

results

2018

£bn

Group

Turnover 30.8 1.2 32.0

Adjusted cost of sales (9.2) (0.4) (9.6)

Adjusted selling, general and

administration (9.5) (0.4) (9.9)

Adjusted research and development (3.7) (0.1) (3.8)

Adjusted operating proﬁt 8.7 0.3 9.0

Consumer Healthcare

Turnover 7.7 1.1 8.8

Wellness sales 4.0 0.5 4.5

Nutrition sales 0.6 0.5 1.1

Skin health sales 0.6 0.1 0.7

Operating proﬁt 1.5 0.3 1.8

Adjusting items continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

A summary of the consolidated cash ﬂow statement is set out

below.

2019

£m

2018

£m

Net cash inﬂow from operating activities 8,020 8,421

Net cash outﬂow from investing activities (5,354) (1,553)

Net cash outﬂow from ﬁnancing activities (1,840) (6,389)

Increase/(decrease) in cash and bank overdrafts 826 479

Cash and bank overdrafts at beginning of year 4,087 3,600

Increase in cash and bank overdrafts 826 479

Exchange adjustments (82) 8

Cash and bank overdrafts at end of year 4,831 4,087

Cash and bank overdrafts at end of year comprise:

Cash and cash equivalents 4,707 3,874

Cash and cash equivalents reported in assets

held for sale 507 485

Overdrafts (383) (272)

4,831 4,087

Capital expenditure and ﬁnancial investment

Cash payments for tangible and intangible ﬁxed assets

amounted to £2,163 million (2018 – £1,796 million) and

disposals realised £603 million (2018 – £453 million).

Cash payments to acquire equity investments amounted

to £258 million (2018 – £309 million), primarily relating to

Lyell Immunopharma, and sales of equity investments realised

£69 million (2018 – £151 million).

Free cash ﬂow

Free cash ﬂow is the amount of cash generated by the Group

after meeting our obligations for contingent consideration,

interest, tax and dividends paid to non-controlling interests,

and after capital expenditure on property, plant and equipment

and intangible assets.

2019

£m

2018

£m

Free cash inﬂow 5,073 5,692

The reduction in free cash ﬂow primarily reﬂected the adverse

timing of payments for returns and rebates, as well as the initial

step-down impact from US Advair generic competition,

increased capital expenditure including the acquisition of

intangible assets, higher restructuring payments and higher

signiﬁcant legal costs. This was partly offset by improved

operating proﬁts including currency beneﬁts, a reduction in

inventory and a lower increase in trade receivables, lower

contingent consideration payments compared with 2018,

which included a milestone payment to Novartis, lower dividend

payments to non-controlling interests and the reclassiﬁcation of

lease payments from operating to ﬁnancing activities following

the transition to IFRS 16.

Total cash payments to Shionogi in relation to the ViiV

Healthcare contingent consideration liability in the year were

£865 million (2018 – £793 million), of which £767 million

was recognised in cash ﬂows from operating activities and

£98 million was recognised in contingent consideration paid

within investing cash ﬂows. These payments are deductible

for tax purposes.

Reconciliation of net cash inﬂow from operating activities

to free cash ﬂow

A reconciliation of net cash inﬂow from operating activities,

which is the closest equivalent IFRS measure to free cash ﬂow,

is shown below.

2019

£m

2018

£m

Net cash inﬂow from operating activities 8,020 8,421

Purchase of property, plant and equipment (1,265) (1,344)

Purchase of intangible assets (898) (452)

Proceeds from sale of property, plant and equipment 95 168

Proceeds from disposal of intangible assets 404 256

Interest paid (895) (766)

Interest received 82 72

Dividends from associates and joint ventures 7 39

Contingent consideration paid (reported in

investing activities) (113) (153)

Contribution from non-controlling interests – 21

Distributions to non-controlling interests (364) (570)

Free cash ﬂow 5,073 5,692

Future cash ﬂow

Over the long term, we expect that future cash generated from

operations will be sufﬁcient to fund our operating and debt

servicing costs, normal levels of capital expenditure, obligations

under existing licensing agreements, expenditure arising from

restructuring programmes and other routine outﬂows including

tax, pension contributions and dividends, subject to the

‘Principal risks and uncertainties’ discussed on pages 275 to

287. We may from time to time have additional demands for

ﬁnance, such as for acquisitions, including potentially acquiring

increased ownership interests in the ViiV Healthcare business

where minority shareholders hold put options. We have access

to multiple sources of liquidity from short and long-term capital

markets and ﬁnancial institutions for such needs, in addition to

the cash ﬂow from operations.

Investment appraisal and capital allocation

We have a strong framework for capital allocation, including

a board to govern the allocation of capital between our

businesses. We utilise a consistent cash return on invested

capital (CROIC) methodology to prioritise investment across

the Group as a whole, so that we can more effectively compare

the returns from each of the businesses as we allocate capital

between them. We also consider the impact on EPS and our

credit proﬁle where relevant.

Cash generation and conversion

Group ﬁnancial review continued

GSK Annual Report 2019

2019

£m

2018

£m

Assets

Non-current assets

Property, plant and equipment 10,348 11,058

Right of use assets 966 –

Goodwill 10,562 5,789

Other intangible assets 30,955 17,202

Investments in associates and joint ventures 314 236

Other investments 1,837 1,322

Deferred tax assets 4,096 3,887

Derivative ﬁnancial instruments 103 69

Other non-current assets 1,020 1,576

Total non-current assets 60,201 41,139

Current assets

Inventories 5,947 5,476

Current tax recoverable 262 229

Trade and other receivables 7,202 6,423

Derivative ﬁnancial instruments 421 188

Liquid investments 79 84

Cash and cash equivalents 4,707 3,874

Assets held for sale 873 653

Total current assets 19,491 16,927

Total assets 79,692 58,066

Liabilities

Current liabilities

Short-term borrowings (6,918) (5,793)

Contingent consideration liabilities (755) (837)

Trade and other payables (14,939) (14,037)

Derivative ﬁnancial instruments (188) (127)

Current tax payable (629) (965)

Short-term provisions (621) (732)

Total current liabilities (24,050) (22,491)

Non-current liabilities

Long-term borrowings (23,590) (20,271)

Corporation tax payable (189) (272)

Deferred tax liabilities (3,810) (1,156)

Pensions and other post-employment beneﬁts (3,457) (3,125)

Other provisions (670) (691)

Derivative ﬁnancial instruments (1) (1)

Contingent consideration liabilities (4,724) (5,449)

Other non-current liabilities (844) (938)

Total non-current liabilities (37,285) (31,903)

Total liabilities (61,335) (54,394)

Net assets 18,357 3,672

Total equity 18,357 3,672

Acquisition of Pﬁzer consumer healthcare business

As the acquisition of the Pﬁzer consumer healthcare business

was a non-cash transaction, it resulted in an increase in net

assets of £15.0 billion, including intangible assets of

£12.4 billion and goodwill of £3.9 billion. This reﬂected the

recognition of Pﬁzer’s non-controlling interest in the Consumer

Healthcare Joint Venture of £6.9 billion and a gain in retained

earnings of £8.1 billion representing the difference between

fair value and book value of the 32% of GSK’s Consumer

Healthcare business transferred to Pﬁzer.

Property, plant and equipment

Our business is science-based, technology-intensive and highly

regulated by governmental authorities. We allocate signiﬁcant

ﬁnancial resources to the renewal and maintenance of our

property, plant and equipment to minimise risks of interruption to

production and to ensure compliance with regulatory standards.

A number of our processes use hazardous materials.

The total cost of our property, plant and equipment at

31 December 2019 was £21,599 million, with a net book value

of £10,348 million. Of this, land and buildings represented

£4,037 million, plant and equipment £4,425 million and assets

in construction £1,886 million. In 2019, we invested £1,640

million in new property, plant and equipment. This was mainly

related to a large number of projects for the renewal,

improvement and expansion of facilities at various worldwide

sites to support new product development and launches as well

as to improve the efﬁciency of existing supply chains. Property

is mainly held freehold. New investment is ﬁnanced from our

liquid resources. At 31 December 2019, we had contractual

commitments for future capital expenditure of £413 million.

We believe that our property and plant facilities are adequate

for our current needs.

We observe stringent procedures and use specialist skills to

manage environmental risks from our activities. Environmental

issues, sometimes dating from operations now modiﬁed or

discontinued, are reported under ‘Environment’ on page 41

and in Note 46 to the ﬁnancial statements, ‘Legal proceedings’.

Right of use assets

Right of use assets amounted to £966 million at 31 December

2019 compared with £1,071 million on 1 January 2019,

following the implementation of IFRS 16. The decrease in

the year reﬂected the impact of depreciation and disposals

of £214 million and £64 million respectively, partly offset

by additions, including from business combinations, of

£211 million.

Goodwill

Goodwill increased to £10,562 million at 31 December 2019,

from £5,789 million, primarily reﬂecting additions of £3,854

million arising from the acquisition of the Pﬁzer consumer

healthcare business and £1,169 million from the acquisition

of Tesaro, Inc.

Financial position and resources

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

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 31 December 2019 was

£30,955 million (2018 – £17,202 million). The increase primarily

reﬂected additions of £12,357 million from the acquisition of the

Pﬁzer consumer healthcare business and £3,092 million from

the acquisition of Tesaro, Inc.

Investments in associates and joint ventures

We held investments in associates and joint ventures with

a carrying value at 31 December 2019 of £314 million

(2018 – £236 million). The market value at 31 December 2019

was £396 million (2018 – £487 million). The largest of these

investments was in Innoviva Inc., which had a book value at

31 December 2019 of £261 million (2018 – £189 million)

and a market value of £343 million. See Note 21 to the ﬁnancial

statements, ‘Investments in associates and joint ventures’.

Other investments

We held other investments with a carrying value at 31

December 2019 of £1,837 million (2018 – £1,322 million). The

highest value investments held at 31 December 2019 were in

23andMe, which had a book value at 31 December 2019 of

£227 million (2018 – £229 million), Progyny, Inc, which had a

book value of £213 million (2018 – £21 million) and Theravance

Biopharma, Inc., which had a book value at 31 December 2019

of £189 million (2018 – £194 million). The other investments

included equity stakes in companies with which we have

research collaborations, and which provide access to

biotechnology developments of potential interest and interests

in companies that arise from business divestments.

Derivative ﬁnancial instruments: assets

We had current derivative ﬁnancial assets held at fair value of

£421 million (2018 – £188 million) and non-current derivative

ﬁnancial assets held at fair value of £103 million (2018 –

£69 million). £240 million of current derivative ﬁnancial assets

related to a derivative embedded in the agreement to divest

Horlicks and other nutritional brands to Unilever plc. See Note

40 for further information. The majority of the remainder of these

ﬁnancial instruments related to foreign exchange contracts both

designated and not designated as accounting hedges.

Inventories

Inventory of £5,947 million increased from £5,476 million

in 2018 primarily reﬂecting the higher inventory in Consumer

Healthcare following the Pﬁzer acquisition in the year, partly

offset by the impact of exchange movements.

Trade and other receivables

Trade and other receivables of £7,202 million increased from

£6,423 million in 2018, primarily reﬂecting the impact of higher

sales, particularly in Vaccines, partly offset by better collections

and exchange movements.

Deferred tax assets

Deferred tax assets amounted to £4,096 million (2018 –

£3,887 million) at 31 December 2019.

Derivative ﬁnancial instruments: liabilities

We held current and non-current derivative ﬁnancial liabilities

at fair value of £189 million (2018 – £128 million). This primarily

related to foreign exchange contracts both designated and not

designated as accounting hedges.

Trade and other payables

At 31 December 2019, trade and other payables were

£14,939 million compared with £14,037 million at

31 December 2018. The increase primarily reﬂected higher

payables in Consumer Healthcare following the Pﬁzer

acquisition in the year, partly offset by exchange movements.

Provisions

We carried deferred tax provisions and other short-term and

non-current provisions of £5,101 million at 31 December 2019

(2018 – £2,579 million). Other provisions at the year-end

included £198 million (2018 – £219 million) related to legal and

other disputes and £505 million (2018 – £641 million) related

to Major restructuring programmes. Provision has been made

for legal and other disputes, indemniﬁed disposal liabilities,

employee related liabilities and the costs of the restructuring

programme 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

We account for pension and other post-employment

arrangements in accordance with IAS 19. The net deﬁcits were

£1,921 million (2018 – £995 million) on pension arrangements

and £1,418 million (2018 – £1,379 million) on unfunded

post-employment liabilities. See Note 30 to the ﬁnancial

statements, ‘Pensions and other post-employment beneﬁts’.

Other non-current liabilities

Other non-current liabilities amounted to £844 million at

31 December 2019 (2018 – £938 million).

Contingent consideration liabilities

Contingent consideration amounted to £5,479 million at

31 December 2019 (2018 – £6,286 million), of which

£5,103 million (2018 – £5,937 million) represented the estimated

present value of amounts payable to Shionogi relating to ViiV

Healthcare and £339 million (2018 – £296 million) represented

the estimated present value of contingent consideration payable

to Novartis related to the Vaccines acquisition.

The liability due to Shionogi included £222 million in respect

of preferential dividends. The liability for preferential dividends

due to Pﬁzer at 31 December 2019 was £4 million (2018 –

£15 million). An explanation of the accounting for the non-

controlling interests in ViiV Healthcare is set out on page 51.

Of the contingent consideration payable (on a post-tax basis)

at 31 December 2019, £755 million (2018 – £837 million) is

expected to be paid within one year. The consideration payable

is expected to be paid over a number of years. As a result, the

total estimated liabilities are discounted to their present values,

on a post-tax basis using post-tax discount rates. The Shionogi-

ViiV Healthcare contingent consideration liability is discounted

at 8.5% and the Novartis Vaccines contingent consideration

liability is discounted partly at 8% and partly at 9%.

Financial position and resources continued

Group ﬁnancial review continued

GSK Annual Report 2019

Net debt

2019

£m

2018

£m

Cash, cash equivalents and liquid investments 4,786 3,958

Cash, cash equivalents reported in assets

held for sale 507 485

Borrowings – repayable within one year (6,918) (5,793)

Borrowings – repayable after one year (23,590) (20,271)

Net debt (25,215) (21,621)

At 31 December 2019, net debt was £25.2 billion, compared

with £21.6 billion at 31 December 2018. This comprised gross

debt of £30.5 billion and cash and liquid investments of

£5.3 billion, including £0.5 billion reported within Assets held

for sale. Net debt increased due to the £3.9 billion acquisition

of Tesaro Inc as well as £0.2 billion of Tesaro net debt, together

with the £1.3 billion impact from the implementation of IFRS 16,

the dividend paid to shareholders of £4.0 billion and other net

investing activities of £0.1 billion, partly offset by £0.7 billion net

favourable exchange impacts from the translation of non-Sterling

denominated debt and exchange on other ﬁnancing items and

£5.1 billion of free cash ﬂow.

At 31 December 2019, GSK had short-term borrowings

(including overdrafts and lease liabilities) repayable within 12

months of £6.9 billion, with loans of £3.2 billion repayable in

the subsequent year.

At 31 December 2019, GSK’s cash and liquid investments were

held as follows:

2019

£m

2018

£m

Bank balances and deposits 2,565 1,853

Bank balances and deposits reported in

assets held for sale 507 485

US Treasury and Treasury repo only money

market funds 102 449

Liquidity funds 2,040 1,572

Cash and cash equivalents 5,214 4,359

Liquid investments – Government securities 79 84

5,293 4,443

Cash and liquid investments of £3.6 billion (2018 – £2.9 billion)

were held centrally at 31 December 2019.

The analysis of cash and gross debt after the effects of hedging

is as follows.

2019

£m

2018

£m

Cash and liquid investments 5,293 4,443

Gross debt – ﬁxed

(25,064) (21,603)

– ﬂoating (5,444) (4,432)

– non-interest bearing – (29)

Net debt (25,215) (21,621)

1 Includes £2.1 billion equivalent of notes swapped from ﬂoating to ﬁxed rates via interest

rate swaps.

Movements in net debt

2019

£m

2018

£m

Net debt at beginning of year (21,621) (13,178)

Implementation of IFRS 16 (1,303) –

Net debt at beginning of year, as adjusted (22,924) (13,178)

Increase in cash and bank overdrafts 826 479

Decrease in liquid investments (1) –

Increase in long-term loans (4,794) (10,138)

Net repayment of short-term loans 1,065 1,986

Repayment of lease liabilities 214 28

Debt of subsidiary undertakings acquired (524) –

Exchange movements 1,015 (776)

Other movements (92) (22)

Net debt at end of year (25,215) (21,621)

Financial position and resources continued

2,500

2,000

1,500

1,000

500

3,000

Maturity proﬁle of bond debt

£m equivalent

GBP bonds EUR bonds USD bonds

2020 2022 2025 2027 2033 2034 2038 2039 2042

2023 2043

2045

20242021 2026 2029

2028 2030

3,500

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Financial position and resources continued

Interest rate benchmark reform

‘Interest rate benchmark reform – Amendments to IFRS 9,

IAS 39 and IFRS 7’ was issued by the IASB in September

2019. These amendments modify speciﬁc hedge accounting

requirements to allow hedge accounting to continue for affected

hedges during the period of uncertainty before the hedged

items or hedging instruments affected by the current interest

rate benchmarks are amended as a result of the ongoing

interest rate benchmark reforms.

At 31 December 2019, the Group was not directly exposed

to interest rate benchmark reform as it held no interest rate

derivatives that referenced LIBOR and matured after the end

of 2021 and all ﬂoating rate bonds were due to mature before

the end of 2021.

The Group has closely monitored the market and the output

from the various industry working groups managing the

transition to new benchmark interest rates. This includes

announcements made by LIBOR regulators, including the

Financial Conduct Authority (FCA) and the US Commodity

Futures Trading Commission, regarding the transition away

from LIBOR (including GBP LIBOR, USD LIBOR and

EURIBOR) to the Sterling Overnight Index Average Rate

(SONIA), the Secured Overnight Financing Rate (SOFR),

and the Euro Short-Term Rate (€STR) respectively. The FCA

has made it clear that, at the end of 2021, it will no longer

seek to persuade, or compel, banks to submit to LIBOR.

The Group is undertaking an interest rate benchmark transition

programme to identify potential exposures within the business

and deliver a smooth transition to appropriate alternative

benchmark rates.

Total equity

At 31 December 2019, total equity had increased from £3,672

million at 31 December 2018 to £18,357 million.

A summary of the movements in equity is set out below.

2019

£m

2018

£m

Total equity at beginning of year 3,672 3,489

Implementation of IFRS 15 (4)

Implementation of IFRS 9 (11)

Implementation of IFRS 16 (93)

Total equity at beginning of year, as adjusted 3,579 3,474

Total comprehensive income for the year 3,701 4,300

Dividends to shareholders (3,953) (3,927)

Recognition of interest in Consumer Healthcare

Joint Venture 14,969 –

Ordinary shares issued 51 74

Changes in non-controlling interests (10) –

De-recognition of liabilities with non-controlling

interests – (62)

Share-based incentive plans 365 360

Tax on share-based incentive plans 19 2

Contributions from non-controlling interests – 21

Distributions to non-controlling interests (364) (570)

Total equity at end of year 18,357 3,672

Share purchases

No shares were repurchased by the company during 2019.

At 31 December 2019, GSK held 393.5 million shares as

Treasury shares (2018 – 414.6 million shares), at a cost of

£5,505 million (2018 – £5,800 million), which has been

deducted from retained earnings.

No ordinary shares were purchased in the period 1 January

2020 to 24 February 2020 and the company does not expect

to make any ordinary share repurchases in the remainder of

2020.

In 2019, 21.1 million Treasury shares were transferred to the

Employee Share Ownership Plan (ESOP) Trusts. 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 us 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 31 December 2019, the ESOP Trusts held 36.4 million

(2018 – 41.5 million) GSK shares against the future exercise

of share options and share awards. The carrying value of

£135 million (2018 – £161 million) has been deducted from

other reserves. The market value of these shares was

£647 million (2018 – £619 million).

Group ﬁnancial review continued

GSK Annual Report 2019

Contractual obligations and commitments

Financial commitments are summarised in Note 35 to the

ﬁnancial statements, ‘Commitments’.

The following table sets out our contractual obligations and

commitments at 31 December 2019 as they fall due for

payment.

Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+

£m £m £m £m £m

Loans 29,408 6,678 5,883 3,925 12,922

Interest on loans 8,952 780 1,409 1,159 5,604

Finance lease obligations 1,250 240 346 198 466

Future ﬁnance charges 223 41 66 42 74

Intangible assets 9,727 578 607 1,502 7,040

Property, plant & equipment 413 378 35 – –

Investments 47 24 23 – –

Purchase commitments 1,047 925 121 1 –

Pensions 163 75 88 – –

Total 51,230 9,719 8,578 6,827 26,106

Commitments in respect of loans and future interest payable

on loans are disclosed before taking into account the effect of

derivatives.

We have 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, we 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, the potential obligation to make

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 probability of success. The amounts

shown above within intangible assets represent the maximum

that would be paid if all milestones were achieved, and include

£4.9 billion which relates to externalised projects in the

discovery portfolio. There was an increase in the commitments

in 2019 as a result of a number of new R&D collaborations,

including with Merck KgaA and Lyell Immunopharma.

In 2018, we reached an agreement with the trustees of the

UK pension schemes to make additional contributions, to

assist in eliminating the pension deﬁcit identiﬁed as part of the

31 December 2017 actuarial funding valuation. The table

above includes this commitment but excludes the normal

ongoing annual funding requirement in the UK of approximately

£130 million. For further information on pension obligations,

see Note 30 to the ﬁnancial statements, ‘Pensions and other

post-employment beneﬁts’.

Contingent liabilities

Other contingent liabilities are set out in Note 34 to the ﬁnancial

statements, ‘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 32 4 11 3 14

Other contingent liabilities 65 10 17 8 30

Total 97 14 28 11 44

In the normal course of business, we have 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 reliable estimate can be made of the likely

outcome of the dispute and this is included in Note 31 to the

ﬁnancial statements, ‘Other provisions’.

We provide for the outcome of tax, legal and other disputes

when an outﬂow of resources is considered probable and a

reliable estimate of the outﬂow may be made. At 31 December

2019, other than for those disputes where provision has been

made, it was not possible to make a reliable estimate of the

potential outﬂow of funds that might be required to settle

disputes where the possibility of there being an outﬂow was

more than remote.

The ultimate liability for such matters may vary signiﬁcantly from

the amounts provided and is dependent upon negotiations with

the relevant tax authorities and the outcome of litigation

proceedings, where relevant. This is discussed further in

‘Principal risks and uncertainties’ on pages 275 to 287 and

Note 46 to the ﬁnancial statements, ‘Legal proceedings’.

Financial position and resources continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

Treasury policies

We report in Sterling and pay dividends out of Sterling cash

ﬂows. The role of Treasury is to monitor and manage the

Group’s external and internal funding requirements and ﬁnancial

risks in support of our strategic objectives. GSK operates on

a global basis, primarily through subsidiary companies, and

we manage our capital to ensure that our subsidiaries are able

to operate as going concerns and to optimise returns to

shareholders through an appropriate balance of debt and

equity. Treasury activities are governed by policies approved

annually by the Board of Directors, and most recently on

16 October 2019. A Treasury Management Group (TMG)

meeting, chaired by our Chief Financial Ofﬁcer, takes place

on a regular basis to review Treasury activities. Its members

receive management information relating to these activities.

Treasury operations

The objective of GSK’s Treasury activities is to minimise the

post-tax net cost of ﬁnancial operations and reduce its volatility

in order to beneﬁt earnings and cash ﬂows. GSK uses a variety

of ﬁnancial instruments to ﬁnance its operations and derivative

ﬁnancial instruments to manage market risks from these

operations. Derivatives principally comprise foreign exchange

forward contracts and swaps which are used to swap

borrowings and liquid assets into currencies required for

Group purposes, as well as interest rate swaps which are

used to manage exposure to ﬁnancial risks from changes in

interest rates.

Derivatives are used exclusively for hedging purposes in relation

to underlying business activities and not as trading or

speculative instruments.

Capital management

GSK’s ﬁnancial strategy, implemented through the Group’s

ﬁnancial architecture, supports GSK’s strategic priorities and

is regularly reviewed by the Board. We manage the capital

structure of the Group through an appropriate mix of debt and

equity. We continue to manage our ﬁnancial policies to a credit

proﬁle that particularly targets short-term credit ratings of A-1

and P-1 while maintaining single A long-term ratings consistent

with those targets.

GSK’s long-term credit rating with Standard and Poor’s is A+

(negative outlook) and with Moody’s Investor Services

(‘Moody’s’) is A2 (negative outlook). Our short-term credit

ratings are A-1 and P-1 with Standard and Poor’s and Moody’s

respectively.

Liquidity risk management

GSK’s policy is to borrow centrally in order to meet anticipated

funding requirements. Our cash ﬂow forecasts and funding

requirements are monitored by the TMG on a regular basis.

Our strategy is to diversify liquidity sources using a range of

facilities and to maintain broad access to ﬁnancial markets.

Each day, we sweep cash from a number of global subsidiaries

to central Treasury accounts for liquidity management purposes.

Interest rate risk management

GSK’s objective is to minimise the effective net interest cost

and to balance the mix of debt at ﬁxed and ﬂoating interest rates

over time. The policy on interest rate risk management limits the

net amount of ﬂoating rate debt to a speciﬁc cap, reviewed and

agreed no less than annually by the Board.

Foreign exchange risk management

Our objective is to minimise the exposure of overseas

operating subsidiaries to transaction risk by matching local

currency income with local currency costs where possible.

Foreign currency transaction exposures arising on external

and internal trade ﬂows are selectively hedged. GSK’s internal

trading transactions are matched centrally and we manage

inter-company payment terms to reduce foreign currency risk.

Where possible, we manage the cash surpluses or borrowing

requirements of subsidiary companies centrally using forward

contracts to hedge future repayments back into the originating

currency.

In order to reduce foreign currency translation exposure,

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. 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 in major currencies are also used to reduce exposure

to the Group’s investment in overseas Group assets. The TMG

reviews the ratio of borrowings to assets for major currencies

regularly.

Counterparty risk management

We set global counterparty limits for each of our banking and

investment counterparties based on long-term credit ratings

from Moody’s and Standard and Poor’s. Treasury’s usage of

these limits is monitored daily by a Treasury Compliance Ofﬁcer

(TCO) who operates independently of Treasury. Any breach of

these limits would be reported to the CFO immediately.

The TCO also monitors the credit rating of these counterparties

and, when changes in ratings occur, notiﬁes Treasury so that

changes can be made to investment levels or to authority limits

as appropriate. In addition, relationship banks and their credit

ratings are reviewed regularly and a report is presented annually

to the TMG for approval.

Group ﬁnancial review continued

GSK Annual Report 2019

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 International

Accounting Standards Board (IASB), following the accounting

policies approved by the Board and described in Note 2 to the

ﬁnancial statements, ‘Accounting principles and policies’.

We are 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 relate to the following areas:

– Turnover

– Taxation (Note 14)

– Legal and other disputes (Notes 31 and 46)

– Contingent consideration and put option liabilities

(Notes 28 and 32)

– Pensions and other post-employment beneﬁts (Note 30).

Information on the judgements and estimates made in these

areas is given in Note 3 to the ﬁnancial statements, ‘Key

accounting judgements and estimates’.

Turnover

In respect of the Turnover accounting policy, our 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 our US Pharmaceuticals business:

– We have 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 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

Protection and Affordable Care Act became law. We

participate by providing rebates to states. Accruals for

Medicaid rebates are calculated based on the speciﬁc

terms of the relevant regulations or the Patient Protection

and Affordable Care Act

– 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

– We record 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:

2019 2018 2017

£m

Margin

£m

Margin

£m

Margin

Gross turnover 18,471 100 18,227 100 16,365 100

Market-driven

segments (5,976) (32) (5,147) (28) (4,040) (25)

Government

mandated and

state programmes (4,264) (23) (4,594) (25) (3,933) (24)

Cash discounts (356) (2) (361) (2) (330) (2)

Customer returns (141) (1) (98) (1) (97) (1)

Prior year adjustments 247 1 98 1 86 1

Other prior year items – – (59) – (23) –

Other items (579) (3) (613) (4) (460) (3)

Total deductions (11,069) (60) (10,774) (59) (8,797) (54)

Net turnover 7,402 40 7,453 41 7,568 46

Market-driven segments consist primarily of Managed Care and

Medicare plans with which we negotiate contract pricing that is

honoured via rebates and chargebacks. Mandated segments

consist primarily of Medicaid and Federal Government

programmes which receive government-mandated pricing via

rebates and chargebacks.

Critical accounting policies

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Group ﬁnancial review continued

The increased deductions in the market-driven segments of

the gross turnover to net turnover reconciliation primarily

reﬂected higher rebates and chargebacks on respiratory

products, and on Advair in particular. A generic version of

Advair was launched in February 2019, and during the year

Advair accounted for 7% of US Pharmaceuticals turnover and

approximately 27% of the total deduction for rebates and

returns. The respiratory portfolio as a whole, including

Established Respiratory products, accounted for approximately

79% of the total deduction in the year.

The balance sheet accruals for rebates, discounts, allowances

and returns for the US Pharmaceuticals and Vaccines businesses

are managed on a combined basis. At 31 December 2019, the

total accrual amounted to £4,200 million (2018 – £4,356 million).

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 Pharmaceuticals and Vaccines inventory

levels at wholesalers and in other distribution channels at 31

December 2019 were estimated to amount to approximately

four weeks 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.

Legal and other disputes

In respect of the accounting policy for Legal and other disputes,

the following brieﬂy describes the process by which we

determine the level of provision that is necessary.

In accordance with the requirements of IAS 37, ‘Provisions,

contingent liabilities and contingent assets’, we provide 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.

We may become involved in signiﬁcant 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

in the Annual Report, but no provision would be made.

This 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 by a material amount the

amount of the provisions reported in the Group’s ﬁnancial

statements.

Like many pharmaceutical companies, we are faced with

various complex product liability, anti-trust and patent litigation,

as well as investigations of our operations conducted by various

governmental regulatory agencies. Throughout the year, the

General Counsel of the Group, as head of the Group’s legal

function, and the Senior Vice President and Head of Global

Litigation for the Group, who is responsible for all litigation and

government investigations, routinely brief the Chief Executive

Ofﬁcer, the Chief Financial Ofﬁcer and the Board of Directors

on the signiﬁcant litigation pending against the Group and

governmental investigations of the Group.

These meetings, as appropriate, detail the status of signiﬁcant

litigation and government investigations and review matters

such as the number of claims notiﬁed to us, information on

potential claims not yet notiﬁed, assessment of the validity of

claims, progress made in settling claims, recent settlement

levels and potential reimbursement by insurers.

The meetings also include an assessment of whether or not

there is sufﬁcient information available for us to be able to make

a reliable estimate of the potential outcomes of the disputes.

Often, external counsel assisting us with various litigation

matters and investigations will also assist in the brieﬁng of the

Board and senior management. Following these discussions,

for those matters where it is possible to make a reliable estimate

of the amount of a provision, if any, that may be required, the

level of provision for legal and other disputes is reviewed and

adjusted as appropriate. These matters are discussed further

in Note 46 to the ﬁnancial statements, ‘Legal proceedings’.

Critical accounting policies continued

Group ﬁnancial review continued

GSK Annual Report 2019

Strategic report

The Strategic report was approved by the Board of Directors on

3 March 2020

Iain Mackay

Chief Financial Ofﬁcer

3 March 2020

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Corporate

Governance

In this section

Chairman’s Governance statement 76

Our Board 78

Our Corporate Executive Team 82

Responsible leadership 84

Division of responsibilities 90

Composition, succession and evaluation 92

Nominations Committee report 92

Audit, risk and internal control 96

Audit & Risk Committee report 96

Science Committee report 107

Corporate Responsibility Committee report 109

Section 172 statement 111

Directors’ report 113

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Chairman’s Governance statement

Last year was an important one for GSK. The Board led by

Sir Philip Hampton and Emma re-set the strategic direction

of the company. I was honoured to have the opportunity to join

the Board and lead it through the separation to create two new

world-class businesses. I was particularly excited to work with

Emma. She has brought real clarity to decision making, where a

pharma veteran might have been less dispassionate. She has

also attracted the best in the industry to form her top team.

The Board is focused on supporting her and management in

transforming the Group and executing our strategy.

At the beginning of this important journey for the company and

for my tenure at GSK, it was helpful that my ﬁrst Board meeting

in September last year included a joint Board and CET Strategy

offsite session. Together, we were able to consider the next

steps for our plans and the way forward. This was a great start.

My understanding of GSK has been informed by a robust

induction process, designed by Emma and our Company

Secretary, introductory meetings with our investors and the

Board review we decided to commission.

Induction

I was keen to learn more about GSK, and started by

understanding R&D from Hal and visiting our R&D sites in the

US and UK, including Tesaro, and meeting with 23andMe, with

whom we have an important collaboration. I look forward to

visiting more of the Group in due course.

Since joining, I have met on an individual basis with Board and

CET members and other key executives. I have also attended

meetings of each of our Board Committees to assess and

understand our Board culture and dynamics, and the company’s

corporate governance arrangements.

Introductory meetings with investors

I wanted to hear what our shareholders think of GSK. I have

held over 20 meetings with a range of investors making up

approximately 30% of our register. They comprised a mix of our

top UK and US shareholders, plus other key investors. I also led

our Annual Governance Meeting in December 2019. I have

noted the following points:

– Clear support for Emma

and Hal, and the top team

– Demonstrate pipeline progress

ahead of separation

– Support for the separation

of the Group

– Managing capital allocation, debt,

dividend and business development

– Positive progress on

Innovation to date

– Evidence of a positive shift in our

performance culture and our R&D

culture has been transformed

Board governance and architecture

Given the company is embarking on a period of transition and

the last two years in particular have been a period of signiﬁcant

change from a Board and senior executive perspective, we

decided to undertake an external review to gather the views of

both the Board and CET members to ready us for the task

ahead. This review, together with the insights from my

introductory meetings with investors and feedback from the

employees I have met since joining, has helped us to further

reﬁne our Board governance and architecture. This will help

focus and facilitate the Board’s work in support of management,

to be as effective and efﬁcient as possible in delivering the

transformation of the Pharmaceuticals and Vaccines business

and the separation of the Consumer Healthcare business.

A description of the review process which was carried out by

Jan Hall of No 4 (No 4) follows this statement.

After the review, the Board agreed its critical objectives for the

next three years towards separation. The Board then considered

how best to distribute the workload between it and its

Committees to ensure optimal effectiveness. The Board will

also increase the time it spends on science given the

importance of the strengthening the pipeline.

It was agreed that once the Board has conducted its annual

review into the Group’s enterprise risks, deeper enterprise

risk oversight should be undertaken by the Board Committee

which focuses on that aspect of the business most closely.

Enhancements were also considered to the ways of working

and governance architecture of the Board’s Committees.

These included:

Audit & Risk Committee (ARC)

The ARC will continue to have a strong focus on ﬁnancial

reporting, as well as monitoring the dashboard of all GSK’s

enterprise risks and the process by which they are identiﬁed

and prioritised as part of its oversight of our internal control

framework. It will conduct the detailed reviews of GSK’s

Financial controls and reporting, Anti-bribery and corruption,

Commercial practices, Privacy and Information security

enterprise risks, as well as receiving business unit risk reports

on Pharmaceuticals, Vaccines, Consumer Healthcare and our

Global Support functions. In addition, it will be responsible for

oversight of the ﬁnancial components as we work towards

separation.

I am pleased to present our Corporate Governance report for 2019

and an overview of the changes to our governance arrangements for

2020 as we work towards separation of the Group.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Nominations Committee

The remit of the Nominations Committee will be expanded

to encompass Corporate Governance matters, therefore freeing

more time at the Board. The Committee will be renamed the

Nominations & Corporate Governance Committee. All Non-

Executives will be invited to participate in meetings of the

Committee when it considers succession and talent.

Transformation & Separation Committee

A Transformation & Separation Committee will be established

to support and advise management’s work on transforming

and separating the Group. I will chair this Committee whose

members will include our Senior Independent Director (SID)

and the Chairs of the ARC, Remuneration and Corporate

Responsibility Committees. It will meet as required and it is

expected that it will be more active as we near separation.

R&D at the Board & Science Committee

Given the critical importance of strengthening the pipeline,

the Board will increase its time spent on R&D strategy, while the

Science Committee will focus on science at a deeper level to

further support the Board’s understanding and provide

reassurance and guidance as required.

The Science Committee will then have three broad objectives:

the scientiﬁc assumptions driving our strategy, technical

assurance, and risk oversight. It will support the Board in its

understanding of our agreed R&D strategy and of any external

transactions by performing a deep review of the underlying

scientiﬁc assumptions. In addition, it will have oversight of

R&D’s enterprise and other signiﬁcant risks.

The Board feels that with these enhancements to our

governance it will improve further our effectiveness and support

us through the separation process.

Succession planning

My ﬁrst task as Nominations Committee Chair has been to

focus on the search for Judy’s successor as Chair of the ARC.

We have made good progress to date and look forward to

announcing the conclusion of our search.

We considered the ideal transition for this important role.

We are very pleased that Judy has conﬁrmed that she will

stay on the Board for a further year, despite having served

over nine years, and she will now step down from the Board

at the 2021 Annual General Meeting. This should facilitate

a smooth transition. Judy will continue as its Chair until the

2020 Annual Report is completed, when her successor will

then Chair the ARC.

The Board is mindful that the Financial Reporting Council’s

(FRC) 2018 UK Corporate Governance Code (2018 Code)

indicates that Non-Executive Directors should not serve for

more than nine years. However, the Board considers this is the

most appropriate way to proceed in the long-term best interests

of shareholders and believes, following a rigorous review, that

Judy continues to act with utmost independence, despite her

length of tenure.

The Nominations Committee continues to oversee succession

planning for the Board and the CET. In due course, it will

consider the needs of the post separation boards.

Non Executive Directors fees

We have reviewed our Non-Executive Directors’ fee

arrangements as part of our three year remuneration policy

review. Our Non-Executive Director fees were last increased

in 2013 and, following a review, we concluded that it was

appropriate to make increases to the fees to bring them into line

with our comparator group. We have also taken the opportunity

to update our policy to be able to remunerate our Workforce

Engagement Director, for the considerable work she undertakes

as part of this new and expanding role. The investors we

consulted on these changes were supportive of them. Full

details can be found on page 140.

I can conﬁrm that during 2019 the company complied with the

requirements of the 2018 Code. A copy of the 2018 Code can

be found on www.frc.org.uk.

I commend this report to all our stakeholders.

Sir Jonathan Symonds

Chairman

3 March 2020

GSK Annual Report 2019

Our Board

Board governance and architecture

The Board carries out an evaluation of its performance and

that of its Committees every year. The evaluation is normally

facilitated externally every third year. The last external evaluation

was facilitated two years ago by Fﬁon Hague of Independent

Board Evaluation.

For the reasons given in the Chairman’s Governance statement

on pages 76 to 77, the Board agreed it would be helpful to

carry out an external evaluation that included a review of its

governance and architecture.

No 4 was appointed by the Board to undertake the review.

No 4 does not have any other connection with the company or

individual Board Directors.

Preparation

No 4 met with the Chairman and CEO in advance to agree the

objectives and the scope of the evaluation exercise and the

timetable of activities. The Company Secretary provided No 4

with access to Board, Committee and other materials as part of

No 4’s preparatory work.

Interviews

During November and December 2019, No 4 conducted

conﬁdential and detailed in person interviews with each Board

and CET member, as well as meeting with the Company

Secretary, to seek their views on the Board’s effectiveness.

These meetings were based on an agreed Discussion

Guideline, that included topics highlighted by the FRC in its

2018 Guidance on Board Effectiveness. It also reﬂected the

relevant requirements of the FRC’s 2018 Code. The Discussion

Guideline was sent to each participant in advance. No 4 also

had telephone meetings with the external remuneration adviser

and the auditor.

Review

The output from the evaluation was presented and discussed

with the Board collectively. A summary report including

suggested next steps was then compiled by No 4. This was

discussed with the Chairman and CEO, and subsequently with

the SID. The summary report was then presented to the Board

in January 2020 with a proposal for implementation of the

suggested recommendations.

2019 Board review feedback summary

The review concluded that the Board is operating effectively

and the new Chairman is seen to have made an excellent start.

The business is now entering a period of signiﬁcant positive

change and opportunity. The Board feels very conﬁdent in the

CET and that each of the individual Board Directors bring

relevant experience and skills which are collectively appropriate.

GSK’s mission of producing products to ‘help people do more,

feel better and live longer’ remains at the heart of its values

and culture.

There is full commitment from the Board as a whole to support

the overarching strategy of creating two great companies.

The Board is conﬁdent that the CET is focused on driving

performance over the next three years.

Action points for 2020

– Meetings and organisation – to improve the balance

between presentation and discussion to create more time for

debate

– Board dynamics and individual contribution – to facilitate

even greater individual contribution by creating more

discussion time

– Committees – to review the remit and attendees at the

Board’s Committee meetings to ensure they are ﬁt for

purpose for 2020 and beyond

– Risk – to agree which Board Committee will ensure deeper

oversight and review of each of the Group’s enterprise risks

– Strategy and performance – to conduct deep dives into the

key strategic areas and ensure a focus on supporting

management to execute the agreed strategy

– Board knowledge – to deepen the Board’s knowledge and

understanding of latest scientiﬁc developments

– Stakeholders – within the business, the Board should

continue to focus on the key areas of focus for the CET

namely: strengthening the R&D pipeline, growth,

transformation and delivery of GSK’s Trust business priority.

Externally the Board should maintain strong relationships

and communication with shareholders and its other key

stakeholders to seek their input and keep them well informed

on progress

– Succession planning – to complete the appointment of the

ARC Chair’s successor

– Governance – to build further on GSK’s commitment to

Environmental, Social and Governance (ESG) matters.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Board composition

Composition

Executive 27%

Non-Executive 73%

Tenure Non-Executive

Up to 3 years 36%

3-6 years 46%

7-9 years 18%

Gender diversity

Board

Male 54.5%

Female 45.5%

Executive

Male 66.7%

Female 33.3%

Non-Executive

Male 37.5%

Female 62.5%

Sir Jonathan Symonds, CBE

Non-Executive Chairman

Age: 61

Nationality: British

Appointed: 1 September 2019

Skills and experience

Jon has extensive international ﬁnancial, life sciences and governance experience.

Jon served as an Independent Non-Executive Director of HSBC Holdings plc from April 2014, and

as Deputy Group Chairman from August 2018, until his retirement from the Board in February 2020.

He was previously Chairman of HSBC Bank plc, HSBC’s European subsidiary, which offers

services to clients in the UK and Continental Europe. Jon was Chief Financial Ofﬁcer of Novartis AG

from 2009 to 2013. Before joining Novartis, he was a Partner and Managing Director of Goldman

Sachs; Chief Financial Ofﬁcer of AstraZeneca plc; and a Partner at KPMG. His governance

experience includes roles as Non-Executive Director and Chair of the Audit Committees of Diageo

plc and QinetiQ Group plc.

External appointments

Jon is currently Chairman of Proteus Digital Health Inc and a Non-Executive Director of Rubius

Therapeutics, Inc. He is also a Non-Executive Director of Genomics England Limited having

previously served as its Chairman.

Jon is a Fellow of the Institute of Chartered Accountants in England and Wales.

Emma Walmsley

Chief Executive Ofﬁcer

Age: 50

Nationality: British

Appointed: 1 January 2017

Chief Executive Ofﬁcer from 1 April 2017

Skills and experience

Prior to her appointment as GSK’s CEO, Emma was the CEO of GSK Consumer Healthcare,

a Joint Venture between GSK and Novartis, from its creation in March 2015. Emma joined GSK

in 2010 from L’Oreal, having worked for 17 years in a variety of roles in Paris, London, New York

and Shanghai. Emma was previously a Non-Executive Director of Diageo plc.

Emma holds an MA in Classics and Modern Languages from Oxford University.

External appointments

Emma joined the Board of Microsoft, Inc as an independent director in December 2019.

She is an Honorary Fellow of the Royal Society of Chemistry.

Iain Mackay

Chief Financial Ofﬁcer

Age: 58

Nationality: British

Appointed: 14 January 2019

Chief Financial Ofﬁcer from 1 April 2019

Skills and experience

Prior to joining GSK, Iain was Group Finance Director at HSBC Holdings plc, a position he held for

eight years. A chartered accountant, Iain has worked in Asia, the US and Europe and before HSBC

was at General Electric, Schlumberger Dowell and Price Waterhouse.

External appointments

Iain is a Trustee of the British Heart Foundation and Chair of its Audit and Risk Committee.

He is a member of the Court of the University of Aberdeen and The 100 Group.

Iain holds an MA in Business Studies and Accounting, and an Honorary Doctorate from

Aberdeen University in Scotland.

Key

Committee Chair

Nominations

Audit & Risk

Remuneration

Science

Corporate Responsibility

International experience

Global 91%

US 100%

Europe 91%

EMAP 82%

Our Board continued

GSK Annual Report 2019

Dr Hal Barron

Chief Scientiﬁc Ofﬁcer

and President, R&D

Age: 57

Nationality: American

Appointed: 1 January 2018

Chief Scientiﬁc Ofﬁcer and President,

R&D from 1 April 2018

Skills and experience

Prior to joining GSK, Hal was President, R&D at Calico LLC (California Life Company), an Alphabet-

funded company that uses advanced technologies to increase understanding of lifespan biology.

Prior to this, Hal was Executive Vice President, Head of Global Product Development, and Chief

Medical Ofﬁcer of Roche, responsible for all the products in the combined portfolio of Roche and

Genentech. At Genentech, he was Senior Vice President of Development and Chief Medical Ofﬁcer.

Hal was a Non-Executive Director and Chair of the Science & Technology Committee at Juno

Therapeutics, Inc until March 2018, when it was acquired by Celgene Corporation.

External appointments

Hal is Associate Adjunct Professor, Epidemiology & Biostatistics, University of California,

San Francisco. He is also a Non-Executive Board Director of GRAIL, Inc, an early cancer

detection healthcare company and a member of the Advisory Board of Verily Life Sciences LLC,

a subsidiary of Alphabet, Inc.

Manvinder Singh (Vindi) Banga

Senior Independent Non-Executive

Director

Age: 65

Nationality: British

Appointed: 1 September 2015

Senior Independent Non-Executive Director

from 5 May 2016

Skills and experience

Prior to joining GSK, Vindi spent 33 years at Unilever plc, where his last role (amongst several senior

positions) was President of the Global Foods, Home and Personal Care businesses, and a member

of the Unilever Executive Board. Vindi sat on the Prime Minister of India’s Council of Trade & Industry

from 2004 to 2014 and was on the Board of Governors of the Indian Institute of Management (IIM),

Ahmedabad. Vindi is also the recipient of the Padma Bhushan, one of India’s highest civilian honours.

Vindi has been a Non-Executive Director of the Confederation of British Industry (CBI) and Thomson

Reuters Corp, Chairman of the Supervisory Board of Mauser Group, Chairman of Kalle GmbH and

Senior Independent Director of Marks & Spencer Group plc.

External appointments

Vindi is a Partner at private equity investment ﬁrm Clayton Dubilier & Rice, a Director of High Ridge

Brands Co and a member of the Holdingham International Advisory Board. Vindi sits on the Governing

Board of the Indian School of Business, Hyderabad and the Global Leadership Council of Saïd

Business School, Oxford and is a member of the Indo UK CEO Forum. Vindi is Chair of the Board

of Trustees of Marie Curie.

Dr Vivienne Cox, CBE

Independent Non-Executive Director

& Workforce Engagement Director

Age: 60

Nationality: British

Appointed: 1 July 2016

Skills and experience

Vivienne has wide experience of business gained in the energy, natural resources and publishing

sectors. She also has a deep understanding of regulatory and government relationships. She

worked for BP plc for 28 years, in Britain and Continental Europe, in posts including Executive Vice

President and Chief Executive of BP’s gas, power and renewable business and its alternative energy

unit. Vivienne was previously a Non-Executive Director of BG Group plc and Rio Tinto plc and Lead

Independent Director at the UK Government’s Department for International Development. Vivienne

was appointed Commander of the Order of the British Empire in the 2016 New Year Honours for

services to the UK Economy and Sustainability.

External appointments

Vivienne’s main roles are as Senior Independent Director of Pearson plc and Chairman of the

Supervisory Board of Vallourec. She is also a Non-Executive Director of Stena AB. Vivienne holds

advisory positions as an Advisory Board Member of the African Leadership Institute, Vice President

of the Energy Institute and a member of the advisory board of Montrose Associates. Vivienne is Chair

of the Rosalind Franklin Institute, Vice Chair of the Saïd Business School, Oxford and sits on its

Global Leadership Council. She is also Patron of the Hospice of St Francis.

Lynn Elsenhans

Independent Non-Executive Director

Age: 63

Nationality: American

Appointed: 1 July 2012

Skills and experience

Lynn has a wealth of experience of running a global business and signiﬁcant knowledge of the global

markets in which GSK operates. She served as Chair, President and Chief Executive Ofﬁcer of

Sunoco Inc from 2009 to 2012. Prior to joining Sunoco in 2008 as President and Chief Executive

Ofﬁcer, Lynn worked for Royal Dutch Shell, which she joined in 1980, and where she held a number

of senior roles, including Executive Vice President, Global Manufacturing from 2005 to 2008. Lynn

was previously a Non-Executive Director of Flowserve Corporation, the First Tee of Greater Houston,

and a Trustee of the United Way of Greater Houston.

External appointments

Lynn is a Non-Executive Director of Baker Hughes Company, a Board Director of Saudi Aramco and

a Director of the Texas Medical Center.

Our Board continued

Key

Committee Chair

Nominations

Audit & Risk

Remuneration

Science

Corporate Responsibility

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Dr Laurie Glimcher

Independent Non-Executive Director

and Scientiﬁc & Medical Expert

Age: 68

Nationality: American

Appointed: 1 September 2017

Skills and experience

In addition to a number of senior leadership positions held at both Harvard Medical School and Harvard

School of Public Health, Laurie has also served as Stephen and Suzanne Weiss Dean and Professor of

Medicine at Weill Cornell Medical College and as an Attending Physician at the New York Presbyterian

Hospital/Weill Cornell Medical Center. Laurie stepped down from the Board of Bristol-Myers Squibb Co

(BMS) in 2017 after serving for 20 years on its Board. Laurie was co-founder and Chair of the Scientiﬁc

Advisory Board of Quentis Therapeutics Inc. Laurie brings scientiﬁc and public health expertise to the

Board’s deliberations, and a wealth of global, publicly listed pharmaceutical business experience.

External appointments

Laurie is currently Professor of Medicine at Harvard Medical School and is CEO, President and an

Attending Physician at the Dana-Farber Cancer Institute.

Laurie is a member of the US National Academy of Sciences and the National Academy of Medicine.

She is a member of the Scientiﬁc Steering Committee of the Parker Institute for Cancer Immunotherapy

and a Non-Executive Director of the Waters Corporation, where she also serves on its Corporate

Governance Committee. In addition, Laurie is a Scientiﬁc Advisory Board member of Repare

Therapeutics Inc, Abpro Therapeutics and Kaleido Biosciences Inc.

Dr Jesse Goodman

Independent Non-Executive Director

and Scientiﬁc & Medical Expert

Age: 68

Nationality: American

Appointed: 1 January 2016

Skills and experience

Jesse previously served in senior leadership positions at the US Food and Drug Administration (FDA),

including most recently as the FDA’s Chief Scientist and previously as Deputy Commissioner for Science

and Public Health and as Director of the Center for Biologics Evaluation and Research (CBER).

Jesse played a leadership role in developing the FDA’s Regulatory Science and Medical Countermeasures

Initiatives and has worked collaboratively with industry, academia, government and global public health and

regulatory partners to prepare for and respond to major public health threats, including emerging infectious

diseases, disasters and terrorism. He led the FDA’s response to West Nile Virus and to the 2009 H1N1

inﬂuenza pandemic and served on the Senior Leadership Team for the 2010 White House Medical

Countermeasure Review. Jesse was previously a member of both the Scientiﬁc Advisory Committee and

the Regulatory and Legal Working Group of the Coalition for Epidemic Preparedness Innovations (CEPI).

He brings scientiﬁc and public health expertise to the Board’s deliberations.

External appointments

Jesse, currently Professor of Medicine at Georgetown University, directs the Georgetown University Center

on Medical Product Access, Safety and Stewardship (COMPASS) and is an active clinician who serves as

Attending Physician in Infectious Diseases. He also serves as President and Member of the Board of the

United States Pharmacopeia (USP) and as a member of the Board of Scientiﬁc Counselors for Infectious

Diseases of the Centers for Disease Control and Prevention (CDC). Jesse is also a member of the Board

of Intellia Therapeutics, Cambridge, MA and a member of the US National Academy of Medicine.

Judy Lewent

Independent Non-Executive Director

Age: 71

Nationality: American

Appointed: 1 April 2011

Skills and experience

Judy has extensive knowledge of the global pharmaceutical industry and of corporate ﬁnance, having

joined Merck & Co in 1980 and then served as its Chief Financial Ofﬁcer from 1990 to 2007 when she

retired. Judy served as a Non-Executive Director of Dell Inc, Quaker Oats Company and Motorola Inc,

and held Non-Executive Directorships at Purdue Pharma Inc, Napp Pharmaceutical Holdings Limited

and certain Mundipharma International Limited companies until 2014.

External appointments

Judy is a Non-Executive Director of Thermo Fisher Scientiﬁc Inc and Motorola Solutions Inc. She is

also a Trustee of the Rockefeller Family Trust, a life member of the Massachusetts Institute of Technology

Corporation, a member of the American Academy of Arts and Sciences, a member of the Business

Advisory Board of twoXAR and a member of the Advisory Board of 4D Path Inc.

The Board determined that Judy has recent and relevant ﬁnancial experience, and agreed that

she has the appropriate qualiﬁcations and background to be an audit committee ﬁnancial expert.

Urs Rohner

Independent Non-Executive Director

Age: 60

Nationality: Swiss

Appointed: 1 January 2015

Skills and experience

Urs has a broad range of business and legal experience having served as Chairman on a number

of Boards, most recently for Credit Suisse, a world-leading ﬁnancial services company. Prior to joining

Credit Suisse in 2004, Urs served as Chairman of the Executive Board and CEO of ProSieben and

ProSiebenSat.1 Media AG. This followed a number of years in private practice at major law ﬁrms in

Switzerland and the US, having been admitted to the bars of the canton of Zurich in Switzerland in

1986 and the state of New York in the US in 1990.

External appointments

Urs is Chairman of the Board of Credit Suisse Group AG and of its Governance and Nominations

Committee and Conduct and Financial Crime Control Committee. He is also Chairman and member

of the Board of Trustees of Credit Suisse Research Institute and Credit Suisse Foundation. Urs was

appointed Vice-Chairman of the Governing Board of the Swiss Bankers Association in 2015.

Sir Philip Hampton joined the Board on 1 January 2015 and was Deputy Chairman from 1 April 2015 and Non-Executive Chairman from 7 May 2015.

He retired from the Board with effect from 31 August 2019.

Simon Dingemans joined the Board on 4 January 2011 and became Chief Financial Ofﬁcer from 1 April 2011. He retired from the Company on 8 May 2019.

Our Board continued

Key

Committee Chair

Nominations

Audit & Risk

Remuneration

Science

Corporate Responsibility

GSK Annual Report 2019

Our Corporate Executive Team

Skills and experience

Dr Hal Barron

Chief Scientiﬁc Ofﬁcer

and President, R&D

Hal joined GSK and the CET in 2018. See Board biographies on page 79 to 81.

Roger Connor

President, Global Vaccines

Roger joined the CET in 2013. He was appointed President of GSK Global Vaccines in 2018.

In addition to leadership of the Vaccines business, he is responsible for GSK’s global procurement

organisation. Previously, he was President, Global Manufacturing & Supply and, before that,

Vice President, Ofﬁce of the CEO and Corporate Strategy. Roger joined GSK in 1998 from

AstraZeneca. Roger holds a degree in Mechanical and Manufacturing Engineering from Queen’s

University, Belfast and a Master’s in Manufacturing Leadership from Cambridge University.

He is a Chartered Accountant.

Diana Conrad

Senior Vice President,

Human Resources (HR)

Diana was appointed Senior Vice President, Human Resources (HR) and member of the CET

in April 2019. She was previously Senior Vice President, HR, Pharmaceuticals R&D from 2016

where she played a key strategic role as leader of the R&D people and culture agenda to support

its transformation.

Diana joined GSK Canada’s HR team in 2000 where she held several roles of increasing

responsibility before becoming Senior Vice President, HR for Consumer Healthcare in 2009.

Prior to joining GSK, she held HR roles in companies including GE Capital, Gennum Corporation

and Zenon Environmental Laboratories. Diana has an Honours Bachelor of Arts from McMaster

University in Canada.

James Ford

Senior Vice President

and General Counsel

James joined the CET in 2018, when he was appointed Senior Vice President and General Counsel.

He joined GSK in 1995 and has served as General Counsel Consumer Healthcare, General Counsel

Global Pharmaceuticals, Vice President of Corporate Legal and was Acting Head of Global Ethics

and Compliance. Prior to GSK, James was a solicitor at Clifford Chance and DLA. He holds

a law degree from University of East Anglia and a Diploma in Competition Law from Kings College.

He is qualiﬁed as a solicitor in England and Wales and is an attorney at the New York State Bar.

James is based in London but has practised law and lived in the US, Singapore and Hong Kong.

James is co-chair of the US based Civil Justice Reform Group.

Nick Hirons

Senior Vice President,

Global Ethics and Compliance

Nick was appointed to the CET in 2014 as Senior Vice President, Global Ethics and Compliance,

responsible for compliance, risk management, corporate security and investigations. Nick joined

GSK in 1994 as an International Auditor. He was later Head of Audit & Assurance, where he

combined ﬁve audit functions into an independent team with a common risk-based methodology.

In 2013, Nick relocated to China to establish a governance model for our China business and

created a consistent approach to compliance. Nick is a fellow of the Chartered Institute of

Management Accountants.

Sally Jackson

Senior Vice President,

Global Communications

and CEO Ofﬁce

Sally joined the CET in March 2019 as Senior Vice President, Global Communications and CEO

Ofﬁce. She is responsible for communications and government affairs for our three global

businesses and in the markets, as well as employee engagement across the Group. She is also the

CEO’s Chief of Staff. Prior to this Sally was Senior Vice President Ofﬁce of the CEO and CFO and

she previously served as Head of Investor Relations. She joined GSK in 2001. Sally holds a degree

in Natural Sciences from the University of Cambridge.

Iain Mackay

Chief Financial Ofﬁcer

Iain joined GSK and the CET in 2019. See Board biographies on page 79 to 81.

Brian McNamara

CEO, GSK Consumer Healthcare

Brian joined the CET in 2016, when he was appointed CEO, GSK Consumer Healthcare.

He joined GSK in 2015 as Head of Europe and Americas for GSK Consumer Healthcare,

following the creation of the previous Joint Venture between GSK and Novartis. Previously,

he was head of Novartis’ OTC division. Brian began his career at Procter and Gamble.

Brian is a Board Member and former Chairman of the Global Self-Care Federation (GSCF)

and is a Board Member of the Consumer Goods Forum. He earned an undergraduate degree

in Electrical Engineering from Union College in New York and an MBA in Finance from the

University of Cincinnati.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Our Corporate Executive Team continued

Skills and experience

Luke Miels

President, Global Pharmaceuticals

Luke joined GSK and the CET in 2017 as President, Global Pharmaceuticals, responsible for our

commercial portfolio of medicines and vaccines. Luke also co-chairs the Portfolio Investment Board

with Hal.

He previously worked for AstraZeneca as Executive Vice President of their European business and,

prior to that, was Executive Vice President of Global Product and Portfolio Strategy, Global Medical

Affairs and Corporate Affairs. Before that, he was head of Asia for Roche based in Shanghai and

then Singapore. Prior to that he held roles of increasing seniority at Roche and Sanoﬁ-Aventis in

the US, Europe and Asia.

Luke holds a Bachelor of Science degree in Biology from Flinders University in Adelaide and an

MBA from the Macquarie University, Sydney.

David Redfern

Chief Strategy Ofﬁcer

David joined the CET as Chief Strategy Ofﬁcer in 2008 and is responsible for corporate development

and strategic planning. Previously, he was Senior Vice President, Northern Europe with responsibility

for GSK’s pharmaceutical businesses in that region and, before that, he was Senior Vice President

for Central and Eastern Europe. He joined GSK in 1994. David was appointed Chairman of the

Board of ViiV Healthcare Limited in 2011 and a Non-Executive Director of the Aspen Pharmacare

Holdings Limited Board in 2015.

He has a Bachelor of Science degree from Bristol University and is a Chartered Accountant.

Regis Simard

President, Pharmaceuticals

Supply Chain

Regis joined the CET in 2018, when he became President, Pharmaceuticals Supply Chain.

He is responsible for the manufacturing and supply of GSK’s pharmaceutical products. He also

leads Quality and Environment, Health, Safety and Sustainability at a corporate level. Regis joined

GSK in 2005 as a Site Director in France, rising to become Senior Vice President of Global

Pharmaceuticals Manufacturing before his current role. Previously, he held senior positions at

Sony, Konica Minolta and Tyco Healthcare. He is a member of the Board for ViiV Healthcare.

He is a mechanical engineer and holds an MBA.

Karenann Terrell

Chief Digital & Technology Ofﬁcer

Karenann joined GSK and the CET in 2017 as Chief Digital & Technology Ofﬁcer, responsible for

our technology, digital, data and analytics strategy. Previously, she worked for Walmart as Chief

Information Ofﬁcer. Prior to this, she was at Baxter International, where she was Chief Information

Ofﬁcer, and before that Daimler Chrysler Corporation. Karenann began her career at General

Motors. She is a member of the board of trustees for the New York Hall of Science and in 2017

she became a Non-Executive Director of Pluralsight LLC.

She earned graduate and post-graduate degrees in Electrical Engineering from Kettering and

Purdue Universities respectively.

Phil Thomson

President, Global Affairs

Phil joined the CET in 2011. He was appointed President, Global Affairs in 2017, with responsibility

for the Group’s strategic approach to reputation, policy development, stakeholder engagement,

and Global Health. Previously, Phil was Senior Vice President, Communications and

Government Affairs.

Phil is Chairman of The Whitehall & Industry Group and a Board Member of the China–Britain

Business Council.

He earned his degree in English, History and Russian Studies from Durham University.

Emma Walmsley

Chief Executive Ofﬁcer

Emma joined the CET in 2011. See Board biographies on page 79 to 81.

Deborah Waterhouse

CEO, ViiV Healthcare

Deborah was appointed to the CET in January 2020. She became Chief Executive Ofﬁcer

of ViiV Healthcare in April 2017.

Deborah joined GSK in 1996 and was most recently the Senior Vice President of Primary Care

within the company’s US business, prior to which she led the US Vaccines business. She has

a strong track record of performance in both specialty and primary care. Deborah led the HIV

business in the UK before heading the HIV Centre of Excellence for Pharma Europe and held

international roles as General Manager of Australia and New Zealand and Senior Vice President

for Central and Eastern Europe.

Claire Thomas was a member of the CET and SVP, Human Resources until April 2019. She retired from the company in September 2019.

GSK Annual Report 2019

Responsible leadership

The Board’s role is to promote the long-term sustainable

success of GSK, drive long-term growth for our shareholders

whilst seeking to add value for our key stakeholders. Our

Strategic report on pages 1 to 74 seeks to demonstrate how

we are able to achieve this in practice, while our Corporate

Governance report on pages 76 to 114 explains how

governance contributes to the delivery of our strategy and

Innovation, Performance and Trust (IPT) priorities.

Our purpose, values and culture

Our purpose is to improve the quality of human life by helping

people do more, feel better and live longer. This is underpinned

by our values of patient focus, integrity, respect and transparency.

Our purpose and values have always been a source of great

pride for the Board, management and our employees. They help

attract and retain talented people who, as individuals, want to be

part of a Group that contributes meaningfully to society. They

also drive the quality of our relationships with each other, our

patients, consumers and other key stakeholders and ultimately

should enable swifter progress in getting new medicines,

vaccines and consumer healthcare products to our patients

and consumers around the world. Our culture set by the Board

is intended to deliver high standards of business conduct and

promote the long-term success of the company.

Our purpose and values are supported by our expectations

of courage, accountability, development and teamwork and by

evolving a culture to foster increased pace and a performance

edge. The Board receives regular reports from the CEO, CFO,

Head of Human Resources and our global businesses, that

update it on progress on the alignment between our strategy

and our performance and values-based culture. The way in

which the Board assures itself on this is described below.

During the year, the Board focused its culture discussions on

employees’ experience of GSK and ways of working. The Audit

& Risk Committee considered the risk and compliance aspects

of our culture change and Performance in line with GSK’s Trust

priority. The Board considered progress on culture change

against research into our corporate reputation and insights

and reﬂections from our key external stakeholders.

Culture change in a complex, global organisation such as GSK

takes time and sustained effort. The Board is fully committed to

this work because a healthy culture is a vital tool in unlocking

and protecting value. The Board acknowledges that the biggest

driver of our culture is the leadership of the company. The

culture shift underway continues to be role modelled by the

CET and the Board, where their words, actions and behaviours

set the tone for employees and the wider workforce. Board

members seek to lead by example by undertaking our Living

our Values and Expectations training alongside the rest of the

workforce. This training explores in particular our values,

expectations and culture and their application to the company’s

operations and ways of working.

The Board receives the results of our regular employee surveys

as a principal means of assessing how the shift in culture is

embedding in the organisation. A culture dashboard has also

been introduced with four quantiﬁable indicators of progress

of the people culture transformation, namely:

– Appoint and promote the right people

– Leadership capability

– Employee engagement and

– Ways of working.

The Board also receives regular updates from the Head of

Human Resources, which analyse progress against these

dashboard indicators.

The Board further supports the approach to culture change

employed by management in seeking to appoint and promote

the right people, enhancing the company’s governance controls

and processes to further support and incentivise the right

behaviours, and training and developing employees.

The company’s Code of Conduct embodies our values and

expectations to which our corporate standards and employee

policies are aligned. These include our longstanding Speak Up

arrangements where employees can raise matters conﬁdentially

or anonymously without fear of reprisals and as such are living

our values and expectations and doing the right thing. The Board,

through the Audit & Risk Committee, regularly reviews Speak Up

reports provided by Global Ethics and Compliance (GEC). Our

Speak Up channels and cases are managed by an independent

third party and cases are then investigated by GEC.

Our Code of Conduct, which is available on GSK.com, is kept

under review by the Board and is refreshed at least every other

year, with an updated version due to be published in 2020.

Further details on how we enable our culture change as well as

invest in and reward our workforce are described on pages 10

and 35 respectively.

Our stakeholders

Engagement with the company’s main stakeholder groups,

including our patients, shareholders, consumers, customers

and employees, at all levels of the organisation and across the

enterprise is summarised on pages 15 and 16 of our Strategic

report.

This section of the Corporate Governance report sets out how

the company’s key stakeholders’ interests were considered by

the Board in its discussions and decision-making during the

year. This should be read in conjunction with our Section 172

statement on page 111 and the areas that the statement

cross-references in this Annual Report to provide a holistic

view of how the Board discharges this duty.

Our stakeholders, rightly, have high expectations of us and the

dynamic environment in which we operate presents challenges

and opportunities that the Board seeks to respond to, whilst

remaining commercially successful, upholding our reputation,

maintaining our licence to operate, and building trust. To ensure

that we are able to identify and respond to these expectations

effectively, the Board engages with many of our key stakeholders

directly or seeks to understand their views by other means to

ensure that stakeholder sentiment can be appropriately

considered during deliberations and decision-making.

The inﬂuence and importance of different stakeholder groups

in Board discussions can vary depending on the matter under

consideration. Indeed, different stakeholders interests can be

in conﬂict, requiring balanced judgments to be exercised by

the Board to arrive at its ﬁnal decision.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Stakeholder engagement and feedback provides an important

means of identifying emerging issues that are then brought to

the attention of the Board. This enables us to further consider

our activities to enable us to deliver on our purpose and

ultimately our goal to become one of the world’s most

innovative, best-performing and trusted healthcare companies.

Our principal Board Committees, and the CET, have delegated

powers that enable a more in-depth assessment and

understanding of the impacts of the company’s actions or plans

on stakeholders through engagement brieﬁngs.

In particular, the Board’s knowledge is informed by the work of

the Corporate Responsibility Committee, which is described in

more detail on page 109.

To further improve their understanding of stakeholder matters,

Board members are also encouraged on an individual level to

meet with employees, shareholders and other key stakeholders

as part of their induction and thereafter on an ongoing basis for

business awareness. They are encouraged to report to the

Board on their experiences where relevant and material.

The Board is also advised of stakeholder views in a number of

different ways, including:

– The CEO’s Board Report

– Monthly stakeholder perception reports

– Businesses updates

– Business development analysis and justiﬁcations

– Board and Committee evaluations

– Remuneration policy reviews and the wider workforce pay

perspective

– Culture and Succession planning updates

– Workforce Engagement Director’s updates

– Annual Governance Meeting

– Annual General Meeting

– Employee survey reports

– Brieﬁngs during Annual Strategy meetings

– The Annual Budget and Business planning process and

– Corporate governance and regulatory development updates

During the year, the Board received and considered

independent research into stakeholder perceptions of

GSK’s corporate reputation and views on its approach to

ESG issues.

Shareholder engagement

The Board seeks to directly engage with private retail and

institutional shareholders in several ways. This includes regular

communications, the Annual General Meeting, our Annual

Governance Meeting, as well as the work of our Investor

Relations team and the Company Secretary.

During the year, after publication of our quarterly results,

the CEO, Emma Walmsley, and CFO, Iain Mackay, give

presentations to institutional investors, analysts and the media

by webcast teleconference. These presentations are made

available on GSK.com.

They both maintain a continual and active dialogue with

institutional shareholders on our performance, plans and

objectives through a programme of regular meetings. During

the year, they held over 60 individual meetings with major

shareholders and they have hosted a total of nearly 40 group

meetings with major shareholders and potential major

shareholders.

Our Senior Independent Director (SID), Vindi Banga, conducted

a series of meetings with investors and advisers to seek their

views on our Chairman succession process.

As a key part of his induction, our new Chairman, Jonathan

Symonds, wanted to hear what our shareholders thought of

GSK. Jon has held over 20 introductory meetings with a range

of investors comprising a third of the company’s share register.

He was keen to meet fund and portfolio managers, as well as

seeing governance professionals, so that he could gain a fuller

picture of our major shareholders’ views and perspectives on

GSK. The feedback he received is summarised in his

Governance statement on page 76 and informed the 2019

Board review.

Annual Governance Meeting

In addition, the Board also holds an annual governance event

with institutional shareholders, key investment industry bodies

and proxy advisory ﬁrms. This year’s event was held in

December 2019 in London and was hosted by the Chairman,

our SID, and our Committee Chairs.

Jon shared updates on why he joined the Board and key areas

of focus for the Board including:

– his Induction, Shareholder meetings and initial impressions

of GSK;

– the Audit & Risk Committee Chair succession process;

– the Board review and potential changes to the Governance

architecture.

He also provided an update on behalf of the Workforce

Engagement Director who was unable to attend.

Urs Rohner, our Remuneration Committee Chair, also took

the opportunity to discuss progress with the Remuneration

Committee’s review of executive remuneration ahead of the

Remuneration policy vote at our Annual General Meeting in

May 2020. Judy Lewent, our Audit & Risk Committee Chair,

Lynn Elsenhans, our Corporate Responsibility Committee Chair,

and Dr Jesse Goodman, who chairs our Science Committee,

also provided overviews of the work of their respective

Committees during the year.

The Annual Governance Meeting was well received and a

number of thoughtful and incisive questions were asked of the

Board members present on GSK’s R&D capabilities, strategy

and the plans for separation of the Group. Listening to the views

of our shareholders and receiving their feedback provided

additional direct insights that were then shared with the rest of

the Board at its next meeting.

Responsible leadership continued

GSK Annual Report 2019

Annual General Meeting

All shareholders are invited to attend our Annual General

Meeting. which will be held in May 2020 at the Soﬁtel London

Heathrow Hotel. See further details on page 291.

Our 2019 Annual General Meeting had a good level of

attendance and engagement from shareholders, which provided

helpful insights to the Board on issues concerning them.

All our proposed resolutions were approved by shareholders.

The level of support ranged from 88% to 99%. The full voting

outcomes are available on GSK.com. Our Annual General

Meeting provides an opportunity for all shareholders to put

questions to our Board and the Chairs of each of our Board

Committees during the formal proceedings, while providing

shareholders with the chance to meet informally with our

Directors who make themselves available before the meeting.

Workforce engagement

We described on page 90 of last year’s Annual Report why

the Board had chosen to designate Dr Vivienne Cox as our

Workforce Engagement Director to gather the views of our

people. The Board believed this would provide the most direct

and effective form of engagement for GSK. Vivienne is pleased

to share below views on her inaugural year in the role.

The Board also takes the opportunity to engage with

employees directly via receptions held around Board meetings.

Our Non-Executive Directors also attend internal meetings and

visit Group sites and report back on their ﬁndings.

Responsible leadership continued

Workforce Engagement Director

It is a year since the Board appointed me to this role. I have

learned a great deal from the rich dialogue that I have enjoyed

in meeting with a variety of our enthusiastic and dedicated

employees.

I started with a comprehensive brieﬁng on the Group from

the Head of Human Resources perspective. I then agreed to

make visits to employees who work at each of our principal

businesses. This has allowed me to gain an understanding of

our workforce’s views and attitudes on a range of meaningful

issues, such as our IPT priorities, the culture shift underway

in the organisation, our ways of working, our employee

surveys and One80 manager feedback accountability,

our approaches to Global health and the Modern employer

agenda and also importantly to the eventual separation of the

Group to create two new companies.

I am grateful to be assisted by the Head of Human Resources

and the Company Secretary in devising a programme which

consisted of visits to three key GSK sites which have given

me exposure across the Group in countries where the

company has a signiﬁcant presence:

– R&D – Upper Providence in Pennsylvania, USA, one

of GSK’s major pharmaceutical R&D hubs;

– Vaccines – Wavre, Belgium; and

– Consumer Healthcare – Warren site in New Jersey, where

I met with cross sections of the new workforce (including

former Pﬁzer employees) in the new Joint Venture business.

The local management who welcomed me at these sites, did

a great job of introducing me to members of the workforce,

explained the nature of the sites’ operations and enabled

me to hold direct, open and honest conversations. Meetings

were held without management present, both individually

and in group settings, to gain insights into the workforce

experiences, concerns and perspectives. This was done

partly through the use of ‘Let’s Talk’ – a GSK initiative whose

use is discussed on page 35 of the Annual Report – it

encourages the workforce to talk and share different points

of view in an informal setting.

We were careful to ensure that I could engage with a diverse

cross-section of the workforce in terms of seniority, gender,

ethnicity, tenure of employment and job types. I am pleased

that each meeting generated wide-ranging exchanges

of opinion and insights.

I have also been pleased to have brieﬁngs from HR on the

data collected from GSK’s employee surveys to understand

the feedback they generate against different businesses and

employee groupings. This provides helpful insights and is

used as an input to determine which locations I visit whether

in person or virtually.

There is a standing item on the Board agenda for me to share

feedback on the substance of my workforce engagements.

The Board uses my reports and those from other Non

Executive Directors’ visits to GSK sites to measure the

progress on the company’s Modern employer agenda which

focuses on Inclusion and diversity, Employee health and

wellbeing and development. During my visits I have noted a

clear and consistent support for the Group’s strategy and IPT

priorities and the commitment to employees to ‘Be You, Feel

Good and Keep Growing’.

As we work to separate the Group, I will be working to

provide a voice for the workforce as an important input for the

Board. I am looking forward to developing my role further

utilising technology via virtual meetings and using other

employee forums to explore their perspectives. I am planning

to undertake one event each quarter, which where possible,

will align with Board visits or be held virtually. I look forward

to reporting progress to you next year.

Finally, I have also enlisted input and feedback from my fellow

Non-Executive Directors who are also active in visiting GSK

sites and meeting employees, so that we can continue to

build a more holistic view of perspectives and sentiment of

our workforce across the Group.

Dr Vivienne Cox

Non-Executive Director

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Responsible leadership continued

This table sets out a list of principal decisions taken by either the Board or its Committees during 2019 and the regard to

stakeholder interests and impacts.

Decisions

How Board/Committee has had

regard to stakeholder interests

Stakeholder groups

and other section 172

duties considered

Principal decision made by

the Board and Board Committees

Sales force incentive (SFI)

programme

The Audit & Risk Committee considered

and recommended to the Board changes

to our SFI programme in certain countries

to reﬂect the growing shift in GSK’s

portfolio to certain innovative Specialty

Care products, including oncology.

In particular, it examined the value of these

changes as a means of:

– attracting and retaining the best sales

force talent;

– enhancing the quality of our dialogue

with healthcare professionals (HCP);

and

– helping the company to better serve

patients.

The Committee also stipulated the

implementation of robust governance

arrangements to underpin these changes

that uphold our ethical and values-led

approach to HCP engagement.

Stakeholders: HCPs and

medical experts, employees,

investors, governments and

regulators, patients and

consumers

Other s172 duties:

Long-term results, our

workforce, business

relationships and reputation

The Committee recommended the

implementation of these limited SFI

programme changes to the Board for

approval.

To safeguard key stakeholder interests, the

new SFI programme is being implemented in

controlled phases across markets. A review

of the robustness of the programme’s

governance arrangements will be presented

to the Committee later in the year.

Further details are available on page 97.

Business development

and collaborations

The Science Committee and the

Board has reviewed several business

development deals and collaborations

during the year. These have included the

collaborations with Lyell Immunopharma

and The University of California, to help

GSK obtain competitive advantage, by

adding pipeline optionality and enabling us

to gain access to key technologies.

These arrangements were considered in

the context of their promise to help GSK

deliver transformational medicines to

patients and the capabilities and talent

being made available to the company.

Stakeholders: Patients and

consumers, employees and

investors

Other s172 duties:

Long-term results, the

workforce and our business

relationships

The Science Committee recommended these

collaborations from a scientiﬁc perspective

prior to the Board approving them.

ESG Insights The Corporate Responsibility Committee

received and considered a perception

study with investors speciﬁcally interested

in the ESG aspects of our activities, to

better understand the rapid rise in interest

by investors in this area and their chief

concerns.

The Committee noted and discussed

investors’ desire to see sustained delivery

of our Trust commitments and increased

reporting aligned to both the Sustainability

Accounting Standards Board (SASB) and

the Taskforce on Climate-related Financial

Disclosures (TCFD).

Stakeholders:

Investors, governments

and regulators, non-

governmental organisations

and multilateral organisations

Other s172 duties:

Long-term results, our

business relationships,

the community and our

environment and reputation

The Committee decided to include SASB

disclosures in the company’s 2019 ESG

Performance Summary available on

GSK.com, and make its ﬁrst voluntary

TCFD disclosure in the Annual Report

(see page 46).

The Committee raised with the Remuneration

Committee Chair and the Remuneration

Committee the increasing importance of

demonstrating the link between ESG

performance and our remuneration outcomes

for Executive Directors and the CET. The

Remuneration Committee noted the

importance of stressing the link between

ESG and the delivery of GSK’s bonus

awards for the Executive Directors. It was

agreed that, in devising the new remuneration

arrangements for the two businesses post

separation, it would look more holistically at

how it could highlight further and incentivise

the importance of ESG to the success of the

business and to minimise its impact on the

environment.

GSK Annual Report 2019

Responsible leadership continued

Decisions

How Board/Committee has had

regard to stakeholder interests

Stakeholder groups and other

section 172 duties considered

Principal decision made by

the Board and Board Committees

Board governance and

architecture

The Board engaged No 4 to undertake an

external evaluation that included a review

of our governance and Board architecture.

Stakeholders: Employees,

investors, patients and

consumers

Other s172 duties:

Long-term results and

reputation

The Board agreed changes to its governance

and architecture to improve further Board

effectiveness and support management to

be as effective and efﬁcient as possible in

delivering the transformation of the

Pharmaceuticals and Vaccines business and

the separation of the Consumer Healthcare

business.

Further details are available on pages 76

to 78.

Remuneration policy

review

Prior to developing the new 2020

Remuneration policy (the new policy),

on behalf of the Remuneration Committee,

the Chair met with the Head of Human

Resources and the HR leads for each

area of the business to hear their views on

remuneration arrangements at GSK and

consider further executive and wider

workforce pay alignment opportunities.

The Chair consulted with investors and

proxy advisers on the new policy proposals

and the Committee then following the

engagement, carefully considered the

feedback before ﬁnalising the design of

the new policy.

Stakeholders: Employees,

investors, governments and

regulators, and proxy

advisers

Other s172 duties:

Long-term results, our

workforce and reputation

The Committee approved the new policy,

which is subject to a binding shareholder vote

at our 2020 Annual General Meeting and

includes measures to align our Executive

Directors’ pension arrangements with those

of the wider workforce. This has been a

speciﬁc area of focus for investors and

proxy advisers.

Further details are available on pages 116

to 118.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Areas of focus Long-term priorities link

Strategy

The Board’s oversight of the execution of our strategy included:

– Receiving and discussing reports from our three principal businesses: Pharmaceuticals, Vaccines and Consumer

Healthcare

– Holding joint Board and CET strategy day to discuss IPT priorities against external landscape changes, business

performance, competitors and governance arrangements

– Receiving the CEO, CFO and CSO quarterly reports

Performance

The Board’s focus on performance included:

– Evaluating the CEO’s 2018 performance and setting her 2019 objectives

– Setting, reviewing and agreeing the annual budget & plan and forward looking three year forecast

– 2019 annual talent & succession plan

– Scrutinising the Group’s ﬁnancial performance

– Reviewing the quarterly ﬁnancial results, dividend proposal, earnings guidance, investor materials and results

announcements

– Conﬁrmation of the Viability statement and going concern

– Approval of the statutory accounts

Governance

The Board’s approach to discharging its corporate governance duties included:

– Receiving reports from Board Committees

– Receiving reports from the External Auditor

– Chairman succession & appointment of the new Chairman

– Approving the 2018 Annual Report and Form 20-F

– Reviewing Annual General Meeting preparation and approving the 2019 Notice of the Annual General Meeting

– Calling a General Meeting to approve the Joint Venture with Pﬁzer Inc., and overseeing the execution of the deal

– Receiving reports on corporate governance and regulatory developments and receiving the Secretary’s report

– Considering observations and agreeing actions from the evaluation of the Board’s performance

– Annual setting of the Board’s priorities

– Approval of the Modern slavery statement

– Approval of the Gender pay gap disclosure

– Receiving the Annual quality update

Cultural

transformation

– Receiving cultural transformation updates

Engagement

The Board’s regard for stakeholder impacts included:

– Reviewing the Board governance architecture

– Receiving updates from the Workforce Engagement Director

– Reviewing employee survey results updates

– Corporate reputation research review

– Investor perception research review

Link to long-term priorities Innovation

Performance

Trust

Culture

2019 Board programme

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. In the performance of these duties,

it has regard to the interests of GSK’s key stakeholders and the potential impact of the decisions it makes on all stakeholders. The

Board discharges those responsibilities through an annual programme of meetings and during the year it focused on a number of

speciﬁc areas outlined in the table, in line with its long-term IPT priorities underpinned by a continuing shift in culture. In addition,

during the year the CEO met with Non-Executive Directors to discuss various matters, including the progress on the company’s

strategy, succession planning and continuing regulatory investigations.

Responsible leadership continued

GSK Annual Report 2019

Division of responsibilities

See GSK.com for terms of reference for each Board Committee.

Board

The corporate governance framework in operation during 2019, which was established by the Board, is set out below. It was

designed to clearly deﬁne responsibilities and accountabilities. The framework is designed to safeguard and enhance long-term

shareholder value and to provide a platform to realise the Group’s strategy through GSK’s long-term priorities of IPT, that is

consistent with its culture, values and expectations. Our internal control and risk management arrangements, described on pages

105 to 106 and 43 to 48, are an integral part of our governance framework.

Following the 2019 Board review, GSK’s Board governance and architecture were reviewed and enhanced further. A summary

of the changes to be introduced following the review, is provided in the Chairman’s statement on pages 76 and 77.

Nominations

Committee

on page 92

Audit & Risk

Committee

on page 96

Remuneration

Committee

on page 115

Corporate

Responsibility

Committee

on page 109

Science

Committee

on page 107

Corporate governance framework

Chief

Executive

Ofﬁcer

Corporate

Executive

Team

Scheduled Board and Committee attendance during 2019

Board Nominations Audit & Risk Remuneration Science

Corporate

Responsibility

Total number of scheduled meetings 6 6 6 5 3 4

Members Attended Attended Attended Attended Attended Attended

Sir Jonathan Symonds 2 (2) 2 (2)

Emma Walmsley 6

Iain Mackay 6

Dr Hal Barron 6

Vindi Banga 6 6 6 5

Dr Vivienne Cox 6 5 4

Lynn Elsenhans 6 6 6 4

Dr Laurie Glimcher 6 6 3

Dr Jesse Goodman 6 3 4

Judy Lewent 6 6 6 5 3

Urs Rohner 6 5

Sir Philip Hampton

Retired on 31 August 2019 4 (4)

Simon Dingemans

Retired on 8 May 2019 3 (3)

Number of ad-hoc meetings 15 1 6 6 2 2

For Directors who served for part of the year, the numbers in brackets denote the number of meetings the Directors were eligible to attend.

See the Committee reports for other attendees at Committee meetings, such as the Chairman, CEO and other Executive Directors, and the work of the Committees

during the year. These reports are included later in the Corporate Governance report.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Independent oversight and rigorous challenge

Non-Executive Directors

– Provide a strong independent element to the Board

– Constructively support and challenge management

and scrutinise their performance in meeting agreed

deliverables

– Shape proposals on strategy and offer specialist advice

to management

– Each has a letter of appointment setting out the terms

and conditions of their directorship

– Devote such time as is necessary to the proper

performance of their duties

– Are expected to attend all meetings as required.

Independence statement

The Board considers all of its Non-Executive Directors

who are identiﬁed on pages 79 to 81 to be independent

after being assessed against the circumstances set out

in Provision 10 of the 2018 Code. The review and

explanation of the continuing independence and

commitment of Judy Lewent, who will after 1 April 2020

have served on the Board for over nine years, is

described on page 77.

Senior Independent Director

Vindi Banga

– Acts as a sounding board for the Chairman and a trusted

intermediary for other Directors

– Together with the Non-Executive Directors, leads the

annual review of the Chairman’s performance, taking

into account views of the Executive Directors

– Discusses the results of the Chairman’s effectiveness

review with the Chairman

– Leads the search and appointment process and makes

the recommendation to the Board for a new Chairman

– Acts as an additional point of contact for shareholders,

maintains an understanding of the issues and concerns

of major shareholders through brieﬁngs from the

Company Secretary and Investor Relations.

The Senior Independent Non-Executive Director’s role description is

available on GSK.com

Clear division of Board roles and responsibilities

Leadership

Chairman

Jonathan Symonds

– Leads and manages the business of the Board

– Provides direction and focus

– Ensures clear structure for effective operation of the

Board and its Committees

– Sets Board agenda and ensures sufﬁcient time is

allocated to promote effective debate to support sound

decision making

– Ensures the Board receives accurate, timely and clear

information

– Meets with each Non-Executive Director on an annual

basis to discuss individual contributions and

performance, together with training and development

needs

– Shares peer feedback that is provided as part of the

Board evaluation process

– Meets regularly with all the Non-Executive Directors

independently of the Executive Directors

– Maintains a dialogue with shareholders on the

governance of the company.

The Chairman’s role description is available on GSK.com

Chief Executive Ofﬁcer

Emma Walmsley

– Responsible for the management of the Group and its

three businesses

– Develops the Group’s strategic direction for

consideration and approval by the Board

– Implements the agreed strategy

– Is supported by members of the CET

– Maintains a continual and active dialogue with

shareholders in respect of the company’s performance.

The Chief Executive Ofﬁcer’s role description is available on GSK.com

Company Secretary

Victoria Whyte

– Secretary to the Board and all Board Committees

– Supports the Board and Committee Chairs in annual agenda planning

– Ensures information is made available to Board members in a timely fashion

– Supports the Chairman in designing and delivering Board inductions

– Coordinates continuing business awareness and training requirements for the Non-Executive Directors

– Undertakes internal Board and Committee evaluations at the request of the Chairman

– Advises the Directors on Board practice and procedures, and corporate governance matters

– Chairs the Group’s Disclosure Committee

– Operates a Board-approved appointments policy that reﬂects the Board and external appointment

requirements of the 2018 Code

– Is a point of contact for shareholders on all corporate governance matters.

Division of responsibilities continued

GSK Annual Report 2019

Composition, succession and evaluation

Nominations Committee report

Jonathan Symonds

Nominations Committee Chair

Role

The Committee reviews and recommends to the Board:

– the structure, size and composition of the Board and

the appointment of Directors and Committee members

– succession to the Board and the CET.

Membership

Committee members Committee member since

Sir Jonathan Symonds –

Chair from 1 September 2019 1 September 2019

Vindi Banga 1 January 2016

Lynn Elsenhans 27 January 2015

Judy Lewent 8 May 2014

Urs Rohner 1 January 2017

Philip Hampton

(Former Committee Chair)

27 January 2015 until

31 August 2019

Details of the Committee members’ skills and experience are given

in their biographies under ‘Our Board’ on pages 79 to 81. See page

90 for Committee member attendance levels.

The Company Secretary is Secretary to the Committee

and attends all meetings. Other attendees at Committee

meetings may include:

Attendees

Regular

attendee

Attends as

required

Chief Executive Ofﬁcer ✓

Head of Human Resources ✓

Appropriate external advisers ✓

Advisory services

During the year, Egon Zehnder and Korn Ferry provided

recruitment consultancy services to the Committee, in

addition to recruitment and HR services which they

provide to the company. Egon Zehnder provides executive

coaching services to certain Directors. The Committee

supports the engagement of executive search ﬁrms, such

as Egon Zehnder and Korn Ferry, who have signed up to

the Voluntary Code of Conduct on gender diversity and

best practice. Egon Zehnder and Korn Ferry, with a

number of other executive search ﬁrms, received

accreditation in 2019 under the Enhanced Code of

Conduct, for meeting exacting performance criteria and

best practice standards in gender-balanced selection for

FTSE 350 boards.

I am pleased to present my ﬁrst report as Nominations

Committee Chair.

During the year, the focus of the Committee was on Chairman

succession. Our SID, Vindi Banga led the process that resulted

in my appointment and his report on this process is outlined on

page 94. I will comment on the other work of the Committee this

year.

Board changes

Since I joined the Board, the Committee has focused on the

search for Judy Lewent’s successor as Chair of the Audit & Risk

Committee. We have made good progress and look forward

to reporting the conclusion of our search in due course.

The Committee appointed Egon Zehnder and Korn Ferry to

assist with this appointment. Broad selection criteria were used

focusing on potential candidates with the following

characteristics:

– someone ideally from the pharmaceuticals industry;

– a strong preference for a former CFO and/or candidates

with audit committee experience to broaden the diversity

of the talent pool being sought; and

– ideally, a qualiﬁed accountant.

The Committee also considered the ideal transition for this

important role and was very pleased when Judy Lewent agreed

to remain in post for a further year, despite her nine years of

service, before stepping down from the Board at the 2021

Annual General Meeting. This will help facilitate a smooth

transition, especially given the recent change of CFO and

auditor and the work underway to transform and separate the

Group. The Committee was mindful that the 2018 Code

indicated that Non-Executive Directors should not serve for

more than nine years. However, after engagement with

shareholders, it recommended to the Board this was the most

appropriate way to proceed in the long-term interest of

shareholders. The Board conﬁrmed that, despite her nine years’

service, Judy continues to demonstrate the characteristics of

independence in carrying out her role on the Board.

Iain Mackay started his role of Chief Financial Ofﬁcer from

1 April 2019 after being appointed to the Board in August 2018.

He joined the Board on 14 January 2019 and was elected at the

Annual General Meeting on 8 May 2019. Simon Dingemans

retired from the company following the same Annual General

Meeting, following eight years of service as Chief Financial

Ofﬁcer. The process the Committee followed for Iain Mackay’s

recruitment was described in last year’s report.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

CET succession

During the year, the Committee reviewed the following

internal senior executive appointments to the CET on the

recommendation of the CEO.

– Diana Conrad was appointed SVP, Human Resources in

April 2019, succeeding Claire Thomas who had performed

the role for over 10 years.

– Sally Jackson was appointed to the expanded role of Senior

Vice President, Global Communications and CEO Ofﬁce

and joined the CET in March 2019.

– Deborah Waterhouse, CEO of ViiV Healthcare, joined the

CET in January 2020.

Board composition, tenure and diversity

The Board has sought to balance its composition and tenure,

and that of its Committees and to refresh them progressively

over time so that they can beneﬁt from the experience of longer

serving Directors, and the fresh external perspectives and

insights from newer appointees.

Non-Executive Directors are drawn from a wide range of

industries and backgrounds, including the pharmaceuticals

industry and R&D, vaccines, consumer products and

healthcare, medical research and academia, and insurance and

ﬁnancial services, and have a wealth of experience of complex

organisations with global reach. Many of our Board members

have experience of long-cycle industries, which is of great

assistance in understanding the industry in which we operate.

We are committed to the diversity of our Boardroom just as

GSK is committed to equal opportunities for all our employees

and in the wider workforce at all levels of the organisation.

The Board and management seek to encourage a diverse

and inclusive culture throughout GSK.

A key requirement of an effective Board is that it comprises

a range and balance of skills, experience, knowledge, ethnicity,

gender, social-economic backgrounds and independence, with

individuals who are prepared to challenge each other and work

as an effective team. This needs to be backed by a diversity

of personal attributes, including character, intellect, sound

judgement, honesty and courage.

In support of promoting the long term success of the company,

the Committee is responsible for developing measurable

objectives to assist the implementation of the Board’s diversity

policy, including gender and ethnic diversity, and monitoring

progress towards the achievement of these objectives. Our

diversity policy is in line with the measurable targets set out

in the:

– Hampton-Alexander Review to increase the number of

women in senior leadership positions in all FTSE 350

companies; and

– Parker Review Commission’s report ‘Beyond One by ‘21’

to increase the ethnic diversity of appointments to the boards

of FTSE 100 companies.

Progress towards our female ‘Board representation’ and

‘Combined Executive Committee and Direct Reports’ targets

of at least 33% by 2020 was published in the FTSE Women

Leaders 2019 report, which is reproduced below:

2019 Report Female

Representation Metrics

Female Representation as at 30 June 2019

Board (2018) Combined (2018)

2020 FTSE 100 target 33.0% 33.0%

GSK 45.5% (45.5%) 38.1% (32.5%)

FTSE 100

average 32.4% (30.2%) 28.6% (27.0%)

highest 50.0% (50.0%) 61.3% (47.0%)

As at the date of this Report we have 45.5% women on

our Board (2018 – 41.7%) and 33.3% women on our CET

(2018 – 21%).

Closing this gap between the Board and CET gender

representation and further increasing the pipeline of female

direct reports to the CET to achieve our 2020 target, was a

particular area of attention. We are pleased that good progress

has been made, such that at this stage we have exceeded our

2020 target on ‘Combined Executive Committee and Direct

Reports’. The representation of women in management

positions at GSK is illustrated on page 36, as part of the

gender diversity of GSK’s global workforce.

We are also pleased to report that we are in line with the Parker

Report’s recommendation.

The Committee met with all Non-Executive Directors present

to receive and consider the succession plans for management

and the Executive Directors to ensure a diverse pipeline of

potential successors was available. The Committee also

regularly reviews succession planning for Non-Executive

members of the Board.

Committee evaluation

The Committee’s annual evaluation exercise was externally

facilitated by No 4, who interviewed Committee members on my

behalf. It was concluded that the Committee continued to

operate effectively.

It was agreed that the Committee’s role should be expanded

to encompass Corporate Governance matters, therefore freeing

more time at the Board. The Committee will therefore be

renamed the Nominations & Corporate Governance Committee.

In addition, all Non-Executive Directors will be invited to

participate in meetings of the Committee when it considers

succession and talent.

Sir Jonathan Symonds

Nominations Committee Chair

3 March 2020

Nominations Committee report continued

Composition, succession and evaluation continued

GSK Annual Report 2019

Chairman succession report

Chairman succession

At the beginning of 2019, we announced that Sir Philip

Hampton had informed the Board of his intention to step

down as Chairman but would continue in his role until a new

Chairman was selected and joined the Board. This was a

good time for a transition as the company was delivering

improved operating performance and had developed a clear

new strategy for the next few years.

The selection process was led by myself as the Board’s SID.

The Nominations Committee was expanded to comprise all

Non-Executive Directors and supported by the Head of

Human Resources and the Company Secretary. In addition,

I sought input from the CEO, Emma Walmsley during the

process, as appropriate.

The Committee began by developing and agreeing a job

speciﬁcation for the role of Chairman which included the

skillset, experience and key leadership characteristics

required to lead the GSK Board through the next stage for

the company. We engaged Egon Zehnder and Korn Ferry,

both of whom specialise in the recruitment of high calibre

Chairs and Board Directors. Using both ﬁrms ensured that

the process would be a truly global search and embrace as

broad a talent pool as possible. Their work was validated from

time-to-time to ensure that there were no gaps in the search

process and that the committee was receiving the best

possible market advice for this key appointment.

The job speciﬁcation emphasised that the new Chairman

would lead the Board through the Company’s next phase of

development which would involve:

– continuing to drive GSK’s strategy of building a sustainably

growing Pharmaceuticals and Vaccines business by

strengthening R&D delivery and the pipeline; consolidating

the Tesaro acquisition; and undertaking further business

development;

– successfully integrating the Pﬁzer Consumer Healthcare

business into the GSK Consumer business; whilst

completing the divestment of Horlicks in India. This would

thereby prepare the company for the creation of two

separate listed entities, with separate governance

structures for Pharmaceuticals, Vaccines and Consumer

Healthcare;

– whilst continuing to improve the company’s operating

performance;

– it was envisaged that the Chair would remain with the GSK

Pharmaceutical & Vaccine company to provide appropriate

stability and continuity. This was subject to performance

and to be ratiﬁed by the Board at the appropriate time.

The following key personal attributes were identiﬁed in the job

speciﬁcation:

– proven, respected Chair or a senior executive with

considerable non-executive director (such as a Senior

Independent or Lead Independent Director) experience in

businesses of scale and complexity;

– experience of the UK capital markets with an appreciation

of US and other international shareholders;

– good understanding of UK corporate governance;

– experience of businesses with signiﬁcant portfolio change

including mergers, acquisitions and divestments;

– experience with global scale and international markets;

– life sciences experience was preferable, but not mandatory;

– experience of a regulated industry;

– reputation, stature and authority to command respect both

externally and internally.

Whilst deciding the job speciﬁcation described above, I also

engaged with several shareholders and advisers and secured

their input and advice.

The pool of suitable candidates began with a long list; after

due consideration this was reduced to a short-list. Brieﬁng

reports on the shortlisted candidates were reviewed, after

which the candidates met with myself and other Board

members.

This process resulted in the Nominations Committee

believing that Jonathan Symonds was the most suitable

candidate to be GSK’s next Chairman. On 23 July 2019, in

accordance with the Nominations Committee’s terms of

reference and good governance, I chaired a meeting that

recommended Jon’s appointment as a Non-Executive

Director and the next Chairman. I also chaired a Board

meeting on the same day (with Sir Philip being recused) at

which this recommendation was approved unanimously. On

24 July 2019, I was pleased to announce that Jon would join

the Board as Non-Executive Chairman with effect from 1

September 2019. Sir Philip stepped down from the Board

with effect from 31 August 2019.

Jon met the independence requirements set out in the 2018

Code on appointment. As required by the Board-approved

external appointments policy, his signiﬁcant existing

commitments, with an indication of time involvement, were

disclosed and taken into consideration prior to his

appointment. The Board noted in particular that Jon would

step down from his role as Deputy Chair and Director of

HSBC on 18 February 2020.

The Board was pleased to welcome Jon, who has exceptional

experience in life sciences, and in the ﬁnancial management

and governance of complex, regulated global companies.

Throughout his career Jon has demonstrated a passion for

science and is known for his integrity and professionalism.

Vindi Banga

Senior Independent Director

Composition, succession and evaluation continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Composition, succession and evaluation continued

Details of the 2019 independent external evaluation of the Board conducted by No 4 are set out on page 78.

Progress on 2018 Board evaluation

Progress against the conclusions of the 2018 Board evaluation review is set out below.

Areas of focus for 2018 Progress/Achievements

Succession planning for the Board

The SID was running the search process for the next Chairman supported

by a global executive search ﬁrm. Attendance at the Nominations Committee

for this process was expanded to include all Non-Executive Directors.

The Nominations Committee has also been progressing the search for

a successor for Judy Lewent, the Chair of the Audit & Risk Committee.

The comprehensive process led by the SID resulting in the appointment

of Jonathan Symonds is described by the SID on page 94.

The Nominations Committee has also focused on the search for Judy

Lewent’s successor. Good progress has been made to date. Details are

given on page 77.

Oversight of R&D and pipeline revival and key business development

transactions, and the proposed Consumer Healthcare joint venture

with Pﬁzer

The Board would continue to monitor the performance of R&D, the pipeline

and the integration and operation of the key business development

transactions including: Tesaro, 23andMe, Merck KGaA, Darmstadt,

Germany. It would also be reviewing and overseeing arrangements for the

proposed Consumer Healthcare joint venture with Pﬁzer.

The Board and its Committees have monitored and overseen the successful

integration and operation of the recent transactions.

The Board was also pleased to oversee the early completion of the Consumer

Healthcare joint venture with Pﬁzer. It will continue to monitor management’s

progress in integrating and growing the business.

Building Board relationships and culture in line with the CEO’s culture

work across the Group

Continuing the evolution of the Board’s culture and building relationships

as the membership changed, was an important area of focus especially with

the impending Chairman succession.

The good progress being made in evolving the Board’s culture is noted

in the 2019 Board review undertaken by No 4. See page 78.

Further enhancing the Board’s decision-making and ways of working

Opportunities to further enhance the Board’s decision-making and ways of

working would continue to be considered to ensure that the Board can

operate as effectively as possible.

The implementation of agreed enhancements to the ways of working and

governance architecture of the Board and its Committees are described by

the Chairman in his Governance statement on pages 76 and 77.

External evaluation of the Board

GSK Annual Report 2019

In the following pages of this report we aim to share insights into

the activities undertaken or overseen by the Committee during

the year. The Committee has worked largely to a recurring and

structured programme of activities. I devise this programme with

the Company Secretary and agree its content with management

and the external auditors at the start of each year. It is then

adapted as appropriate as the year progresses.

Financial reporting

The integrity of the ﬁnancial statements, including the Annual

Report and quarterly results announcements, is a key focus for

the Committee. This includes the Committee’s assessment of

the effectiveness of the internal controls over ﬁnancial reporting.

The Committee reviewed, at least quarterly, the company’s

signiﬁcant accounting matters, including contingent

consideration liabilities, revenue recognition and accruals

for returns and rebates, restructuring, tax and accounting for

signiﬁcant transactions, as well as the impact of changes to

accounting standards.

The Committee’s position has always been to aim for clear and

transparent ﬁnancial disclosure in GSK’s ﬁnancial reporting and

to support a proactive approach that is in step with or ahead of

guidance and requirements from regulators. In line with prior

years, the Committee continued to review compliance with the

latest guidance.

The Committee and the auditor discuss the signiﬁcant issues

in relation to the ﬁnancial statements that the Committee

considers periodically through the year and areas of particular

audit focus and the outcomes of these overlapping areas of

attention are disclosed separately on pages 154 and 165 of

the Annual Report.

Audit reform and our external auditors

Reviews of the external audit industry have acknowledged that

a diversity of stakeholders make use of a company’s audited

accounts and statements and that poor quality audits can have

signiﬁcant negative repercussions upon the economy and

society as a whole (albeit that an auditor’s responsibility in law

is only to shareholders as a whole). Associated reform of the

external audit market is therefore an area of regulatory

development that the Committee is monitoring closely.

Another key activity of the Committee is to monitor the

performance of Deloitte. 2019 was the second year Deloitte

served as GSK’s external auditor. There was an extensive

change management process, including a formal handover

and observation of the previous auditor before Deloitte took

over. An ‘After Action Review’ of Deloitte’s ﬁrst audit was

completed, as part of which approximately 120 key members

of management were interviewed to gather feedback with

respect to Deloitte’s ﬁrst audit.

Audit, risk and internal control

Audit & Risk Committee report

Judy Lewent

Audit & Risk Committee Chair

Role

The Committee reviews and is responsible for:

– ﬁnancial and internal reporting processes

– the integrity of the ﬁnancial statements, including the

Annual Report and quarterly results announcements

– the system of internal controls

– identiﬁcation and management of risks and external

and internal audit processes and

– initiating audit tenders, the selection and appointment

of the external auditor, setting their remuneration and

exercising oversight of their work.

Membership

Committee members Committee member since

Judy Lewent –

Chair from 1 January 2013

1 April 2011

Vindi Banga 1 January 2016

Lynn Elsenhans 1 January 2014

Dr Laurie Glimcher 1 September 2017

Details of the Committee members’ ﬁnancial, accounting or scientiﬁc

experience and expertise are given in their biographies under ‘Our

Board’ on pages 79 and 81. See page 90 for Committee member

attendance levels.

The Company Secretary is Secretary to the Committee

and attends all meetings. The entire Board is invited to

attend the Committee meetings and other attendees

include:

Attendee

Regular

attendee

Attends as

required

General Counsel ✓

Group Financial Controller ✓

Head of Audit & Assurance ✓

Head of Global Ethics and Compliance ✓

Chief Medical Ofﬁcer ✓

Chief Product Quality Ofﬁcer ✓

External auditor ✓

In accordance with the FRC’s 2018 Code, the Board has

determined that Judy Lewent has recent and relevant

ﬁnancial experience. The Board has also agreed that she has

the appropriate qualiﬁcations and background to be an audit

committee ﬁnancial expert as deﬁned by the Sarbanes-Oxley

Act of 2002, and has determined that she is independent

within the meaning of the Securities Exchange Act of 1934,

as amended.

The Committee has, as a whole, competence relevant to

the sector in which the company operates.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

Learnings and efﬁciencies identiﬁed in the After Action Review

were incorporated into the 2019 Audit Plan. Objectives for the

2019 audit were set, agreed and continue to be monitored by

the Committee. Further information on the effectiveness of this

year’s audit process is given on page 102.

The Committee discussed with Deloitte examples of how

the use of analytical tools and insights have supported and

improved the efﬁciency and effectiveness of its audit work.

Business development transactions

Oversight of the Tesaro transaction and the Consumer

Healthcare JV with Pﬁzer has been a key priority for the

Committee, given the importance of the success of these

transactions to accelerate the Group’s strategy and reshape

our business. The Committee has received regular reports on

the integration and management of Tesaro. This has included

reviewing the R&D risks of the deal itself, and monitoring the

known operational, compliance and reputational risks, and

he associated mitigation plans. The integration across the

commercial and medical functions progressed well and was

completed with effect from 1 January 2020.

The Committee also exercised responsibility for monitoring

and overseeing the Consumer joint venture’s risk management

and post day one due diligence. Because the JV operates in

an extremely competitive and changing environment, the

Committee has focused on the management of three enterprise

risks that are relevant to the delivery of the joint venture’s

strategic priorities: commercial practices, supply chain

continuity and portfolio ingredient risk.

HCP and SFI changes

The Committee has devoted signiﬁcant time during the year to

reviewing the design and governance arrangements that formed

part of the HCP engagement policy and the SFI programme

changes. The move to the promotion of Speciality medicines,

underpinned by the HCP and SFI changes, has been well

executed and received positively both externally and internally.

However, this presents an increased risk for potential unethical

behaviour which is to be comprehensively controlled and

mitigated.

At the end of 2019, the Committee received a presentation on

the results from an HCP engagement theme review, conducted

by Global Ethics and Compliance (GEC) and Independent

Business Monitoring (IBM) across 13 markets, covering one

third of eligible markets. The review had identiﬁed several

process learnings which are being embedded across all the

markets that are covered by the HCP engagement programme.

The Committee considered in detail the rationale around

the limited changes to the SFI programme and the robust

governance arrangements underpinning them within the

context of GSK’s IPT priorities, before recommending the

implementation of these policy changes to the Board in May

2019. The new SFI policy is being implemented in controlled

phases across markets. The Committee received

a report in December 2019 on the outcome of IBM monitoring

of both the SFI activities and controls performed by GEC.

Managing change to the SFI programme has and will continue

to be a signiﬁcant activity for the Committee, given the potential

associated risks. Therefore, GEC is committed to performing a

full IBM review of the SFI changes as they gain traction across

the markets during 2020 and will present their ﬁndings and

learnings to the Committee at the end of this year.

Fundamental to the success of the new SFI programme is

strong leadership to continue to drive a culture of Performance

with Trust, enforced with measured governance controls and

zero tolerance for abuse. The Committee regularly monitors

and reviews these internal controls and also held a deep-dive

session with the leaders of GSK’s principal businesses to

discuss their individual engagement, accountabilities and

views on balancing Performance and Trust priorities in their

own businesses.

Internal framework for control and risk management

developments

Our risk management framework is well embedded and

continually reviewed by the Committee. It enables the Board,

through the Committee, to identify, evaluate and manage

principal risks and is designed to support our Innovation,

Performance and Trust priorities and cultural transformation.

The framework provides for an effective hierarchy of Risk

Management and Compliance Boards (RMCBs) within each

of GSK’s businesses which promotes the ‘tone from the top’,

establishes the risk culture and oversees the effective cascade

and escalation of information regarding our internal controls.

Along with GSK’s values, expectations and Speak Up

processes, it ensures that the risks associated with our business

activities are actively and effectively agreed and mitigated and

provides reasonable assurance against material misstatement

or loss. GEC has conducted an annual conﬁrmation exercise

to ensure that our risk management approach is consistent

across GSK and to reinforce leadership accountability.

During the year, the Committee considered GSK’s risks and

the strategies to address them. In doing so, it has drawn on

annual business unit risk and strategy papers and also

assurance update reports provided by Audit & Assurance (A&A)

for GSK’s most signiﬁcant risks, with an annual internal control

and risk management effectiveness review from GEC.

Audit & Risk Committee report continued

Audit, risk and internal control continued

GSK Annual Report 2019

Each principal risk is overseen by a CET member level risk

owner to ensure proportionate controls are in place, with clear

plans assigned to address any gaps. The Committee considers

both current and emerging risks as part of its oversight of

GSK’s risk management framework.

Emerging risks are deﬁned as those which are visible to the

organisation on a three-year horizon. Emerging risk

assessments are performed as part of the remit of the RMCBs

at all levels of the organisation. Additionally, an annual analysis

of the Political, Economic, Social, Technological, Legal and

Environmental (PESTLE) trends from the external environment

is performed by the A&A team to identify emerging risk in

GSK’s known Enterprise risk areas. Each year, the CET and

Risk Oversight and Compliance Council (ROCC) conduct

a formal risk review to consider emerging risks and whether

sufﬁcient information is available to support its inclusion in

GSK’s principal risks list.

This review is supported by extensive analysis of external trends

and insights, senior level interviews and recommendations from

GSK’s key risk intelligence groups and risk management

boards. Based on the 2019 review, the Committee agreed

with the CET recommendation to escalate Environmental

Sustainability as a standalone principal risk in 2020 given its

signiﬁcance to GSK. This was previously managed as a

sub-risk of Environment, Health & Safety and Sustainability.

Other risks which will require further focus going forward

include transformation, pricing pressures and non-promotional

engagement.

Enterprise risk management enhancements: The Committee

has overseen the embedding by GEC of the new enterprise risk

management cycle:

– Enterprise risk plans have been completed for each of our

enterprise risks and have been communicated to the

businesses and functions for implementation. This has

provided greater clarity across the organisation on the nature

of our risks and what controls we expect to be in place;

– Businesses and functions have given assurance that they

have adopted these enterprise risk plans and only adapted

them with the approval of the enterprise risk owner, driving

consistency and better oversight;

– A requirement for CET conﬁrmation has been introduced

across the Group in the most important risk areas reinforcing

leader accountability for risk management and measuring

how well the controls set out in the enterprise risk plans have

been implemented and any gaps have been addressed; and

– New enterprise risk reports for the ROCC have been

introduced with more focus on data and key risk indicators,

leading to better informed discussions on risk exposure and

actions needed.

Each business reported to the Committee on key Internal

Control Framework (ICF) improvements and simpliﬁcation

activities to further improve how we manage risks. These are

summarised below:

Pharmaceuticals: Along with the embedding of the HCP

engagement model as noted above, General Manager

conﬁrmation, which forms a component of the CET conﬁrmation

process, continues to be an important review of risks and

mitigation plans that allows detailed area and regional oversight.

The 2019 conﬁrmation allowed for targeted discussions at

RMCBs with a better understanding of the deployment of

operating model changes, mitigation actions and accountability

for local control efforts.

Vaccines: During the year, the Vaccines business has worked

to increase the ICF maturity and improve effectiveness of its

RMCBs. A new R&D governance model has been built around

principles of faster decision making and a smart risk-taking

approach. Vaccines has continued to perform comprehensive

asset risk assessments complementing the implementation

of the new enterprise risk management framework.

Consumer Healthcare: To better understand risks in-country

a Country Risk Radar has been launched which helps to

proactively identify higher risk countries by looking at culture,

commercial KPIs and qualitative aspects. It provides judgement

to where speciﬁc action plans are necessary to mitigate risk.

An improved management monitoring toolkit was also

developed to support General Manager self-assessments

and to enhance control maturity.

A Consumer Healthcare distribution activity risk management

framework has been developed to allow markets to understand

the distributor activity risk dependent on the type of services

delivered by the service provider. The tool provides guidance on

expected controls to manage the risk which will be implemented

globally by the end of March 2020.

ViiV Healthcare: One particular area of focus for ViiV has been

further improving the effectiveness of RMCBs, driving robust

risk discussion, clear risk owner accountability and

proportionate risk mitigation.

Monitoring and compliance activities

Monitoring is a key part of our ICF. During 2019, GEC

continued to mature its IBM framework for ABAC and

Commercial practices risks. IBM is conducted across the

enterprise with a signiﬁcant focus on prioritising the monitoring

of our highest risk activities and risk markets for review. In 2019,

GEC has led over 70 IBM market visits across GSK’s principal

businesses. The maturity of GSK’s IBM programme helps

provide greater conﬁdence that issues are being identiﬁed

and therefore addressed earlier.

Audit & Risk Committee report continued

Audit, risk and internal control continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

GSK Values & Expectations

GSK’s Values and Expectations are a high priority for the

Committee. The A&A team conducted 18 Values Assurance

Reviews (VARs) during 2019 to assess how well GSK’s values

and expectations are embedded in the organisation. Insights

from the VARs have identiﬁed two continuing areas of focus:

creating an environment where people are comfortable

speaking up about issues and challenging the status quo;

and raising awareness of GSK’s expectations and helping

people understand what they mean in the context of their roles.

Living our values and expectations: This year, the mandatory

training strategy was focused on simplifying the key messages

and behaviours that GSK wanted to communicate by

compressing the training into smaller pieces to facilitate learning

and retention, and through driving conversations between

employees and line managers.

Data Analytics: Building on existing capabilities, GEC has

established a Data analytics workstream which focuses on

developing market-level Key risk indicators that are designed to

signal where there may be potential issues in a business activity,

and improving the quality of GEC data so it can be used to

provide actionable insights to assist the business further in

mitigating risk.

Monitoring of technology and InfoProtect

The Committee continues to monitor the effectiveness of

risk management and internal control over the use of new

technologies that impact the Financial controls and reporting

enterprise risk. Given the fast pace of technological

development, including the ability for new technologies

to perform tasks traditionally undertaken by humans, the

Committee considered in particular the impact of robotics

and artiﬁcial intelligence.

Our Finance function aims to improve performance and efﬁcacy,

reduce costs and manage risk better by optimising the use

of technology. GSK continues to develop cloud applications,

robotics, visualisation tools and advanced analytics.

Governance frameworks are in place to ensure that new

technology is assessed, developed, piloted, deployed and

monitored in a controlled manner.

InfoProtect: In recognising the potential impacts of a

continuously evolving environment and the complexity

of GSK’s footprint on this key enterprise risk, the Committee

will now receive quarterly updates on information security.

The Committee is also overseeing the introduction by our

Chief Information Security Ofﬁcer of an industry standard

framework for monitoring and reporting on information

security at GSK.

Committee evaluation

The Committee’s annual evaluation was externally facilitated

by No 4, who interviewed Committee members on my behalf.

It was concluded that the Committee continued to operate

effectively. In terms of enhancements to the Committee’s

deliberations the following improvement points were agreed:

The Committee should continue to have a strong focus on

ﬁnancial reporting, as well as monitoring the dashboard of all

GSK’s enterprise risks and the process by which they are

identiﬁed and prioritised. Following the review of the Board’s

governance and architecture, the Committee will conduct more

detailed reviews of GSK’s Financial controls and reporting,

Anti bribery and corruption practices, Commercial practices,

Privacy and Information security enterprise risks. Detailed

review of GSK’s other enterprise risks will be undertaken by

the Board Committee focused on that aspect of the business

most closely. In addition, the Committee will be responsible

for oversight of the ﬁnancial components as we work towards

separation.

Audit & Risk Committee Chair succession

I am approaching the end of my tenure on the Board. However,

to facilitate a smooth transition to my successor, I have agreed

to stay on the Board for a further year until the 2021 Annual

General Meeting, subject to my re-election at the Annual

General Meeting in May 2020. I look forward to working with

and handing over to my successor once they are announced.

Judy Lewent

Audit & Risk Committee Chair

3 March 2020

Audit & Risk Committee report continued

Audit, risk and internal control continued

100

GSK Annual Report 2019

Areas of Committee focus Items discussed Frequency

Financial

reporting

– Reviewed integrity of draft ﬁnancial statements, appropriateness of accounting policies and going concern

assumptions

– Considered approval process for conﬁrming and recommending to the Board that the 2018 Annual Report is fair,

balanced and understandable

– Reviewed and recommended to the Board approval of the 2018 Annual Report and Form 20-F

– Reviewed and recommended the statutory accounts

– Reviewed major restructuring reports

– Reviewed and recommended approval of quarterly and preliminary results announcements, dividends and earnings

guidance

– Reviewed signiﬁcant issues in relation to the quarterly and preliminary results

– Reviewed and approved Directors’ expenses

– Reviewed and recommended inclusion of the Viability Statement in the 2018 Annual Report

– Reviewed the Appropriateness of Accounting Policies

– Reviewed accounting developments and their impacts as well as key accounting issues

– Reviewed the ﬁnancial reporting framework and disclosure arrangements

External

auditor

– Performed evidence-based assessment of external auditor and the effectiveness of 2018 external audit

– Considered qualiﬁcations, expertise and independence of the external auditor

– Reviewed and approved audit/non-audit expenditure incurred during 2018

– Approved the 2019 audit plan and fee proposal and set performance expectations for auditor for the year

– Considered non-audit services fees for 2019 and the 2020 audit budget

– Considered the auditor’s report on the 2018 annual results

– Considered initial results of 2019 external audit

– Considered the external auditor review report, progress report & key judgemental items

– Considered internal controls over ﬁnancial reporting

Global internal

control and

compliance

– Reviewed assurance reports from Global Pharmaceuticals (including ViiV, R&D and SFI Programme update),

Vaccines and Consumer Healthcare, as well as the Global Support functions

– Conﬁrmed compliance with Sarbanes-Oxley Act

– Received litigation reports and updates

– Received reports on continuing investigations and on Anti-bribery and corruption issues

– Reviewed GSK’s internal control framework and controls over ﬁnancial reporting

– Reviewed Audit & Assurance work during 2018 and approved the work plan for 2019

– Reviewed the Tesaro Integration Plan

– Reviewed General Data Protection Regulation update

– Reviewed Internal Audit reports

Risk – Reviewed risk management framework compliance

– Reviewed the risk elements of group treasury, pensions, risk and insurance, and tax policies

– Considered emerging risks

– Received status reports on each of the company’s Enterprise Risks (these Risks are disclosed on pages xx and xx)

– Received fraud, site security and cyber security risk assessment updates

– Received ROCC meeting updates

Governance and

other matters

– Review of the new provisions and conﬁrmation of compliance with the 2018 Code

– Reviewed the Committee’s terms of reference and conﬁrmed that they had been adhered to during 2019

– Reviewed reports from the Disclosure Committee

– Reviewed the Committee’s performance and effectiveness

– Received corporate governance updates

– Reviewed the Group’s Modern Slavery Act statement

– Reviewed the company’s gender pay gap disclosures

– Considered the SFI Programme

– Reviewed technology in audit and assurance

– Reviewed the balance between Performance and Trust

– Met privately and separately with the Heads of GEC, A&A and the General Counsel

– Met privately with the external auditor at the end of each meeting, as appropriate

What the Committee did during 2019

Committee Activity Key

Annually

Quarterly

Periodically

Standing

Audit, risk and internal control continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

101

In considering the quarterly ﬁnancial results announcements and the ﬁnancial results contained in the 2019 Annual Report, the

Committee reviewed the signiﬁcant issues and judgements made by management in determining those results. The Committee

reviewed papers prepared by management setting out the key areas of risk, the actions undertaken to quantify the effects of the

relevant issues and the judgements made by management on the appropriate accounting required to address those issues in the

ﬁnancial statements.

The signiﬁcant issues considered in relation to the ﬁnancial statements for the year ended 31 December 2019 are set out in the

following table, together with a summary of the ﬁnancial outcomes where appropriate. In addition, the Committee and the external

auditor have discussed the signiﬁcant issues addressed by the Committee during the year and the areas of particular audit focus,

as described in the Independent Auditor’s Report on pages 154 to 165.

Signiﬁcant issues considered by the Committee

in relation to the ﬁnancial statements How the issue was addressed by the Committee

Going concern basis for the preparation

of the ﬁnancial statements

The Committee considered the outcome of management’s half-yearly reviews of current and forecast net

debt positions and the various ﬁnancing facilities and options available to the Group. Following a review

of the risk and potential impact of unforeseen events, the Committee conﬁrmed that the application of the

going concern basis for the preparation of the ﬁnancial statements continued to be appropriate.

Revenue recognition, including returns

and rebates (RAR) accruals

The Committee reviewed management’s approach to the timing of recognition of revenue and accruals for

customer returns and rebates. The US Pharmaceuticals and Vaccines accrual for returns and rebates was

£4.2 billion at 31 December 2019 and the Committee reviewed the basis on which the accrual had been

made and concurred with management’s judgements on the amounts involved. A fuller description of the

process operated in the US Pharmaceuticals and Vaccines business in determining the level of accrual

necessary is set out in ‘Critical accounting policies’ on page 72.

Provisions for legal matters, including

investigations into the Group’s

commercial practices

The Committee received detailed reports on actual and potential litigation from both internal and external

legal counsel, together with a number of detailed updates on investigations into the Group’s commercial

practices. Management outlined the levels of provision and corresponding disclosure considered necessary

in respect of potential adverse litigation outcomes and also those areas where it was not yet possible to

determine if a provision was necessary, or its amount. At 31 December 2019, the provision for legal matters

was £0.2 billion, as set out in Note 31 to the ﬁnancial statements, ‘Other provisions’.

Provisions for uncertain tax positions The Committee considered current tax disputes and areas of potential risk and concurred with

management’s judgement on the levels of tax contingencies required. At 31 December 2019, a tax payable

liability of £0.8 billion, including provisions for uncertain tax positions, was recognised on the Group’s

balance sheet.

Acquisitions of Tesaro and Pﬁzer

Consumer Healthcare business

The Committee considered the judgements made by management on the acquisition date valuations

of the assets and liabilities acquired, in particular the valuations of intangible assets. The intangible assets

acquired with Tesaro were valued at £3.1 billion and with the Pﬁzer Consumer Healthcare business,

£12.4 billion. The Committee concurred with management’s valuation judgements. Further details are

provided in Note 40 to the ﬁnancial statements, ‘Acquisitions and disposals’.

Impairments of intangible assets The Committee reviewed management’s process for reviewing and testing goodwill and other intangible

assets for potential impairment. The Committee accepted management’s judgements on the intangible

assets that required writing down and the resulting impairment charge of £130 million in 2019. See

Note 20 to the ﬁnancial statements, ‘Other intangible assets’ for more details.

Valuation of contingent consideration

in relation to ViiV Healthcare

The Committee considered management’s judgement that the unwind of the discount on the liability

was largely offset by updated exchange rate assumptions and adjustments to sales forecasts. After cash

payments of nearly £0.9 billion in the year, at 31 December 2019, the Groups’ Balance sheet included a

contingent consideration liability of £5.1 billion in relation to ViiV Healthcare. See Note 32 to the ﬁnancial

statements, ‘Contingent consideration liabilities’ for more details.

ViiV Healthcare put option The Committee reviewed and agreed the accounting for the Pﬁzer put option and concurred with

management’s judgement on the valuation of the put option of £1.0 billion at 31 December 2019.

Signiﬁcant issues relating to the ﬁnancial statements

Audit, risk and internal control continued

102

GSK Annual Report 2019

External auditor

Following an audit tender process conducted by the Committee

which concluded in December 2016, Deloitte’s appointment

as the auditor of the company and the Group was approved

by shareholders at the Annual General Meeting in May 2018.

There were no contractual or similar obligations restricting

the Group’s choice of external auditor.

The Committee considers that during 2019, the company

has complied with the mandatory audit processes and audit

committee responsibility provisions of the Competition and

Markets Authority Statutory Audit Services Order 2014.

Effectiveness and quality of external audit process

The Committee is committed to ensuring on an ongoing

basis that GSK receives a high quality and effective audit

from its external auditor. In evaluating Deloitte’s performance

during 2019, prior to making a recommendation on their

re-appointment in early 2020, the Committee reviewed the

effectiveness of its performance against the criteria which

it agreed, in conjunction with management, at the beginning

of 2019. The criteria are set out on page 103.

In undertaking this review, the Committee considered:

– the overall quality of the audit;

– the independence of Deloitte; and

– whether they have exhibited an appropriate level of challenge

and scepticism in their work.

Because Deloitte had recently been appointed GSK’s auditor,

its length of tenure was not taken into account when assessing

its independence and objectivity. However, the Committee did

consider overall how effectively Deloitte had assumed its role

as auditor.

Finally, the Committee considered feedback on the 2019

external audit through a survey that sought views from

Committee members and the ﬁnancial management team

at corporate and business unit level.

It covered the:

– effectiveness of challenge by the auditor;

– Deloitte’s integrity;

– transparency of its reporting to management

and the Committee;

– clarity of communication by the auditor and its ways

of working;

– alignment of the 2019 audit to the Group’s investment

in SAP;

– quality of the audit team’s leadership; and

– skills and experience of the audit team.

The Committe Chair regularly meets independently with the

audit partners. In addition, at the end of each face to face

meeting the Committee meets with the auditor to exchange

views on progress to date, as appropriate.

Having reviewed all this feedback, and noted any areas of

improvement to be implemented in respect of the Audit team

for the 2020 audit, the Committee: was satisﬁed with the:

– effectiveness of the auditor and the external audit process;

and

– auditor’s independence, qualiﬁcations, objectivity, expertise

and resources.

The Committee therefore agreed to recommend to the Board

the re-appointment of Deloitte at the forthcoming Annual

General Meeting.

Auditor’s re-appointment

Audit, risk and internal control continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

103

The detailed criteria the Committee used for judging the effectiveness of Deloitte as the external auditor and its overriding

responsibility to deliver a smooth-running, thorough and efﬁciently executed audit for 2019 are set out below:

Performance expectations for GSK’s external auditor 2019

Audit approach

and strategy:

– Leverage a centrally controlled audit approach, ensuring that GSK group, joint venture and local statutory entities were audited once

and once only;

– Reﬁne a consistent technology-led audit with enhanced risk assessment and analytical procedures, providing insights that combined

data trend analysis, process cycle pathways, and the identiﬁcation of audit risks, ensuring a well-informed and efﬁcient audit; and

– Deliver a focused and consistent audit approach globally that reﬂected local risks and materiality.

High quality

independent

audit:

– Adhere to all independence policies (GSK’s, the FRC’s 2016 Revised Ethical Standard and applicable SEC standards);

– Maintain a relentless focus on audit quality and Deloitte’s internal quality control procedures;

– Provide timely clarity on assessments of accounting treatments and ensure consistency of advice at all levels;

– Maintain a forward-thinking approach by raising potential issues or concerns as soon as identiﬁed;

– Provide timely up-to-date knowledge of technical and governance issues, including evolving market practice on the Viability

Statement requirements, ESMA/SEC guidelines and new IFRSs (i.e. IFRS 16);

– Serve as an industry resource; communicating best practice trends in reporting and integrated reporting; and

– Provide high quality and succession planning of key staff members of Deloitte and ensure their technical skillsets are continuously

enhanced.

Effective

partnership:

– Deliver a smooth running, thorough and efﬁciently executed audit by:

– Discussing approach and areas of focus in advance and early engagement on understanding the implications of the new

operating model;

– Ensuring Sarbanes Oxley scope and additional procedures were discussed and understood by management and communicated

on a timely basis within GSK and Deloitte;

– Timely reporting of issues at all levels within the Group;

– Early engagement on and provision of impact assessments of key judgements;

– Ensuring clarity of roles and responsibilities between local Deloitte and Finance Services;

– Responding to any issues raised by management on a timely basis;

– Meeting agreed deadlines;

– Providing sufﬁcient time for management to consider draft auditor reports and respond to requests and queries; and

– Consistent and timely communication and engagement between local and central audit teams, and across all GSK

stakeholder groups.

– Liaise with A&A to avoid duplication of work and GEC to ensure a common understanding of audit ﬁndings, adopting

a collaborative approach to solving issues; and

– Ultimately provide a high-quality service to the Board, shareholders and relevant stakeholders be scrupulous in its scrutiny

of the Group and act with utmost integrity.

Value for

money:

– Work closely with management to agree on scope changes, overruns and efﬁciencies and set clear milestones for continuous

monitoring; and

– Provide transparency of audit time and cost incurred analysis against budget, identifying areas that will enable reduction in audit

hours without compromising audit quality and commensurately reducing audit fees.

Auditor’s re-appointment continued

Audit, risk and internal control continued

104

GSK Annual Report 2019

There is a presumption that non-audit services will be provided

by other accountancy ﬁrms.

However, where the external auditor’s skills and experience

make them the only suitable supplier of the non-audit service

they may be authorised to provide non-audit services (such as

audit-related, tax and other services). In accordance with GSK’s

policy, the Committee ensures that auditor objectivity and

independence will be safeguarded by reviewing and pre-

approving such services.

The following core policy guidelines on engaging the external

auditor to provide non-audit services are observed:

– Process: all non-audit services over £50,000 are put out to

competitive tender with ﬁnancial service providers other than

the external auditor, in line with the Group’s procurement

process, unless the skills and experience of the external

auditor make them the only suitable supplier;

– Safeguards: ensuring adequate safeguards are in place so

that the objectivity and independence of the Group audit are

not threatened or compromised; and

– Fee cap: ensuring that the total fee payable for non-audit

services does not exceed 50% of the annual audit fee,

except in special circumstances where there would be a

clear advantage in the company’s auditor undertaking such

additional work.

– The company’s policy complies with the FRC’s 2016 Revised

Ethical Standard and the EU Audit Regulation and the

Sarbanes-Oxley Act of 2002. The company’s policy contains

the following three guidelines:

Fee cap: there is a cap of 50% of the annual audit fee which

is more stringent than the FRC’s fee cap set at 70% of the

average fees for the preceding three-year period.

Prohibitions: GSK’s policy includes a ‘black list’ of prohibited

non-audit services.

Pre-approval: The category-wide pre-approval process reﬂects

the restrictions in the FRC’s 2016 Guidance on Audit

Committees, so that all non-audit services:

– over £50,000 are pre-approved by the Committee Chair

and CFO as delegated by the Committee;

– between £25,000 and £50,000 are pre-approved by the

Group Financial Controller; and

– under £25,000 are approved by a designate of the Group

Financial Controller.

Fees paid to the company’s auditor and its associates are set

out below. Further details are given in Note 8 to the ﬁnancial

statements, ‘Operating proﬁt’.

Non-audit services

0 10 20

2018

Deloitte

2017

PwC

Audit and assurance services

Other services, including tax, regulatory, compliance and

treasury-related services

Audit & other services comparison(£m)

26.2

26.6

3.9

27.7

1.9

2018

Deloitte

26.2

3.9

2018

Deloitte

26.2

3.9

2019

Deloitte

30.3

1.4

One of the key compliance requirements of a group’s ﬁnancial

statements is for the Annual Report to be fair, balanced and

understandable. The co-ordination and review of Group-wide

contributions into the Annual Report follows a well-established

and documented process, which is performed in parallel with

the formal process undertaken by the external auditor.

The Committee received a summary of the approach taken by

management in the preparation of GSK’s 2019 Annual Report

to ensure that it met the requirements of the FRC’s 2018 Code.

This enabled the Committee, and then the Board, to conﬁrm

that GSK’s 2019 Annual Report taken as a whole is fair,

balanced and understandable and provides the information

necessary for shareholders to assess the company’s position

and performance, business model and strategy.

Code of Conduct and reporting lines

We also have a number of well-established policies, (including

a Code of Conduct), which are available on GSK.com, together

with details of our conﬁdential ‘Speak Up’ reporting lines for

the reporting and investigation of unlawful conduct. An updated

version of the Code of Conduct was last published in April 2018.

Fair, balanced and understandable assessment

Audit, risk and internal control continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

105

The Board recognises its obligation to present a fair, balanced

and diligent assessment of GSK’s current position and

prospects. The Board is accountable for evaluating and

approving the effectiveness of the internal controls, including

ﬁnancial, operational and compliance controls, and risk

management processes operated by GSK.

The Internal Control Framework (the Framework) is a

comprehensive enterprise-wide risk management model and

the means by which GSK ensures the reliability of ﬁnancial

reporting and compliance with laws and regulations. The

Framework supports the continuous process of the Board’s

identiﬁcation, evaluation and management of the Group’s

principal risks, as required by the FRC’s 2018 Code, and is

designed to manage the risk of not achieving business

objectives.

A ﬁt for purpose Framework, in conjunction with our corporate

values, expectations and ‘Speak Up’ processes, ensures that

the risks associated with our business activities are actively

and effectively controlled in line with the agreed risk appetite.

We believe the Framework provides reasonable, but not

absolute, assurance against material misstatement or loss.

Internal control framework

The Group’s ROCC, a team of senior leaders, is mandated

by the Board to assist the Committee in overseeing risk

management and internal control activities. It also provides the

business with a framework for risk management and upward

escalation of signiﬁcant risks. Each business unit has a risk

board structure which reports to the ROCC. The business unit

RMCBs are responsible for promoting the local ‘tone from the

top’ and risk culture, as well as ensuring effective oversight of

internal controls and risk management processes.

Each principal risk has an assigned risk owner who is a member

of senior management. The risk owner is accountable for the

management of his/her respective principal risk, including the

setting of risk mitigation plans, their implementation and for

reporting on the risk management approach and progress

to the ROCC and the Committee every year. The ROCC and

the RMCBs are assisted by GEC, which is responsible for

advancing risk management across the enterprise and for the

development of working practices that are risk-based and

ethically sound. GEC actively promotes ethical behaviours

through enabling all members of the organisation to operate

in accordance with our values, and to comply with applicable

laws and regulations.

A&A, in line with an agreed assurance plan, provides

independent assurance to senior management and the Board

on the effectiveness of risk management across the Group.

This assurance helps senior management and the Board to

meet their oversight and advisory responsibilities in fulﬁlling the

Group’s strategic objectives and building trust with patients and

other stakeholders. A&A has a dual reporting line into the CFO

and the Committee.

The Committee receives regular reports from business units,

principal risk owners, GEC and A&A on areas of signiﬁcant

risk to the Group and on related internal controls. These reports

provide an assessment on the internal control environment

within each principal risk area, including enhancements to

strengthen the control environment. Following the consideration

of these reports, the Committee concludes on the effectiveness

of the internal control environment and reports to the Board

annually. In accordance with the FRC’s 2018 Code provisions,

the Board, through the authority delegated to the Committee,

has conducted a robust assessment of the Group’s principal

risks. This includes the consideration of the nature and extent

of risk it is willing to take in achieving the Group’s strategic

objectives. The Board, through the Committee, has maintained

oversight to ensure the effectiveness of the internal control

environment and risk management processes in operation

across the Group for the whole year, and up to the date of

the approval of this Annual Report.

Business

Activities

The Framework

Audit, risk and internal control continued

106

GSK Annual Report 2019

The Board’s review focuses on the company and its subsidiaries

and does not extend to material associated undertakings, joint

ventures or other investments, although it considers the risk of

the company’s participation in these activities. There are

established procedures and controls in place to identify entities

whose results must be consolidated with the Group’s results.

We believe the process followed by the Board, through the

Committee, in reviewing regularly the system of internal controls

and risk management processes is in accordance with the

Guidance on Risk Management, Internal Control and Related

Financial and Business Reporting issued by the FRC.

A review of the Group’s risk management approach is further

discussed in the ‘Risk management’ section of the Strategic

report on pages 43 to 46. Our management of each principal

risk is explained in ‘Principal risks and uncertainties’ on pages

275 to 287. The Group’s viability is discussed in the Group

ﬁnancial review section of the Strategic report on page 47.

Internal control framework continued

Governance structure of risk management

Accountability for monitoring

Responsibility for implementing

Audit & Risk Committee

Board of Directors

Risk Oversight and

Compliance Council

Corporate Executive Team

Risk Management and

Compliance Boards

Business units

– Responsible for reviewing and approving

the adequacy and effectiveness of our risk

management and internal controls

– Responsible for our system of corporate

governance, strategy, risk management

and ﬁnancial performance

– Authorised by the Board to assist the Audit

& Risk Committee in overseeing the risk

management and internal control activities

of the Group

– Ensures that appropriate internal controls are

implemented for effective risk management

– Complemented by Country Executive Risk

Boards to ensure a consistent approach

to risk management across local territories

– Supports the CEO in managing the

business and activities

– Responsible for our system of corporate

governance, strategy, risk management

and ﬁnancial performance

Audit, risk and internal control continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

107

I am pleased to present my third report as Chair of the Science

Committee (the Committee).

During 2019, the Committee has worked to support the

Board and Dr Barron, our CSO, in considering our science,

technology and culture as part of the new R&D strategy.

The Committee operated to a programme of activities to help

discharge its responsibilities. Items considered included:

– regular updates on our Pharmaceuticals’ and Vaccines’

assets;

– regular updates on the R&D strategy;

– scientiﬁc and technical review of Business deals to

strengthen our pipeline;

– oversight of R&D pipeline milestones (including project

portfolio governance gates) and progress on R&D goals; and

– progress on R&D’s culture and talent.

Pharmaceuticals R&D

The Committee was pleased to observe Pharma R&D’s

signiﬁcant progress in strengthening the pipeline through a

focus on the science related to the immune system, the use

of human genetics, and other advanced technologies, while

creating a culture that fosters an innovative mindset. A new

governance model was embedded that centralised key

functional capabilities. Changes included a refocus on a

smaller number of promising projects and the move away from

the Discovery Performance Unit model to three large research

units focusing on our priority areas of immunology and genetics.

The pipeline continues to evolve with 14 assets progressing or

being added, 8 terminations and 3 medicines being approved

in 2019, resulting in 39 medicines currently being developed.

R&D continues to attract talented individuals to work in and with

R&D to help deliver our new approach of Science x Technology

x Culture.

Vaccines R&D

The Committee oversaw signiﬁcant changes to Vaccines’

R&D strategy to secure growth from our existing portfolio and

to unlock new and emerging vaccines ﬁelds. One of these key

changes has been the creation of an integrated Development

organisation.

To further develop and maintain a greater insight and

understanding of our Vaccines business, I was pleased to

visit Wavre in Belgium and Rockville in Washington. During

both visits I enjoyed meeting with employees and members

of R&D who brought to life the impressive scientiﬁc activities

being undertaken within Vaccines.

Science Committee report

Dr Jesse Goodman

Science Committee Chair

Role

The Committee:

– undertakes periodic reviews of R&D strategy and

progress

– assesses the overall performance, including relevant

ﬁnancial metrics, effectiveness and competitiveness

of R&D

– helps identify critical emerging trends in science and

medicine and their potential impact on the company;

– undertakes periodic reviews of the company’s scientiﬁc

capability and talent

– reviews the scientiﬁc opportunity in speciﬁc large scale

investments or business transactions, and

– reviews the output of the Group’s science advisory

boards.

Membership

Committee members Committee member since

Dr Jesse Goodman –

Chair from 1 January 2017

1 January 2017

Dr Laurie Glimcher 1 September 2017

Judy Lewent 1 January 2017

Details of the Committee members’ skills and experience are given

in their biographies under ‘Our Board’ on pages 79 to 81. See

page 90 for Committee member attendance levels.

The Company Secretary is Secretary to the Committee

and attends all meetings. Other attendees at Committee

meetings may include:

Attendee

Regular

attendee

Attends as

required

Company Chairman ✓

Chief Executive Ofﬁcer ✓

Chief Scientiﬁc Ofﬁcer and President, R&D ✓

President, Global Vaccines ✓

Independent senior external scientiﬁc adviser(s) ✓

Chief Financial Ofﬁcer ✓

Other company executives ✓

108

GSK Annual Report 2019

Collaborative approach

The Committee was pleased to review from a scientiﬁc

perspective new key collaborations with strategic partners

which will help enable GSK to strengthen its pipeline and

gain real advantages for patients and the company. These

collaborations will enable us to obtain competitive advantage,

by adding pipeline optionality and enable us to gain access

to key technologies. These have included:

Lyell Immunopharma: GSK entered a ﬁve-year collaboration

to develop new technologies to improve cell therapies for

cancer patients. The collaboration will apply Lyell’s technologies

to further strengthen and complement our cell therapy pipeline.

The University of California: establishing a state-of-the-art

laboratory for CRISPR technologies, the Laboratory for

Genomics Research. This new laboratory will explore how gene

mutations cause disease and develop new technologies using

CRISPR to rapidly accelerate the discovery of new medicines.

The collaboration will build on GSK’s existing collaborations

with companies such as 23andMe, which are able to deliver

genetic information at scale, improving the probability of R&D

success.

Positive outlook/R&D priority assets & Forward strategy

In addition, the Committee was pleased to note a number

of positive developments during the year, which underscore

moves towards a promising future outlook for R&D. These

have included:

– In 2019 the R&D pipeline achieved 3 major approvals, made

8 submissions, had 6 positive read-outs from pivotal studies

and progressed 4 new assets into pivotal studies.

– The pivotal study read-outs included positive data on our

key late-stage oncology therapies – Zejula for women with

ovarian cancer, belantamab mafodotin for patients with

multiple myeloma and dostarlimab for patients with

endometrial cancer.

– The National Medical Products Administration approved

the Shingrix vaccine for use in China.

– A large-scale pilot implementation of RTS,S/AS01 Mosquirix,

the malaria vaccine in Malawi, Ghana and Kenya.

Committee evaluation

The Committee’s annual evaluation was externally facilitated by

No 4, who interviewed Committee members on my behalf. It

was concluded that the Committee continued to develop well.

Given the critical importance of strengthening the pipeline, the

Committee will focus on science at a deeper level to support

further the Board’s understanding and provide reassurance and

guidance. Going forward, the Committee will have three broad

objectives:

– that the key scientiﬁc assumptions in the company’s strategy

remain valid;

– technical assurance; and

– risk oversight of our research practices and patient safety

enterprise risks.

I look forward to reporting further progress next year.

Dr Jesse Goodman

Science Committee Chair

3 March 2020

Science Committee report continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

109

Corporate Responsibility Committee report

Lynn Elsenhans

Corporate Responsibility Committee Chair

Role

The Committee:

– reviews issues that have the potential for serious

impact upon GSK’s business and reputation

– has oversight of the views and interests of internal

and external stakeholders

– considers GSK’s Trust priority and annual governance

oversight of progress against GSK’s Trust commitments

which reﬂect the most important issues for responsible

and sustainable business growth.

Membership

The membership of the Committee and appointment

dates are set out below:

Committee members Committee member since

Lynn Elsenhans –

Chair from 8 May 2015

1 October 2012

Dr Vivienne Cox 1 July 2016

Dr Jesse Goodman 1 May 2016

Details of the Committee members’ skills and experience are

given in their biographies under ‘Our Board’ on pages 79 to 81.

See page 90 for Committee member attendance levels.

The Company Secretary is Secretary to the Committee

and attends all meetings. Other attendees at Committee

meetings may include:

Attendee

Regular

attendee

Attends as

required

Company Chairman ✓

Chief Executive Ofﬁcer ✓

Chief Scientiﬁc Ofﬁcer and President, R&D ✓

General Counsel ✓

President, Global Affairs ✓

President, Pharma Supply Chain ✓

President, Global Pharmaceuticals ✓

President, Global Vaccines ✓

CEO, GSK Consumer Healthcare ✓

SVP, Human Resources ✓

SVP, Corporate Affairs ✓

VP, Trust and Global Health ✓

Other Executives ✓

As Chair of the Corporate Responsibility Committee (the

Committee) I am pleased to present the Committee’s 2019

report.

The Committee forms an important part of the Board’s oversight

of the company’s Trust priority, ensuring the CET is working

to deliver long-term value for both shareholders and society.

The Committee has a rolling agenda and receives reports from

CET members and senior managers to ensure that actions and

progress on the company’s commitments are reviewed on a

regular basis. This includes monitoring how the company works

to engage effectively with a broad range of stakeholders and

responds to the high external expectations of GSK as a global

healthcare company.

Areas of focus in 2019

The Committee has again focused its time on areas that are

material to our stakeholders and long-term business success.

This year, the work of the Committee included scrutiny on

progress against commitments to support the company’s

Trust priority that are set in the context of external trends

and stakeholder expectations. The Committee has reviewed

and approved the company’s reporting on progress on

commitments, which are set out in the Trust section on

pages 30 to 42.

During the year management presented to the Committee

on a number of topics across the breadth of the Trust priority:

Science and technology for global health: The Committee

reviewed areas of most signiﬁcant progress against the

company’s new global health strategy, which is led by science

and emphasises the importance of sustainable funding models.

The Committee discussed sustaining the momentum of the

good early progress made to ensure the best outcomes for

patients and the company, while acknowledging the commercial

and business beneﬁts of investment in this area.

Affordability and availability: During the year we continued

to focus on access and affordability, and the company’s

commitment to making our products available at prices that

are responsible and sustainable for the business. We reviewed

the global pricing strategies of the Pharmaceuticals business

with a particular focus on the US environment as the company’s

largest single market, and where the operating context

continues to evolve.

Modern employer: The Committee reviewed progress of the

company’s commitments to be a Modern employer which centre

on engaged people, inclusion and diversity, health, wellbeing

and development. The Committee discussed good progress on

gender and LGBT targets, use of the Employee Assistance

Programme and the robust deployment of the One80 manager

assessment tool, to identify issues and help further improve line

management’s performance.

110

GSK Annual Report 2019

Responsible business: The Committee reviewed the progress

made on GSK’s commitments to the fundamentals of being

a responsible business. This included oversight of our ethics

and values, the responsible use of data and scientiﬁc

engagement. We also reviewed progress on measures to

reduce our environmental impact by one quarter by 2030,

and emerging environmental risks including plastics usage.

The Committee discussed the assessment of the company’s

plastics footprint and plans to reduce use where possible.

Stakeholder engagement and insights

The Committee pays close attention to the evolving views and

expectations of the company’s broad range of key stakeholders.

A regular report on stakeholder insights is reviewed and

discussed at each meeting to ensure the Committee considers

the issues that may have a bearing on the company’s reputation

and the delivery of its responsible business agenda. The

Committee also received an update on GSK’s reputation

research to understand relevant insights for its strategy.

Employee insights were discussed in relation to the company’s

Modern employer agenda and the results of the employee

survey.

This year we have continued to enjoy positive engagement

with investors on our approach to Performance and Trust.

I meet directly with shareholders to understand any issues and

concerns they may have and other Committee members also

meet informally with shareholders before and after the Annual

General Meeting. The Committee also reviewed a perception

study with investors interested in the ESG aspects of our

activities, to better understand the rising interest of investors in

this area and what matters to them. The Committee discussed

the perceptions of our strengths in this area, including the

management of ESG risks and opportunities, that these are

well integrated into our strategy; that the quality of our ESG

disclosures is strong. The Committee noted investors desire to

see sustained delivery of our Trust commitments and increased

reporting aligned to the Sustainability Accounting Standards

Board (SASB) and the Taskforce on Climate-related Financial

Disclosures (TCFD). The Company has included SASB

disclosures in the 2019 ESG Performance Summary available

online, and our ﬁrst voluntary TCFD disclosure is given on

page 46.

I have highlighted to our Remuneration Committee Chair the

emerging importance of establishing a link between ESG

performance and our remuneration outcomes for Executive

Directors and the CET.

Finally, the Committee was very pleased to see the company

perform well in two key external benchmarks, securing ﬁrst

position in the Dow Jones Sustainability Index for the

pharmaceutical industry in 2019, and continuing to hold

ﬁrst position in the Access to Medicine Index since 2008.

Committee evaluation

The Committee’s annual evaluation was externally facilitated

by No 4, who interviewed Committee members on my behalf.

It was concluded that the Committee continued to operate

effectively.

Given the increasing importance of ESG factors, more will

need to be done in this regard in the coming years and the

Committee was pleased to have the Board’s support to

progress further its work in this area, in particular in respect

of environmental sustainability.

Committee aims for 2020

Over the next year we will continue to scrutinise and monitor

GSK’s material Trust topics, including one of management’s

key priorities to continue building and protecting the company’s

reputation, with a strong focus on innovation. The Committee

considers that the company is well positioned in 2020 to

support the continuing delivery of our Trust priority.

Lynn Elsenhans

Corporate Responsibility Committee Chair

3 March 2020

Work of the Committee during 2019

Area of responsibility Items addressed during 2019

External issues that have the

potential for serious impact upon

GSK’s business and reputation

– Health and safety update

– Regular reputational and emerging

issues update

– Oversight of corporate reputation

research and KPI

– HCP engagement and SFI changes

implementation

Oversight of stakeholder views

and engagement

– Stakeholder insights update

– ESG investor insights

– Employee survey

– Shareholder meetings

Annual governance oversight

of progress against GSK’s

responsible business

commitments to support Trust

– Approval of the Trust section of the

Annual Report

– Oversight of progress against

commitments

– Global health strategy

– Sustainable access and affordability

– Business conduct

– Responsible use of data

– Modern employer, engagement

and culture

– Environmental targets

Key

HCP Healthcare Professional

SFI Sales Force Incentives

ESG Enviromental, Social and Governance

Corporate Responsibility Committee report continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

111

Section 172 statement

This statement aligns to the section 172 statement requirements

contained in Section 414CZA of the Companies Act 2006

(the Act).

This statement focuses on how the Directors have had regard

during the year to the matters set out in Section 172(1) (a) to (f)

of the Act when performing their duties by incorporating

information from other areas of the Annual Report to avoid

unnecessary duplication. The Board considers that the

statement focuses on those risks and opportunities that were

of strategic importance to GSK consistent with the size and

complexity of the Group.

In the performance of its duty to promote the success of the

company, the Board has regard to a number of matters,

including listening to and considering the views of shareholders

and the company’s other key stakeholders to build trust and

ensure it fully understands the potential impacts of the decisions

it makes for our stakeholders, the environment and the

communities in which we operate.

Engagement with the company’s main stakeholder groups,

including our patients, shareholders, consumers, customers

and employees, at all levels of the organisation and across the

enterprise are summarised on pages 15 and 16 of our Strategic

report.

The governance architecture and processes that the company

operated to ensure that all relevant matters are considered by

the Board in its principal decision-making, as a means

of contributing to the delivery of GSK’s long-term priorities of

Innovation, Performance and Trust, are summarised on pages

84 to 88 of our Corporate Governance report.

The table below identiﬁes where in the Annual Report

information on those issues, factors and the stakeholders the

Board has considered relevant for disclosure in complying with

Section 172 (1) (a) (f) of the Act are set out in more detail, given

their strategic importance to GSK.

The Board has had regard to the following matters: More information:

(a) Long-term results

– the likely consequences of any decision in the long term

Strategic report:

Our business model (page 1)

Chairman’s statement (page 3)

CEO’s statement (page 4)

Capital allocation (page 2)

Our long-term priorities (page 9)

Key performance indicators (page 11)

Risk management (page 43)

Viability statement (page 47)

Corporate Governance report:

Responsible leadership (page 84)

Audit & Risk Committee report (page 96)

(b) Our workforce

– the interests of the Group’s employees

Strategic report:

Our business model (page 1)

Our Culture (page 10)

Modern employer (page 35)

Stakeholder engagement (page15)

Corporate Governance report:

Responsible leadership (page 84)

Workforce engagement (page 86)

Nominations Committee report (page 92)

Audit & Risk Committee report (page 96)

Remuneration report:

Remuneration Committee Chair’s statement (page 116)

GSK.com:

Gender pay gap report

112

GSK Annual Report 2019

Section 172 statement continued

The Board has had regard to the following matters: More information:

– the importance of developing the Group’s business

relationships with suppliers, customers and others

Strategic report:

Our business model (page 1)

Industry trends (page 12)

Stakeholder engagement (page 15)

Performance: Pharma (page 22), Vaccines (page 26) and Consumer (page 28)

Reliable supply (page 37)

Working with third parties (page 39)

Risk management (page 43)

Corporate Governance report:

Responsible leadership (page 84)

Principal decisions (page 87)

Audit & Risk Committee report (page 96)

Corporate Responsibility Committee report (page 109)

(d) The community and our environment

– the impact of the Group’s operations on the

community and the environment

Strategic report:

Trust section including:

Environment (page 41)

EHSS risk (pages 45 and 285)

Climate-related ﬁnancial disclosure (page 46)

Corporate Governance report:

Corporate Responsibility Committee report (page 109)

GSK.com:

Responsibility reports and data

(e) Our reputation

– our desire to maintain our reputation for high

standards of business conduct

Strategic report:

Our Culture (page 10)

Trust (page 30)

Ethics and values (page 37)

Human rights (page 38)

Reporting and investigating concerns (page 38)

Anti-bribery and corruption (page 44)

Non-ﬁnancial statement (page 48)

Our approach to tax (page 53)

Corporate Governance report:

Corporate Responsibility Committee report (page 109)

GSK.com:

Modern Slavery statement

(f) Fairness between our shareholders

– our aim to act fairly as between members of the

company

Corporate Governance report:

Shareholder engagement (page 85)

Investor information (page 258)

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

113

Our Directors’ powers are determined by UK legislation and

our Articles of Association, which contain rules about the

appointment and replacement of Directors. They provide that

Directors may be appointed by an ordinary resolution of the

members or by a resolution of the Board, provided that, if

appointed by the Board, the Director retires at the next

Annual General Meeting following their appointment.

Our Articles also provide that all Directors are required to

seek re-election annually at the Annual General Meeting in

accordance with the 2018 Code.

A Director will cease to be a Director if he or she:

– becomes bankrupt

– ceases to be a Director by virtue of the Companies Act or

the Articles

– suffers mental or physical ill health and the Board resolves

that he or she shall cease to be a Director

– has missed Directors’ meetings for a continuous period

of six months without permission and the Board resolves

that he or she shall cease to be a Director

– is prohibited from being a Director by law

– resigns, or offers to resign and the Board accepts that offer

– is required to resign by the Board.

Directors’ conﬂicts of interest

All Directors have a duty under the Companies Act 2006

to avoid a situation in which they have, or could have, a direct

or indirect conﬂict of interest or possible conﬂict with the

company. Our Articles provide a general power for the Board

to authorise such conﬂicts.

The Board reviews any new potential or actual conﬂict, which is

recorded by the Company Secretary. Directors are not counted

in the quorum for the authorisation of their own actual or

potential conﬂicts. The Nominations Committee reviews the

subsequently approves.

On a continuing basis, the Directors are responsible for

informing the Company Secretary of any such 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 may 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 potential

conﬂict authorisations (the Register of Conﬂicts) in January

2020 and reported to the Board that the conﬂicts had been

appropriately authorised and that the process for authorisation

continued to operate effectively and recommended the approval

of the Register of Conﬂicts to the Board which it subsequently

approved. 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 Person Closely Associated

had any material interest in any contract of signiﬁcance with

a Group company.

Our Articles prohibit a Director from voting on any resolution

concerning his or her appointment or the terms or termination

of his or her appointment.

Independent advice

The company has an agreed procedure for Directors to take

independent legal and/or ﬁnancial advice at the company’s

expense where they deem it necessary.

Indemniﬁcation of Directors

Qualifying third party indemnity provisions (as deﬁned in the

Companies Act 2006) are in force for the beneﬁt of Directors

and former Directors who held ofﬁce during 2019 and up to

the approval and signature of the Annual Report.

Change of control and essential contracts

We do not have contracts or other arrangements which

individually are fundamental to the ability of the business to

operate effectively. Neither is the company party to any material

agreements that would take effect, be altered, or terminate upon

a change of control following a takeover bid. We do not have

agreements with any Director 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 Executive Directors’

service contracts are given in the full version of the company’s

2017 Remuneration policy which is available at www.gsk.com in

the Investors section. These will be updated with the new 2020

Remuneration policy (set out on pages 140 to 150 of this

Annual Report) provided it is approved by shareholders at the

company’s Annual General Meeting.

Directors

114

GSK Annual Report 2019

Directors continued

Content of the Directors’ Report

For the purposes of the UK Companies Act 2006, the

Directors’ Report of GlaxoSmithKline plc for the year ended

31 December 2019 comprises:

Directors’ Report

Section Pages

Corporate Governance report 75 to 114

Employee engagement 86

Directors’ statements of responsibilities 152 to 153

Investor information 257 to 311

The Strategic report sets out those matters required to be

disclosed in the Directors’ Report which are considered to

be of strategic importance:

Strategic report

Section Pages

Risk management objectives and policies 43 to 48

and 275

to 287

Likely future developments of the company 01 to 74

Research and development activities 17 to 29

Business relationships 39

Diversity 35

Provision of information to and consultations with employees 35

Carbon emissions 41

Section 172 statement 15 and

111 to 112

The following information is also incorporated into the Directors’

Report:

Location in Annual Report

Interest capitalised Financial statements,

Notes 17 and 20

Publication of unaudited ﬁnancial information Group ﬁnancial review, page 49

Details of any long-term incentive schemes Remuneration report

Waiver of emoluments by a Director Not applicable

Waiver of future emoluments by a Director Not applicable

Non pre-emptive issues of equity for cash Not applicable

Non pre-emptive issues of equity for cash

by any unlisted major subsidiary undertaking

Not applicable

Parent company participation in a placing

by a listed subsidiary

Not applicable

Provision of services by a controlling

shareholder

Not applicable

Shareholder waiver of dividends Financial statements,

Notes 16 and 44

Shareholder waiver of future dividends Financial statements,

Notes 16 and 44

Agreements with controlling shareholders Not applicable

The Directors’ Report

– 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.

– was approved by the Board of Directors on 3 March 2020

and signed on its behalf by:

Sir Jonathan Symonds

Chairman

3 March 2020

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

115

Remuneration

In this section

Chairman’s annual statement 116

Annual report on remuneration 119

2020 Remuneration policy summary 140

2020 Remuneration policy report 141

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

115

116

GSK Annual Report 2019

Remuneration report

Chairman’s annual statement

On behalf of the Remuneration Committee (the Committee),

I am pleased to present our Remuneration report for 2019.

This includes my annual statement, our Annual report on

remuneration, and our updated 2020 Remuneration policy

report setting out proposed changes to our remuneration policy.

2019 performance

As set out elsewhere in this Report, in 2019 GSK made

signiﬁcant progress across all three of our IPT priorities.

On Innovation, we strengthened our pipeline, focusing and

increasing our investment in R&D, with exciting new

developments in Oncology and a signiﬁcant number of positive

results across the portfolio.

On Performance, we delivered growth in sales and earnings, as

well as achieving strong cash generation and improvements in

operational execution as we prepare for separation of the Group.

On Trust, we continued to make good progress with innovations

in Global Health in TB, Malaria and HIV and we ranked top of the

Pharmaceuticals sector of the Dow Jones Sustainability Index.

2019 remuneration outcomes

All awards in relation to 2019 were made in accordance with

our approved Remuneration policy. The key decisions made

by the Committee were as follows:

– Annual bonus outcomes were determined by reference

to performance against the agreed ﬁnancial measure,

and the Committee’s assessment of the Executive Directors’

individual levels of performance. This has resulted in a bonus

payment being made above target. The Committee believes

the bonus outcomes appropriately reﬂect the overall

underlying performance in 2019.

– Vesting of LTI awards was based on the pre-agreed equally

weighted measures of: R&D new product performance,

adjusted free cash ﬂow; and relative TSR over the three

years. This resulted in an overall vesting level of 66.66%.

See page 124.

When the Committee determined the bonus and LTI outcomes,

which included a full assessment of performance across all of

the relevant measures, it did not exercise any discretion as part

of its determination.

Review of Remuneration policy

During 2019, the Committee reviewed the Remuneration

policy with the objective of maintaining alignment with our

IPT priorities, the shift in our culture, investor sentiment and

emerging market practice.

At the outset of its review, the Committee was careful to ensure

that the existing policy reﬂected the factors set out in Provision

40 of the FRC’s 2018 Code and that it applied these consistently

as it developed the proposed new policy. Examples of how these

factors have been addressed in the new policy include:

– continuing to simplify pay arrangements by removing the 20

years’ service condition for termination by mutual agreement

from our loss of ofﬁce policy; and

– maintaining a proportionate approach by reducing the CEO’s

maximum LTI award level from 650% to 600% of base salary.

The proposed new policy has been considered and developed

in the context of the Committee’s oversight of wider workforce

pay. I met with HR business leads to exchange views on how

our executive remuneration arrangements align to the Group’s

wider pay policy arrangements (this engagement is described

on page 88). I was pleased with the insights generated by this

engagement, which we will continue to develop in the coming

years to ensure alignment of our pay policy practices.

In addition, based on external benchmark data and internal

projections, the Committee was able to satisfy itself that the

company’s remuneration arrangements remain appropriate.

Given the Committee’s view that the design of the existing policy

is working effectively no major structural changes are proposed,

especially to avoid distraction in preparing for the separation of

the Group. However, certain amendments are included to ensure

the policy and its implementation remain ﬁt for purpose.

After concluding on the necessary changes, I engaged with

our major shareholders on behalf of the Committee on these.

The feedback received from shareholders was greatly valued

and carefully considered before the Committee decided how to

proceed in ﬁnalising the proposed new policy. The key changes

are outlined below:

Pensions

– Alignment of new Executive Directors’ pension

contributions with the wider workforce: The Committee has

considered the levels of pension for Directors in the context

of the requirements of the FRC’s 2018 Code, feedback from

investors, guidance from the Investment Association,

emerging market practice and the company’s existing pension

arrangements for the wider workforce. The new policy for

future Executive Directors appointed in the UK or US is to

provide a pension aligned with the opportunity available to the

broader employee population in their location. See page 142.

– Alignment of current UK Executive Directors’ pension

contributions with the wider workforce: The Committee

will reduce pension provisions for current UK based Executive

Directors to align with the wider UK workforce levels from

January 2023.

The Committee has determined to maintain the current

pension contribution for Dr Hal Barron, our CSO, who is

based in the US. This recognises the contractual commitment

on his appointment, his exceptional talent and the critical

importance of making continued progress in R&D to the

Group’s prospects over the coming years. It also recognises

the strong competitive dynamics in the market in which he

operates.

Extension of post employment cessation share

ownership requirement:

GSK’s current share ownership requirement (SOR) mandates that

Executive Directors must retain their shareholding for one-year

post employment cessation. This will be extended to require 50%

of the SOR to be held for the second year post cessation of

employment. GSK operates signiﬁcant SORs. The CEO would

therefore be required to hold 650% of salary for the ﬁrst year

following cessation and 325% of salary for the second year.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

117

Reduction of maximum LTI award level:

The Committee is very aware of the sensitivity amongst

stakeholders to levels of executive pay. In light of this, and given

that the Committee has no intention of using the headroom

currently available, we will reduce the maximum award level

permitted under the new policy for the CEO’s LTI awards from

650% to 600% of base salary. It is proposed that the LTI

continues to be granted below this maximum opportunity,

although it is proposed to increase the LTI award level for Emma

Walmsley in the implementation of the new policy for 2020, as

set out below.

Other changes:

– Broadening of Malus and Clawback provisions: Consistent

with common practice in the FTSE 100, we are proposing to

extend the scope of triggering events under the existing

Executive ﬁnancial recoupment policy. See page 140.

– Update of termination policy: We are not proposing any

signiﬁcant changes to our loss of ofﬁce payment policy.

However, to manage succession proactively, it is proposed

that the 20-year service condition be removed from the

termination by mutual agreement policy, to bring the new

policy in line with the market standard.

Full details of the proposed changes to the policy are set on

pages 140 to 146.

Remuneration policy implementation for 2020

New PSP performance measure:

We have previously indicated to shareholders our intention to

introduce a measure to recognise the importance of accelerating

and strengthening our pipeline, reﬂecting our Innovation priority.

This has particular importance in anticipation of our separation.

We are therefore introducing a strategic ‘Pipeline progress’

measure. It is targeted to reward the progress in strengthening

our R&D pipeline with high quality assets and in achieving

approvals in major markets for key assets or indications.

The focus of the metric will be on the achievement of material

milestones.

The new performance measure weightings for the 2020 LTI

awards are:

– Relative TSR – 30%

– Adjusted free cash ﬂow – 30%

– Innovation sales – 20%

– Pipeline progress – 20%

Therefore, in future, 60% of our LTI measures would reward the

Executive Directors for delivering immediate value outcomes to

shareholders based on the company’s performance, with the

remaining 40% incentivising Innovation and commercialisation

of new assets.

Introduction of a European benchmark peer group:

The Committee is replacing the existing UK-cross industry peer

group with a new European peer group. This reﬂects feedback

from some of our shareholders that the UK peer group was

becoming too narrow. This change results in a group which is

more reﬂective of the nature of GSK’s business. The

methodology to select the new group is based on selecting

companies within a range of GSK’s market capitalisation in both

the FTSE 50 and STOXX 600 and then excluding companies

that operate in ﬁnancial services, extraction or utilities industries.

CEO Remuneration

The Committee initially set Emma Walmsley’s pay as CEO

below the previous incumbent, and the market, to reﬂect that

she was new in role and this was also her ﬁrst CEO position.

Since 2017 under Emma Walmsley’s leadership, strong

progress has been made across GSK’s strategic priorities of

IPT, supported by a shift in the company’s culture. The new R&D

strategy is delivering signiﬁcant progress and our technology

and pipeline have been strengthened by targeted business

development. As a result, the company is delivering strong

ﬁnancial and operating performance with 2019 sales growth

across all three businesses, growth in Total and Adjusted

earnings per share, and growth in free cash ﬂow since 2017,

despite the genericisation of Advair in the US.

Implementation of the second step of the planned salary

increase for Emma Walmsley: To reﬂect her performance in

role the Committee agreed, following engagement with

shareholders, to progress her pay levels by implementing a

two-step salary increase in 2019 and 2020. As disclosed in last

year’s Annual Report, the second salary increase would only be

awarded subject to her continued development and sustained

performance.

The Committee has considered Emma Walmsley’s performance

and, in light of her continued progress in developing and

executing the business strategy and the delivery of ﬁnancial

performance, a second salary increase of 8% has been awarded

from 1 January 2020 resulting in a base salary of £1,199,176.

Setting LTI award level at 575% of salary: We are also

increasing Emma Walmsley’s annual LTI award level to 575%

of salary (from 550%) to recognise her development, strong

performance, and the competitive landscape in which GSK

operates. The increase to her LTI award remains below the

new reduced maximum under the proposed new policy.

The Committee has considered the high regard in which she

is held by virtue of her performance and has considered her

competitive positioning against peers. Making this adjustment to

LTI awards enables Emma Walmsley’s total compensation to be

positioned at broadly market median levels, but only on delivery

of strong long-term performance.

Board changes

As announced in August 2018, Iain Mackay joined the Board

and CET on 14 January 2019 and succeeded Simon Dingemans

as Chief Financial Ofﬁcer from 1 April 2019. Simon retired from

the company following the AGM on 8 May 2019. Details of

their joining and leaving arrangements were described in last

year’s report.

AGM

Finally, I would like to thank shareholders for their input and

engagement during this Remuneration policy review and I

welcome all shareholders’ feedback on this report. We look

forward to receiving your support for the proposed new

Remuneration policy and Annual report on remuneration

at our Annual General Meeting on 6 May 2020.

Urs Rohner

Remuneration Committee Chairman

3 March 2020

118

GSK Annual Report 2019

Proposed Executive remuneration policy and implementation for 2020 – Key changes

(1)

At a glance

2019 Total Remuneration

The following shows a breakdown of total remuneration paid to Executive Directors in ofﬁce at 31 December 2019, in respect

of 2019 and 2018.

£0m

£2m

£4m

£6m

2019

US$0m

US$2m

US$4m

US$6m

US$8m

£8m

US$10m

Fixed pay – salary, beneﬁts and pension

Emma Walmsley

51%

49%

Performance pay – annual bonus and LTIs earned in respect of the three year performance period

Iain Mackay

(1)

Dr Hal Barron

46%

82%

2018

75%

25%

46%

2019

42%

58%

18%

54%

2018

(1) Iain Mackay joined the Board on 14 January 2019.

His remuneration is shown from this date.

Pay for performance

Adjusted Group PBIT

Maximum

(105% of target)

Target

Threshold

(95% of target)

2019 Annual bonus: ﬁnancial performance

102%

[•]%

Maximum performance target

Performance achieved

Vested

Lapsed

2017 LTI outcome: performance period ended 31 December 2019

R&D new

product

Relative

TSR

Adjusted

free cash ﬂow

Overall vesting 66.66%

33.33%

Policy

Alignment of pensions with the wider

workforce

– New UK and US Executive Directors’ pension contribution levels to be aligned with wider workforce

– Current UK Executive Directors’ pension contribution levels to be aligned with wider workforce from

January 2023

Extension to post employment

cessation SOR

– 50% of share ownership requirements for Executive Directors to be held for second year post cessation

of employment

LTI opportunity maximum reduced – CEO award maximum reduced from 650% to 600% of base salary

Implementation

Greater alignment of LTI measures

with IPT business priorities

– Greater alignment with Innovation business priority

– Introduction of Pipeline progress performance measure

– Innovation measures comprise 40% and Performance measures 60%

CEO remuneration – Implementation of second step of planned salary increase of 8% (effective 1 January 2020)

– Increase in the CEO’s LTI award level from 550% to 575% of base salary following her continued

development and sustained performance.

(1) See page 148 for the proposed Non-Executive Directors’ Remuneration policy.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

119

2019 Total remuneration (audited)

Emma Walmsley Iain Mackay

(from 14 January 2019)

Dr Hal Barron

Simon Dingemans

(to 8 May 2019)

2019

£000

2018

£000

2019

£000

2018

£000

2019

$000

2018

$000

2019

£000

2018

£000

Fixed pay

Salary 1,110 1,028 825 – 1,743 1,700 275 773

Beneﬁts 192 234 139 – 659 807 92 141

Pension 230 207 171 – 1,259 1,043 55 155

Total ﬁxed pay 1,532 1,469 1,135 – 3,661 3,550 422 1,069

Pay for performance

Annual bonus

(1)

1,754 1,912 1,185 – 2,675 3,009 – 1,368

Vesting of LTI awards:

DABP matching awards

(2)

412 301 – – – – – 398

PSP

(3)

4,671 2,205 – – – – – 2,367

Total pay for performance

(4)

6,837 4,418 1,185 – 2,675 3,009 – 4,133

Total remuneration

8,369 5,887 2,320 – 6,336 6,559 422 5,202

Notes:

(1)

Details of the mandatory bonus deferrals in 2019 and 2020 under the Deferred Annual Bonus Plan (DABP) are set out on page 137. Matching awards ceased from 2018 and are

no longer granted under the DABP.

(2)

DABP matching awards vested in February 2020 and have been valued based on the share price at vesting (£16.616). Of the vested amount, £18,017 relates to share price

appreciation over the performance period. The Committee did not exercise any discretion in relation to the vesting of the awards or share price changes.

(3)

Ms Walmsley’s 2017 PSP will vest in July 2020 and has been valued based on the average share price during the three-month period to 31 December 2019 (£17.28). Of the vested

amount, £434,472 relates to share price appreciation over the performance period. The Committee did not exercise any discretion in relation to the vesting of the awards or share

price changes.

(4)

The Committee may in speciﬁc circumstances, and in line with stated principles, apply clawback/malus, as it determines appropriate. Following due consideration by the Committee,

there has been no recovery of sums paid (clawback) or reduction of outstanding awards or vesting levels (malus) applied during 2019 in respect of any of the Executive Directors.

See page 124 for further details on the vesting of the DABP matching awards and PSP awards, and page 130 for details of

Payments to Past Directors.

2019 Total remuneration (audited)

Fixed pay

Salary

Beneﬁts

Pension

Read more below

Annual bonus

– Maximum opportunity:

200%

– Measures:

70% adjusted Group PBIT

30% Personal objectives

– Two year deferral of 50%

into GSK shares

Read more on page 124

Annual report on remuneration

120

GSK Annual Report 2019

Comparator groups for pay and Relative TSR

The Committee used two pay comparator groups when considering executive pay for 2019. The Global pharmaceutical comparator

group is also used to measure Relative TSR performance. The primary groups used for each Executive Director was as follows:

Primary comparator group Global pharmaceutical comparator group

Emma Walmsley

Iain Mackay

AstraZeneca

BHP Group

British American Tobacco

Diageo

Reckitt Benckiser

Rio Tinto

Royal Dutch Shell

Unilever

Vodafone

Dr Hal Barron France

Sanoﬁ

Switzerland

Novartis

Roche Holdings

AstraZeneca

AbbVie

(1)

Amgen

(1)

Bristol-Myers Squibb

Eli Lilly

Johnson & Johnson

Merck & Co

Pﬁzer

(1) AbbVie and Amgen are included for remuneration benchmarking, but are not included in the TSR comparator group.

When reviewing the CEO’s remuneration, the Committee has also referenced pay for a group of leading European companies

whose selection was based on their size and complexity.

See page 131 for changes to the comparator group for the CEO and CFO for 2020.

Salary

The table below sets out the base salaries of the Executive

Directors over the last two years compared to increases for the

UK and US workforce.

Following a shareholder consultation in January 2019, the

Committee decided to adjust the CEO’s pay in two tranches,

each of 8% to reﬂect her development and performance in role.

Details of salary levels for 2020 are provided on page 131.

change

Base salary

2019 2018

Emma Walmsley 8% £1,110,348 £1,028,100

Iain Mackay n/a £850,000 –

Dr Hal Barron 2.5% $1,742,500 $1,700,000

Simon Dingemans 0% £772,800 £772,800

UK & US employees 2.5% – –

Beneﬁts

The UK remuneration reporting regulations require the company

to add into each Executive Director’s Total “Beneﬁts” calculation

all items which are deemed by tax authorities to be a taxable

beneﬁt for them. These details are set out in full on page 129.

The following sections provide details of each element of 2019 ‘Total remuneration’, including how the Committee implemented

the approved Remuneration policy during the year.

Fixed pay (audited)

Annual report on remuneration continued

2019 Total remuneration (audited) continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

121

Pensions

Executive Director

Member since Pension arrangements in 2019

Emma Walmsley 2010

20% of base salary and matching contributions on the ﬁrst £33,333 of salary

(1)

;

20% of base salary

in lieu of pension on salary in excess of £33,333

(2)

Iain Mackay 2019

Dr Hal Barron 2018 Dr Barron is a member of the 401(k) plan open to all US employees and the Executive Supplemental

Savings Plan (ESSP), a savings scheme open to US executives to accrue beneﬁts above the 401(k)

plan limits.

Having completed one year’s service, from 1 January 2019, Dr Barron receives a combined contribution

rate under the 401(k) and ESSP plans of 6% (2% core contributions plus a match of up to 4%) of total

base salary and bonus, less the bonus deferred under the DABP.

Dr Barron is also a member of the US Cash Balance and the Supplemental Cash Balance pension

plans, under which GSK makes annual contributions of 38% of base salary, in line with other US

senior executives and members of GSK’s CET.

Simon Dingemans – 20% of base salary in lieu of pension

(3)

(1)

As a member of the deﬁned contribution plan, Emma Walmsley and Iain Mackay are eligible to receive a matching award of up to 5% on the ﬁrst £33,333 of their salaries in

accordance with the terms of the plan.

(2)

Emma Walmsley and Iain Mackay receive cash payments in lieu of pension of 20% of base salary in excess of £33,333 in line with GSK’s deﬁned contribution pension plan rates.

(3)

Simon Dingemans received a cash payment in lieu of pension of 20% of base salary in line with GSK’s deﬁned contribution pension plan rates.

The following table shows the breakdown of the pension values set out on page 119. The pension remuneration ﬁgures have been

calculated in accordance with the methodology set out in The Large and Medium-sized Companies and Group (Accounts and

Reports) (Amendment) Regulations 2008 (Remuneration regulations).

Pension remuneration values

Emma Walmsley Iain Mackay Dr Hal Barron Simon Dingemans

2019

£000

2018

£000

2019

£000

2018

£000

2019

$000

2018

$000

Jan-May

2019

£000

2018

£000

UK deﬁned contribution 18

(1)

8 8 – – – – –

US deﬁned beneﬁt – – – – 1,069 1,043 – –

Employer cash contributions 212 199 163 – 190 – 55 155

Total pension remuneration value 230 207 171 – 1,259 1,043 55 155

(1) The UK deﬁned contribution ﬁgure for Emma Walmsley includes £10,000 bonus sacriﬁce contribution.

Further details regarding the 2019 pension values for Dr Hal Barron are set out in the table below. The pensions ﬁgures disclosed

for Dr Barron, who is a member of the US style deﬁned beneﬁt plans are in accordance with paragraph 10.e.ii of Schedule 8 of the

Remuneration regulations.

The table shows the accrued beneﬁt (ie the annual pension accrued to date). In accordance with the regulations, the pension

remuneration in 2019 is calculated as the increase in the accrued beneﬁt, adjusted for inﬂation and multiplied by 20 to reﬂect the

fact that the beneﬁt will be received for a number of years.

Dr Hal Barron pension values

Accrued pension

Pension remuneration

value for 2019

$000

31 December 2019

$000

31 December 2018

$000

US – Funded 1 – 23

US – Unfunded 106 52 1,046

Total 107 52 1,069

Please see details of changes to pensions policy on page 142 of the future policy table and its implementation on page 131.

Annual report on remuneration continued

Fixed pay (audited) continued

122

GSK Annual Report 2019

2019 performance against targets

For 2019, the ﬁnancial measures and weightings were as follows:

Weighting 2018 Adjusted Group PBIT performance

Performance measure Executive Directors 2019 target Outcome

Positioning

against target

Adjusted Group PBIT 70% £8,032m £8,177m 102%

Individual objectives 30%

Threshold and maximum performance targets were set at 95% and 105% of target respectively.

The Adjusted Group PBIT target and outcome for the purposes of the Annual bonus calculation differ from Adjusted Group PBIT

disclosed elsewhere in this Annual Report, primarily because both the target and outcome numbers are calculated applying GSK

budget exchange rates and not actual exchange rates.

The following table shows actual bonuses earned compared to bonus opportunity for 2019:

2019 bonus opportunity 2019 bonus outcome

Bonus

Target

(% of salary)

Maximum

(% of salary)

2019

Base salary

Financial

performance

(% of salary)

Individual

objectives

(% of salary)

Total 2019

bonus

(% of salary)

Total 2019

bonus

000

Emma Walmsley £1,110,348 98 60 158 £1,754

Iain Mackay 100 200 £850,000 98 46.5 144.5 £1,185

Dr Hal Barron $1,742,500 98 55.5 153.5 $2,675

The table below provides more detail on delivery against Adjusted Group PBIT:

Financial performance

– Group turnover was £33.8 billion, a 10% increase at AER and 8% CER.

– Adjusted operating proﬁt was £8,972 million, 3% higher on AER and ﬂat at CER on a turnover increase of 8% CER.

– The Adjusted operating margin of 26.6% was down 1.8% at AER, down 2.1% at CER and down 1.9% CER on a pro-forma basis.

– Total earnings per share increased to 93.9p, up 27% AER and 23% CER, and Adjusted EPS grew 4% at AER and 1% CER

to 123.9p.

– Strong cash generation achieved, with free cash ﬂow of £5.1 billion. Our dividend continued at 80p.

70%

Adjusted Group PBIT

30%

Individual

objectives

Annual bonus

Pay for performance (audited)

Annual report on remuneration continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

123

The following table summarises performance against the scorecard of individual objectives agreed by the Committee for each

Executive Director in addition to their contribution to the ﬁnancial performance for 2019:

Individual objectives

Emma Walmsley

– Continued focus and progress against long-term IPT priorities.

– Robust commercial execution resulted in strong performance in

new product sales: Pharmaceuticals and Vaccines £3.8 billion

and Consumer Healthcare £0.8 billion. Commercial and medical

speciality capability build on track to support upcoming launches.

Total respiratory sales £3.1 billion, Shingrix sales £1.8 billion,

and continuing to drive transition to 2-drug regimens in HIV.

– Strengthened pipeline through execution of R&D strategy

(Science x Technology x Culture), doubling the number of

oncology assets in clinical development. Signiﬁcant progress in

Advanced Technology approach; establishing Laboratory for

Genomic Research, collaboration with Lyell Immunopharma, and

outstanding external hires in Functional Genomics and AI/ML.

– Tesaro acquisition completed and integrated. Positive data

read-outs for Zejula.

– Consumer Healthcare JV with Pﬁzer completed ahead of plan,

integration on track and preparation for creation of two new

companies started.

– Supply chain transformation plans delivering brand and

network simpliﬁcation, and building capacity to support

speciality pipeline. Supply chain reliability targets achieved.

– Progress on building global reputation across IPT priorities,

including No. 1 ranking in Dow Jones Sustainability Index.

– Met signiﬁcant milestones in our Global Health strategy,

including in our malaria, TB and paediatric HIV programmes.

Continued AMR leadership.

– Focused leadership development, including two internal CET

promotions (HR and Communications), 29% new in role for

our top 125 enterprise key roles, and 36% women at Senior

Vice President and Vice President level.

– Recorded our highest ever employee engagement in April

2019 through continued focus on creating a performance

culture underpinned by our values and expectations.

Iain Mackay

– Strong ﬁnancial leadership of the Group in ﬁrst year in role.

– Delivered ﬁnancial and operating performance above plan for the

Group on turnover, operating proﬁt, free cash ﬂow, capital

expenditure and cash restructuring.

– Key leadership role in preparation for separation into two

companies.

– Strengthened Finance and Investor Relations team

structure, with high engagement through period of

leadership and company change.

Dr Hal Barron

– R&D strategy delivering strong pipeline progress: 8 assets

advanced into Phase 1, 4 into Phase 2, 6 into Phase 3, 13

terminations – with at least 6 registration decisions expected in

2020 – supported by continued drive on focus, greater

accountability and decision making.

– Signiﬁcant business development to support advanced

technology approach, as well as strong capability build including

external hires to lead Functional Genomics and AI/ML. New talent

in 37% of key R&D roles and building oncology capability.

– Tesaro integrated and delivered efﬁciency and pipeline

goals, and positive data read-outs for Zejula.

– Re-building GSK’s reputation for Innovation and as a

collaboration partner, and signiﬁcant increase in internal

engagement on Innovation.

Malus and clawback policy

For details of our policy on malus and clawback, please refer to

the company’s Remuneration policy report (page 144), which is

also available on GSK.com.

The Committee reviews and discloses whether it (or the

Recoupment Committee) has exercised malus or clawback.

Disclosure is only made when the matter has been the subject

of public reports of misconduct, where it has been fully

resolved, where it is legally permissible to disclose and where it

can be made without unduly prejudicing the company and

therefore shareholders.

In line with these disclosure guidelines, neither the Committee

(nor the Recoupment Committee) exercised malus or clawback

during 2019.

Other policies

For details of our existing policies on recruitment remuneration,

loss of ofﬁce and termination payments, please refer to the

2017 Remuneration policy report on pages 137 to 146 of the

2016 Annual Report, available on GSK.com. A change to our

loss of ofﬁce policy in the 2020 Remuneration policy report is

proposed. Please refer to page 145.

Annual report on remuneration continued

Pay for performance (audited) continued

124

GSK Annual Report 2019

Performance measures

and relative weighting

Outcome and vesting level

Performance targets Outcome

% of

maximum

% of

award

R&D new product

performance

(to be renamed

Innovation sales)

(1/3rd)

R&D new product sales performance measures aggregate three-year sales for new

products launched in the three-year performance period and the preceding two

years, i.e.2015-19.

Target % vesting

Maximum £5.10bn 100%

£4.64bn 75%

£4.40bn 50%

Threshold £ 4.17bn 25%

£7.25bn 100 33.33

Adjusted free

cash ﬂow

performance

(1/3rd)

In line with the company’s agreed principles, the AFCF ﬁgures included adjustments

for a number of material distorting items, including legal settlements, exchange rate

movements and special pension contributions.

Original

target

Revised

target

(1)

% vesting

Maximum £13.59bn £12.95bn 100%

£13.00bn £12.39bn 75%

£11.82bn £11.26bn 50%

Threshold £11.47bn £10.93bn 25%

(1)

Further details of the revised target are set out on page 104 of the 2018 Annual Report.

£13.00bn 100 33.33

Relative TSR

performance

(1/3rd)

TSR ranking within comparator group

(2)

% vesting

Maximum 1st, 2nd, 3rd 100%

4th 72%

5th 44%

Threshold

(3)

Median 30%

6th to 10th 0%

(2)

TSR comparator group: AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GSK,

Johnson&Johnson, Merck & Co, Novartis, Pﬁzer, Roche Holdings and Sanoﬁ.

(3)

The vesting schedule is based on delivering 30% vesting for median performance.

In a comparator group of ten companies, median falls between two companies.

Ranked 8th 0 0

Total vesting in respect of 2017 awards

66.66%

Value earned from long-term incentives (LTIs)

The following tables set out the performance achieved by management against the targets set for the company’s LTI plans and also

include an update on performance of outstanding awards.

In line with the Committee’s agreed principles, for each measure applicable to the LTI awards, actual performance against the

targets is reviewed and adjustments made as appropriate to ensure that the vesting outcome reﬂects genuine underlying business

performance and that results are being delivered in line with our Trust business priority, which reﬂects the company’s position on

ESG (see page 30). Further details on any adjustments made will be provided at the time of vesting.

2017 awards with a performance period ended 31 December 2019

The Committee reviewed the performance of the PSP awards and the DABP matching awards granted to Executive Directors against

the targets set. Details of its decision to revise the Adjusted free cash ﬂow (AFCF) target are set out on page 104 of the 2018 Annual

Report. The 2017 PSP awards and the DABP matching awards were assessed against the same performance measures.

There are no further changes to the AFCF target. In addition, there are no changes to the targets set for the R&D new product

performance measure or the Relative TSR performance measure for the 2017 PSP awards.

For 2019, the 2017 PSP has been valued based on the average share price during the three-month period to 31 December 2019

of £17.28. Of the vested amount for the CEO, £434,472 relates to share price appreciation over the performance period. The

Committee did not exercise any discretion in relation to the vesting of the awards or share price changes. The 2017 DABP matching

awards have been valued based on the share price at vesting (£16.616). Of the vested amount for the CEO, £18,017 relates to share

price appreciation over the performance period. The Committee did not exercise any discretion in relation to the vesting of the awards

or share price changes.

The performance achieved in the three years to 31 December 2019 and the vesting levels are set out in the table below.

Pay for performance (audited) continued

Annual report on remuneration continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

125

Update on performance of ongoing LTI awards

The Committee also reviewed the performance of the PSP awards granted to Executive Directors in 2018 and 2019.

The following charts provide an estimate of the vesting levels taking into account performance to 31 December 2019. Actual

vesting levels will only be determined based on performance over the full three-year performance periods. The indications below

should therefore not be regarded as predictions of the ﬁnal vesting levels.

The AFCF targets and associated vesting scales for the 2018 and 2019 PSP awards have been adjusted. The net overall impact is

a reduction of £0.23bn to £10.56bn for the 2018 award and £1.03bn to £11.07bn for the 2019 award. These adjustments are to

take account of the following items:

– the cash ﬂow impact of the Pﬁzer transaction in 2019 and 2020, the impact of the Vaccines Rabipur and Encepur divestments

on Operating Proﬁt in 2020 and 2021 and the impact of the Separation Preparation programme, including the 2020

Restructuring Programme costs and savings in Operating Proﬁt and separation costs.

There are no changes to the targets set for the R&D new product performance measure (to be renamed Innovation sales) or the

relative TSR performance measure for the 2018 and 2019 awards.

Performance updates

R&D new

product

(1/3rd)

Adjusted free

cash ﬂow

(1/3rd)

TSR

(1/3rd)

Maximum

Threshold

Ranked 3rd

or above £12.14bn

122% of

threshold

2018 award

Median £10.24bn

Commercially

sensitive

Estimated vesting level Estimated lapsing level

For threshold performance:

– 25% of each award will vest in respect of the R&D new product performance (to be renamed Innovation sales) and AFCF

measures.

– 30% for the Relative TSR element of the 2018 award and 25% of the 2019 award will vest for median performance respectively.

The TSR comparator group remains unchanged from that shown on page 120 in respect of the 2017 awards.

Individual 2018 LTI award levels appear on page 105 of the 2018 Annual Report. They are set out for the 2019 LTI awards on page

126 of this year’s Report.

R&D new

product

(1/3rd)

Adjusted free

cash ﬂow

(1/3rd)

TSR

(1/3rd)

Maximum

Threshold

Ranked 3rd

or above £12.73bn

122% of

threshold

2019 award

Median £10.74bn

Commercially

sensitive

Vesting %

Year of

grant

Relative TSR

Adjusted free

cash ﬂow

R&D new

product

Business

diversiﬁcation

Lapsed

Total vested

2009 9 40 51 49

2010 9 16 75 25

2011 0 13 16 11 60 40

2012 0 0 7 7 86 14

2013 0 0 21 17 62 38

2014 0 0 33 67 33

2015 15 21 33 31 69

2016 0 26 33 41 59

2017 0 33 33 33 67

For the DABP, the 2010 awards were only subject to TSR performance and from 2011 awards were subject to the same performance measures as PSP awards.

Historical vesting for LTI plans

Annual report on remuneration continued

Pay for performance (audited) continued

126

GSK Annual Report 2019

All-employee share plans

UK Executive Directors may participate in HMRC approved

all-employee share plans with the wider UK workforce, i.e.

Share Save and Share Reward plans.

Participants of the Share Save plan may save up to £250 a

month for three years and at the end of the period have the

option to buy GSK shares at a 20% discount to the share price

at the start of the savings contract. Participants of the Share

Reward plan contribute up to £125 a month to purchase GSK

shares which the company then matches.

For further details see page 137.

Dilution limits

All awards are made under plans which incorporate dilution

limits consistent with the guidelines published by the

Investment Association. These limits are 10% in any rolling

ten-year period for all plans and 5% in any rolling ten-year

period for executive share plans (granted to senior executives).

Estimated dilution from existing awards made over the last ten

years up to 31 December 2019 is as follows:

All GSK employee share plans

04020

0806 10

10%

1.60%

Executive share plans

0604020

Actual Limit

1.32%

2019 LTI awards

The 2019 DABP awards in respect of the deferral of 2018 bonus and the 2019 PSP awards are shown in the table below.

2019 DABP awards 2019 PSP awards

2018

% of total bonus

deferred

Number of

Face value

of award

(1)

Award level as %

of base salary

Number of

Face value

of award

(2)(3)

Emma Walmsley 50% 61,813 shares £0.956m 550% 404,592 shares £6.1m

Iain Mackay

(4)

– – – 400% 225,255 shares £3.4m

Dr Hal Barron 50% 37,120 ADS $1.504m 500% 217,161 ADS $8.7m

Simon Dingemans

(5)

50% 44,215 shares £0.684m – – –

(1)

The face values of the DABP awards has been calculated based on a share price of £15.47 and an ADS price of $40.53, being the closing prices on 12 February 2019 (the day before

grant). These are nil-cost options for the UK Executive Directors and restricted shares for the US Executive Director. No performance conditions are attached to the DABP awards,

as they reﬂect the mandatory deferrals in respect of the 2018 annual bonus earned.

(2)

The face values of the PSP awards has been calculated based on a share price of £15.09, and an ADS price of $40.12, being the closing prices on 7 March 2019 (the day before

grant). These are conditional shares, based on three equally weighted measures: (i) R&D new product performance (to be renamed Innovation sales); (ii) Adjusted free cash ﬂow;

and (iii) Relative TSR. Each performance measure vests at 25% at threshold.

(3)

The performance period for the 2019 PSP awards is from 1 January 2019 to 31 December 2021.

(4)

Iain Mackay was appointed to the Board on 14 January 2019.

(5)

Simon Dingemans’ 2019 DABP award will vest as normal three years after the date it was granted.

Pay for performance (audited) continued

Annual report on remuneration continued

10%

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

127

CEO pay comparison

2019 CEO total remuneration positioning

CEO pay ratios

Methodology

(Lower

Quartile)

P25

(Median)

P50

(Upper

Quartile)

P75

2019

Option A

166:1 123:1 76:1

2018 122:1 90:1 56:1

The pay ratios above are calculated using actual earnings for

the CEO and UK employees. The CEO total single ﬁgure

remuneration of £8,370,043 for 2019 and £5,887,672 for

2018 are given on page 119 of this Report.

Total remuneration for all UK full-time equivalent employees of

the company on 31 December 2019 has been calculated in line

with the single ﬁgure methodology and reﬂects their actual

earnings received in 2019 (excluding business expenses),

which were used to produce the percentile calculation under

Option A of the Remuneration regulations. Business expenses

have been excluded as they are reimbursed to employees

and not sufﬁciently substantial in value to signiﬁcantly impact

the ratios.

GSK continues to choose Option A because it is the most

robust and statistically accurate way for the company to

calculate the three ratios from the options available in the

Remuneration regulations. The increase in the pay ratio for

2019 is due to the outcome of the 2017 PSP award, the ﬁrst

award for Emma Walmsley as CEO.

Set out in the table below is the base salary, and total pay and

beneﬁts for each of the percentiles.

2019 2018 2019 2018 2019 2018

£ P25 P50 P75

Salary 33,090 33,090 47,029 44,944 66,561 64,185

Total pay and

beneﬁts 50,467 48,370 68,200 65,149 110,638 105,045

The Committee believes that the median pay ratio is consistent

with the company’s pay, reward and progression policies.

The base salaries of all employees, including the Executive

Directors, are set with reference to a range of factors including

market practice, experience and performance in role.

Supplemental/Additional ratios

GSK’s CEO pay ratio is likely to vary, potentially signiﬁcantly, over

time since it will be driven largely by CEO variable pay outcomes.

In line with our reward principles, the CEO has a larger portion of

her pay based on performance than the individuals at P25, P50

and P75. This means that depending on GSK’s performance the

ratio could increase or decrease signiﬁcantly. The Committee

believes that our senior executives should have a signiﬁcant

proportion of their pay directly linked to performance.

In light of this we have also provided supplemental ratios,

where LTI compensation has been excluded. We believe this

provides an additional view as LTIs formed a substantial

percentage of the CEO’s total remuneration, which is highly

variable and dependent on business performance. The CEO

2019 total remuneration excluding Long Term Incentive

compensation is £3,286,000.

Financial Year Methodology P25 P50 P75

2019

Option A*

65:1 48:1 32:1

2018 70:1 52:1 34:1

* Total remuneration less vesting of Long-Term Incentive awards

Historic CEO remuneration

Emma Walmsley Sir Andrew Witty

2019 2018

£000

2017 2017 2016 2015 2014 2013 2012

£000

2011

Total

remuneration

8,369 5,887 4,883

(1)

715

(2)

6,830 6,661 3,902 7,207 4,386 6,807

Annual bonus

award

(2)

(% of

maximum)

79% 93% 77% 0%

(2)

97% 100% 42% 88% 44% 100%

Vesting of

LTI awards

(% of

maximum)

67% 59% 69% 0%

(3)

33% 38% 14% 31% 24% 70%

(1) Ms Walmsley’s total remuneration includes her pay for the period 1 January

to 31 March 2017, before she became CEO.

(2) Sir Andrew received a pro-rata payment for 2017 in lieu of a variable bonus

opportunity, in accordance with the 2014 Remuneration policy.

(3) PSP and DABP awards for Sir Andrew granted in 2015 did not vest until April 2018,

in accordance with the terms of the Executive ﬁnancial recoupment policy.

Percentage change in remuneration of CEO

Emma Walmsley UK Employees

2019

£000

% change

Salary

1,110 8% 2.5%

Beneﬁts

192 (18)% 0%

Annual bonus

1,754 (8)% 9%

For the wider UK employee population, the salary increase

includes the annual salary review as well as any additional

changes in the year, e.g. on promotion. UK employee beneﬁts

are unchanged on the previous year as there have been no

changes to our beneﬁt policies or levels. It does not reﬂect any

changes to the level of beneﬁts an individual may have received

as a result of a change in role, e.g. on promotion. The UK

employee population was considered to be the most relevant

comparison as it most closely reﬂects the economic environment

encountered by the CEO.

Annual report on remuneration continued

4 6 8 10 16

European

cross-industry

group

12 14

Global

pharmaceutical

group

Lower quartile

to median

Median to upper

quartile

Emma Walmsley’s

current position

(£m)

Remuneration includes salary and the expected value of incentives based on the

Committee’s agreed benchmarking methodology.

128

GSK Annual Report 2019

Performance graph

The following graph sets out the performance of the company

relative to the FTSE 100 index and to the pharmaceutical

performance comparator group for the ten-year period to 31

December 2019. These indices were selected for comparison

purposes as they reﬂect both the primary index of which GSK is

a constituent and the industry in which it operates.

CEO pay comparison continued

* This index comprises AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Johnson &

Johnson, Merck & Co, Novartis, Pﬁzer, Roche Holdings and Sanoﬁ.

140

100

180

220

GSK Total Return

FTSE 100

Total Return Index

GSK Pharma Peers

Total Return Index*

260

300

340

31.12.09 31.12.10 31.12.11 31.12.12 31.12.13 31.12.14 31.12.15 31.12.16 31.12.17 31.12.18 31.12.19

380

Annual report on remuneration continued

Additional remuneration disclosures

Relative importance of spend on pay

The table shows total employee pay and the Group’s dividends

paid to shareholders.

Change

2019

£m

2018

£m

Total employee pay 4.40 9,855 9,440

Dividends paid in the year 0.7 3,953 3,927

The ﬁgures in the table above, which reﬂect payments made

during each year and the impact of movements in exchange

rates, are as set out on pages 185 and 192. However,

dividends declared in respect of 2019 were £3,961 million

(2018 – £3,940 million) an increase of 0.5%.

Total employee pay is based on 97,214 employees, the average

number of people employed during 2019 (2018 – 96,851).

There were no share repurchases made by the company

during the year.

Service contracts

The table below sets out the dates of the Executive Directors’

service contracts, which are available for review at the company’s

registered ofﬁce during ofﬁce hours and on GSK.com. Each

Executive Director’s service contract contains a 12-month notice

period, as set out in the existing and proposed new policy.

Date of contract Effective date Expiry date

Emma Walmsley 29.03.17 01.04.17 30.06.34

Iain Mackay 18.09.18 14.01.19 n/a

Dr Hal Barron 16.12.17 01.01.18 31.12.24

Shareholder votes on remuneration matters

The table below shows the most recent shareholder votes in

respect of the Remuneration report and the Remuneration policy.

Total votes

cast (billion)

Total votes

for (%)

Total votes

against (%)

Votes

withheld

(million)

Remuneration report

2019 AGM 3.2 88.8 11.2 8.6

Remuneration policy

2017 AGM 3.4 95.2 4.8 66

External appointments for Executive Directors

The Board encourages Executive Directors to hold one listed

company external non-executive directorship (or equivalent) in

line with the FRC’s 2016 UK Corporate Governance Code,

as they become established in their roles, to broaden their

experience and development, from which they may retain

any fees.

Any such appointments are considered by the Board, in line with

the company’s policy on external appointments, to ascertain the

nature and scope of the appointments and ensure they would

not cause an actual or potential conﬂict of interest, and that the

individual Executive Director continues to meet their existing

commitments to GSK.

CEO

During the year, the Board approved Emma Walmsley’s

nomination to the board of Microsoft Corporation as an

independent non-executive director. She joined its board on

4 December 2019 after shareholder approval. She is expected

to receive $325,000 in fees per annum, of which $125,000 will

be delivered in cash and $200,000 as stock options under

Microsoft Corporation’s Deferred Compensation Plan for

their non-employee directors. She received no fees in 2019.

CFO

Iain Mackay is a Trustee of the British Heart Foundation and

a member of the Court of the University of Aberdeen and The

100 Group. He does not receive fees for these external

appointments.

CSO

The Board recognises the importance of ensuring that Hal

Barron remains connected to the life sciences community and

has therefore approved his appointment to the board of GRAIL

Inc (a private company) in 2018 as a non-executive director.

During 2019, he earned $50,086 in fees.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

129

£000 £000

2019

£000 £000 £000

2018

£000

Emma Walmsley Net

Gross up for tax

(UK & US) Total Net

Gross up for tax

(UK & US) Total

Beneﬁts available to employees 52 8 60 55 19 74

Business related services

(1)

Business travel 47 38 85 79 65 144

Other beneﬁts 26 21 47 9 7 16

Total beneﬁts 125 67 192 143 91 234

£000 £000

2019

£000 £000 £000

2018

£000

Iain Mackay Net

Gross up for tax

(UK & US) Total Net

Gross up for tax

(UK & US) Total

Beneﬁts available to employees 83 16 99 – – –

Business related services

(1)

Business travel 19 16 35 – – –

Other beneﬁts 3 2 5 – – –

Total beneﬁts 105 34 139 – – –

$000 $000

2019

$000 $000 $000

2018

$000

Dr Hal Barron

(2)

Net

Gross up for tax

(UK & US) Total Net

Gross up for tax

(UK & US) Total

(2)

Beneﬁts available to employees 46 16 62 35 7 42

Business related services

(1)

Business travel 272

(2)

142 414 220 244 464

Accommodation whilst on business travel

(3)

85 95 180 140 155 295

Other beneﬁts 2 1 3 3 3 6

Total beneﬁts 405 254 659 398 409 807

£000 £000

2019

£000 £000 £000

2018

£000

Simon Dingemans Net

Gross up for tax

(UK & US) Total Net

Gross up for tax

(UK & US) Total

Beneﬁts available to employees 41 27 68 42 13 55

Business related services

(1)

Business travel 5 5 10 41 33 74

Other beneﬁts 8 6 14 7 5 12

Total beneﬁts 54 38 92 90 51 141

Notes:

(1) Business related services which tax regulations deem to be a taxable beneﬁt in the UK and/or the US.

(2) During 2019, GSK reviewed the methodology for allocating the cost of certain business travel. Using the previous methodology, Dr Barron’s Business travel would have

totalled approximately $129,000 net for 2019. Conversely, the current methodology would have resulted in an additional cost of approximately $322,000 in 2018 bringing

his Business travel in 2018 to approximately $552,000 net.

(3) Dr Barron’s place of main business moved during 2019 from the UK to the US, resulting in a reduction in this cost for 2019.

2019 Total Beneﬁts (audited)

The tables below provide an analysis of Total beneﬁts received by the Executive Directors in 2018 and 2019.

These comprise:

– Employee beneﬁts, in line with the policy for other employees, which may vary by location and role; and

– Business related services provided to employees to assist or enable them to carry out their role, which a tax authority has

deemed to be a taxable “beneﬁt” to the individual. Because these are business expenses, the company meets the tax which

arises on them and therefore the items are shown grossed up for tax. These can be split into three areas:

– Business travel: includes travel costs for the Executive Director and as appropriate for their spouse/partner associated with

accompanying the Executive Director on GSK business which are deemed to be taxable beneﬁts for the Director.

– Accommodation whilst on business travel.

– Other beneﬁts.

Annual report on remuneration continued

130

GSK Annual Report 2019

Annual report on remuneration continued

Payments to past Directors (audited)

Vesting and release of LTI awards to past Directors.

As set out in our 2016 Annual Report, Sir Andrew Witty and Dr Moncef Slaoui left the Board on 31 March 2017 by mutual

agreement.

In accordance with the Remuneration policy, approved by shareholders in 2014, their 2016 PSP awards and 2016 DABP awards

vest over the original timescales and subject to the original performance conditions.

Dr Moncef Slaoui Sir Andrew Witty

Number of

ADS awarded

% vested in

2019

ADS price

Equating to

$000

Number of

shares awarded

% vested in

2019

Share price

Equating to

£000

2016 PSP 110,433 59 41.17 4,547 2016 PSP 343,530 59 15.89 5,459

2016 DABP 14,508 59 41.17 597 2016 DABP 27,928 59 15.89 444

Other beneﬁts: the grossed up cost of the post employment

ﬁnancial planning was $29,480.

Other beneﬁts: the grossed up cost of the post employment

home security was £8,149.

Simon Dingemans – left on 8 May 2019

PSP

2017 and 2018 awards lapsed in

May 2019

DABP Matching awards

DABP awards 2017 award will vest in May 2020

under the terms of the Executive

ﬁnancial recoupment policy.

2018 and 2019 awards will vest in

February 2021 and February 2022

respectively, in accordance with the

standard vesting rules.

Simon Dingemans left the Board in May 2019. As he was a

voluntary leaver, he did not receive any severance payment

when he left the company. He did not receive any annual

bonus in respect of 2019 and his outstanding LTIs were

treated in line with the approved Remuneration policy as set

out in the table above.

Payments for loss of ofﬁce (audited)

No loss of ofﬁce payments were made in 2019 or 2018.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

131

Fixed Pay

Salary

The Committee considered the average increases being

awarded to employees below the level of CET in the UK

and US. After due consideration, it was agreed that it was

appropriate to award increases in line with the wider workforce

to the CSO and CFO to ensure the competitiveness of their

remuneration could be maintained.

After review of the CEO’s continued development and

sustained performance, and following further engagement with

shareholders, it was agreed that the second 8% base salary

increase (as outlined in the 2018 Annual Report on pages 96

and 97) should be implemented.

Base salary 2020 % change

Wider workforce

(1)

– 2.5

Emma Walmsley £1,199,176 8

Iain Mackay £871,250 2.5

Dr Hal Barron $1,786,060 2.5

(1) Based on the average increase budget for employees below the level of CET in the

UK and US.

Beneﬁts

See page 141 for details of the proposed new policy on

beneﬁts. No changes are being made to Executive Directors’

beneﬁts.

Pension

The Committee has carefully considered and engaged with

investors on the pension provisions for the new Executive

Directors in light of the external focus on this area of

remuneration. The proposed new policy has been changed

following this engagement.

The Committee has also committed to reduce existing UK

Executive Directors’ pensions to align with the wider workforce

by January 2023. The pension contributions of the CSO

will be retained given the contractual commitment on his

appointment, his exceptional talent and the critical importance

of making continued progress in R&D for the Group prospects

over the coming years. Any new US-based Executive Director’s

pension will be aligned to the wider US workforce on

appointment.

2020 Pension contribution

Emma Walmsley

Iain Mackay

20% of base salary and matching contributions of 5%

on the ﬁrst £33,333 of salary in accordance with the

terms of the plan open to all employees, and 20% of

base salary in lieu of pension on salary in excess

of £33,333

Dr Hal Barron 38% of base salary.

In addition, in line with the wider US workforce, from

1 January 2019, a combined contribution rate under the

401(k) and ESSP plans of 6% (2% core contribution

plus a match of up to 4%) of total base salary and

bonus, less the bonus deferred under the DABP.

Implementation of Remuneration policy for 2020

Comparator groups for pay and Relative TSR

Following feedback and engagement with shareholders, the Committee decided to replace the UK cross-industry comparator

group with a broader European cross-industry group for the CEO and CFO. The European cross-industry group comprises:

CEO & CFO – Europe cross-industry comparator group

Roche Holding AG

Novartis

LVM H

Anheuser-Busch Inbev

Unilever

SAP

L’Oreal

Novo Nordisk A/S

Airbus

Linde

Sanoﬁ

AstraZeneca

Diageo

Siemens

Christian Dior

Inditex

BAT

Volkswagen

Deutsche Telekom

Kering

Heineken

BASF

Vinci

Adidas

Bayer

Safran

Reckitt Benckiser

CSO & Relative TSR performance for Executive Directors – Global pharmaceuticals comparator group

The Global pharmaceuticals comparator group will continue to be used for the CSO’s remuneration and to measure Relative TSR

performance for the Executive Directors.

See page 120 for the composition of this group.

Annual report on remuneration continued

132

GSK Annual Report 2019

Annual report on remuneration continued

Pay for performance

Annual bonus

There are no changes to the operation of the Annual bonus

plan.

For full details of the policy in relation to the Annual bonus plan,

please refer to the details in the new policy on page 142.

Bonus opportunity

% of salary

Weighting of

performance measures %

Target Maximum

Adjusted

Group

PBIT

Scorecard

of individual

objectives

Emma Walmsley

100 200 70 30

Iain Mackay

Dr Hal Barron

In setting and assessing performance levels of the Executive

Directors, the Committee considers performance against the

company’s Trust business priority (see page 30) which reﬂects

the Group’s approach to ESG factors.

Inevitably, targets linked directly to the ﬁnancial and strategic

plan are commercially sensitive. The Committee does not

consider it appropriate to disclose Annual bonus targets during

the year, as it may result in competitive harm. However, details of

the performance targets, as usual, will be disclosed on a

retrospective basis in the 2020 Annual Report.

Deferred Annual Bonus Plan (DABP) 2020 awards

The table below provides details of the mandatory deferral into

the DABP of 50% of 2019 Annual bonus payments and the

associated awards granted. The shares awarded have no

performance conditions, but must be held for three years,

regardless of continued employment.

Total bonus deferred

into shares %

DABP awards

Shares ADS

Emma Walmsley 52,169

Iain Mackay 50 35,223

Dr Hal Barron 30,547

Performance Share Plan (PSP) 2020 awards

Following careful consideration and engagement with investors,

the Committee intends to increase Emma Walmsley’s annual

PSP award level from 550% to 575% of salary to recognise her

development in role and strong performance, together with the

highly competitive landscape in which GSK operates. This

award remains below the newly reduced maximum grant under

the proposed new policy. The Committee has considered in

particular the high regard in which she is held by virtue of her

performance and her competitive positioning against her peers.

This adjustment will bring her total compensation to be broadly

market median level, provided the company delivers strong

long-term performance. However, when compared to the Global

pharmaceuticals comparator group she remains below lower

median. (See page 127).

The table below provides details of awards granted under the

PSP:

2020 PSP award

(2)

% of salary

Change in

award level

(1)

Shares ADSs

Emma Walmsley

550 4.5% 392,260

Iain Mackay

400 – 207,267

Dr Hal Barron

500 – 203,981

(1) The increase in award level to Ms Walmsley from 550% will be delivered through a top

up award, subject to shareholder approval of the Remuneration report at the AGM on 6

May 2020.

(2) The awards were granted at a price of £16.81 per share and $43.78 per ADS.

LTI performance measures

Continuous consideration has been given to the introduction of

a measure to recognise the importance of accelerating and

strengthening our pipeline to further support our Innovation

business priority. This has even greater importance as we work

towards separation of the Group. The Committee, after

engagement with investors, decided to introduce a strategic

Pipeline progress measure.

Pipeline progress measure

Speciﬁcally, this will be targeted to reward progress in

strengthening our R&D pipeline with high quality assets and

in achieving approvals in major markets for key assets or

indications. The focus of this metric will be on achievement

of material milestones.

The Committee will set targets based on relevant milestones

and the commercial value delivered to the business at the end

of the performance period.

The Pipeline progress measure is based on two equally

weighted elements for key assets or indications:

Pipeline progress measure

Pipeline progress

measure %

LTI award

Pivotal trial starts

Focuses mainly on phase III

registrational trial starts, but

may also include phase II starts

(for example, in oncology).

50 10

Major regulatory

approval milestones

50 10

Points will be allocated to the assets in each sub-measure

based on their forecast commercial value (peak year sales) at

the end of the performance period.

Pipeline

progress

measure

LTI award

Threshold

25% 50% 75%

Maximum

100%

Pivotal

trial starts

10 13 points 14 points 15 points 18 points

Major

regulatory

approval

milestones

10 18 points 19 points 20 points 22 points

To more easily differentiate the existing R&D new product sales

measure, it has been renamed “Innovation sales”. That measure

is otherwise unchanged.

Implementation of Remuneration policy for 2020 continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

133

0 2x 4x 6x

Dr Hal Barron

Iain Mackay

Emma Walmsley

SOR 31 December 2019 shareholding

Share ownership vs SOR (multiples of base salary)

3.0x

6.5x 6.8x

3.0x

1.0x

The weightings of the four LTI measures for 2020 onwards

will be:

LTI measure

business priority

Weighting

Measure Previous New

Innovation

Innovation sales

(previously R&D

new product

performance)

33% 20%

Pipeline progress – 20%

Performance

Relative TSR 33% 30%

Adjusted free

cash ﬂow

33% 30%

Trust – business priority

When setting targets and reviewing management’s

performance against all LTI measures, the Committee considers

and reﬂects on the company’s Trust business priority. Our

Trust priority reﬂects the company’s approach to ESG factors

(see page 30).

Disclosure of measures

The Committee is mindful of investors’ concerns over the

non-disclosure of targets at the time of grant. It has committed

to disclose all targets in full following the end of each

performance period.

It will continue to provide shareholders with interim performance

updates for measures over the course of the performance

period.

It exercises rigour in its assessment of performance against

measures. It will enlist support from the Science Committee in

assessing performance against the new Pipeline progress

measure.

Innovation

The targets for Innovation sales and Pipeline progress measures

are of their nature commercially sensitive at the time of grant.

Performance

Relative TSR will continue to be measured against GSK’s

Global pharmaceutical comparator group (see page 120).

Adjusted free cash ﬂow (AFCF)

The targets for the AFCF measure for the 2020 grant are:

Target % vesting

Maximum £11.84bn 100%

£11.33bn 75%

£10.30bn 50%

Threshold £9.99bn 25%

Shareholdings versus Share Ownership Requirement (SOR)

To align the interests of Executive Directors with those of

shareholders, they are required to build and maintain signiﬁcant

holdings of shares in GSK over time. Executive Directors are

required to continue to satisfy these share ownership

requirements by holding 100% of SOR for the ﬁrst 12 months

after leaving GSK. Going forward Executive Directors will also

be required to hold at least 50% of their SOR for months 13-24

after leaving GSK.

See page 137 for the Executive Directors’ shareholdings on

24 February 2020.

Mr Dingemans, who left GSK in 2019, continues to hold three

times his previous base salary.

Implementation of Remuneration policy for 2020 continued

Annual report on remuneration continued

134

GSK Annual Report 2019

Role of the Committee

The role of the Committee is to set the company’s remuneration

policy having regard to GSK’s workforce remuneration so that

GSK is able to recruit, retain and motivate its executives.

The Remuneration 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, is aligned to

the wider workforce and helps drive the creation of shareholder

value.

Terms of reference

The Committee’s terms of reference are available on the

company’s website. The terms of reference are reviewed at least

annually and were last revised in December 2019 to reﬂect best

practice developments.

Governance

The Board considers all of the members of the Committee to

be independent Non-Executive Directors in accordance with

the 2018 Code.

Membership

The members of the Committee, together with their appointment

dates, are set out below:

Committee members Committee member since

Urs Rohner

Chair

1 January 2015

(Chair since 7 May 2015)

Vindi Banga 1 January 2016

Dr Vivienne Cox 1 January 2017

Judy Lewent 1 January 2013

Committee meetings usually include a closed session, during

which only members of the Committee are present. Other

individuals may also be invited to attend Committee meetings

during the year. Executives and other Committee attendees are

not involved in any decisions, and are not present at any

discussions, regarding their own remuneration.

Details of the Committee members’ skills and experience are given in

their biographies under ‘Our Board’ on pages 79 to 81. See page 90

for Committee member attendance levels.

The Company Secretary is Secretary to the Committee and

attends all meetings. Other attendees at the Committee include:

Committee attendees

Attendee

Regular

attendee

Attends as

required

CEO

✓

CFO

✓

Head of Human Resources

✓

Head of Reward

✓

Committee Adviser (PwC)

✓

Judy Lewent and Vindi Banga, as members of the Audit & Risk

and Remuneration Committees, provide input on the Audit &

Risk Committee’s review of the Group’s performance and

oversight of any risk factors relevant to remuneration decisions.

The Committee Chair meets with employees or their HR

representatives to understand employees’ views on

remuneration. In addition, Dr Cox, GSK’s Workforce

Engagement Director, provides the Committee with insights

into the views of the wider workforce on remuneration at GSK.

Adviser to the Committee

PricewaterhouseCoopers LLP (PwC) has been the

independent adviser to the Committee since it was appointed

in 2018 after a full commercial tender exercise was concluded

by the company. PwC is a member of the Remuneration

Consultants’ Group and, as such, voluntarily operates under

the code of conduct in relation to executive remuneration

consulting in the UK. The code of conduct can be found at

www.remunerationconsultantsgroup.com.

During the year, PwC did not have any other connection with

the Committee members or other Board Directors. However,

it did provide other consulting and assurance services to the

company. In line with the protocols agreed and set by the

Committee Chair under which PwC provided their advice,

the Committee is satisﬁed that such advice has been objective

and independent.

PwC has provided independent commentary on matters

under consideration by the Committee and updates on market

practice and legislative requirements. PwC’s fees for advice

during the year, which were charged on both a ﬁxed and a time

and materials basis, were £177,000.

Willis Towers Watson provided additional market data to the

Committee.

Committee evaluation

The Committee’s annual evaluation was externally facilitated by

No 4 who interviewed Committee members on the Committee

Chair’s behalf. It was concluded that the Committee continued

to operate effectively.

Remuneration governance

Annual report on remuneration continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

135

What the Committee did during 2019

Areas of Committee focus Items discussed

Remuneration policy

The Committee sets the broad structure for the Remuneration

policy and determines the remuneration of the Executive

Directors, the Chairman and other corporate ofﬁcers.

– 2020 Executive remuneration policy review and recommendations

– Remuneration impact of major Group restructuring

– Engagement with shareholders

Salary review

The Committee periodically reviews and considers the

remuneration environment of Executive Directors and CET,

approving annual adjustments as necessary having regard to the

remuneration of the wider workforce.

– Review of remuneration environment (including wider employee

trends)

– Executive Director and CET benchmarking, competitiveness and

GSK comparator groups

– Executive Director, CET and Company Secretary salary review and

recommendations for 2019

Annual bonus

The Committee is responsible for setting speciﬁc performance

measures for the Annual bonus and for assessments of

performance.

– CEO, Executive Directors and CET 2018 bonus recommendations

and 2019 CEO bonus objectives

LTI plans

The Committee is responsible for approving LTI plan rule changes,

grants, assessments of performance, and the vesting of LTI awards

for the Executive Directors, CET and below (including interim

awards).

– LTI performance outcomes and vesting of LTI awards for CET and

below

– Conﬁrmation of LTI grants for CET and below

– Development of a new Innovation pipeline measure

Governance and other areas of focus

The Committee adheres to a robust remuneration governance

framework, ensuring alignment between internal actions and

external reporting/compliance requirements.

– Review of Terms of Reference

– Committee evaluation annual review

– 2018 Remuneration report

– Conﬁrmation of 2019 Group Budget for remuneration purposes

– Remuneration considerations and committee programme for 2019

– AGM and Remuneration report feedback, the external remuneration

environment and performance target disclosure for incentive plans

– Approval of the new Chairman’s fees

– 2019 Remuneration report disclosures, including CEO pay ratio

– Annual governance meeting; key committee messages and

presentation of the 2020 Remuneration policy and consideration of

feedback received

– Employer consultation with employees or employee representatives

on setting pay

– Gender pay gap reporting

Annual report on remuneration continued

136

GSK Annual Report 2019

Chairman and other Non-Executive Directors

The company aims to provide the Chairman and other 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 its Articles of Association.

Chairman’s fees

The Chairman is paid a fee of £700,000 per annum, of which

he has elected to take 25% in GSK shares. The Chairman’s

fees were reviewed on the appointment of the new Chair. It was

concluded they remained appropriate.

2019 Non-Executive Directors’ fees

The Non-Executive Directors’ fees that applied during 2019 are

set out in the table below:

Per annum

Standard annual fee £85,000

Supplemental fees

Chair of the Audit & Risk Committee £80,000

Senior Independent Director

Scientiﬁc/Medical Experts

Chairs of the Remuneration, Corporate

Responsibility and Science Committees

£30,000

Non-Executive Director undertaking intercontinental

travel to meetings

£7,500 per meeting

Implementation of Non-Executive Directors’ policy in 2020

Non-Executive Directors’ standard fees were last increased in January 2013. Following a review and engagement with shareholders

it was agreed to:

– increase the annual fees payable to the Non-Executive Directors with effect from 1 January 2020 to:

– £95,000 for the standard annual fee

– £50,000 for the Senior Independent Director

– £40,000 for other Committee Chairs, including the Remuneration, Corporate Responsibility and Science Committees

– subject to shareholder approval, introduce a supplemental fee with effect from 1 January 2020, payable to the Workforce

Engagement Director (£40,000 for 2020). Authorise the payment to a Non-Executive Director of up to the amount paid to a

Committee Chair (£40,000 for 2020) for undertaking additional duties in exceptional or unforeseen circumstances requiring a

signiﬁcant additional time commitment.

No changes are proposed to the fees payable to the Chair of the Audit & Risk Committee or Scientiﬁc/Medical Experts. We do not

expect to make any other increases to the fees payable to Non-Executive Directors during the new policy period. The increases

described above reﬂect the time commitments of these roles.

Non-Executive Directors will continue to be required to invest at least 25% of their total net fees in GSK shares or ADS.

2019 Total fees (audited)

The audited table below sets out the value of fees and beneﬁts received by the Non-Executive Directors in the form of cash and

shares or ADS. Further details of the Non-Executive Directors’ share allocation plan are set out on page 137. Non-Executive

Directors’ fees that are paid in a currency other than Sterling are converted using an average exchange rate that is reviewed

from time to time. Beneﬁts comprise the grossed up cash value of travel and subsistence costs incurred in the normal course

of business, in relation to attendance at Board and Committee meetings. For overseas-based Directors, this includes travel to

meetings in the UK.

Non-Executive Directors’

emoluments (000) (audited)

2019 2018

Fixed fees Fixed fees

Cash Shares/ADS Beneﬁts Total pay Cash Shares/ADS Beneﬁts Total pay

Vindi Banga £92 £31 £4 £127 £65 £50 £3 £118

Dr Vivienne Cox £69 £23 £8 £100 £64 £21 £11 £96

Lynn Elsenhans $24 $196 $75 $295 $56 $175 $90 $321

Dr Laurie Glimcher – $220 $76 $296 – $231 $73 $304

Dr Jesse Goodman $199 $66 $66 $331 $208 $69 $115 $392

Judy Lewent $222 $74 $82 $378 $230 $77 $130 $437

Urs Rohner £92 £31 £13 £136 £86 £29 £23 £138

Sir Jonathan Symonds £174 £58 £2 £234 – – – –

Former directors:

Professor Sir Roy Anderson

(1)

– – – – £39 £7 £18 £64

Philip Hampton £352 £117 £12 £481 £525 £175 £19 £719

Sir Deryck Maughan

(2)

– – – – – – £5 £5

Dr Daniel Podolsky

(2)

– – £2 £2 – – £7 £7

Hans Wijers

(3)

– – – – – – £8 £8

(1) Professor Sir Roy Anderson retired from the Board on 3 May 2018.

(2) Dr Daniel Podolsky and Sir Deryck Maughan retired from the Board on 5 May 2016.

(3) Hans Wijers retired from the Board on 7 May 2015.

Non-Executive Directors’ fees

Annual report on remuneration continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

137

The interests of the Directors of the company in ofﬁce during 2019 and their persons closely associated (PCA) are shown in the

tables below.

Total share plan interests as at 31 December 2019 or date of leaving

Total directors’ interests as at

Shares/ADS Options

24 February

2020

31 December

2019

or date of

leaving

1 January

2019

or date of

appointment

Unvested

and not

subject to

performance

(1)

Unvested and

subject to

performance

(2)

Unvested and

not subject to

performance

(1)

Unvested and

subject to

performance

(2)

Vested but

not exercised

Exercised in

the year

Executive Directors

Emma Walmsley

(1,3,4,5,6)

492,034 441,082 281,726 – 1,300,605 166,189 36,831 – 188,870

Iain Mackay

(4)

35,223 – – – 233,791 – – – –

Simon Dingemans

(1,2,3,4,6,8)

– 740,484 540,663 319,005 470,703 122,628 32,712 – 68,708

ADS

Dr Hal Barron

(1,4)

71,096 40,143 1,644 38,499 480,051 – – – –

Share allocation plan for Non-Executive Directors

Total directors’ interests as at Number of shares or ADS

24 February

2020

31 December

2019

or date of

leaving

1 January

2019

or date of

appointment

Dividends

reinvested

after year

end

31 December

2019

Paid out

Dividends

reinvested

during the

year

Allocated

& elected

31 December

2018

Non-Executive Directors

(7)

Vindi Banga 61,205 59,748 56,753 1,058 24,548 – 1,091 1,904 21,553

Dr Vivienne Cox 5,428 4,939 3,352 195 4,939 – 150 1,437 3,352

Urs Rohner 10,989 10,171 7,885 419 10,171 – 382 1,904 7,885

Sir Jonathan Symonds 32,974 18,805 17,971 9 834 – – 834 –

Philip Hampton

(8)

– 61,643 51,157 – – (54,725) 2,125 8,361 44,239

ADS

(7)

Lynn Elsenhans 39,151 36,629 30,587 1,467 35,629 – 1,497 4,545 29,587

Dr Laurie Glimcher 13,075 11,492 5,961 410 11,492 – 202 5,329 5,961

Dr Jesse Goodman 6,955 6,352 4,538 249 6,352 – 206 1,608 4,538

Judy Lewent 27,865 26,780 24,271 691 16,614 – 717 1,792 14,105

1) Unvested options not subject to performance of 166,189 for Emma Walmsley represent bonus deferrals of 165,445 and Share Save options of 744.

Unvested shares not subject to performance of 319,005 for Simon Dingemans represent 100% of the shares awarded at the end of the three-year

performance periods for the 2015 and 2016 PSP grants, together with subsequent reinvested dividends. These shares are subject to a two-year holding

period ending in February 2020 (2015 PSP grant) and February 2021 (2016 PSP grant). Unvested options not subject to performance of 122,628 for

Mr Dingemans represent bonus deferrals of 122,172 and Share Save options of 456. The Share Save options lapsed in May 2019 when he left GSK.

Unvested ADS not subject to performance of 38,499 for Dr Hal Barron represent bonus deferrals.

2) Unvested shares subject to performance of 470,703 for Simon Dingemans represent PSP awards granted in 2017 and 2018 which lapsed in May 2019

when he left GSK. Unvested options subject to performance of 32,712 represent DABP matching awards granted in 2017 which lapsed in May 2019 when

he left GSK.

3) Total Directors’ interests includes shares purchased through the GlaxoSmithKline Share Reward Plan. During 2019, Emma Walmsley and Simon Dingemans

were awarded 93 and 41 shares respectively under the plan. The total number of shares held within the plan are as follows:

Share Reward Plan (Shares)

24 February 2020 31 December 2019 1 January 2019

Emma Walmsley 1,806 1,760 1,496

Simon Dingemans – – 1,943

Dr Hal Barron is a US employee and is not eligible to participate in the Share Reward Plan, as this is only open to UK employees.

4) Total directors’ interests includes options over shares or ADS resulting from the deferral of bonus (and the subsequent reinvestment of dividends) under the

DABP. The totals shown in the table below include bonus deferrals, but exclude any unvested matching awards which are subject to ongoing performance

criteria. The last matching award was granted in 2017. The amounts represent the gross share and ADS balances prior to the sale of any shares or ADS to

satisfy tax liabilities.

Deferred Annual Bonus Plan (Bonus deferrals) 24 February 2020

31 December 2019

or date of leaving 1 January 2019

Emma Walmsley Shares 182,147 165,445 128,604

Iain Mackay Shares 35,223 – –

Dr Hal Barron ADS 69,452 38,499 –

Simon Dingemans Shares – 122,172 117,782

Directors’ interests in shares (audited)

Annual report on remuneration continued

138

GSK Annual Report 2019

5) Total directors’ interests at 24 February 2020 includes shares or ADS which vested in February 2020 due to performance being met under the DABP and

PSP 2017 awards, less those sold to satisfy tax liabilities on the vested amounts.

6) The following table sets out details of options under the Share Option Plan (SOP) and nil-cost options under the DABP exercised during 2019 by the

Executive Directors.

Type of award

Date of grant

Number of shares

under option

Date of

exercise

Grant price

Market price

at exercise

Gain on exercise

(000)

Emma Walmsley

SOP 22.07.10 137,040 31.10.19 £12.04 £17.76 £784

DABP – deferral 11.02.16 32,596 18.02.19 – £15.76 £514

DABP – matching 11.02.16 19,234 18.02.19 – £15.76 £303

£1,601

Simon Dingemans

DABP – deferral 11.02.16 43,044 18.02.19 – £15.72 £677

DABP – matching 11.02.16 25,398 18.02.19 – £15.72 £399

£1,076

In respect of options under the SOP, the remuneration receivable by an Executive Director is calculated on the date that the options ﬁrst vest. The

remuneration is the difference between the amount the Executive Director is required to pay to buy the shares and the total value of the shares on the vesting

date. If the Executive Director chooses not to exercise the options on the vesting date, any subsequent increase or decrease in the amount realised will be

due to movements in the share price between the vesting date and the date of exercise. This increase or decrease in value is the result of an investment

decision by the Executive Director and, as such, is not recorded as remuneration.

In respect of nil-cost options under the DABP, the bonus which is deferred by the Director is recorded as remuneration (under Annual bonus) for the year to

which it relates. The gain recorded on exercise of the nil-cost option comprises this remuneration, the total of the amounts received in reinvested dividends

prior to vesting and the gains or losses resulting from movements in the share price between (i) the dates of grant and exercise for the initial bonus amount

deferred; and (ii) the dates of dividend reinvestment and exercise for the reinvested dividends.

For the matching element of the DABP, the remuneration of the Executive Director is recorded in the year that the performance period ends and represents

the number of vested shares multiplied by the share price at vesting. The gain recorded on exercise of the nil-cost option comprises the total of this

remuneration and the gain or loss resulting from the movement in the share price between vesting and exercise. The last matching award was granted in 2017.

For Emma Walmsley:

– The total gain of £783,869 following the exercise of 137,040 options granted under the SOP comprises remuneration of £671,496 in respect of 2013

(the share options were granted on 22 July 2010 and vested on 22 July 2013 with a vesting price of £16.94) and an investment gain of £112,373.

– The gain of £513,713 recorded following the exercise of the 32,596 nil-cost options relating to the deferral of bonus earned in respect of 2015 comprises

remuneration of £374,400 recorded in 2015 as Annual bonus and a net gain of £139,313 relating to the reinvestment of dividends prior to vesting and

movements in the share price between grant and dividend reinvestment dates and the exercise date.

– The gain of £303,128 recorded following the exercise of the 19,234 nil-cost options relating to the DABP matching award comprises remuneration of

£301,204 recorded in 2018 in relation to the DABP and an investment gain of £1,924 relating to the movement in the share price between the vesting

and exercise dates.

For Simon Dingemans:

– The gain of £676,652 recorded following the exercise of the 43,044 nil-cost options relating to the deferral of bonus earned in respect of 2015 comprises

remuneration of £494,425 recorded in 2015 as Annual bonus and a net gain of £182,227 relating to the reinvestment of dividends prior to vesting and

movements in the share price between grant and dividend reinvestment dates and the exercise date.

– The gain of £399,257 recorded following the exercise of the 25,398 nil-cost options relating to the DABP matching award comprises remuneration of

£397,733 recorded in 2018 in relation to the DABP and an investment gain of £1,524 relating to the movement in the share price between the vesting

and exercise dates.

7) For Non-Executive Directors, total interests include shares or ADS received as part or all of their fees under the Non-Executive Directors’ Share Allocation

Plan. Dividends received on shares or ADS under the plan during 2019 and January 2020 were converted into shares or ADS as at 5 February 2020.

8) Simon Dingemans retired from the Board on 8 May 2019. Sir Philip Hampton retired from the Board on 31 August 2019.

Directors’ interests in shares (audited) continued

Annual report on remuneration continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

139

Further information is provided on compensation and interests of Directors and Senior Management as a group (the group). For this

purpose, the group is deﬁned as the Non-Executive and Executive Directors, other members of the CET and the Company

Secretary. For the ﬁnancial year 2019, the following table sets out aggregate remuneration for the group for the periods during

which they served in that capacity.

Remuneration for 2019

Total compensation paid 28,423,288

Aggregate increase in accrued pension beneﬁts (net of inﬂation) 115,693

Aggregate payments to deﬁned contribution schemes 1,196,714

During 2019, members of the group were awarded shares and ADS under the company’s various LTI plans, as set out in the table

below. To align the interests of Senior Management with those of shareholders, Executive Directors and CET members are required

to build and maintain signiﬁcant holdings of shares in GSK over time. CET members are required to hold shares to an equivalent

multiple of two times their base salary, and must continue to satisfy these share ownership requirements for a minimum of 12

months after leaving GSK.

Awards Dividend reinvestment awards

Awarded during 2019

Shares ADS Shares ADS

Deferred Annual Bonus Plan (matching awards) – – 7,457 443

Performance Share Plan 1,404,927 468,854 208,176 45,874

Deferred Investment Awards

(1,2)

20,100 – 5,964 89

Share Value Plan

(2)

19,400 – – –

At 24 February 2020, the group and their PCAs had the following interests in shares and ADS of the company. Interests awarded

under the various LTI plans are described in Note 44 to the ﬁnancial statements, ‘Employee share schemes’ on page 244.

Interests at 24 February 2020

Shares ADS

Owned 1,426,701 181,616

Unexercised options 7,203 –

Deferred Annual Bonus Plan 431,934 122,793

Performance Share Plan 4,775,844 1,482,055

Deferred Investment Awards

(1,2)

132,129 6,320

Share Value Plan

(2)

57,900 –

(1) Notional shares and ADS.

(2) Executive Directors are not eligible to receive Deferred Investment Awards or participate in the Share Value Plan. The Deferred Investment Award granted to Emma Walmsley

which vested during 2019 was granted prior to her becoming an Executive Director.

Directors and Senior Management

Annual report on remuneration continued

140

GSK Annual Report 2019

Our current Remuneration policy (policy) was approved by our

shareholders at our Annual General Meeting on 4 May 2017

receiving a 95.2% vote in favour. As required under the

Remuneration regulations, shareholders are being asked to

approve a new policy at our Annual General Meeting on 6 May

2020, which it is intended will apply for the next three years.

During 2019, the Committee considered the policy. The

decision-making process that the Committee followed for its

determination, review and implementation of the proposed new

policy is set out in the Committee Chair’s statement on pages

116 and 117.

The Committee’s review of the policy sought to ensure that it

continues to:

– Be aligned with the company’s business priorities, culture

shift, wider workforce pay policies and emerging best

practice;

– Create shareholder value; and

– Drive the success of the company for the beneﬁt of patients,

customers and other key stakeholders.

In addition, changes to the policy have been made to ensure its

implementation will support the delivery of business strategy

whilst delivering a clear, understandable and appropriately

competitive package to attract, retain and motivate executive

talent.

The Committee developed the new policy for Executive and

Non-Executive Directors in the context of its oversight of wider

workforce pay, however, it did not consult with employees on

the new policy. It consulted with our largest shareholders in

respect of the proposed changes and took shareholders’

feedback into account when ﬁnalising the new policy.

The table below provides an overview of the main changes

that are proposed in respect of the new policy. The full policy

that shareholders are asked to approve is set out on pages

141 to 150.

Remuneration element Proposed changes to policy Rationale for the change

Pension – Any new Executive Director will receive a pension

aligned to the broader workforce. Contribution levels

for the current UK Executive Directors will be similarly

aligned from January 2023.

Alignment with shareholders:

Alignment with the 2018 Code and emerging market

practice.

Extension to post cessation share

ownership requirements

– 50% of SOR for Executive Directors to be held for

the second year post cessation of role.

Alignment with shareholders:

Alignment with the 2018 Code and emerging market

practice.

LTI Quantum – A reduction in the maximum award level permitted (to

600%) and an increase in the award level to be

applied in the case of the CEO (to 575%).

Pay for performance:

We received feedback from some shareholders that the

maximum award level permitted under the policy should

be reduced from the previous 650%. The increase in the

target award to the CEO reﬂects strong performance in

the role by Emma Walmsley since her appointment in

April 2017.

Malus and Clawback – The deﬁnition of a triggering event is expanded to

include material misstatement of results and serious

reputational damage.

Alignment with market practice:

It has become more common for FTSE 100 companies

to apply a broader deﬁnition of a triggering event.

Loss of ofﬁce payment policy – The 20 years’ service condition for ‘termination by

mutual agreement’ has been removed.

Simpliﬁcation and ﬂexibility:

To simplify the policy and to allow greater ﬂexibility for the

Board to manage succession proactively.

Non-Executive Directors’ fees – Introduction of a fee (£40,000 for 2020) for the

designated Workforce Engagement Director with

effect from 1 January 2020.

– Authority is also sought for a Non-Executive Director

(other than the Chairman) to be remunerated up to

the amount paid to Committee Chairs (£40,000 for

2020) for undertaking additional duties in exceptional

or unforeseen circumstances requiring a signiﬁcant

additional time commitment.

– Non-Executive Directors will continue to be required

to invest at least 25% of their total net fees in shares

or ADS of the company.

Compensation for additional duties:

To reﬂect the work involved in carrying out this new role

which is equivalent to that of a Committee Chair.

To appropriately remunerate Non-Executive Directors for

their work.

Simpliﬁcation and alignment with shareholders:

To allow the direct reinvestment of fees into shares

or ADS.

2020 Remuneration policy summary

Remuneration policy review

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

141

Subject to shareholder approval at the company’s Annual General Meeting on 6 May 2020, the Remuneration policy for each

remuneration element will be as outlined in the table below.

Purpose and link to strategy

To provide a core reward for the role.

Set at a level appropriate to secure and retain high calibre

individuals needed to deliver the Group’s strategic priorities.

Operation

Individual’s role, experience, performance and independently

sourced data for relevant comparator groups considered when

determining salary levels.

Salary increases typically take effect in the ﬁrst quarter of

each year.

Salaries are normally paid in the currency of the Executive

Director’s home country.

Opportunity

There is no formal maximum limit and, ordinarily, salary increases

will be broadly in line with the average increases for the wider

GSK workforce.

However, increases may be higher to reﬂect a change in the

scope of the individual’s role, responsibilities or experience.

Salary adjustments may also reﬂect wider market conditions in

the geography in which the individual operates.

Details of current salary levels are set out in the Annual report

on remuneration.

Performance measures

The overall performance of the individual is a key consideration

when determining salary increases.

Purpose and link to strategy

Levels are set to recruit and retain high calibre individuals to

execute the business strategy.

Operation

Executive Directors are eligible to receive beneﬁts in line with

the policy for other employees which may vary by location.

These include, but are not limited to, car allowances, healthcare,

life assurance/death in service (where not provided as part of

the individual’s pension arrangements), personal ﬁnancial advice

and contractual post-retirement beneﬁts. In line with the policy

for other employees, Executive Directors may be eligible to

receive overseas relocation allowances and international

transfer-related beneﬁts when required. Executive Directors

in the UK are also eligible to participate in all-employee share

schemes (e.g. Share Save and Share Reward Plan), under

which they are subject to the same terms as all other

employees.

In order to recognise the high business travel requirements of

the role, Executive Directors are also entitled to car travel and

exceptionally may be accompanied by their spouse/partner on

business trips. Other beneﬁts include expenses incurred in the

ordinary course of business, which are deemed to be taxable

beneﬁts on the individual.

Where an Executive Director is based outside the UK, but is

required to travel to the UK to fulﬁl the responsibilities of their

role and to attend Board Meetings, they may be subject to tax

on their business travel expenses to and from the UK and on the

provision of any accommodation in the UK. Although in reality it

represents a business expense, the tax treatment requires that

their travel and accommodation expenses are then included as

beneﬁts. Because of the business context, the tax liabilities will

be covered by the company on a grossed-up basis.

Beneﬁt provision is tailored to reﬂect market practice in the

geography in which the Executive Director is based and

different policies may apply if current or future Executive

Directors are based in a different country.

Opportunity

There is no formal maximum limit as beneﬁts costs can ﬂuctuate

depending on changes in provider cost and individual

circumstances.

Details of current beneﬁts and costs are set out in the Annual

report on remuneration.

Performance measure

None

Remuneration policy report

Future policy table

Salary

No change

Beneﬁts

No change

142

GSK Annual Report 2019

Future policy table continued

Purpose and link to strategy

To incentivise and recognise execution of the business strategy

on an annual basis.

Rewards the achievement of stretching annual ﬁnancial and

strategic business targets and delivery of personal objectives.

Operation

Financial, operational and business targets are set at the start of

the year by the Committee and bonus levels are determined by

the Committee based on performance against those targets.

Individual objectives are set at the start of the year by the

Committee and performance against those objectives is

assessed by the Committee.

Executive Directors are required to defer 50% of any bonus

earned into shares, or ADS as appropriate, for three years.

Deferred bonus shares are eligible for dividend equivalents

up to the date of vesting.

The Committee may apply judgement in making appropriate

adjustments to bonus outcomes to ensure they reﬂect

underlying business performance. Clawback and/or malus

provisions apply as described on page 144.

Opportunity

The maximum bonus opportunity for Executive Directors is

200% of salary. For threshold performance, the bonus pay-out

on the ﬁnancial measure will be nil. For target performance, the

bonus payout will be 50% of the maximum opportunity.

Performance measures

Based on a combination of ﬁnancial targets and individual/

strategic performance objectives, with the majority of the bonus

assessed against the ﬁnancial measures. The weighting

between different measures will be determined each year

according to business priorities. Further details, including the

measures to be used in the ﬁnancial year, are provided in the

Annual report on remuneration.

Annual bonus

No change

Purpose and link to strategy

Pension arrangements provide a competitive level of retirement

income.

Operation

Pension arrangements are structured in accordance with the

plans operated in the country in which the individual is likely to

retire. Where the individual chooses not to become a member

of the pension plan, cash in lieu of the relevant pension

contribution is paid instead. Executive Directors in the UK are

entitled either to join the deﬁned contribution pension plan or

to receive a cash payment in lieu of pension contribution.

Where an individual is a member of a GSK legacy deﬁned

beneﬁt plan, a deﬁned contribution plan or an alternative

pension plan arrangement and is subsequently appointed

to the Board, he or she may remain a member of that plan.

Opportunity

The policy for all current Executive Directors is:

UK:

– 20% of base salary contribution to deﬁned contribution plan

and further 5% in matched contributions subject to any

relevant cap and in line with implementation principles for

other members of the plan; and

– 20% of base salary as a cash payment in lieu of pension

contribution for the portion above the relevant cap;

– 20% of base salary as a cash payment in lieu of pension

contribution.

From 1 January 2023, any current UK Executive Directors who

are still in role will have their pension arrangements aligned to

new Executive Directors’ arrangements as follows.

Any new Executive Directors in the UK will receive from date

of appointment:

– 7% of base salary contribution to deﬁned contribution plan

and further 3% in matched contributions subject to any

relevant cap and in line with implementation principles for

other members of the plan; and

– 7% of base salary as a cash payment in lieu of pension

contribution for the portion above the relevant cap;

– 7% of base salary as a cash payment in lieu of pension

contribution.

(1)

– Cash Balance and Supplemental Cash Balance pension

plans, providing annual contributions of 38% of base salary,

split between the two plans as appropriate.

– GSK 401(k) plan and the Executive Supplemental Savings Plan

(ESSP) with core contributions of 2% of salary and bonus

(2)

and matched contributions of 4% of salary and bonus

(2)

Any new Executive Directors in the US will receive:

– Cash Balance and Supplemental Cash Balance pension

plans, providing annual contributions of 5% of base salary

and bonus, split between the two plans as appropriate.

– GSK 401(k) plan and the ESSP with core contributions of

2% of salary and bonus

(2)

and matched contributions of 4%

of salary and bonus

(2)

Global:

– Eligible for appropriate equivalent arrangement not in excess

of the US/UK arrangements.

Performance measures

None.

Remuneration policy report continued

Pension

Change

(1)

In the event of any change to the plans operated in the US, a similar value would be

provided under any successor arrangements introduced within the market.

(2)

Less bonus deferred under the DABP.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

143

The annual bonus is designed to drive the achievement of

GSK’s annual ﬁnancial and strategic business targets and

the delivery of personal objectives.

The annual bonus ﬁnancial targets are set by reference to

internal budget and external consensus targets.

The majority of the annual bonus opportunity is based on a

formal review of performance against stretching ﬁnancial targets

with the remainder of the bonus subject to a balanced

scorecard of strategic and individual targets which are aligned

to the company’s key objectives for that ﬁnancial year.

Selection of annual bonus measures

To align the interests of Executive Directors with those of

shareholders, they are required to build and maintain signiﬁcant

holdings of shares in GSK over time. The requirements for each

Executive Director are as follows:

% salary

CEO 650

Other Executive Directors 300

As a minimum, Executive Directors are required to maintain

100% of their share ownership requirements to the end of

the ﬁrst year following retirement from the company and 50%

to the end of the second year.

Share Ownership Requirements

Change

Purpose and link to strategy

To incentivise and recognise delivery of the longer term

business priorities, ﬁnancial growth and increases in

shareholder value compared to other pharmaceutical

companies.

In addition, to provide alignment with shareholder interests,

a retention element, to encourage long-term shareholding

and discourage excessive risk taking.

Operation

Conditional awards are made annually with vesting dependent

on the achievement of performance conditions over three years

and are subject to an additional two-year holding period. PSP

targets are set by reference to internal budget and external

consensus targets.

Awards are eligible for dividend equivalents up to the date of

vesting and release.

The Committee may adjust the formulaic vesting outcome

(either up or down) to ensure that the overall outcome reﬂects

underlying business performance over the vesting period.

Clawback and/or malus provisions apply as described on

page 144.

Opportunity

The normal maximum award limits that may be granted under

the PSP to an individual in any one year are set out in the table

below:

% of salary

CEO 600

CFO 400

Other Executive Directors 500

Performance measures

Based on a combination of ﬁnancial, share price related and

strategic performance conditions which are aligned to the

company’s strategic plan. For all measures*, 25% of awards

will vest at threshold performance. Further details, including

the performance targets attached to the PSP in respect of each

year, and the weightings of the targets for the 2020 PSP awards

are provided in the Annual report on remuneration.

* We announced in the 2018 Annual Report, that we were reducing the

threshold vesting level for our TSR measure to 25%, in order to align it

with our other performance measures.

The Committee selects performance measures which focus

Executive Directors’ long-term remuneration on the delivery of

GSK’s key strategic priorities over the longer term. In addition

to setting robust targets, the Committee has implemented a

number of safeguards to ensure the targets are met in a

sustainable way and performance reﬂects genuine achievement

against targets and therefore represents the delivery of value

for shareholders.

For each performance measure, the impact of any acquisition

or divestment will be quantiﬁed and adjusted for after the event.

Any major adjustment in the calculation of performance

measures will be disclosed to shareholders on vesting.

The Audit & Risk Committee chair and other members,

who are also members of the Remuneration Committee,

provide input on the Audit & Risk Committee’s review of

the Group’s performance and oversight of any risk factors

relevant to remuneration decisions.

Details of the rationale behind the performance measures

selected and how they are calculated are set out in the

Annual report on remuneration.

Performance Share Plan (PSP)

Change

Future policy table continued

Selection of long-term incentive measures

Remuneration policy report continued

144

GSK Annual Report 2019

In the event of a ‘triggering event’ (i.e. signiﬁcant misconduct by

way of violation of regulation, law, a signiﬁcant GSK policy, such

as the Code of Conduct, or a material misstatement of results,

or serious reputational damage), the company will have the

ability to claw back up to three years’ annual and deferred

bonuses as well as vested and unvested LTIs. In addition, in

respect of PSP awards made from 2020, if a participant is

subject to an investigation, then the vesting of their awards

may be delayed until the outcome of that investigation.

A separate Recoupment Committee has been established to

investigate relevant claims of misconduct. The Recoupment

Committee exercises this authority for the wider employee base.

It comprises of senior executives with relevant oversight and

appropriate experience, including the Senior Vice President,

Global Ethics and Compliance, and the Senior Vice President

& General Counsel.

In respect of each ﬁnancial year, the Remuneration Committee

will disclose whether it (or the Recoupment Committee) has

exercised clawback or malus. Disclosure will only be made

when the matter has been subject to public reports of

misconduct, where it has been fully resolved, where it is legally

permissible to disclose and where it can be made without

unduly prejudicing the company and therefore shareholders.

Additionally, where there has been continuity of responsibility

between initiation of an adverse event and its emergence as a

problem, the adverse event should be taken into account in

assessing annual bonus awards and LTI vesting levels in the

year the problem is identiﬁed and for future periods. The

Remuneration Committee (or Recoupment Committee) may

make appropriate adjustments to individual annual bonuses as

well as grant and vesting levels of LTI awards to reﬂect this.

Future policy table continued

Clawback and malus

Expansion of deﬁnition of triggering event

Remuneration policy report continued

The Committee determines the remuneration package of new

Executive Directors on a case-by-case basis depending on

the role, the market from which they will operate and their

experience. Total remuneration levels will be set by reference

to a relevant pay comparator group and, where appropriate,

will allow for future development in the role.

It is expected that new Executive Directors will participate

in short and long-term incentive plans on the same basis as

existing directors. However, in exceptional circumstances,

the Committee reserves the ﬂexibility to set the incentive limit

for a new Executive Director at up to an additional 50% of the

existing limits.

The Committee retains this ﬂexibility in recognition of the high

levels of variable pay in GSK’s global pharmaceutical

competitors. However, the Committee will only use this ﬂexibility

when it is considered to be in the best interests of the company

and its investors.

Pension arrangements for any external recruit as an Executive

Director will be as set out in the Remuneration policy table on

page 142.

Other beneﬁts will be provided in line with the policy for existing

Executive Directors.

Where required to meet business needs, relocation support

will be provided in line with company policy.

For any internal appointments, entitlements under existing

remuneration elements will continue, including pension

entitlements and any outstanding awards. However, where

not already the case, internal appointments will be required

to move to Executive Director contractual terms, including

termination provisions.

The Committee is mindful of the sensitivity relating to

recruitment packages and, in particular, the ‘buying out’ of

rights relating to previous employment. It will therefore seek

to minimise such arrangements. However, in certain

circumstances, to enable the recruitment of exceptional talent,

the Committee may determine that such arrangements are in

the best interests of the company and its shareholders. Such

arrangements will, where possible, be on a like-for-like basis

with the forfeited remuneration terms. Arrangements will

therefore vary depending on the plans and arrangements put

in place by the previous employer and may be in the form of

cash or shares and may or may not be subject to performance

conditions. Explanations will be provided where payments are

made as compensation for previous remuneration forfeited.

The remuneration arrangements for any newly appointed

Executive Director will be disclosed as soon as practicable

after the appointment.

Approach to recruitment remuneration

No change

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

145

Termination of employment

In the event that an Executive Director’s employment with the company terminates, the following policies and payments will apply.

Element of

Remuneration

Loss of ofﬁce payment policy

Termination

payment

Termination by notice: 12 months’ annual salary payable on termination by the company (pro-rated where part of the notice period is worked).

No termination payment is made in respect of any part of a notice period that extends beyond the contract expiry date.

A bonus element is not normally included in the termination payment. However, the terms of the contracts seek to balance commercial

imperatives and best practice.

Redundancy: As above, for termination by notice. In the UK, only statutory redundancy pay will apply. In the US, general severance policy does

not apply.

Retirement, death and ill-health, injury or disability: No termination payment.

LTI awards PSP awards are governed by the plan rules as approved by shareholders.

The following provisions will normally apply:

Termination by notice: Unvested awards will lapse.

Redundancy, retirement, death, ill-health, injury, disability or any other reason: Generally, awards will continue to vest over the original

timescales subject to performance and pro-rated for time.

In the event of a change of control, PSP awards will vest, taking into account performance to date and normally taking into account the

proportion of the performance period that has elapsed. Alternatively, the awards may be exchanged for new awards.

Annual bonus Termination by notice by individual: If an individual serves notice and the termination date falls before 31 December, the bonus is forfeited.

Termination by notice by the company, redundancy, retirement, death, ill-health, injury or disability: If the termination date falls during the

ﬁnancial year, eligible for pro-rated on-target bonus (if employed on 31 December, bonus payable based on actual results).

Mandatorily

deferred

bonus under

the DABP

DABP deferred bonus awards in respect of mandatorily deferred bonus amounts are governed by the plan rules as approved by shareholders.

The following provisions will normally apply:

Termination for gross misconduct: Generally, unvested awards will lapse

Any other reason: Generally, awards will vest in full on the original vesting date.

In the event of a change of control, awards will vest or may be exchanged for new awards.

Beneﬁts Generally, beneﬁts will continue to apply until the termination date. The Committee may make payments in connection with an existing legal

obligation or in respect of any claim related to the cessation of employment. This may include fees for outplacement assistance, legal and/or

professional advice.

Termination by notice by the company and retirement (US executives): In line with the policy applicable to US senior executives, they may

become eligible, at a future date, to receive continuing medical and dental insurance after termination/retirement.

The company does not have a policy of ﬁxed term contracts.

Generally, contracts for new appointments will expire in line with

the applicable policy on retirement age, which since 2009 has

been 65.

Contracts for existing Executive Directors will expire on the

dates shown on page 128.

Notice period on termination by the employing company or the

Executive Director is 12 calendar months.

The ability to impose a 12-month non-compete period (and a

non-solicitation restriction) on an Executive Director is

considered important by the company 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.

Termination by mutual agreement

In certain circumstances, it can be in the best interests of the company for the Board to manage proactively succession planning and the development of

the senior talent pipeline. In such circumstances, the Board may therefore agree that an Executive’s departure will be by mutual agreement. In order for this

to apply, the Committee will need to be satisﬁed that the Executive has demonstrated performance in line with expectations and where required they should

have contributed to an orderly succession. In the case of an Executive Director, they would then be treated as a ‘good leaver’ for the purposes of GSK’s

long-term incentive plans. If the termination date falls during the ﬁnancial year, they would be eligible for a pro-rated on-target bonus and if they are

employed on 31 December, the bonus payable would be based on actual results.

Loss of ofﬁce payment policy

Change

Future policy table continued

Remuneration policy report continued

146

GSK Annual Report 2019

The Committee does not anticipate the exercise of discretion

provided by the PSP and DABP plan rules in respect of

termination payments in a manner which would beneﬁt an

Executive Director. However, there may be unforeseen

circumstances where this is in the best interests of the company

and its shareholders. Where it is necessary to exercise

discretion, explanations will be provided.

Where an Executive Director leaves the company, the

Committee will carry out an assessment of the individual’s

performance and conduct over the time in role. If it is

determined that the individual’s performance or conduct was

contrary to the legitimate expectations of the company, the

Committee reserves the right to apply appropriate mechanisms

such as clawback or reduction or lapsing of outstanding

incentive awards (malus), to ensure that any termination

payments are in the best interests of the company and its

shareholders (see page 144).

When setting remuneration levels for the Executive Directors,

the Committee considers the prevailing market conditions,

the competitive environment (through comparison with the

remuneration of executives at companies of similar size,

complexity and international reach) and the positioning and

relativities of pay and employment conditions across the

broader GSK workforce.

In particular, the Committee considers the range of base

salary rises for the workforces of those parts of GSK where

the Executive Directors are employed. This is considered to

be the most relevant comparison as these populations reﬂect

most closely the economic environments encountered by the

individuals. The same principles apply to the Remuneration

policy for Executive Directors and other employees although

the remuneration offered to Executive Directors under this

policy has a stronger emphasis on performance-related pay

than that offered to other employees of the Group.

– Salary and beneﬁts (including pension) are tailored to the

local market.

– The annual bonus plan applies to the wider employee

population and is based on business performance.

– A combination of performance-related and restricted share

plans apply to the wider employee population.

– All-employee share plans are available to employees in the

UK, including the HM Revenue & Customs approved UK

Share Save and Share Reward Plans.

While employees are not formally consulted in respect of the

Remuneration policy, Urs Rohner, the Committee Chair, meets

with senior HR representatives from across the business to

review employee feedback. Dr Vivienne Cox, an Independent

Non-Executive Director, engages with employees on various

topics, including remuneration, in her role as Workforce

Engagement Director.

In the wider organisation, we have aligned our performance

and reward systems with our Innovation, Performance and Trust

priorities and our Values and Expectations. Our performance

system evaluates employees on both ‘what’ they need to do

and ‘how’ they do it. Also, for our most senior people we

disincentivise unethical working practices using a clawback

mechanism that allows us to recover performance-related pay.

Loss of ofﬁce payment policy continued

Differences between remuneration policy for Executive Directors

and other employees

Remuneration policy report continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

147

The charts opposite provide illustrations of the future total

remuneration for each of the Executive Directors in respect of

the remuneration opportunity granted to each of them in 2020

under the proposed new 2020 policy. A range of potential

outcomes is provided for each Executive Director and the

underlying assumptions are set out below.

All scenarios:

– 2020 base salary has been used.

– 2019 beneﬁts ﬁgures have been used, i.e. based on actual

amounts received in 2019, and for Hal Barron the 2019

pension ﬁgures.

– Pension for Emma Walmsley and Iain Mackay are based upon

their 2020 salaries.

– The amounts shown under value of PSP awards are based

upon the relevant multiples for 2020, including the proposed

uplift to Emma Walmsley (575% of salary). They do not

include amounts in respect of dividends reinvested and do

not factor in changes in share price over the vesting period

(except as described below).

Fixed:

– Excludes Pay for performance, i.e. no Annual bonus would be

paid and PSP awards would not vest.

Expected:

– Includes Fixed pay.

– For the Annual bonus, it is assumed that target performance

is achieved.

– For PSP awards, amounts reﬂect 50% vesting levels.

Maximum:

– It is assumed that the Annual bonus would be payable at the

maximum level and that the awards under the PSP would vest

in full.

Maximum with 50% share price increase:

– All elements are the same as Maximum but assuming a 50%

increase in share price.

Scenarios for future total remuneration

PSPAnnual bonusFixed pay

(1) Appointed with effect from 14 January 2019.

50% share price increase

Emma Walmsley (£000)

10,000

8,000

6,000

4,000

2,000

Expected Maximum

26%

15%

100%

Fixed

£1.63m

19%

63%

£6.28m

£10.93m

17%

£14.37m

12,000

14,000

11%

24%

55%

Maximum with

share price

increase

22%

48%

Iain Mackay

(1)

(£000)

10,000

8,000

6,000

4,000

2,000

Fixed Expected Maximum

£1.19m

100%

31% 18%

23%

46%

£3.80m

£6.41m

27%

54%

15%

£8.16m

21%

Maximum with

share price

increase

43%

Dr Hal Barron ($000)

20,000

16,000

12,000

8,000

4,000

Fixed Expected Maximum

100% 37% 23%

45%

22%

55%

$3.70m

18%

$16.21m

$9.95m

Maximum with

share price

increase

18%

17%

22%

$20.67m

43%

Remuneration policy report continued

148

GSK Annual Report 2019

Element Purpose and link to strategy Operation

Chairman’s fees To provide an inclusive ﬂat rate fee that is

competitive with those paid by other

companies of equivalent size and

complexity subject to the limits contained

in GSK’s Articles of Association.

There is no formal maximum. However, fees are reviewed annually and set by reference

to a review of the Chairman’s performance and independently sourced market data.

The Committee is responsible for evaluating and making recommendations to the Board

on the fees payable to the Chairman. The Chairman does not participate in discussions in

respect of his fees.

Fees are paid in cash. The Chairman is required to invest at least 25% of his total net

fees in shares or ADS of the company.

Basic fees As above There is no formal maximum. As with the Chairman, fees are reviewed annually and set by

reference to independently sourced data.

The Chairman and CEO are responsible for evaluating and making recommendations to

the Board on the fees payable to the company’s Non-Executive Directors.

Fees are paid in cash. Directors are required to invest at least 25% of their total net fees

in shares or ADS of the company. The shares or ADS are delivered or released following

retirement from the Board.

Supplemental

fees

To compensate Non-Executive Directors

(other than the Chairman) for taking on

additional Board responsibilities or

undertaking intercontinental travel.

Additional fees for the Senior Independent Director, Committee Chairs, Science and

Medical Experts, the Workforce Engagement Director role and intercontinental travel.

The company has the authority to pay an additional fee, up to the equivalent of the

Committee Chair supplement (£40,000 with effect from 1 January 2020) to a

Non-Executive Director, should the company require signiﬁcant additional time

commitment in exceptional or unforseen circumstances.

Beneﬁts To facilitate execution of responsibilities

and duties required by the role.

Travel and subsistence costs for Non-Executive Directors are incurred in the normal

course of business in relation to meetings on Board and Committee matters and other

GSK-hosted events. For overseas-based Non-Executive Directors, this includes travel to

meetings in the UK. In the event it is necessary for business purposes, whilst not normal

practice, Non-Executive Directors may be accompanied by their spouse or partner to

these meetings or events. The costs associated with the above are all met by the

company and, in some instances, they are deemed to be taxable and therefore treated

as beneﬁts for the Non-Executive Director.

Non-Executive Director remuneration policy 2020

Non-Executive Directors’ fees

Change

Remuneration policy report continued

Approach to recruitment remuneration

No change

The following policy and principles apply to the roles of

Chairman and Non-Executive Director.

Chairman

Fees will be set at a level that is competitive with those paid by

other companies of equivalent size and complexity. Fees will be

paid partly in shares.

Non-Executive Directors

Fee levels for new Non-Executive Directors will be set on the

same basis as for existing Non-Executive Directors of the

company. Subject to local laws and regulations, fees will be

paid partly in shares.

In the event of a Non-Executive Director with a different role and

responsibilities being appointed, fee levels will be benchmarked

and set by reference to comparable roles in companies of

equivalent size and complexity.

Loss of ofﬁce

No change

The Chairman and other Non-Executive Directors are not entitled to receive any payments in respect of fees for loss of ofﬁce when

they retire or step down from the Board.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

149

The Remuneration policy (Policy) is set out on pages 141 to 150

of the 2019 Annual Report and it is intended that the Policy for

GSK’s Executive and Non-Executive Directors will operate for a

period of three years from the date of approval at the company’s

Annual General Meeting on 6 May 2020.

The Committee wrote the Policy principally in relation to the

remuneration arrangements for the Executive Directors, whilst

taking into account the possible recruitment of a replacement

or an additional Executive Director during the operation of the

Policy. The Committee intends the Policy to operate for the

period set out above in its entirety. However, it may after due

consideration seek to change the Policy during this period,

but only if it believes it is appropriate to do so for the long-term

success of the company, after consultation with shareholders

and having sought shareholder approval at a general meeting.

The Committee reserves the right to make any remuneration

payments and/or payments for loss of ofﬁce (including

exercising any discretions available to it in connection with

such payments) notwithstanding that they are not in line with

the Policy where the terms of the payment were agreed:

(i) before the AGM on 7 May 2014 (the date the company’s

ﬁrst shareholder-approved Directors’ remuneration policy came

into effect);

(ii) before the Policy came into effect, provided that the terms

of the payment were consistent with the shareholder-approved

Remuneration policy in force at the time they were agreed; or

(iii) at a time when the relevant individual was not a Director of

the company and, in the opinion of the Committee, the payment

was not in consideration for the individual becoming a Director

of the company. For these purposes ‘payments’ includes the

Committee satisfying awards of variable remuneration and, in

relation to an award over shares or ADS, the terms of the

payment are ‘agreed’ at the time the award is granted.

Performance Share Plan and Deferred Annual Bonus Plan

awards are subject to the terms of the relevant plan rules under

which the award has been granted. The Committee may adjust

or amend awards only in accordance with the provisions of the

plan rules. This includes making adjustments to reﬂect one-off

corporate events, such as a change in the company’s capital

structure.

The Committee may also make minor amendments to the Policy

(for regulatory, exchange control, tax or administrative purposes

or to take account of a change in legislation) without obtaining

shareholder approval for such amendments.

Statement of consideration of shareholder views

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 and

governance matters.

Operation and scope of Remuneration policy

Remuneration policy report continued

150

GSK Annual Report 2019

Remuneration policy report continued

The Annual report on remuneration has been prepared in

accordance with the Companies Act 2006 and The Large and

Medium-sized Companies and Groups (Accounts and Reports)

(Amendment) Regulations 2013 (the Regulations). In

accordance with the Regulations, the following parts of the

Annual report on remuneration are subject to audit: total

remuneration ﬁgures for Executive Directors including further

details for each element of remuneration (salary, beneﬁts,

pension, annual bonus and long-term incentive awards);

Non-Executive Directors’ fees and emoluments received in the

year; Directors’ interests in shares, including interests in GSK

share plans; payments to past Directors; payments for loss

of ofﬁce; and share ownership requirements and holdings,

for which the opinion thereon is expressed on page 162. The

remaining sections of the Annual report on remuneration are

not subject to audit nor are the pages referred to from within

the audited sections.

The Annual report on remuneration has been approved

by the Board of Directors and signed on its behalf by:

Urs Rohner

Remuneration Committee Chairman

3 March 2020

Basis of preparation

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

151

Financial

statements

In this section

Directors’ statement of responsibilities 152

Independent Auditor’s report 154

Financial statements 166

Notes to the ﬁnancial statements 170

Financial statements of GlaxoSmithKline plc

prepared under UK GAAP 252

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

151

152

GSK Annual Report 2019

The Directors are responsible for preparing the Annual Report,

the Remuneration report and the Group and parent company

ﬁnancial statements in accordance with applicable law and

regulations.

UK company law requires the Directors to prepare ﬁnancial

statements for each ﬁnancial year. 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). The Directors have elected to prepare the parent

company ﬁnancial statements in accordance with United

Kingdom Accounting Standards and applicable law (United

Kingdom Generally Accepted Accounting Practice). Under

company law the Directors must not approve the ﬁnancial

statements unless they are satisﬁed that they give a true and

fair view of the state of affairs of the Group and its proﬁt or

loss for that period.

In preparing the 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;

– state with regard to the parent company ﬁnancial statements

that applicable UK Accounting Standards have been

followed, subject to any material departures disclosed and

explained in the parent company ﬁnancial statements; and

– prepare the ﬁnancial statements on a going concern basis

unless it is inappropriate to presume that the Group and the

parent company will continue in business.

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 31

December 2019, comprising principal statements and

supporting notes, are set out in the ‘Financial statements’

on pages 166 to 251 of this report. The parent company

ﬁnancial statements for the year ended 31 December 2019,

comprising the balance sheet and the statement of changes in

equity for the year ended 31 December 2019 and supporting

notes, are set out on pages 252 to 256.

The responsibilities of the auditor in relation to the ﬁnancial

statements are set out in the Independent Auditor’s report on

pages 154 to 165.

The ﬁnancial statements for the year ended 31 December 2019

are included in the Annual Report, which is published in printed

form and made available on our website. The Directors are

responsible for the maintenance and integrity of the Annual

Report on our 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 2019 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 the IASB, give a true and fair view of the assets,

liabilities, ﬁnancial position and proﬁt of the Group; and

– the Strategic report and risk sections of the Annual Report,

which represent the management report, include a fair review

of the development and performance of the business and the

position of the company and the Group taken as a whole,

together with a description of the principal risks and

uncertainties that it faces.

Directors’ statement of responsibilities

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

153

Disclosure of information to auditor

The Directors in ofﬁce at the date of this Annual Report have

each conﬁrmed that:

– so far as he or she is aware, there is no relevant audit

information of which the company’s auditor is 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

auditor is 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

Pages 50 to 74 contain 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 43 to the ﬁnancial

statements, ‘Financial instruments and related disclosures’.

Having assessed the principal risks and other matters

considered in connection with the viability statement, the

Directors considered it appropriate to adopt the going concern

basis of accounting 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 Annual Report and up to the date of its approval

by the Board of Directors.

The 2018 UK Corporate Governance Code

The Board considers that GlaxoSmithKline plc applies the

principles and complies with the provisions of the UK Corporate

Governance Code maintained by the Financial Reporting

Council, as described in the Corporate Governance section

on pages 75 to 114. The Board further considers that the

Annual Report, taken as a whole, is fair, balanced and

understandable, and provides the information necessary for

shareholders to assess the Group’s position and performance,

business model and strategy.

As required by the Financial Conduct Authority’s Listing Rules,

the auditor has considered the Directors’ statement of

compliance in relation to those points of the UK Corporate

Governance Code which are speciﬁed for their review.

Annual Report

The Annual Report for the year ended 31 December 2019,

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 Jonathan Symonds

Chairman

3 March 2020

Directors’ statement of responsibilities continued

154

GSK Annual Report 2019

Independent Auditor’s report to the members

of GlaxoSmithKline plc

Report on the audit of the ﬁnancial statements

1. Opinion

In our opinion:

– The ﬁnancial statements of GlaxoSmithKline plc (the ‘Parent

company’) and its subsidiaries (the ‘Group’) give a true and

fair view of the state of the Group’s and of the Parent

company’s affairs as at 31 December 2019 and of the

Group’s proﬁt for the year then ended;

– The Group ﬁnancial statements have been properly prepared

in accordance with International Financial Reporting

Standards (IFRSs) as adopted by the European Union and

IFRSs as issued by the International Accounting Standards

Board (IASB);

– The Parent company ﬁnancial statements have been properly

prepared in accordance with United Kingdom Generally

Accepted Accounting Practice including FRS 101 ‘Reduced

Disclosure Framework’; and

– The ﬁnancial statements have been prepared in accordance

with the requirements of the Companies Act 2006 and, as

regards the Group ﬁnancial statements, Article 4 of the IAS

Regulation.

We have audited the ﬁnancial statements which comprise the:

Group

– Consolidated balance sheet as at 31 December 2019;

– Consolidated income statement for the year then ended;

– Consolidated statement of comprehensive income for the

year then ended;

– Consolidated statement of changes in equity for the year

then ended;

– Consolidated cash ﬂow statement for the year then ended;

and

– Notes 1 to 46 to the ﬁnancial statements, which includes the

accounting principles and policies.

Parent company

– Balance sheet as at 31 December 2019;

– Statement of changes in equity for the year then ended; and

– Notes A to M to the ﬁnancial statements, which includes the

accounting principles and policies.

The ﬁnancial reporting framework that has been applied in the

preparation of the Group ﬁnancial statements is applicable law

and IFRSs as adopted by the European Union. The ﬁnancial

reporting framework that has been applied in the preparation of

the Parent company ﬁnancial statements is applicable law and

United Kingdom Accounting Standards, including FRS 101

‘Reduced Disclosure Framework’ (United Kingdom Generally

Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (ISAs (UK)) and applicable law.

Our responsibilities under those standards are further

described in the auditor’s responsibilities for the audit of

the ﬁnancial statements section of our report.

We are independent of the Group and the Parent company in

accordance with the ethical requirements that are relevant to our

audit of the ﬁnancial statements in the UK, including the Financial

Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to

listed public interest entities, and we have fulﬁlled our other

ethical responsibilities in accordance with these requirements.

We conﬁrm that the non-audit services prohibited by the FRC’s

Ethical Standard were not provided to the Group or the Parent

company, as noted in the Audit & Risk Committee report within

the Corporate Governance section of the Annual Report on

page 104. We believe that the audit evidence we have obtained

is sufﬁcient and appropriate to provide a basis for our opinion.

3. Audit scope and execution

We structured our approach to the audit to reﬂect how the

Group is organised as well as ensuring our audit was both

effective and risk focused. Our audit approach can be

summarised into the following areas that enabled us to obtain

the evidence required to form an opinion on the Group and

Parent company ﬁnancial statements:

– Risk assessment and audit planning at a Group level.

The central control and common systems throughout most

of the Group enabled us to structure our audit centrally.

In addition to appointing partners for each of the three

businesses, we also had partners coordinate the component

and legal entity audits in each country. These global business

partners met regularly with the relevant management to

understand strategy and matters which arose throughout

the year that could have impacted on the ﬁnancial reporting.

The regular meetings we had with members of the Internal

Audit, the internal Legal Counsel and the Global Ethics &

Compliance teams allowed us to understand their work, to

review their reports and to enhance our risk assessment:

– Signiﬁcant changes in audit scope. The Group completed

two major transactions during the year:

– The acquisition of 100% shares of Tesaro Inc. (Tesaro),

a commercial-stage oncology business; and

– The acquisition of the Pﬁzer Consumer Healthcare

business to form a new consumer healthcare joint venture

with Pﬁzer Inc.

As a result of the Pﬁzer transaction, some of the Pﬁzer

Consumer Healthcare operations in the United States (US)

and China have been brought into audit scope. Both

transactions required an increased extent of audit effort

in all areas, including the need to perform additional opening

balance sheet testing and consolidation work;

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

155

– Audit work performed at global shared service centres.

A signiﬁcant amount of the Group’s operational processes

that cover ﬁnancial reporting are undertaken in shared service

centres. Our central team, which included senior individuals

responsible for each of the global processes, coordinated

our audit work at the shared service centres in scope for the

Group audit, to ensure we developed a good understanding

of the end-to-end view of the key processes that supported

material account balances, classes of transactions and

disclosures within the Group ﬁnancial statements. We then

evaluated the effectiveness of internal controls over ﬁnancial

reporting for these processes and considered the implications

for the remainder of our audit work;

– Audit work executed at component level and individual

legal entities. The following components were subject to

market-speciﬁc audit procedures as well as the assessment

of the internal controls over ﬁnancial reporting: Belgium;

Canada; China; France; Germany; Italy; Japan; Spain;

Switzerland; United Kingdom and United States. The Group

audit team was in active dialogue throughout the audit with

the component audit teams responsible for the audit work

under the direction and supervision of the Group audit team.

This included determining whether the work was planned

and performed in accordance with the overall Group audit

strategy and the requirements of our Group audit instructions

to the components. As part of supervising the work of the

components, senior Group audit team members visited all

the component countries, as well as locations of all shared

service centre audits;

– Audit procedures undertaken at a Group level and on the

Parent company. In addition to the above, we also performed

audit work on the Group and Parent company ﬁnancial

statements, including but not limited to the consolidation

of the Group’s results, the preparation of the ﬁnancial

statements, certain disclosures within the directors’

remuneration report, litigation provisions and exposures in

addition to management’s entity level and oversight controls

relevant to ﬁnancial reporting. We also carried out analytical

procedures to conﬁrm our conclusion that there were no

signiﬁcant risks of material misstatement of the aggregated

ﬁnancial information of the remaining components not

subject to the market-speciﬁc audit procedures; and

– Internal controls testing approach. We tested internal

controls over ﬁnancial reporting across all in-scope entities

and entity level controls at the Group level. We were able

to place reliance on controls where planned and it was

more efﬁcient. Notwithstanding the IT controls deﬁciencies

disclosed in the key audit matters section of this report,

mitigating controls existed which allowed us to continue

to take reliance on controls where planned.

The coverage obtained for our Group scoping strategy is

summarised as follows:

Benchmark Revenue

Proﬁt

before tax

Total

assets

Covered by market-speciﬁc procedures 69% 70% 86%

Covered by review at Group level 31% 30% 14%

The residual consists of components or legal entities each with

annual revenue (turnover) less than 1.8% of the total Group

revenue. These entities and components are non-signiﬁcant

components that individually and in aggregate do not present

a reasonable possibility of risk of material misstatement.

4. Our application of materiality

We deﬁne materiality as the magnitude of misstatement in the

ﬁnancial statements that makes it probable that the economic

decisions of a reasonably knowledgeable person would be

changed or inﬂuenced. We use materiality both in planning

the scope of our audit work and in evaluating the results of

our work.

Based on our professional judgement, we determined

materiality for the ﬁnancial statements as a whole as follows:

Group ﬁnancial statements

Parent company

ﬁnancial statements

Materiality £275 million

(2018 – £270 million)

£68 million

(2018 – £67 million)

Basis for

determining

materiality

In determining our benchmark

for materiality we considered

the metrics used by investors

and other readers of the ﬁnancial

statements. In particular, we

considered: Statutory proﬁt

before tax, Adjusted proﬁt before

tax, Revenue and Net cash ﬂows

from operations.

Using professional judgement we

have determined preliminary

materiality to be £275 million.

Metric %

Statutory proﬁt before tax 4.4%

Adjusted proﬁt before tax* 3.3%

Revenue 0.8%

Net cash inﬂow from

operating activities

3.5%

* A reconciliation between the Statutory

proﬁt before tax and Adjusted proﬁt

before tax is detailed in the Adjusting

Items section of the strategic report.

Materiality was

determined using the

total assets benchmark.

Rationale

for the

benchmark

applied

Given the importance of the above

metrics used by investors and other

readers of the ﬁnancial statements,

we concluded statutory proﬁt

before tax to be the primary

benchmark with adjusted proﬁt

before tax, revenue and net cash

inﬂow from operating activities

the supporting benchmarks.

The component materiality

allocated to the in-scope

components ranged between

£82.5 million and £192.5 million.

The range of materiality allocated

across components in the audit

of the prior year’s Group ﬁnancial

statements was between

£81 million and £189 million.

The Parent company

holds the Group’s

investments and is not

in itself proﬁt-oriented.

The strength of the

balance sheet is the key

measure of ﬁnancial

health that is important

to shareholders since

the primary concern

for the Parent company

is the payment of

dividends. Using a

benchmark of total

assets is therefore

the appropriate metric.

Report on the audit of the ﬁnancial statements continued

Independent Auditor’s report continued

156

GSK Annual Report 2019

We set performance materiality at a level lower than materiality

to reduce the probability that, in aggregate, uncorrected and

undetected misstatements exceed the materiality for the

ﬁnancial statements as a whole. Group performance

materiality was set at 70% of Group materiality for the 2019

audit (2018 – 70%). In determining performance materiality,

we considered factors including:

– Our risk assessment, including our assessment of the

Group’s overall control environment and that we consider

it appropriate to rely on controls over a number of business

processes; and

– Our past experience of the audit, which has indicated a low

number of corrected and uncorrected misstatements

identiﬁed in prior periods.

We agreed with the Audit & Risk Committee that we would

report to the Committee all audit differences in excess of

£10 million (2018 – £10 million) as well as any differences

below this threshold, which in our view, warranted reporting

on qualitative grounds. We also report to the Audit & Risk

Committee on disclosure matters that we identiﬁed when

assessing the overall presentation of the ﬁnancial statements.

5. Conclusions relating to going concern,

principal risks and viability statement

Going concern

We have reviewed the directors’ statement in notes 1 and A

to the ﬁnancial statements about whether they considered it

appropriate to adopt the going concern basis of accounting

in preparing them and their identiﬁcation of any material

uncertainties to the Group’s and Parent company’s ability to

continue to do so over a period of at least twelve months from

the date of approval of the ﬁnancial statements.

We considered as part of our risk assessment the nature of the

Group, its business model and related risks including where

relevant the impact of Brexit, the requirements of the applicable

ﬁnancial reporting framework and the system of internal control.

We evaluated the directors’ assessment of the Group’s ability

to continue as a going concern, including challenging the

underlying data and key assumptions used to make the

assessment, and evaluated the directors’ plans for future

actions in relation to their going concern assessment.

We are required to state whether we have anything material to

add or draw attention to in relation to that statement required by

Listing Rule 9.8.6R(3) and report if the statement is materially

inconsistent with our knowledge obtained in the audit.

We conﬁrm that we have nothing material to report, add

or draw attention to in respect of these matters.

Principal risks and viability statement

Based solely on reading the directors’ statements and

considering whether they were consistent with the knowledge

we obtained in the course of the audit, including the knowledge

obtained in the evaluation of the directors’ assessment of the

Group’s and the Parent company’s ability to continue as a going

concern, we are required to state whether we have anything

material to add or draw attention to in relation to the:

– Disclosures on pages 43 to 45 that describe the principal

risks, procedures to identify emerging risks and an

explanation of how these are being managed or mitigated;

– Directors’ conﬁrmation on page 105 that they have carried

out a robust assessment of the principal and emerging risks

facing the Group, including those that would threaten its

business model, future performance, solvency or liquidity; or

– Directors’ explanation on page 47 as to how they have

assessed the prospects of the Group, over what period

they have done so and why they consider that period to be

appropriate, and their statement as to whether they have a

reasonable expectation that the Group will be able to

continue in operation and meet its liabilities as they fall due

over the period of their assessment, including any related

disclosures drawing attention to any necessary qualiﬁcations

or assumptions.

We are also required to report whether the directors’ statement

relating to the prospects of the Group required by Listing Rule

9.8.6R(3) is materially inconsistent with our knowledge obtained

in the audit.

We conﬁrm that we have nothing material to report, add or

draw attention to in respect of these matters.

Report on the audit of the ﬁnancial statements continued

Independent Auditor’s report continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

157

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of the ViiV Healthcare Shionogi contingent

consideration liability

In recent years the Group has completed a number of signiﬁcant

transactions which resulted in the recognition of material

contingent consideration liabilities, which are a key source of

estimation uncertainty. The most signiﬁcant of these liabilities

was the ViiV Healthcare Shionogi Contingent Consideration

Liability (ViiV CCL).

The Group completed the acquisition of the remaining 50%

interest in the Shionogi-ViiV Healthcare joint venture in 2012.

Upon completion, the Group recognised a contingent

consideration liability for the fair value of the expected future

payments to be made to Shionogi. As at 31 December 2019,

the liability was valued at £5,103 million.

We identiﬁed the ViiV CCL as a key audit matter because of

the signiﬁcant estimates and assumptions management makes

related to the sales forecasts of dolutegravir-based regimens

used to value the ViiV CCL. Such forecasts are based on

management’s assessment of the expected launch dates, the

ability to shift market practice and prescriber behaviour towards

2-drug regimens, and subsequent sales volumes and pricing.

The forecasts also required signiﬁcant audit effort to perform

appropriate audit procedures to challenge and evaluate the

reasonableness of those forecasts.

The contingent consideration liabilities, including the ViiV CCL,

are disclosed as a key source of estimation uncertainty in note 3

of the Group ﬁnancial statements with further disclosures

provided in notes 28, 32, and 43. The matter is also discussed

in the Audit & Risk Committee report within the Corporate

Governance section of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to the sales forecasts:

– Challenged management’s evidence through enquiries of key

individuals from the senior leadership team, commercial strategy

team and key personnel involved in the budgeting and

forecasting process, and the obtaining of objective evidence

with respect to key inputs and assumptions;

– Challenged the US volume assumptions made by management

to estimate sales forecasts. This involves benchmarking market

share data against external data, such as total prescription

volumes and new patient prescription volumes, in order to assess

for any sources of contradictory evidence;

– Challenged the reasonableness of US pricing assumptions

made by management, by comparing the forecasted Returns

and Rebates accruals rate by product against the current rate,

and assessing the forecasted Returns and Rebates against

comparable products and expected changes in payer policy;

– Reviewed the results of clinical studies undertaken in the year by

management and key competitors in order to assess whether

these are corroborative or contradictory to management’s

assumptions on dolutegravir sales forecasts in the US;

– Benchmarked management’s forecasts against analysts reports

and developed a range of possible outcomes using analyst

forecast growth for ViiV Healthcare with a consensus of 15

analysts, including Bank of America Merrill Lynch, Morgan

Stanley, Barclays, Credit Suisse, Jefferies and Redburn; and

– Tested the controls over the key inputs and assumptions used in

the valuation of the contingent consideration liability, including

management review controls over the sales forecasts of

dolutegravir-based regimens.

Key observations communicated to the Audit & Risk Committee

Underlying sales forecasts for dolutegravir-based regimens used

in the valuation of the ViiV CCL have been updated to reﬂect

changes in the HIV market and ViiV’s products in that market.

The approach to valuing the ViiV CCL was consistent with prior

periods and management’s forecasts are within our benchmarked

observable range. We are satisﬁed that the valuation of the ViiV

CCL is reasonable and consistent with IFRS.

6. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial

statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to

fraud) that we identiﬁed. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of

resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters.

Independent Auditor’s report continued

158

GSK Annual Report 2019

Report on the audit of the ﬁnancial statements continued

Independent Auditor’s report continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of US Returns and Rebates (RAR) accruals

In the US the Group sells to customers under various commercial

and government mandated contracts and reimbursement

arrangements that include rebates, chargebacks and a right of

return for certain pharmaceutical products. As such, revenue

recognition reﬂects gross-to-net sales adjustments. These

adjustments are known as the Returns and Rebates (RAR)

accruals and are a source of signiﬁcant estimation uncertainty

which could have a material impact on reported revenue. The

three most signiﬁcant payer channels (also referred to as buying

groups) within the RAR accrual are managed healthcare

organisations, Medicaid and Medicare Part D.

The two main causes of signiﬁcant estimation uncertainty are:

– The utilisation rate, which is the portion of total sales that will

be made into each payer channel, estimated by management in

recording the accruals. The utilisation assumption is the most

challenging of the key assumptions used to derive the accrual

given that it is inﬂuenced by market demand and other factors

outside the control of the Group; and

– The time lag between the point of sale and the point at which

exact rebate amounts are known to the Group upon receipt of

a claim. Those payer channels with the longest time lag result

in a greater accrued period, and therefore, a greater level of

estimation uncertainty in estimating the period end accrual.

The level of estimation uncertainty is also impacted by signiﬁcant

shifts in channel mix often driven by changes in the competitive

landscape, including competitor and generic product launches.

In the US Pharmaceuticals business in 2019 £11,069 million

of RAR deductions were made to gross revenue of £18,471

million resulting in net revenue of £7,402 million. The balance

sheet accrual at 31 December 2019 for the combined US

Pharmaceuticals and Vaccines businesses amounted to

£4,200 million.

US Pharmaceuticals returns and rebates are disclosed as a key

accounting estimate in note 3 of the Group ﬁnancial statements

with further disclosures provided in note 28. The matter is also

discussed in the Audit & Risk Committee report within the

Corporate Governance section of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to management estimates in the RAR accruals:

– Assessed the historical accuracy of management’s estimates

against actual outcomes to inform our assessment of the current

year accrual;

– Performed substantive analytical procedures by developing an

independent expectation of the accrual balance for each of the

key segments, based on historical claims received adjusted to

reﬂect market changes in the period including an assessment of

the time lag between the initial point of sale and the claim receipt.

We then compared this independent expectation to those of

management to evaluate the appropriateness of management’s

ending accrual position;

– Recalculated the accrual recognised to determine that it is

consistent with the assumptions determined through

management’s process;

– Selected a sample of individual utilisation rates giving particular

focus to products which have experienced increased generic

competition in the current year. We challenged and obtained

support for the utilisation rates selected, which included

comparison to historical utilisation rates;

– Challenged the appropriateness of period-end adjustments to

the liability made as part of the ongoing review of the estimated

accrual. The impact of these market events on the year end

accrual was considered and reﬂected as part of our overall audit

approach; and

– Tested the key controls over the estimation of RAR accruals

including the controls associated with the bi-annual forecasting

of utilisation rates process and the month-end accrual review

controls.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that management’s estimated liability of the RAR

accruals at the year end is appropriate and reasonable when

assessed against our own independent expectations and our

assessment of the accuracy of historical estimates against actual

rebates.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

159

Report on the audit of the ﬁnancial statements continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of intangible assets recognised on Tesaro and

Pﬁzer transactions

During the year, the Group recognised £15,449 million of other

intangible assets (including licences, patents, trademarks and

brand names, but excluding goodwill) on the acquisitions of

Tesaro Inc. and the Pﬁzer Consumer Healthcare business.

The determination of the fair value of the acquired intangible

assets relies on certain management assumptions and

estimates of future trading performance, including the probability

of success of pipeline products and product innovations,

likelihood of regulatory approval, future sales growth rates and

proﬁt margin levels, and discount rates.

We identiﬁed the valuation of other intangible assets recognised

on these acquisitions as a key audit matter because of the

inherent judgements involved in estimating future cash ﬂows

and auditing such estimates required extensive audit effort to

challenge and evaluate the reasonableness of those forecasts.

We also engaged our fair value specialists to assess the

discount rates and valuation methodologies applied.

The disclosures relating to other intangible assets are included

in note 20 and 40 of the Group ﬁnancial statements. The matter

is also discussed in the Audit & Risk Committee report within

the Corporate Governance section of the Annual Report.

Audit procedures performed

We performed the following audit procedures, amongst others,

related to the probability of success of pipeline products and

product innovations, likelihood of regulatory approval, future sales

growth rates and proﬁt margin levels, and discount rates used in

the valuation of the acquired intangible assets:

– Met with the key individuals from the senior leadership team,

product category leads and key personnel involved in the

forecasting process to discuss and evaluate management’s

evidence to support future sales growth rates and proﬁtability

assumptions;

– Challenged the business assumptions applied by management

in estimating sales forecasts, including benchmarking of sales

forecasts and product compound annual growth rates to external

data for the speciﬁc market segment. This included independent

market research of expected category growth and assessment of

any sources of contradictory evidence;

– Evaluated the probability of success factors related to regulatory

approval applied to pipeline products to calculate forecast sales

to be derived from future commercialised assets;

– Assessed the historical accuracy of management’s forecasts

including consumption data and estimates of new sales from

innovation;

– Compared the forecast sales to the Plan data (asset by asset

internal forecasts) approved by senior management and the

Board of directors;

– With the assistance of our fair value specialists, assessed the

reasonableness of valuation-speciﬁc assumptions used by

management, including discount rate and terminal growth rate,

and whether these assumptions were consistent with how a

well-informed independent third party would value these assets;

and

– Tested management review controls over the key inputs and

assumptions used in valuation of intangible assets. The controls

encompass review of the valuation models, which contain a

number of assumptions such as the revenue growth rates,

probability of success of pipeline products, proﬁt margins and

discount rates.

Key observations communicated to the Audit & Risk Committee

Whilst noting that there are potential risks to forecasts from

uncertainties such as regulatory approval of pipeline products and

sales growth from product innovations, we concluded that the

judgements made by management were reasonable and in

accordance with IFRS.

Independent Auditor’s report continued

160

GSK Annual Report 2019

Report on the audit of the ﬁnancial statements continued

Independent Auditor’s report continued

Key audit matter description How the scope of our audit responded to the key audit matter

Valuation of uncertain tax positions, including transfer

pricing

The Group operates in numerous jurisdictions and there are

open tax and transfer pricing matters and exposures with UK,

US and overseas tax authorities that give rise to uncertain tax

positions. There is a range of possible outcomes for provisions

and contingencies can be wide and management are required

to make certain judgements in respect of estimates of tax

exposures and contingencies in order to assess the adequacy

of tax provisions, which are sometimes complex as a result

of the considerations required over multiple tax laws and

regulations.

At 31 December 2019, the Group has recorded provisions

of £933 million in respect of uncertain tax positions.

Valuation of uncertain tax positions is disclosed as a key source

of estimation uncertainty in note 3 of the Group ﬁnancial

statements with further disclosures included in note 14. The

matter is also discussed in the Audit & Risk Committee report

within the Corporate Governance section of the Annual Report.

Audit procedures performed

With the support of tax specialists, we assessed the

appropriateness of the uncertain tax provisions by performing the

following audit procedures amongst others:

– Assessed and challenged provisions for uncertain tax positions,

and focused our work on those jurisdictions where the Group

has the greatest potential exposure and where the highest level

of judgement is required;

– Assessed management’s policies for recognition and

measurement of uncertain tax positions for compliance with the

guidance per IFRIC 23;

– Involved our transfer pricing specialists to review the transfer

pricing methodology of the Group and associated approach to

provisioning;

– Involved our UK, US and international tax and transfer pricing

specialists to challenge the conclusions reached by

management, both in relation to the expected outcome and the

ﬁnancial impact;

– Considered evidence such as the actual results from the recent

tax authority audits and enquiries, third-party tax advice where

obtained and our tax specialists’ own knowledge of market

practice in relevant jurisdictions; and

– Tested key controls over preparation, review and reporting of

judgmental tax balances and transactions, which include

provisions for uncertain tax provisions.

Key observations communicated to the Audit & Risk Committee

We are satisﬁed that management’s judgements in relation to

uncertain tax positions and the related disclosures are in

accordance with IFRS. From our work we concluded that

management have applied a consistent approach to estimating

uncertain tax provisions, the judgements continue to be prudent

and are appropriately recorded.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

161

Report on the audit of the ﬁnancial statements continued

Key audit matter description How the scope of our audit responded to the key audit matter

IT systems which impact ﬁnancial reporting

The IT systems within the Group form a critical component of

the Group’s ﬁnancial reporting activities and impact all account

balances. IT controls, in the context of our scope for the

ﬁnancial audit, primarily relate to user access security and

change control.

During the year, the Group continued to implement the

remediation plan to address the user access and change

control IT deﬁciencies identiﬁed in the prior year. This primarily

involved the removal of inappropriate access together with the

implementation of appropriate privileged access management

processes and controls which are planned to be fully complete

in 2020.

We have identiﬁed the IT systems, which impact ﬁnancial

reporting as a key audit matter because of the:

– Reliance on these systems within the Group;

– Importance of the IT controls over the systems to maintaining

an effective control environment. A key interdependency

exists between the ability to rely on IT controls and the ability

to rely on system conﬁgured automated controls and system

reports;

– Pervasive nature of these systems;

– Fact that some remediation activities are not yet complete

and will continue into 2020;

– Considerable involvement of IT specialists; and

– Additional effort needed from the audit team to test

compensating controls to mitigate the unaddressed IT risks.

IT systems which impact ﬁnancial reporting are discussed in

the Audit & Risk Committee report within the Corporate

Governance section of the Annual Report. The key IT systems

impact a range of business processes, including General

Ledger, Procurement, Sales and Financial Consolidation.

Audit procedures performed over IT systems

As a result of the IT control deﬁciencies identiﬁed, we incorporated

additional considerations in performing our risk assessment and

audit procedures as follows:

– Considered the impact on our risk assessment through

evaluating our audit risks in the context of the IT deﬁciencies

with assistance of our IT specialist team; and

– Tested additional manual business process controls, which

addressed the related IT risks.

Key observations communicated to the Audit & Risk Committee

Management’s actions have made signiﬁcant progress in reducing

the number of deﬁciencies in the year relating to user access and

change management. The Group has many layers of business

process controls to mitigate the risk associated with the IT control

deﬁciencies.

We are satisﬁed that mitigating business process controls address

the risk of material misstatement impacting ﬁnancial reporting

caused by IT control deﬁciencies.

Independent Auditor’s report continued

162

GSK Annual Report 2019

Report on the audit of the ﬁnancial statements continued

7. Other information

The directors are responsible for the other information. The other information comprises the information included in the Annual

Report, other than the ﬁnancial statements and our auditor’s report thereon.

Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in

our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider

whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit or

otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a

material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have

performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in respect of these matters.

We summarise below our work in relation to areas of the other information including those areas upon which we are speciﬁcally

required to report:

Matters we are speciﬁcally required to report

Our responsibility Our reporting

Fair, balanced and understandable

Consider whether the statement given by the directors that they consider the

Annual Report and ﬁnancial statements taken as a whole is fair, balanced and

understandable and provides the information necessary for shareholders to

assess the Group’s position and performance, business model and strategy

is materially inconsistent with our knowledge obtained from the audit.

We consider that the directors’ statement is consistent

with our knowledge obtained from the audit.

Audit & Risk Committee report

Consider whether it deals appropriately with those matters that we reported

to the Audit & Risk Committee.

All matters we reported have been appropriately covered

in the Audit & Risk Committee report.

Directors’ statement of compliance with the UK Corporate

Governance Code (‘the Code’)

Consider whether the parts of the directors’ statement required under the

Listing Rules relating to the Parent company’s compliance with the Code

containing provisions speciﬁed for review by the auditor in accordance with

Listing Rule 9.8.10R(2) properly discloses any departure from a relevant

provision of the Code.

We did not identify any such matters.

Principal risks and viability statement

Review the conﬁrmation and description in the light of the knowledge

gathered during the audit, such as through considering the directors’

processes to support the statements made, challenging management’s key

judgements and estimates, consideration of historical forecasting accuracy

and evaluating macro-economic assumptions.

Consider if the statements are aligned with the relevant provisions of the Code.

As set out in the section ‘Conclusions relating to going

concern, principal risks and viability statement’, we have

nothing material to report, add or draw attention to in

respect of these matters.

Directors’ Remuneration report

Report whether the part of the directors’ remuneration report to be audited is

properly prepared and the disclosures speciﬁed by the Companies Act have

been made.

As set out in the section ‘Opinions on other matters

prescribed by the Companies Act 2006’, in our opinion,

the part of the directors’ remuneration report to be

audited has been prepared in accordance with the

Companies Act 2006.

Strategic report and directors’ report

Report whether they are consistent with the audited ﬁnancial statements

and are prepared in accordance with applicable legal requirements.

Report if we have identiﬁed any material misstatements in either report in the

light of the knowledge and understanding of the Group and of the Parent

company and their environment obtained in the course of the audit.

As set out in the section ‘Opinions on other matters

prescribed by the Companies Act 2006’, in our opinion,

based on the work undertaken in the course of the audit,

the information in these reports is consistent with the

audited ﬁnancial statements and has been prepared in

accordance with applicable legal requirements.

Independent Auditor’s report continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

163

Other reporting on other information

Our responsibility Our reporting

Alternative performance measures (APMs)

APMs are measures that are not deﬁned by generally accepted accounting

practice (GAAP) and therefore are not typically included in the ﬁnancial

statement part of the Annual Report. The Group use APMs, such as adjusted

proﬁt, free cash ﬂow and constant currency growth rates in some of its quarterly

and annual reporting of ﬁnancial performance.

We have reviewed and assessed management’s calculation and reporting

of these metrics to assess consistency with the Group’s published deﬁnitions

and policies for these items.

We have also considered and assessed whether the use of APMs in the

Group’s reporting results is consistent with the guidelines produced by

regulators such as the European Securities and Markets Authority (ESMA)

guidelines on the use of APMs and the FRC Alternative Performance Measures

Thematic Review published in November 2017.

We also considered whether there was an appropriate balance between the

use of statutory metrics and APMs, in addition to whether clear deﬁnitions

and reconciliation for APMs used in ﬁnancial reporting have been provided.

In our opinion:

– the use, calculation and disclosure of APMs is

consistent with the Group’s published deﬁnitions and

policies;

– the use of APMs in the Group’s reporting results is

consistent with the guidelines produced by ESMA and

FRC; and

– there is an appropriate balance between the use of

statutory metrics and APMs, together with clear

deﬁnitions and reconciliation for APMs used in ﬁnancial

reporting.

Dividends and distribution policy

Consider whether the dividends policy is transparent and the dividends

paid are consistent with the policy as outlined in the strategic report on

page 61.

In our opinion, the dividends policy is appropriately

disclosed and dividends paid are consistent with the

policy.

Report on the audit of the ﬁnancial statements continued

Independent Auditor’s report continued

164

GSK Annual Report 2019

8. Responsibilities of directors

As explained more fully in the directors’ responsibilities

statement, the directors are responsible for the preparation of

the ﬁnancial statements and for being satisﬁed that they give a

true and fair view, and for such internal control as the directors

determine is necessary to enable the preparation of ﬁnancial

statements that are free from material misstatement, whether

due to fraud or error.

In preparing the ﬁnancial statements, the directors are

responsible for assessing the Group’s and the Parent

company’s ability to continue as a going concern, disclosing

as applicable, matters related to going concern and using the

going concern basis of accounting unless the directors either

intend to liquidate the Group or the Parent company or to cease

operations, or have no realistic alternative but to do so.

9. Auditor’s responsibilities for the audit of the

ﬁnancial statements

Our objectives are to obtain reasonable assurance about

whether the ﬁnancial statements as a whole are free from

material misstatement, whether due to fraud or error, and to

issue an auditor’s report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered

material if, individually or in the aggregate, they could reasonably

be expected to inﬂuence the economic decisions of users taken

on the basis of these ﬁnancial statements.

Details of the extent to which the audit was considered capable

of detecting irregularities, including fraud are set out below.

A further description of our responsibilities for the audit of

the ﬁnancial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms

part of our auditor’s report.

10. Extent to which the audit was considered

capable of detecting irregularities, including fraud

We identify and assess the risks of material misstatement of the

ﬁnancial statements, whether due to fraud or error, and then

design and perform audit procedures responsive to those risks,

including obtaining audit evidence that is sufﬁcient and

appropriate to provide a basis for our opinion.

Identifying and assessing potential risks related to

irregularities

In identifying and assessing the risks of material misstatement in

respect of irregularities, including fraud and non-compliance

with laws and regulations, we considered the following:

– The nature of the industry and sector, control environment

and business performance including the design of the

Group’s remuneration policies, key drivers for directors’

remuneration, bonus levels and performance targets;

– Enquiring of management, internal audit and the Audit & Risk

Committee, including obtaining and reviewing supporting

documentation, concerning the Group’s policies and

procedures relating to:

– Identifying, evaluating and complying with laws and

regulations and whether they were aware of any instances

of non-compliance;

– Detecting and responding to the risks of fraud and whether

they have knowledge of any actual, suspected or alleged

fraud; and

– The internal controls established to mitigate risks related to

fraud or non-compliance with laws and regulations.

– Discussing among the engagement team including signiﬁcant

component audit teams and involving relevant internal

specialists, including tax, valuations, pensions, IT and industry

specialists regarding how and where fraud might occur in the

ﬁnancial statements and any potential indicators of fraud; and

– Obtaining an understanding of the legal and regulatory

frameworks that the Group operates in, focusing on those

laws and regulations that had a direct effect on the ﬁnancial

statements, such as provisions of the UK Companies Act,

pensions legislation and tax legislations or that had a

fundamental effect on the operations of the Group, including

the Good Clinical Practice, the FDA regulations, General

Data Protection requirements, Anti-bribery and corruption

policy and the Foreign Corrupt Practices Act.

Audit response to risks identiﬁed

Our procedures to respond to risks identiﬁed included the

following:

– Reviewing the ﬁnancial statement disclosures and testing

to supporting documentation to assess compliance with

provisions of relevant laws and regulations described as

having a direct effect on the ﬁnancial statements;

– Enquiring of management, the Audit & Risk Committee and

in-house and external legal counsel concerning actual and

potential litigation and claims;

– Performing analytical procedures to identify any unusual or

unexpected relationships that may indicate risks of material

misstatement due to fraud; and

– Reading minutes of meetings of those charged with

governance, reviewing internal audit reports and

correspondence with regulators.

We have also considered the risks noted above in addressing

the risk of fraud through management override of controls:

– Testing the appropriateness of journal entries and other

adjustments;

– Assessing whether the judgements made in making

accounting estimates are indicative of a potential bias; and

– Evaluating the business rationale of any signiﬁcant

transactions that are unusual or outside the normal course

of business.

Independent Auditor’s report continued

Report on the audit of the ﬁnancial statements continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

165

Report on the audit of the ﬁnancial statements continued

We also communicated relevant identiﬁed laws and regulations

and potential fraud risks to all engagement team members and

signiﬁcant component audit teams, and remained alert to any

indications of fraud or non-compliance with laws and

regulations throughout the audit.

Report on other legal and regulatory requirements

11. Opinions on other matters prescribed by

the Companies Act 2006

In our opinion, the part of the directors’ remuneration report to

be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of

the audit:

– The information given in the strategic report and the directors’

report for the ﬁnancial year for which the ﬁnancial statements

are prepared is consistent with the ﬁnancial statements; and

– The strategic report and the directors’ report have been

prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group

and of the Parent company and their environment obtained in

the course of the audit, we have not identiﬁed any material

misstatements in the strategic report or the directors’ report.

12. Matters on which we are required to report

by exception

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to

you if, in our opinion:

– We have not received all the information and explanations we

require for our audit; or

– Adequate accounting records have not been kept by the

Parent company, or returns adequate for our audit have not

been received from branches not visited by us; or

– The Parent company ﬁnancial statements are not in

agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration

Under the Companies Act 2006 we are also required to report

if in our opinion certain disclosures of directors’ remuneration

have not been made or the part of the directors’ remuneration

report to be audited is not in agreement with the accounting

records and returns.

We have nothing to report in respect of these matters.

13. Other matters

Auditor tenure

Following the recommendation of the Audit & Risk Committee,

with effect from 1 January 2018 we were appointed by the

Board of Directors to audit the ﬁnancial statements for the year

ended 31 December 2018 and subsequent ﬁnancial periods.

The period of total uninterrupted engagement of the ﬁrm is

two years.

Consistency of the audit report with the additional report to

the Audit & Risk Committee

Our audit opinion is consistent with the additional report to the

Audit & Risk Committee we are required to provide in

accordance with ISAs (UK).

14. Use of our report

This report is made solely to the Parent company’s members,

as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so

that we might state to the Parent company’s members those

matters we are required to state to them in an auditor’s report

and for no other purpose. To the fullest extent permitted by law,

we do not accept or assume responsibility to anyone other than

the Parent company and the Parent company’s members as a

body, for our audit work, for this report, or for the opinions we

have formed.

The Parent company has passed a resolution in accordance

with section 506 of the Companies Act 2006 that the senior

statutory auditor’s name should not be stated.

Deloitte LLP

Statutory Auditor

London, United Kingdom

3 March 2020

Independent Auditor’s report continued

166

GSK Annual Report 2019

Consolidated income statement

for the year ended 31 December 2019

Notes

2019

£m

2018

£m

2017

£m

Turnover

33,754 30,821 30,186

Cost of sales (11,863) (10,241) (10,342)

Gross proﬁt 21,891 20,580 19,844

Selling, general and administration (11,402) (9,915) (9,672)

Research and development (4,568) (3,893) (4,476)

Royalty income 351 299 356

Other operating income/(expense)

689 (1,588) (1,965)

Operating proﬁt

6,961 5,483 4,087

Finance income

98 81 65

Finance expense

(912) (798) (734)

Proﬁt on disposal of interest in associates – 3 94

Share of after tax proﬁts of associates and joint ventures

74 31 13

Proﬁt before taxation 6,221 4,800 3,525

Taxation 14 (953) (754) (1,356)

Proﬁt after taxation for the year 5,268 4,046 2,169

Proﬁt attributable to non-controlling interests 623 423 637

Proﬁt attributable to shareholders 4,645 3,623 1,532

5,268 4,046 2,169

Basic earnings per share (pence)

93.9p 73.7p 31.4p

Diluted earnings per share (pence)

92.6p 72.9p 31.0p

Consolidated statement of comprehensive income

for the year ended 31 December 2019

2019

£m

2018

£m

2017

£m

Proﬁt for the year 5,268 4,046 2,169

Other comprehensive (expense)/income for the year

Items that may be subsequently reclassiﬁed to income statement:

Exchange movements on overseas net assets and net investment hedges

(832) (480) 462

Reclassiﬁcation of exchange movements on liquidation or disposal of overseas subsidiaries

(75) – 109

Fair value movements on equity investments (14)

Deferred tax on fair value movements on equity investments 47

Reclassiﬁcation of fair value movements on equity investments – – (42)

Deferred tax reversed on reclassiﬁcation of equity investments – – (18)

Fair value movements on cash ﬂow hedges (20) 140 (10)

Deferred tax on fair value movements on cash ﬂow hedges 16 (22) –

Reclassiﬁcation of cash ﬂow hedges to income statement 3 (175) –

Deferred tax reversed on reclassiﬁcation of cash ﬂow hedges – 20 –

(908) (517) 534

Items that will not be reclassiﬁed to income statement:

Exchange movements on overseas net assets of non-controlling interests

(75) (1) (149)

Fair value movements on equity investments 372 180

Deferred tax on fair value movements on equity investments (95) 10

Remeasurement (losses)/gains on deﬁned beneﬁt plans (1,050) 728 549

Tax on remeasurement of deﬁned beneﬁt plans 189 (146) (221)

(659) 771 179

Other comprehensive (expense)/income for the year

(1,567) 254 713

Total comprehensive income for the year 3,701 4,300 2,882

Total comprehensive income for the year attributable to:

Shareholders 3,153 3,878 2,394

Non-controlling interests 548 422 488

Total comprehensive income for the year 3,701 4,300 2,882

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

167

Consolidated balance sheet

as at 31 December 2019

Notes

2019

£m

2018

£m

Non-current assets

Property, plant and equipment 17 10,348 11,058

Right of use assets 18 966

Goodwill 19 10,562 5,789

Other intangible assets 20 30,955 17,202

Investments in associates and joint ventures 21 314 236

Other investments 22 1,837 1,322

Deferred tax assets 14 4,096 3,887

Derivative ﬁnancial instruments 43 103 69

Other non-current assets 23 1,020 1,576

Total non-current assets 60,201 41,139

Current assets

Inventories 24 5,947 5,476

Current tax recoverable 14 262 229

Trade and other receivables 25 7,202 6,423

Derivative ﬁnancial instruments 43 421 188

Liquid investments 29 79 84

Cash and cash equivalents 26 4,707 3,874

Assets held for sale 27 873 653

Total current assets 19,491 16,927

Total assets 79,692 58,066

Current liabilities

Short-term borrowings 29 (6,918) (5,793)

Contingent consideration liabilities 32 (755) (837)

Trade and other payables 28 (14,939) (14,037)

Derivative ﬁnancial instruments 43 (188) (127)

Current tax payable 14 (629) (965)

Short-term provisions 31 (621) (732)

Total current liabilities (24,050) (22,491)

Non-current liabilities

Long-term borrowings 29 (23,590) (20,271)

Corporation tax payable 14 (189) (272)

Deferred tax liabilities 14 (3,810) (1,156)

Pensions and other post-employment beneﬁts 30 (3,457) (3,125)

Other provisions 31 (670) (691)

Derivative ﬁnancial instruments 43 (1) (1)

Contingent consideration liabilities 32 (4,724) (5,449)

Other non-current liabilities 33 (844) (938)

Total non-current liabilities (37,285) (31,903)

Total liabilities (61,335) (54,394)

Net assets 18,357 3,672

Equity

Share capital 36 1,346 1,345

Share premium account 36 3,174 3,091

Retained earnings (2018 revised – see Note 1) 37 4,530 (2,716)

Other reserves 37 2,355 2,061

Shareholders’ equity 11,405 3,781

Non-controlling interests (2018 revised – see Note 1) 6,952 (109)

Total equity 18,357 3,672

The ﬁnancial statements on pages 166 to 251 were approved by the Board on 3 March 2020 and signed on its behalf by

Sir Jonathan Symonds

Chairman

168

GSK Annual Report 2019

Consolidated statement of changes in equity

for the year ended 31 December 2019

Shareholders’ equity

capital

£m

premium

£m

Retained

earnings

£m

Other

reserves

£m

Total

£m

Non-controlling

interests

£m

Total

equity

£m

At 1 January 2017 1,342 2,954 (5,392) 2,220 1,124 3,839 4,963

Proﬁt for the year – – 1,532 – 1,532 637 2,169

Other comprehensive income for the year – – 899 (37) 862 (149) 713

Total comprehensive income for the year – – 2,431 (37) 2,394 488 2,882

Distributions to non-controlling interests – – – – – (789) (789)

Contribution from non-controlling interests – – – – – 21 21

Dividends to shareholders – – (3,906) – (3,906) – (3,906)

Changes in non-controlling interests – – – – – (2) (2)

Shares issued 1 55 – – 56 – 56

Shares acquired by ESOP Trusts – 10 581 (656) (65) – (65)

Write-down of shares held by ESOP Trusts – – (520) 520 – – –

Share-based incentive plans – – 333 – 333 – 333

Tax on share-based incentive plans – – (4) – (4) – (4)

At 31 December 2017 1,343 3,019 (6,477) 2,047 (68) 3,557 3,489

Implementation of IFRS 15 – – (4) – (4) – (4)

Implementation of IFRS 9 – – 277 (288) (11) – (11)

At 31 December 2017, as adjusted 1,343 3,019 (6,204) 1,759 (83) 3,557 3,474

Proﬁt for the year – – 3,623 – 3,623 423 4,046

Other comprehensive income for the year – – 124 131 255 (1) 254

Total comprehensive income for the year – – 3,747 131 3,878 422 4,300

Distributions to non-controlling interests – – – – – (570) (570)

Contribution from non-controlling interests – – – – – 21 21

Derecognition of non-controlling interests in Consumer

Healthcare Joint Venture – – 4,056 – 4,056 (4,118) (62)

Dividends to shareholders – – (3,927) – (3,927) – (3,927)

Realised proﬁts on disposal of equity investments – – 56 (56) – – –

Share of associates and joint ventures realised proﬁts

on disposal of equity investments

– – 38 (38) – – –

Shares issued 2 72 – – 74 – 74

Write-down of shares held by ESOP Trusts – – (265) 265 – – –

Share-based incentive plans – – 360 – 360 – 360

Tax on share-based incentive plans – – 2 – 2 – 2

At 31 December 2018, as reported 1,345 3,091 (2,137) 2,061 4,360 (688) 3,672

Adjustment to non-controlling interest

(see Note 1) – – (579) – (579) 579 –

At 31 December 2018, as revised 1,345 3,091 (2,716) 2,061 3,781 (109) 3,672

Implementation of IFRS 16 – – (93) – (93) – (93)

At 31 December 2018, as adjusted 1,345 3,091 (2,809) 2,061 3,688 (109) 3,579

Proﬁt for the year – – 4,645 – 4,645 623 5,268

Other comprehensive income for the year – – (1,766) 274 (1,492) (75) (1,567)

Total comprehensive income for the year – – 2,879 274 3,153 548 3,701

Distributions to non-controlling interests – – – – – (364) (364)

Changes in non-controlling interests – – – – – (10) (10)

Dividends to shareholders – – (3,953) – (3,953) – (3,953)

Recognition of interest in Consumer Healthcare

Joint Venture

– – 8,082 – 8,082 6,887 14,969

Realised losses on disposal of equity investments – – (4) 4 – – –

Shares issued 1 50 – – 51 – 51

Shares acquired by ESOP Trusts – 33 295 (328) – – –

Write-down of shares held by ESOP Trusts – – (344) 344 – – –

Share-based incentive plans – – 365 – 365 – 365

Tax on share-based incentive plans – – 19 – 19 – 19

At 31 December 2019 1,346 3,174 4,530 2,355 11,405 6,952 18,357

GSK Annual Report 2019

169

Investor information

Financial statements

Strategic report

Governance and remuneration

Consolidated cash ﬂow statement

for the year ended 31 December 2019

Notes

2019

£m

2018

£m

2017

£m

Cash ﬂow from operating activities

Proﬁt after taxation for the year 5,268 4,046 2,169

Adjustments reconciling proﬁt after tax to operating cash ﬂows 41 4,264 5,701 6,089

Cash generated from operations 9,532 9,747 8,258

Taxation paid (1,512) (1,326) (1,340)

Net cash inﬂow from operating activities 8,020 8,421 6,918

Cash ﬂow from investing activities

Purchase of property, plant and equipment (1,265) (1,344) (1,545)

Proceeds from sale of property, plant and equipment 95 168 281

Purchase of intangible assets (898) (452) (657)

Proceeds from sale of intangible assets 404 256 48

Purchase of equity investments (258) (309) (80)

Proceeds from sale of equity investments 69 151 64

Contingent consideration paid (113) (153) (91)

Purchase of businesses, net of cash acquired 40 (3,571) – –

Disposal of businesses 40 104 26 282

Investments in associates and joint ventures 40 (11) (10) (15)

Proceeds from disposal of interests in associates 40 – 3 196

Decrease in liquid investments 1 – 4

Interest received 82 72 64

Dividends from associates, joint ventures and equity investments 7 39 6

Net cash outﬂow from investing activities (5,354) (1,553) (1,443)

Cash ﬂow from ﬁnancing activities

Shares acquired by ESOP Trusts – – (65)

Issue of share capital 36 51 74 56

Purchase of non-controlling interests (7) (9,320) (29)

Increase in long-term loans 4,794 10,138 2,233

Repayment of short-term Notes (4,160) (2,067) (2,636)

Increase in/(repayment of) other short-term loans 3,095 81 (564)

Repayment of lease liabilities (214) (28) (23)

Interest paid (895) (766) (781)

Dividends paid to shareholders (3,953) (3,927) (3,906)

Distributions to non-controlling interests (364) (570) (779)

Contributions from non-controlling interests – 21 21

Other ﬁnancing cash ﬂows (187) (25) 93

Net cash outﬂow from ﬁnancing activities (1,840) (6,389) (6,380)

Increase/(decrease) in cash and bank overdrafts 42 826 479 (905)

Cash and bank overdrafts at beginning of year 4,087 3,600 4,605

Exchange adjustments (82) 8 (100)

Increase/(decrease) in cash and bank overdrafts 826 479 (905)

Cash and bank overdrafts at end of year 4,831 4,087 3,600

Cash and bank overdrafts at end of year comprise:

Cash and cash equivalents 4,707 3,874 3,833

Cash and cash equivalents reported in assets held for sale 507 485 –

5,214 4,359 3,833

Overdrafts (383) (272) (233)

4,831 4,087 3,600

170

GSK Annual Report 2019

Notes to the ﬁnancial statements

1. Presentation of the ﬁnancial statements

Description of business

GSK is a major global healthcare group which is engaged

in the creation and discovery, development, manufacture and

marketing of pharmaceutical products, vaccines, over-the-

counter (OTC) medicines and health-related consumer

products. GSK’s principal pharmaceutical products include

medicines in the following therapeutic areas: respiratory, HIV,

immuno-inﬂammation, oncology, anti-virals, central nervous

system, cardiovascular and urogenital, metabolic, anti-bacterials

and dermatology.

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 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.

Composition of the Group

A list of the subsidiaries and associates which, in the opinion

of the Directors, principally affected the amount of proﬁt or net

assets of the Group is given in Note 45, ‘Principal Group

companies’.

Financial period

These ﬁnancial statements cover the ﬁnancial year from 1

January to 31 December 2019, with comparative ﬁgures for the

ﬁnancial years from 1 January to 31 December 2018 and, where

appropriate, from 1 January to 31 December 2017.

Accounting principles and policies

The ﬁnancial statements have been prepared using the

historical cost convention modiﬁed by the revaluation of certain

items, as stated in the accounting policies, and on a going

concern basis.

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’.

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.

Adjustment to 2018 retained earnings and non-controlling

interests balances

In 2018, the Group acquired Novartis’ non-controlling interest in

the old Consumer Healthcare Joint Venture. As a result of the

transaction, the non-controlling interest ceased to exist and

should have been fully eliminated from the consolidated

reserves. An adjustment of £579 million has been made

between the 2018 closing balances of retained earnings and

non-controlling interests to reallocate cumulative translation

exchange and eliminate the remaining non-controlling interest

balance. There was no impact on proﬁt for the year, other

comprehensive income, net assets or total equity for 2018 and

no impact on any items in earlier years. The effect of the

adjustment on the relevant equity balances was as follows:

31 December

2018, as

reported

£m

Adjustment

£m

31 December

2018, as

revised

£m

Retained earnings (2,137) (579) (2,716)

Shareholders’ equity 4,360 (579) 3,781

Non-controlling interests (688) 579 (109)

Total equity 3,672 – 3,672

Implementation of IFRS 16 ‘Leases’

The Group has applied IFRS 16 ‘Leases’ with effect from

1 January 2019. IFRS 16 introduces new requirements for the

deﬁnition of a lease, lessee accounting and lessor accounting

as well as a number of new disclosures.

In general, all leases within the scope of IFRS 16 are required

to be brought on to the balance sheet by lessees, recognising

a ‘right-of-use’ asset and a related lease liability at the

commencement of the lease. The subsequent accounting is

similar to the ﬁnance lease model set out in IAS 17. IFRS 16

establishes a control model for the identiﬁcation of leases,

distinguishing between leases and service contracts on the basis

of whether there is an identiﬁed asset controlled by the customer.

GSK has adopted IFRS 16 applying the modiﬁed retrospective

approach, and accordingly prior year results have not been

restated. For larger leases (leases with annual payments of

£1 million or more), the right of use asset at 1 January 2019

was calculated based on the original lease inception date and

for smaller leases (leases with annual payments of less than

£1 million) the right of use asset was set equal to the lease

liability at 1 January 2019, adjusted for any prepaid or accrued

lease payments, onerous lease provisions and business

combination fair value adjustments. Any difference between the

previous carrying amount and the revised carrying amount at

1 January 2019 has been recognised as an adjustment to

opening retained earnings at 1 January 2019.

GSK Annual Report 2019

171

Investor information

Financial statements

Strategic report

Governance and remuneration

The Group has applied the deﬁnition of a lease and related

guidance set out in IFRS 16 to all lease contracts entered into

either before the date of initial application or after. There have

been no signiﬁcant changes as a result for the vast majority of

contracts.

The following permitted practical expedients were applied

at transition:

– The right-of-use asset at the date of transition was adjusted

by the amount of the existing onerous lease provision at

31 December 2018, without re-assessment.

– Leases ending within 12 months of the transition date were

treated as short-term leases on a lease-by-lease basis.

– Initial direct costs were excluded from the measurement of

the right of use asset at the transition date on a lease-by-

lease basis.

– Hindsight was applied, such as in determining the lease term

where contracts contained options to extend or terminate the

lease.

The weighted average incremental borrowing rate applied to

lease liabilities recognised on 1 January 2019 was 3.13%.

Impact of IFRS 16 on each balance sheet line item

The table below shows the amount of adjustment for each

ﬁnancial statement line item affected by the application of

IFRS 16 at 1 January 2019.

reported

£m

IFRS 16

adjustments

£m

adjusted

£m

Non-current assets

Property, plant and equipment 11,058 (98) 10,960

Right of use assets – 1,071 1,071

Other non-current assets 1,576 (11) 1,565

Deferred tax assets 3,887 39 3,926

Current assets

Trade and other receivables 6,423 3 6,426

Current liabilities

Trade and other payables (14,037) 10 (14,027)

Provisions (732) 32 (700)

Short-term borrowings (5,793) (229) (6,022)

Non-current liabilities

Long-term borrowings (20,271) (1,074) (21,345)

Other non-current liabilities (938) 160 (778)

Provisions (691) 3 (688)

Deferred tax liabilities (1,156) 1 (1,155)

Total effect on net assets 3,672 (93) 3,579

Retained earnings, as revised (2,716) (93) (2,809)

Total effect on equity 3,672 (93) 3,579

The £98 million reduction in property, plant and equipment

arose from the transfer of asset retirement obligations and

existing ﬁnance leases to right of use assets. The £160 million

adjustment to other non-current liabilities arose from business

combination fair value adjustments which were derecognised

on the transition to IFRS 16 with a corresponding adjustment

to right of use assets.

The application of IFRS 16 has had no material impact on the

Group’s income statement and earnings per share, or on overall

cash ﬂows for the Group. However, the presentation of the

lease payments in the cash ﬂow statement has changed,

resulting in an increase to the net cash inﬂow from operating

activities, and hence free cash ﬂow, and a corresponding

increase in the net cash outﬂow from ﬁnancing items (split

between interest paid and repayment of lease liabilities).

The reconciliation between operating lease commitments

previously reported for the year ended 31 December 2018,

discounted at the Group’s incremental borrowing rate, and

the lease liabilities recognised in the balance sheet on initial

application of IFRS 16 is as follows:

£m

Operating lease commitments at 31 December 2018 1,138

Effect of discounting at the Group’s incremental borrowing rate

at 1 January 2019 (126)

Reasonably certain extension options 254

Termination options not reasonably certain to be exercised 46

Short-term leases (2)

Other adjustments (7)

Lease liabilities recognised at 1 January 2019 1,303

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 252 and the accounting

policies are given on pages 253 and 254.

1. Presentation of the ﬁnancial statements continued

Notes to the ﬁnancial statements continued

172

GSK Annual Report 2019

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 Group’s share of assets, liabilities, revenue and expenses

of joint operations.

The ﬁnancial statements of entities consolidated are made up

to 31 December each year.

Entities over which the Group has the power to direct the

relevant activities so as to affect the returns to the Group,

generally through control over the ﬁnancial and operating

policies, are accounted for as subsidiaries.

Where the Group has the ability to exercise joint control over,

and rights to, the net assets of entities, the entities are

accounted for as joint ventures. Where the Group has the ability

to exercise joint control over an arrangement, but has rights to

speciﬁed assets and obligations for speciﬁed liabilities of the

arrangement, the arrangement is accounted for as a joint

operation. Where the Group has the ability to exercise

signiﬁcant inﬂuence over entities, 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.

The Group’s rights to assets, liabilities, revenue and expenses

of joint operations are included in the consolidated ﬁnancial

statements in accordance with those rights and obligations.

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, joint operations and associates is also deferred until

the products are sold to third parties. Transactions with non-

controlling interests are recorded directly in equity. Deferred tax

relief on unrealised intra-Group proﬁt is accounted for only to

the extent that it is considered recoverable.

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 fair value of contingent consideration liabilities are

reassessed at each balance sheet date with changes

recognised in the income statement. Payments of contingent

consideration reduce the balance sheet liability and as a result

are not recorded in the income statement.

The part of each payment relating to the original estimate of

the fair value of the contingent consideration on acquisition is

reported within investing activities in the cash ﬂow statement

and the part of each payment relating to the increase in the

liability since the acquisition date is reported within operating

cash ﬂows.

Where the consideration transferred, together with the non-

controlling interest, exceeds the fair value of the net assets,

liabilities and contingent liabilities acquired, the excess is

recorded as goodwill. The costs of effecting an acquisition

are charged to the income statement in the period in which

they are incurred.

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.

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.

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.

2. Accounting principles and policies

Notes to the ﬁnancial statements continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

173

Revenue (applicable from 1 January 2018)

The Group receives revenue for supply of goods to external

customers against orders received. The majority of contracts

that GSK enters into relate to sales orders containing single

performance obligations for the delivery of pharmaceutical,

vaccine and consumer healthcare products. The average

duration of a sales order is less than 12 months.

Product revenue is recognised when control of the goods is

passed to the customer. The point at which control passes is

determined by each customer arrangement, but generally

occurs on delivery to the customer.

Product revenue represents net invoice value including ﬁxed

and variable consideration. Variable consideration arises on the

sale of goods as a result of discounts and allowances given and

accruals for estimated future returns and rebates. Revenue is

not recognised in full until it is highly probable that a signiﬁcant

reversal in the amount of cumulative revenue recognised will

not occur. 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. Once the

uncertainty associated with the returns and rebates is resolved,

revenue is adjusted accordingly.

GSK enters into development and marketing collaborations and

out-licences of the Group’s compounds or products to other

parties. These contracts give rise to ﬁxed and variable

consideration from upfront payments, development milestones,

sales-based milestones and royalties.

Income dependent on the achievement of a development

milestone is recognised when it is highly probable that a

signiﬁcant reversal in the amount of cumulative revenue

recognised will not occur, which is usually when the related

event occurs. Sales-based milestone income is recognised

when it is highly probable that the sales threshold will be

reached.

Sales-based royalties on a licence of intellectual property are

not recognised until the relevant product sale occurs.

If the time between the recognition of revenue and payment

from the customer is expected to be more than one year and

the impact is material, the amount of consideration is discounted

using appropriate discount rates.

Value added tax and other sales taxes are excluded from

revenue.

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 respect of product liability claims related

to certain products, provision is made when 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. In addition, provision is made for legal or other

expenses arising from claims received or other disputes.

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.

2. Accounting principles and policies continued

Notes to the ﬁnancial statements continued

174

GSK Annual Report 2019

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.

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.

Actuarial gains and losses 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.

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 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

Equipment and vehicles 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 (applicable from 1 January 2019)

The Group recognises right of use assets under lease

arrangements in which it is the lessee. Rights to use assets

owned by third parties under lease agreements are capitalised

at the inception of the lease and recognised on the consolidated

balance sheet. The corresponding liability to the lessor is

recognised as a lease obligation within short and long-term

borrowings. The carrying amount is subsequently increased

to reﬂect interest on the lease liability and reduced by lease

payments made.

For calculating the discounted lease liability on leases with

annual payments of £2 million or more, the implicit rate in the

lease is used. If this is not available, the incremental borrowing

rate with a lease speciﬁc adjustment is used. If neither of these

is available, and for leases with annual payments of less than

£2 million, the incremental borrowing rate is used. The

incremental borrowing rate is calculated at the rate of interest

at which GSK would have been able to borrow for a similar term

and with a similar security the funds necessary to obtain a

similar asset in a similar market.

Finance costs are charged to the income statement so as to

produce a constant periodic rate of charge on the remaining

balance of the obligations for each accounting period.

Variable rents are not part of the lease liability and the right

of use asset. These payments are charged to the income

statement as incurred. Short-term and low-value leases are

not capitalised and lease rentals are also charged to the income

statement as incurred.

Non-lease components are accounted for separately from the

lease components in plant and equipment leases but are not

separately accounted for in land and buildings or vehicle leases.

If modiﬁcations or reassessments occur, the lease liability and

right of use asset are re-measured.

Right of use assets where title is expected to pass to GSK at

a point in the future are depreciated on a basis consistent with

similar owned assets. In other cases, right of use assets are

depreciated over the shorter of the useful life of the asset or

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 at least 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.

2. Accounting principles and policies continued

Notes to the ﬁnancial statements continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

175

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 probable. 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 to ten years and other computer software over three

to ﬁve years.

Impairment of non-current assets

The carrying values of all non-current assets are reviewed for

impairment, either on a stand-alone basis or as part of a larger

cash generating unit, 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, joint ventures and joint

operations

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. The Group recognises its rights to assets,

liabilities, revenue and expenses of joint operations.

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.

Financial instruments (applicable from 1 January 2018)

Financial assets

Financial assets are measured at amortised cost, fair value

through other comprehensive income (FVTOCI) or fair value

through proﬁt or loss (FVTPL). The measurement basis is

determined by reference to both the business model for

managing the ﬁnancial asset and the contractual cash ﬂow

characteristics of the ﬁnancial asset. For ﬁnancial assets other

than trade receivables a 12-month expected credit loss (ECL)

allowance is recorded on initial recognition. If there is

subsequent evidence of a signiﬁcant increase in the credit risk

of an asset, the allowance is increased to reﬂect the full lifetime

ECL. If there is no realistic prospect of recovery, the asset is

written off.

Expected credit losses are recognised in the income statement

on ﬁnancial assets measured at amortised cost and at fair value

through other comprehensive income apart from equity

investments.

Other investments

Other investments comprise equity investments and

investments in limited life funds. The Group has elected to

designate equity investments as measured at FVTOCI. They

are initially recorded at fair value plus transaction costs and

then remeasured at subsequent reporting dates to fair value.

Unrealised gains and losses are recognised in other

comprehensive income.

On disposal of the equity investment, gains and losses that have

been deferred in Other comprehensive income are transferred

directly to retained earnings. Investments in limited life funds are

measured at FVTPL. They are initially recorded at fair value and

then remeasured at subsequent reporting dates to fair value.

Unrealised gains and losses are recognised in the income

statement.

Notes to the ﬁnancial statements continued

2. Accounting principles and policies continued

176

GSK Annual Report 2019

Dividends on equity investments and distributions from funds

are recognised in the income statement when the Group’s right

to receive payment is established.

Purchases and sales of Other investments are accounted for

on the trade date.

Trade receivables

Trade receivables are measured in accordance with the

business model under which each portfolio of trade receivables

is held. The Group has portfolios in each of the three business

models under IFRS 9 due to factoring arrangements in place: to

collect the contractual cash ﬂows (measured at amortised cost),

to sell the contractual cash ﬂows (measured at FVTPL), and both

to collect and to sell the contractual cash ﬂows (measured at

FVTOCI). Trade receivables measured at amortised cost are

carried at the original invoice amount less allowances for

expected credit losses.

Expected credit losses are calculated in accordance with the

simpliﬁed approach permitted by IFRS 9, using a provision matrix

applying lifetime historical credit loss experience to the trade

receivables. The expected credit loss rate varies depending

on whether, and the extent to which, settlement of the trade

receivables is overdue and it is also adjusted as appropriate to

reﬂect current economic conditions and estimates of future

conditions. For the purpose of determining credit loss rates,

customers are classiﬁed into groupings that have similar loss

patterns. The key drivers of the loss rate are the nature of the

business unit and the location and type of customer.

When a trade receivable is determined to have no reasonable

expectation of recovery it is written off, ﬁrstly against any

expected credit loss allowance available and then to the

income statement.

Subsequent recoveries of amounts previously provided for or

written off are credited to the income statement. Long-term

receivables are discounted where the effect is material.

Cash and cash equivalents

Cash held in deposit accounts is measured at amortised cost.

Investments in money market funds are held at fair value through

proﬁt or loss because the funds fail the solely payments of

principal and interest (SPPI) test.

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.

Derivative ﬁnancial instruments

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, foreign

exchange forward contracts and options. The Group does not

hold or issue derivative ﬁnancial instruments for trading or

speculative purposes.

Derivative ﬁnancial assets and liabilities, including derivatives

embedded in host contracts which have been separated from

the host contract, are classiﬁed as held-for-trading and are

measured at fair value. Changes in the fair value of any derivative

instruments that do not qualify for hedge accounting are

recognised immediately in the income statement.

Hedge accounting

Derivatives designated as hedging instruments are classiﬁed

at inception of hedge relationship 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.

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, 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.

Where an uncertain tax position is identiﬁed, management will

make a judgement as to what the probable outcome will be,

assuming the relevant tax authority has full knowledge of the

situation. Where it is assessed that an economic outﬂow is

probable to arise a provision is made for the best estimate of the

liability. In estimating any such liability GSK applies a risk-based

approach which takes into account, as appropriate, the

probability that the Group would be able to obtain

compensatory adjustments under international tax treaties.

These estimates take into account the speciﬁc circumstances

of each dispute and relevant external advice.

Discounting

Where the time value of money is material, balances are

discounted to current values using appropriate discount rates.

The unwinding of the discounts is recorded in ﬁnance income

and ﬁnance expense.

2. Accounting principles and policies continued

Notes to the ﬁnancial statements continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

177

Revenue (applicable up to 31 December 2017)

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 counterparty

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. In addition, initial or event-based milestone income

(excluding royalty income) arising on development or marketing

collaborations of the Group’s compounds or products with

other parties is recognised in turnover.

Royalty income is recognised on an accruals basis in

accordance with the terms of the relevant licensing agreements.

Financial instruments (applicable up to

31 December 2017)

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.

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.

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.

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, foreign

exchange forward contracts and options. 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.

Leases (applicable up to 31 December 2018)

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.

Notes to the ﬁnancial statements continued

2. Accounting principles and policies continued

178

GSK Annual Report 2019

3. Key accounting judgements and estimates

In preparing the ﬁnancial statements, management is required

to make judgements about when or how items should be

recognised in the ﬁnancial statements and 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 critical accounting

judgements and key sources of estimation uncertainty.

Turnover

Reported Group turnover for 2019 was £33,754 million

(2018 – £30,821 million).

Estimates

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.

The US Pharmaceuticals business has the largest and most

complex arrangements for rebates, discounts and allowances.

The US Pharmaceuticals turnover for 2019 of £7,402 million

(2018 – £7,453 million) was after recording deductions of

£11,069 million (2018 – £10,774 million) for rebates, discounts,

allowances and returns. The balance sheet accruals for rebates,

discounts, allowances and returns for the US Pharmaceuticals

and Vaccines businesses are managed on a combined basis.

At 31 December 2019, the total accrual amounted to £4,200

million (2018 – £4,356 million). Because of the nature of these

accruals it is not practicable to give meaningful sensitivity

estimates.

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 for rebates and returns 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. Revenue is not recognised

in full until it is highly probable that a signiﬁcant reversal in the

amount of cumulative revenue recognised will not occur. The

amount of turnover recognised in the year from performance

obligations satisﬁed in previous periods is set out in Note 6,

‘Turnover and segment information’.

Future events could cause the assumptions on which the

accruals are based to change, which could materially affect

the future results of the Group.

Taxation

The tax charge for the year was £953 million (2018 –

£754 million). At December 2019, current tax payable was

£629 million (2018 – £965 million), non-current corporation

tax payable was £189 million (2018 – £272 million) and current

tax recoverable was £262 million (2018 – £229 million).

Estimates

The Group has open tax issues with a number of revenue

authorities. Management makes a judgement of whether there is

sufﬁcient information to be able to make a reliable estimate of

the outcome of the dispute. If insufﬁcient information is available,

no provision is made.

If sufﬁcient information is available, in estimating a potential tax

liability GSK applies a risk-based approach which takes into

account, as appropriate, the probability that the Group would

be able to obtain compensatory adjustments under international

tax treaties. These estimates take into account the speciﬁc

circumstances of each dispute and relevant external advice,

are inherently judgemental and could change substantially over

time as each dispute progresses and new facts emerge.

At 31 December 2019, the Group had recognised provisions

of £933 million in respect of uncertain tax positions (2018 –

£1,082 million). Because of the nature of these uncertain

positions, it is not practicable to give meaningful sensitivity

estimates.

Factors affecting the tax charge in future years are set out in

Note 14, ‘Taxation’. 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.

Legal and other disputes

Legal costs for the year were £363 million (2018 – £117

million). At 31 December 2019 provisions for legal and other

disputes amounted to £198 million (2018 – £219 million).

Estimates

Management makes a judgement of whether there is sufﬁcient

information to be able to make a reliable estimate of the likely

outcome of the dispute and the legal and other expenses arising

from claims against the Group. If insufﬁcient information is

available, no provision is made and disclosure of the claim is

given.

The estimated provisions take into account the speciﬁc

circumstances of each dispute and relevant external advice, are

inherently judgemental and could change substantially over time

as each dispute progresses and new facts emerge. Details of

the status and various uncertainties involved in the signiﬁcant

unresolved disputes are set out in Note 46, ‘Legal proceedings’.

Notes to the ﬁnancial statements continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

179

The following new and amended accounting standards have

been issued by the IASB and are likely to affect future Annual

Reports.

An amendment to IFRS 3 ‘Business combinations’ was issued

in October 2018 and will be implemented by the Group in

2020. The amendment clariﬁes the deﬁnition of a business and

permits a simpliﬁed initial assessment of whether an acquired

set of activities and assets is a group of assets rather than a

business.

The amendment will apply prospectively to acquisitions

completed after its implementation date and will not change

the accounting for any acquisitions before that date.

‘Interest rate benchmark reform – Amendments to IFRS 9,

IAS 39 and IFRS 7’ was issued in September 2019 and will be

implemented by the Group from 1 January 2020. These

amendments modify speciﬁc hedge accounting requirements to

allow hedge accounting to continue for affected hedges during

the period of uncertainty before the hedged items or hedging

instruments referencing the current interest rate benchmarks are

amended as a result of the ongoing interest rate benchmark

reforms.

The amendments are not expected to have a material impact on

the results or ﬁnancial position of the Group.

4. New accounting requirements

3. Key accounting judgements and estimates continued

Notes to the ﬁnancial statements continued

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.

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, or practicable to give a

meaningful range of outcomes that could result from ultimate

resolution of the proceedings. In these cases, appropriate

disclosure about such cases would be provided, but no provision

would be made and no contingent liability can be quantiﬁed.

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.

Contingent consideration

The 2019 income statement charge for contingent

consideration was £83 million (2018 – £1,251 million).

At 31 December 2019, the liability for contingent consideration

amounted to £5,479 million (2018 – £6,286 million). Of this

amount, £5,103 million (2018 – £5,937 million) related to the

acquisition of the former Shionogi-ViiV Healthcare joint venture

in 2012.

Estimates

Any contingent consideration included in the consideration

payable for a business combination is recorded at fair value at

the date of acquisition. These fair values are generally based on

risk-adjusted future cash ﬂows discounted using appropriate

post-tax discount rates. The fair values are reviewed on a

regular basis, at least annually, and any changes are reﬂected in

the income statement. See Note 32, ‘Contingent consideration

liabilities’.

Pensions and other post-employment beneﬁts

Judgement

Where a surplus on a deﬁned beneﬁt scheme arises, or

there is potential for a surplus to arise from committed future

contributions, the rights of the Trustees to prevent the Group

obtaining a refund of that surplus in the future are considered

in determining whether it is necessary to restrict the amount of

the surplus that is recognised. Two UK schemes are in surplus,

with a combined surplus of £70 million at 31 December 2019

(2018 – £711 million). GSK has made the judgement that these

amounts meet the requirements of recoverability.

Estimates

The costs of providing pensions and other post-employment

beneﬁts 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

30, ‘Pensions and other post-employment beneﬁts’.

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. A sensitivity

analysis is provided in Note 30, ‘Pensions and other post-

employment beneﬁts’, but a 0.5% reduction in the discount

rate would lead to an increase in the net pension deﬁcit of

approximately £1,640 million and an increase in the annual

pension cost of approximately £43 million. The selection

of different assumptions could affect the future results of

the Group.

180

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

6. Turnover and segment information

Operating segments are reported based on the ﬁnancial information provided to the Chief Executive Ofﬁcer and the responsibilities

of the Corporate Executive Team (CET). GSK reports results under four segments: Pharmaceuticals; Pharmaceuticals R&D;

Vaccines and Consumer Healthcare, and individual members of the CET are responsible for each segment.

The Group’s management reporting process allocates 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.

Corporate and other unallocated turnover and costs included the results of certain Consumer Healthcare products which are being

held for sale in a number of markets in order to meet anti-trust approval requirements, together with the costs of corporate functions.

Revenue recognised in the year from performance obligations satisﬁed in previous periods totalled £793 million (2018 – £426 million)

and included £451 million (2018 – £122 million) reported in turnover arising from changes to prior year estimates of RAR accruals

and £328 million (2018 – £299 million) of royalty income.

Turnover by segment

2019

£m

2018

£m

2017

£m

Pharmaceuticals 17,554 17,269 17,276

Vaccines 7, 15 7 5,894 5,160

Consumer Healthcare 8,995 7,658 7,7 5 0

Segment turnover 33,706 30,821 30,186

Corporate and other unallocated turnover 48 – –

33,754 30,821 30,186

GSK has reviewed the presentation of its respiratory product sales and from 1 January 2019 is reporting the Ellipta products

portfolio and Nucala under the ‘Respiratory’ category and all other respiratory products under ‘Established Pharmaceuticals’.

Comparative information has been revised onto a consistent basis.

Pharmaceuticals turnover by therapeutic area

2019

£m

2018

(revised)

£m

2017

(revised)

£m

Respiratory 3,081 2,612 1,930

HIV 4,854 4,722 4,350

Immuno-inﬂammation 613 472 377

Oncology 230 – –

Established Pharmaceuticals 8,776 9,463 10,619

17,554 17,269 17,276

Vaccines turnover by category

2019

£m

2018

£m

2017

£m

Meningitis 1,018 881 890

Inﬂuenza 541 523 488

Shingles 1,810 784 22

Established Vaccines 3,788 3,706 3,760

7, 15 7 5,894 5,160

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 associates into Sterling and period end rates to translate the net assets of those entities. The

currencies which most inﬂuence these translations and the relevant exchange rates were:

5. Exchange rates

2019 2018 2017

Average rates:

US$/£ 1.28 1.33 1.30

Euro/£ 1.14 1.13 1.15

Yen/£ 139 147 145

2019 2018 2017

Period end rates:

US$/£ 1.32 1.27 1.35

Euro/£ 1.18 1.11 1.13

Yen/£ 143 140 152

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

181

Notes to the ﬁnancial statements continued

6. Turnover and segment information continued

During 2019, the US operations of the Pharmaceuticals and Vaccines businesses made sales to three wholesalers of approximately

£2,835 million (2018 – £2,709 million, 2017 – £2,449 million), £3,146 million (2018 – £2,962 million, 2017 – £3,043 million) and

£2,820 million (2018 – £2,656 million, 2017 – £2,356 million) respectively, after allocating ﬁnal-customer discounts to the

wholesalers.

Consumer Healthcare turnover by category

2019

£m

2018

£m

2017

£m

Wellness 4,526 3,940 4,001

Oral health 2,673 2,496 2,466

Nutrition 1,176 643 680

Skin health 620 579 603

8,995 7,658 7,7 5 0

Segment proﬁt

2019

£m

2018

£m

2017

£m

Pharmaceuticals 7,964 8,420 8,667

Pharmaceuticals R&D (3,369) (2,676) (2,740)

Pharmaceuticals, including R&D 4,595 5,744 5,927

Vaccines 2,966 1,943 1,644

Consumer Healthcare 1,874 1,517 1,373

Segment proﬁt 9,435 9,204 8,944

Corporate and other unallocated costs (463) (459) (376)

Other reconciling items between segment proﬁt and operating proﬁt (2,011) (3,262) (4,481)

Operating proﬁt 6,961 5,483 4,087

Finance income 98 81 65

Finance costs (912) (798) (734)

Proﬁt on disposal of interest in associates – 3 94

Share of after-tax proﬁts of associates and joint ventures 74 31 13

Proﬁt before taxation 6,221 4,800 3,525

Taxation (953) (754) (1,356)

Proﬁt after taxation for the year 5,268 4,046 2,169

Other reconciling items between segment proﬁt and operating proﬁt comprise items not speciﬁcally allocated to segment proﬁt.

These include impairment and amortisation of intangible assets; major restructuring costs, which include impairments of tangible

assets and computer software; transaction-related adjustments related to signiﬁcant acquisitions; proceeds and costs of disposals

of associates, products and businesses, signiﬁcant legal charges and expenses on the settlement of litigation and government

investigations, other operating income other than royalty income and other items, and the pre-tax impact of the enactment of the

US Tax Cuts and Jobs Act.

Depreciation and amortisation by segment

2019

£m

2018

£m

2017

£m

Pharmaceuticals 606 506 551

Pharmaceuticals R&D 230 123 96

Pharmaceuticals, including R&D 836 629 647

Vaccines 418 395 405

Consumer Healthcare 224 146 135

Segment depreciation and amortisation 1,478 1,170 1,187

Corporate and other unallocated depreciation and amortisation 79 10 6 144

Other reconciling items between segment depreciation and amortisation and

total depreciation and amortisation 777 580 591

Total depreciation and amortisation 2,334 1,856 1,922

182

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

6. Turnover and segment information continued

PP&E, intangible asset and goodwill impairment by segment

2019

£m

2018

£m

2017

£m

Pharmaceuticals 137 51 38

Pharmaceuticals R&D 16 15 10

Pharmaceuticals, including R&D 153 66 48

Vaccines 33 5 13

Consumer Healthcare – 4 10

Segment impairment 186 75 71

Corporate and other unallocated impairment 19 14 3

Other reconciling items between segment impairment and total impairment 621 261 995

Total impairment 826 350 1,069

PP&E and intangible asset impairment reversals by segment

Pharmaceuticals (6) (4) (13)

Pharmaceuticals R&D – (1) (2)

Pharmaceuticals, including R&D (6) (5) (15)

Vaccines (1) – –

Consumer Healthcare – – (1)

Segment impairment reversals (7) (5) (16)

Corporate and other unallocated impairment reversals (3) – –

Other reconciling items between segment impairment reversals and total impairment reversals (15) (8) (36)

Total impairment reversals (25) (13) (52)

Net assets by segment

2019

£m

2018

£m

Pharmaceuticals 1,722 869

Pharmaceuticals R&D 4,503 502

Pharmaceuticals, including R&D 6,225 1,371

Vaccines 8,828 9,966

Consumer Healthcare 26,328 10,559

Segment net operating assets 41,381 21,896

Corporate and other unallocated net operating assets 1,446 1,141

Net operating assets 42,827 23,037

Net debt (25,215) (21,621)

Investments in associates and joint ventures 314 236

Derivative ﬁnancial instruments 335 129

Current and deferred taxation (270) 1,723

Assets held for sale (excluding cash and cash equivalents) 366 168

Net assets 18,357 3,672

The Pharmaceuticals segment includes the Shionogi-ViiV Healthcare contingent consideration liability of £5,103 million

(2018 – £5,937 million) and the Pﬁzer put option of £1,011 million (2018 – £1,240 million). Net assets in the Pharmaceuticals

and Consumer Healthcare segments have increased during the year, following the acquisitions of Tesaro and the Pﬁzer consumer

healthcare business, respectively.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

183

Notes to the ﬁnancial statements continued

6. Turnover and segment information continued

Geographical information

The UK is regarded as being the Group’s country of domicile.

Turnover by location of customer

2019

£m

2018

£m

2017

£m

UK 942 923 940

US 13,890 11,982 11,263

Rest of World 18,922 17,916 17,983

External turnover 33,754 30,821 30,186

Non-current assets by location of subsidiary

2019

£m

2018

£m

UK 6,116 6,118

US 19,483 7,540

Rest of World 27,696 20,768

Non-current assets 53,295 34,426

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. Other operating income/(expense)

2019

£m

2018

£m

2017

£m

Fair value remeasurements of equity investments under IFRS 9 (14) 20 –

Disposal of businesses and assets 541 258 195

Fair value remeasurements on contingent consideration recognised in business combinations (92) (1,252) (1,012)

Remeasurement of ViiV Healthcare put option liabilities and preferential dividends 234 58 13

Remeasurement of Consumer Healthcare put option liability – (658) (1,186)

Fair value adjustments on derivative ﬁnancial instruments – (3) 9

Other income/(expense) 20 (11) 9

Impairment of available-for-sale equity investments under IAS 39 – – (30)

Disposal of available-for-sale equity investments under IAS 39 – – 37

689 (1,588) (1,965)

Disposal of businesses and assets in 2019 included a proﬁt on disposal of rabies and tick-borne encephalitis vaccines of

£306 million and a gain arising from the increase in value of the shares in Hindustan Unilever Limited to be received on the

disposal of Horlicks and other Consumer Healthcare brands of £143 million including fair value movements on related derivatives.

Fair value remeasurements on contingent consideration recognised in business combinations included £31 million related to

the acquisition of the former Shionogi-ViiV Healthcare joint venture and £67 million related to the Vaccines acquisition from

Novartis, together with fair value movements on related hedging contracts.

184

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

8. Operating proﬁt

The following items have been included in operating proﬁt:

2019

£m

2018

£m

2017

£m

Employee costs (Note 9) 9,855 9,440 9,122

Advertising 1,567 1,376 1,351

Distribution costs 393 389 405

Depreciation of property, plant and equipment 1,017 954 988

Impairment of property, plant and equipment, net of reversals 669 203 327

Depreciation of right of use assets 214

Impairment of right of use assets 2

Amortisation of intangible assets 1,103 902 934

Impairment of intangible assets, net of reversals 126 134 690

Impairment of goodwill allocated to a disposal group, net of reversals 4 – –

Net foreign exchange (gains)/losses (37) 81 215

Inventories:

Cost of inventories included in cost of sales 9,482 8,713 8,526

Write-down of inventories 578 695 701

Reversal of prior year write-down of inventories (230) (302) (352)

Short-term lease charge 12

Low-value lease charge 4

Variable lease payments 13

Operating lease rentals:

Minimum lease payments 188 110

Contingent rents 12 4

Sub-lease payments 5 5

Fees payable to the company’s auditor and its associates in relation to the Group (see below) 30.4 29.8 29.2

The reversals of prior year write-downs of inventories principally arise from the reassessment of usage or demand expectations

prior to inventory expiration.

Net foreign exchange gains include a net gain of £75 million (2018 – £nil; 2017 – £109 million loss) arising on the reclassiﬁcation

of exchange on liquidation or disposal of overseas subsidiaries.

Included within operating proﬁt are Major restructuring charges of £1,105 million (2018 – £809 million; 2017 – £1,056 million),

see Note 10, ‘Major restructuring costs’.

Fees payable to the company’s auditor and its associates:

2019

£m

2018

£m

2017

£m

Audit of parent company and consolidated ﬁnancial statements including attestation under s.404

of Sarbanes-Oxley Act 2002

15.6

13.3

11.5

Audit of the company’s subsidiaries 13.5 12.9 16.2

Total audit services 29.1 26.2 2 7.7

Taxation compliance – 0.1 0.2

Taxation advice – – 0.1

Audit related and other assurance services 1.2 3.0 1.0

All other services 0.1 0.5 0.2

Total audit-related and non-audit services 1.3 3.6 1.5

30.4 29.8 29.2

The other assurance services provided by the auditor related to agreed upon procedures and other assurance services outside of

statutory audit requirements. All other services provided by the auditor primarily related to advisory services for the year ended

31 December 2019.

In addition to the above, fees paid to the auditor in respect of the GSK pension schemes were:

2019

£m

2018

£m

2017

£m

Audit 0.2 0.3 0.3

Other services – – 0.1

Fees of £0.8 million (2018 – £nil, 2017 – £nil) were also paid to other auditors in respect of audits of certain of the company’s

subsidiaries acquired during the year.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

185

Notes to the ﬁnancial statements continued

9. Employee costs

2019

£m

2018

£m

2017

£m

Wages and salaries 7,583 7,203 7,116

Social security costs 852 795 802

Pension and other post-employment costs, including augmentations (Note 30) 560 586 616

Cost of share-based incentive plans 432 393 347

Severance and other costs from integration and restructuring activities 428 463 241

9,855 9,440 9,122

The increase in wages and salaries included the impact of movements in exchange rates. 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 cost of share-based incentive plans is analysed as follows:

2019

£m

2018

£m

2017

£m

Share Value Plan 302 304 276

Performance Share Plan 58 49 47

Share option plans 4 4 4

Cash settled and other plans 68 36 20

432 393 347

The average monthly number of persons employed by the Group (including Directors) during the year was:

2019

Number

2018

Number

2017

Number

Manufacturing 36,653 37,296 38,632

Selling, general and administration 48,535 47,887 49,141

Research and development 12,026 11,668 11,576

97,214 96,851 99,349

The average monthly 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 265.

The compensation of the Directors and Senior Management (members of the CET) in aggregate, was as follows:

2019

£m

2018

£m

2017

£m

Wages and salaries 28 29 26

Social security costs 4 3 4

Pension and other post-employment costs 3 3 3

Cost of share-based incentive plans 27 20 22

62 55 55

Further information on the remuneration of the Directors is given in the Remuneration report on pages 116 to 150.

186

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

10. Major restructuring costs

Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long lifecycle of the

business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D

sites, are likely to take several years to complete.

Major restructuring costs are those related to speciﬁc Board-approved Major restructuring programmes, including integration costs

following material acquisitions, which are structural and are of a signiﬁcant scale where the costs of individual or related projects

exceed £25 million.

The existing Combined restructuring and integration programme incorporates the previous Major Change programme, the

Pharmaceuticals restructuring programme and the restructuring and integration programme following the Novartis transaction in

2015. This programme is now subsequently complete. In July 2018, the Board-approved a Major restructuring programme,

designed to signiﬁcantly improve the competitiveness and efﬁciency of the Group’s cost base with savings delivered primarily

through supply chain optimisation and reductions in administrative costs. In February 2019, the Board-approved a new Major

restructuring programme to generate synergies from the integration of the Pﬁzer consumer healthcare business into GSK’s

Consumer Healthcare business.

The total restructuring costs of £1,105 million in 2019 were incurred in the following areas:

– Manufacturing site restructuring, including at Worthing, United Kingdom and Cork, Ireland

– Restructuring following the integration of the Pﬁzer consumer healthcare business into GSK Consumer Healthcare

– Restructuring of the Pharmaceutical and Consumer Healthcare supply chains leading to simpliﬁcation of the operating model

and improved resource allocation

– Continued transformation of central functions, including GSK technology platforms and interfaces, to deliver greater digital

synergies, simpliﬁcation of applications and staff reductions.

The analysis of the costs charged to operating proﬁt under these programmes was as follows:

2019

£m

2018

£m

2017

£m

Increase in provision for Major restructuring programmes (see Note 31) 345 450 259

Amount of provision reversed unused (see Note 31) (148) (99) (43)

Impairment losses recognised 521 130 278

Other non-cash charges 99 72 247

Other cash costs 288 256 315

1,105 809 1,056

Provision reversals of £148 million (2018 – £99 million, 2017 – £43 million) reﬂected provision releases for the Combined

restructuring and integration programme. Asset impairments of £521 million and other non-cash charges of £99 million principally

comprised ﬁxed asset write-downs across manufacturing and research facilities and accelerated depreciation where asset lives in

R&D and manufacturing have been shortened as a result of the Major restructuring programmes. All other charges have been or will

be settled in cash and include the termination of leases, site closure costs, consultancy and project management costs.

The analysis of Major restructuring charges by programme was as follows:

2019

Cash

£m

Non-cash

£m

Total

£m

2018 major restructuring programme (including Tesaro) 227 572 799

Consumer Healthcare Joint Venture integration programme 248 4 252

Combined restructuring and integration programme 10 44 54

485 620 1,105

The analysis of Major restructuring charges by income statement line was as follows:

2019

£m

2018

£m

2017

£m

Cost of sales 658 443 545

Selling, general and administration 332 315 248

Research and development 114 49 263

Other operating expense 1 2 –

1,105 809 1,056

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

187

Notes to the ﬁnancial statements continued

11. Finance income

2019

£m

2018

£m

2017

£m

Years to 31 December 2019 and 31 December 2018 under IFRS 9

Finance income arising from:

Financial assets measured at amortised cost 69 73

Financial assets measured at fair value through proﬁt or loss 10 1

Net gains arising from the forward element of forward contracts in net investment hedge relationships 19 7

Year to 31 December 2017 under IAS 39

Interest income arising from:

Cash and cash equivalents 60

Available-for-sale investments 2

Loans and receivables 1

Fair value adjustments on derivatives at fair value through proﬁt or loss 2

98 81 65

Finance income arising from ﬁnancial assets measured at amortised cost in 2019 and 2018 includes interest income arising from

assets which would have been classiﬁed as available-for-sale investments and loans and receivables in 2017 under IAS 39. This

also includes interest income arising from certain cash and cash equivalents. Finance income arising from ﬁnancial assets

measured at fair value through proﬁt or loss in 2019 and 2018 includes interest income arising from other cash and cash

equivalents.

Net gains arising from hedge ineffectiveness on net investment hedges were recorded in ‘Fair value adjustments on derivatives at

fair value through proﬁt or loss’ in 2017. All derivatives accounted for at fair value through proﬁt or loss other than designated and

effective hedging instruments (see Note 43, ‘Financial instruments and related disclosures’) are classiﬁed as held-for-trading

ﬁnancial instruments.

12. Finance expense

2019

£m

2018

£m

2017

£m

Finance expense arising on:

Financial liabilities at amortised cost (832) (677) (698)

Derivatives at fair value through proﬁt or loss (6) (38) (22)

Net losses arising from:

Financial instruments mandatorily measured at fair value through proﬁt or loss (1) 3 (4)

Reclassiﬁcation of hedges from other comprehensive income (2) (2) –

Unwinding of discounts on provisions (8) (15) (16)

Finance expense arising on lease liabilities (39) (2) (1)

Other ﬁnance expense (24) (67) 7

(912) (798) (734)

All derivatives accounted for at fair value through proﬁt or loss, other than designated and effective hedging instruments (see

Note 43, ‘Financial instruments and related disclosures’), are classiﬁed as held-for-trading ﬁnancial instruments. Finance expense

arising on derivatives at fair value through proﬁt or loss relates to swap interest expense. The prior year ﬁgures in ﬁnance expense

arising on lease liabilities related to interest arising on ﬁnance leases under the previous leasing standard, IAS 17, which was

originally reported in ‘Other ﬁnance expense’. In 2018, other ﬁnance expense included a £39 million charge for interest relating to

historical income tax settlements.

188

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

13. Associates and joint ventures

The Group’s share of after-tax proﬁts and losses of associates and joint ventures is set out below:

2019

£m

2018

£m

2017

£m

Share of after-tax proﬁts of associates 85 28 16

Share of after-tax (losses)/proﬁts of joint ventures (11) 3 (3)

74 31 13

At 31 December 2019, the Group held one signiﬁcant associate, Innoviva, Inc.

Summarised income statement information in respect of Innoviva is set out below. The Group’s 2019 share of after-tax proﬁts of

associates and other comprehensive income includes a proﬁt of £79 million and other comprehensive income of £nil in respect

of Innoviva.

The results of Innoviva included in the summarised income statement information below represent the estimated earnings of

Innoviva in the relevant periods, based on publicly available information at the balance sheet date. Innoviva’s turnover arises from

royalty income from GSK in relation to Relvar/Breo Ellipta, Anoro Ellipta and Trelegy Ellipta sales.

2019

£m

2018

£m

2017

£m

Turnover 193 183 165

Proﬁt after taxation 116 134 103

Other comprehensive income – – –

Total comprehensive income 116 134 103

The estimated results of Innoviva for 2018 exclude a deferred tax credit of £163 million which was not announced by Innoviva until

after the Group ﬁnalised its results for 2018. Accordingly, GSK’s share of this credit of £51 million has been recognised in the

share of after-tax proﬁts of associates in 2019.

Aggregated ﬁnancial information in respect of GSK’s share of other associated undertakings and joint ventures is set out below:

2019

£m

2018

£m

2017

£m

Share of turnover 32 242 252

Share of after-tax (losses)/proﬁts (5) (2) (5)

Share of other comprehensive income 1 – –

Share of total comprehensive (expense)/income (5) (2) (5)

The Group’s sales to associates and joint ventures were £11 million in 2019 (2018 – £43 million; 2017 – £41 million).

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

189

Notes to the ﬁnancial statements continued

14. Taxation

The Group’s tax charge is the sum of the total current and deferred tax expense.

Taxation charge based on proﬁts for the year

2019

£m

2018

£m

2017

£m

UK current year charge 149 234 199

Rest of World current year charge 1,407 1,426 1,928

Credit in respect of prior periods (420) (492) (508)

Current taxation 1,136 1,168 1,619

Deferred taxation (183) (414) (263)

953 754 1,356

In 2019, GSK made payments of £163 million in UK corporation tax to HMRC. These amounts are for UK corporation tax only,

and do not include the various other business taxes borne in the UK by GSK each year.

The deferred tax credit in 2019 reﬂected the origination of current year expenses where offset against taxable proﬁts in future

periods is probable. In 2018, this also included an uplift in the tax carrying value of certain Consumer Healthcare brands as a result

of the acquisition of Novartis’ interest in the former Consumer Healthcare Joint Venture.

The deferred tax credit in 2017 reﬂected the revaluation of existing deferred tax liabilities to reﬂect a lower Swiss tax rate applicable

following Swiss tax reform and an increase in deferred tax assets related to intra-Group proﬁt on inventory. The impact of these

items was partly offset by the revaluation of existing deferred tax assets to reﬂect the lower US tax rate applicable following the

enactment of US tax reform.

The following table reconciles the tax charge calculated at the UK statutory rate on the Group proﬁt before tax with the actual tax

charge for the year.

Reconciliation of taxation on Group proﬁts

2019

£m

2019

2018

(revised)

£m

2018

2017

(revised)

£m

2017

Proﬁt before tax 6,221 4,800 3,525

UK statutory rate of taxation 1,182 19.0 912 19.0 679 19.3

Differences in overseas taxation rates 667 10.7 635 13.2 586 16.6

Beneﬁt of intellectual property incentives (691) (11.1) (482) (10.0) (410) (11.6)

R&D credits (119) (1.9) (73) (1.5) (75) (2.1)

Fair value remeasurement of non-taxable put options (45) (0.7) 221 4.6 227 6.5

Tax losses where no beneﬁt is recognised 15 0.2 24 0.5 28 0.8

Permanent differences on disposals and acquisitions 68 1.1 (7) (0.1) 4 0.1

Other permanent differences 119 1.9 53 1.1 162 4.6

Re-assessments of prior year estimates (364) (5.9) (436) (9.1) (475) (13.5)

Changes in tax rates 121 2.0 (93) (1.9) 629 17. 8

Tax charge/tax rate 953 15.3 754 15.7 1,356 38.5

GSK has a substantial business presence in many countries around the world. The impact of differences in overseas taxation rates

arose from proﬁts being earned in countries with tax rates higher than the UK statutory rate, the most signiﬁcant of which in 2019

were the US, Belgium, India and Japan. The adverse impact was partly offset by the increased beneﬁt of intellectual property

incentives such as the UK Patent Box and Belgian Patent Income Deduction regimes. Such regimes provide a reduced rate of

corporate income tax on proﬁts earned from qualifying patents. We claim these incentives in the manner intended by the relevant

statutory or regulatory framework.

In 2019, ‘Changes in tax rates’ included items of expense where tax relief will only be available in future periods at lower rates

due to the reduction in statutory tax rates in the UK and Belgium to 17% and 25% respectively. The impact of US and Swiss tax

reform has been incorporated into the ‘Changes in tax rates’ category for the years 2017 and 2018. The respective values are

£595 million debit and £125 million credit.

The Group’s 2019 tax rate of 15.3% has been inﬂuenced by the reassessment of open issues with tax authorities in various

jurisdictions and fair value accounting movements on the Group’s put option liabilities to ViiV Healthcare and on hedges against

shares in Hindustan Unilever Limited to be received on disposal of Horlicks and other Consumer Healthcare brands.

Future tax charges, and therefore our effective tax rate, may be affected by factors such as acquisitions, disposals, restructurings,

the location of research and development activity, tax regime reforms and resolution of open matters as we continue to bring our

tax affairs up to date around the world.

190

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

14. Taxation continued

Tax on items charged to equity and statement of comprehensive income

2019

£m

2018

£m

2017

£m

Current taxation

Share-based payments 1 – –

Deﬁned beneﬁt plans 16 (2) 26

17 (2) 26

Deferred taxation

Share-based payments 18 2 (4)

Deﬁned beneﬁt plans 173 (144) (247)

Fair value movements on cash ﬂow hedges 16 (2) –

Fair value movements on equity investments (95) 10 29

112 (134) (222)

Total credit/(charge) to equity and statement of comprehensive income 129 (136) (196)

All of the above items have been charged to the statement of comprehensive income except for tax on share-based payments.

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. In line with current OECD

guidelines we base our transfer pricing policy on the ‘arm’s length’ principle. However, different tax authorities may seek to attribute

further proﬁt to activities being undertaken in their jurisdiction potentially resulting in double taxation. The Group also has open

items in several jurisdictions concerning such matters as the deductibility of particular expenses and the tax treatment of certain

business transactions. GSK applies a risk based approach to determine the transactions most likely to be subject to challenge,

assuming the relevant tax authority will review and have full knowledge of all the relevant information, and the probability that the

Group would be able to obtain compensatory adjustments under international tax treaties.

The calculation of the Group’s total tax charge therefore necessarily involves a degree of estimation and judgement in respect of

certain items where the tax treatment cannot be ﬁnally determined until resolution has been reached with the relevant tax authority

or, as appropriate, through a formal legal process. At 31 December 2019 the Group had recognised provisions of £933 million in

respect of such uncertain tax positions (2018 – £1,082 million). The decrease in recognised provisions during 2019 was driven by

the reassessment of estimates and the utilisation of provisions for uncertain tax positions following the settlement of a number of

open issues with tax authorities in various jurisdictions. Whilst the ultimate liability for such matters may vary from the amounts

provided and is dependent upon the outcome of agreements with the relevant tax authorities, or litigation where appropriate, the

Group continues to believe that it has made appropriate provision for periods which are open and not yet agreed by the tax

authorities.

A provision for deferred tax liabilities of £198 million as at 31 December 2019 (2018 – £185 million) has been made in respect

of taxation that would be payable on the remittance of proﬁts by certain overseas subsidiaries. Whilst the aggregate amount of

unremitted proﬁts at the balance sheet date was approximately £19 billion (2018 – £18 billion), the majority of these unremitted

proﬁts would not be subject to tax (including withholding tax) on repatriation, as UK legislation relating to company distributions

provides for exemption from tax for most overseas proﬁts, subject to certain exceptions. Deferred tax is not provided on temporary

differences of £326 million (2018 – £231 million) arising on unremitted proﬁts as management has the ability to control any future

reversal and does not consider such a reversal to be probable.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

191

Notes to the ﬁnancial statements continued

14. Taxation continued

Movement in deferred tax assets and liabilities

Accelerated

capital

allowances

£m

Intangible

assets

£m

Contingent

consideration

£m

Intra-Group

proﬁt

£m

Pensions &

other post

employment

beneﬁts

£m

Tax

losses

£m

option

and award

schemes

£m

Other

net

temporary

differences

£m

Total

£m

At 1 January 2018 (317) (1,320) 868 1,017 760 261 74 1,057 2,400

Exchange adjustments (6) (4) – 43 38 2 2 9 84

Credit/(charge) to income statement (12) 365 (34) (31) 33 183 (7) (101) 396

Credit/(charge) to statement of

comprehensive income and equity – – – – (144) – 2 8 (134)

Reclassiﬁcation on disposal – – – – 7 1 – (23) (15)

At 31 December 2018 (335) (959) 834 1,029 694 447 71 950 2,731

Implementation of IFRS 16 40 – – – – – – – 40

At 31 December 2018, as adjusted (295) (959) 834 1,029 694 447 71 950 2,771

Exchange adjustments 17 88 – (8) (40) (8) (1) 55 103

Credit/(charge) to income statement 35 (204) (77) 59 9 225 (7) 143 183

Credit/(charge) to statement of

comprehensive income and equity – – – – 186 – 18 (92) 112

Acquisitions and disposals 1 (3,117) – 40 15 278 – (60) (2,843)

R&D credits utilisation – – – – – – – (40) (40)

At 31 December 2019 (242) (4,192) 757 1,120 864 942 81 956 286

Deferred tax liabilities provided in relation to intangible assets predominately relate to temporary differences arising on assets and

liabilities acquired as part of historic business combinations. Acquisitions and disposals in 2019 included deferred tax liabilities of

£2,591 million related to the Pﬁzer consumer healthcare business acquisition and £252 million related to the Tesaro acquisition.

The Group continues to recognise deferred tax assets on future obligations in respect of contingent consideration amounts payable

to minority shareholders. These payments are tax deductible at the point in time at which payment is made.

A deferred tax asset is recognised on intra-Group proﬁts arising on inter-company inventory which are eliminated within the

consolidated accounts. As intra-Group proﬁts are not eliminated from the individual entities’ tax returns a temporary difference arises

that will reverse at the point in time inventory is sold externally.

The deferred tax asset recognised on tax losses of £942 million (2018 – £447 million) relates to trading losses. Included in this

amount are deferred tax assets of £237 million in relation to losses which are recognised on the basis that sufﬁcient future taxable

proﬁts to utilise the losses are forecast in the entities to which the losses relate. Other net temporary differences included accrued

expenses for which a tax deduction was only available on a paid basis, such as for pensions.

Deferred tax asset and liabilities are recognised on the balance sheet as follows:

2019

£m

2018

£m

Deferred tax assets 4,096 3,887

Deferred tax liabilities (3,810) (1,156)

286 2,731

Deferred tax assets are recognised on US foreign tax credits only where it is probable that future taxable proﬁts will be available.

The net amount of foreign tax credits on which deferred tax has not been provided was £93 million (2018 – £114 million).

2019 2018

Unrecognised tax losses

Tax losses

£m

Unrecognised

deferred tax

asset

£m

Tax losses

£m

Unrecognised

deferred tax

asset

£m

Trading losses expiring:

Within 10 years 556 117 678 148

More than 10 years 838 108 957 93

Available indeﬁnitely 159 27 89 15

At 31 December 1,553 252 1,724 256

Capital losses expiring:

Available indeﬁnitely 2,148 355 2,042 399

At 31 December 2,148 355 2,042 399

192

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

15. Earnings per share

2019

pence

2018

pence

2017

pence

Basic earnings per share 93.9 73.7 31.4

Diluted earnings per share 92.6 72.9 31.0

Basic earnings per share has 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.

Diluted earnings per share has 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

2019

millions

2018

millions

2017

millions

Basic 4,947 4,914 4,886

Dilution for share options and awards 69 57 55

Diluted 5,016 4,971 4,941

16. Dividends

2019 2018 2017

Paid/payable

Dividend

per share

(pence)

Total

dividend

£m

Paid

Dividend

per share

(pence)

Total

dividend

£m

Paid

Dividend

per share

(pence)

Total

dividend

£m

First interim 11 July 2019 19 940 12 July 2018 19 934 13 July 2017 19 928

Second interim 10 October 2019 19 941 11 October 2018 19 934 12 October 2017 19 929

Third interim 9 January 2020 19 941 10 January 2019 19 935 11 January 2018 19 929

Fourth interim 9 April 2020 23 1,139 11 April 2019 23 1,137 12 April 2018 23 1,130

Total 80 3,961 80 3,940 80 3,916

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 2019 ﬁnancial statements

recognise those dividends paid in 2019, namely the third and fourth interim dividends for 2018, and the ﬁrst and second interim

dividends for 2019.

The amounts recognised in each year were as follows:

2019

£m

2018

£m

2017

£m

Dividends to shareholders 3,953 3,927 3,906

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

193

Notes to the ﬁnancial statements continued

17. Property, plant and equipment

Land and

buildings

£m

Plant,

equipment

and vehicles

£m

Assets in

construction

£m

Total

£m

Cost at 1 January 2018 7, 4 67 11,751 2,501 21,719

Exchange adjustments 150 187 25 362

Other additions 33 190 1,135 1,358

Capitalised borrowing costs – – 21 21

Disposals and write-offs (90) (440) (53) (583)

Reclassiﬁcations 403 1,016 (1,486) (67)

Transfer to assets held for sale (152) (167) (3) (322)

Cost at 31 December 2018 7,811 12,537 2,140 22,488

Implementation of IFRS 16 (64) (106) – (170)

At 31 December 2018, as adjusted 7,747 12,431 2,140 22,318

Exchange adjustments (254) (381) (70) (705)

Additions through business combinations 149 177 34 360

Other additions 42 154 1,084 1,280

Capitalised borrowing costs – – 25 25

Disposals and write-offs (34) (528) (11) (573)

Reclassiﬁcations 243 919 (1,231) (69)

Transfer to assets held for sale (261) (711) (65) (1,037)

Cost at 31 December 2019 7,632 12,061 1,906 21,599

Depreciation at 1 January 2018 (3,036) (7,260) – (10,296)

Exchange adjustments (61) (111) – (172)

Charge for the year (268) (686) – (954)

Disposals and write-offs 77 401 – 478

Transfer to assets held for sale 55 122 – 177

Depreciation at 31 December 2018 (3,233) (7,534) – (10,767)

Implementation of IFRS 16 30 42 – 72

At 31 December 2018, as adjusted (3,203) (7,492) – (10,695)

Exchange adjustments 74 196 – 270

Charge for the year (265) (752) – (1,017)

Disposals and write-offs 19 380 – 399

Transfer to assets held for sale 159 477 – 636

Depreciation at 31 December 2019 (3,216) (7,191) – (10,407)

Impairment at 1 January 2018 (161) (359) (43) (563)

Exchange adjustments (8) (4) (1) (13)

Disposals and write-offs 10 59 22 91

Impairment losses (16) (143) (46) (205)

Reversal of impairments 1 6 – 7

Transfer to assets held for sale – 20 – 20

Impairment at 31 December 2018 (174) (421) (68) (663)

Implementation of IFRS 16 – – – –

At 31 December 2018, as adjusted (174) (421) (68) (663)

Exchange adjustments 13 11 6 30

Disposals and write-offs 2 77 36 115

Impairment losses (312) (329) (38) (679)

Reversal of impairments 2 8 – 10

Transfer to assets held for sale 90 209 44 343

Impairment at 31 December 2019 (379) (445) (20) (844)

Total depreciation and impairment at 31 December 2018 (3,407) (7,955) (68) (11,430)

Total depreciation and impairment at 31 December 2019 (3,595) (7,636) (20) (11,251)

Net book value at 1 January 2018 4,270 4,132 2,458 10,860

Net book value at 31 December 2018 4,404 4,582 2,072 11,058

Net book value at 31 December 2019

4,037 4,425 1,886 10,348

194

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

17. Property, plant and equipment continued

The weighted average interest rate for capitalised borrowing costs in the year was 3% (2018 – 3%). Disposals and write-offs in the

year included a number of assets with nil net book value that are no longer in use in the business.

The impairment losses principally arose from decisions to rationalise facilities and are calculated based on either fair value less

costs of disposal or value in use. The fair value less costs of disposal valuation methodology uses signiﬁcant inputs which are not

based on observable market data, and therefore this valuation technique is classiﬁed as level 3 of the fair value hierarchy. These

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 7%, adjusted where

appropriate for speciﬁc segment, country and currency risk. For value in use calculations, the post-tax cash ﬂows do not include

the impact of future uncommitted restructuring plans or improvements. 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 9%. The net impairment losses have

been charged to cost of sales: £624 million (2018 – £142 million), R&D: £1 million (2018 – £9 million) and SG&A: £44 million

(2018 – £54 million), and included £502 million (2018 – £138 million) arising from the Major restructuring programmes.

Reversals of impairment arose from subsequent reviews of the impaired assets where the conditions which gave rise to the original

impairments were deemed no longer to apply. All of the reversals have been credited to cost of sales.

During 2019, £69 million (2018 – £67 million) of computer software was reclassiﬁed from assets in construction to intangible

assets on becoming ready for use.

18. Right of use assets

Land and

buildings

£m

Plant and

equipment

£m

Vehicles

£m

Total

£m

Net book value at 1 January 2019 907 27 137 1,071

Exchange adjustments (28) (2) (6) (36)

Additions through business combinations 66 11 2 79

Other additions 60 1 71 132

Depreciation (145) (8) (61) (214)

Disposals (37) (20) (7) (64)

Impairments (2) – – (2)

Reclassiﬁcations – 13 (13) –

Net book value at 31 December 2019 821 22 123 966

The total cash outﬂow for leases amounted to £214 million. There were no signiﬁcant lease commitments for leases not

commenced at year-end.

An analysis of lease liabilities is set out in Note 29, ‘Net debt’.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

195

Notes to the ﬁnancial statements continued

2019

£m

2018

£m

Cost at 1 January 5,789 5,734

Exchange adjustments (277) 199

Additions through business combinations (Note 40) 5,023 –

Transfer from/(to) assets held for sale 27 (144)

Cost at 31 December 10,562 5,789

Net book value at 1 January 5,789 5,734

Net book value at 31 December 10,562 5,789

Goodwill is allocated to the Group’s segments as follows:

2019

£m

2018

£m

Pharmaceuticals 4,316 3,273

Vaccines 1,280 1,342

Consumer Healthcare 4,966 1,174

Net book value at 31 December 10,562 5,789

The recoverable amounts of the cash generating units are assessed using a fair value less costs of disposal model. Fair value less

costs of disposal is calculated using a discounted cash ﬂow approach, with a post-tax discount rate applied to the projected

risk-adjusted post-tax cash ﬂows and terminal value.

The discount rate used is based on the Group WACC of 7%, as most cash generating units have integrated operations across

large parts of the Group. The discount rate is adjusted where appropriate for speciﬁc segment, country and currency risks. The

valuation methodology uses signiﬁcant inputs which are not based on observable market data, therefore this valuation technique is

classiﬁed as level 3 in the fair value hierarchy.

Details relating to the discounted cash ﬂow models used in the impairment tests of the Pharmaceuticals, Vaccines and Consumer

Healthcare cash generating units are as follows:

Valuation basis Fair value less costs of disposal

Key assumptions Sales growth rates

Profit margins

Terminal growth rate

Discount rate

Taxation 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.

Terminal growth rates based on management’s estimate of future long-term average growth rates.

Discount rates based on Group WACC, adjusted where appropriate.

Taxation rates based on appropriate rates for each region.

Period of specific projected cash flows Five years

Terminal growth rate and discount rate

Terminal growth rate Discount rate

Pharmaceuticals 1% p.a. 7.5%

Vaccines 1% p.a. 7.5%

Consumer Healthcare 2% p.a. 6%

The terminal growth rates do not exceed the long-term projected growth rates for the relevant markets, reﬂect the impact of future

generic competition and take account of new product launches.

Goodwill is monitored for impairment at the segmental level. In each case the valuations indicated sufﬁcient headroom such that a

reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.

The Pharmaceuticals cash generating unit comprises a collection of smaller cash generating units including assets with indeﬁnite

lives with a carrying value of £nil (2018 – £236 million). The Consumer Healthcare cash generating unit also comprises a collection

of smaller cash generating units including brands with indeﬁnite lives with a carrying value of £19.6 billion (2018 – £8.5 billion).

Details of indeﬁnite life brands are given in Note 20, ‘Other intangible assets’.

19. Goodwill

196

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

20. Other intangible assets

Computer

software

£m

Licences,

patents,

amortised

brands etc.

£m

Indeﬁnite life

brands

£m

Total

£m

Cost at 1 January 2018 2,174 15,764 8,993 26,931

Exchange adjustments 32 264 63 359

Capitalised development costs – 203 – 203

Capitalised borrowing costs 1 – – 1

Other additions 173 154 – 327

Disposals and asset write-offs (80) (129) – (209)

Transfer to assets held for sale (2) (90) – (92)

Reclassiﬁcations 67 – – 67

Cost at 31 December 2018 2,365 16,166 9,056 27,587

Exchange adjustments (37) (418) (1,037) (1,492)

Capitalised development costs – 239 – 239

Capitalised borrowing costs 1 – – 1

Additions through business combinations 31 3,091 12,357 15,479

Other additions 197 465 – 662

Disposals and asset write-offs (235) (7) – (242)

Transfer to assets held for sale (7) (62) (227) (296)

Reclassiﬁcations 82 242 (255) 69

Cost at 31 December 2019 2,397 19,716 19,894 42,007

Amortisation at 1 January 2018 (1,111) (5,787) – (6,898)

Exchange adjustments (24) (107) – (131)

Charge for the year (240) (662) – (902)

Disposals and asset write-offs 67 124 – 191

Transfer to assets held for sale 1 19 – 20

Amortisation at 31 December 2018 (1,307) (6,413) – (7,720)

Exchange adjustments 19 123 – 142

Charge for the year (233) (870) – (1,103)

Disposals and asset write-offs 215 4 – 219

Transfer to assets held for sale 4 42 – 46

Amortisation at 31 December 2019 (1,302) (7,114) – (8,416)

Impairment at 1 January 2018 (9) (2,207) (255) (2,471)

Exchange adjustments – (89) – (89)

Impairment losses (17) (51) (69) (137)

Reversal of impairments – 3 – 3

Disposals and asset write-offs 14 4 – 18

Transfer to assets held for sale – 11 – 11

Impairment at 31 December 2018 (12) (2,329) (324) (2,665)

Exchange adjustments 3 70 – 73

Impairment losses (49) (84) (3) (136)

Reversal of impairments – 10 – 10

Disposals and asset write-offs 19 3 – 22

Transfer to assets held for sale 2 5 53 60

Impairment at 31 December 2019 (37) (2,325) (274) (2,636)

Total amortisation and impairment at 31 December 2018 (1,319) (8,742) (324) (10,385)

Total amortisation and impairment at 31 December 2019 (1,339) (9,439) (274) (11,052)

Net book value at 1 January 2018 1,054 7,770 8,738 17,562

Net book value at 31 December 2018 1,046 7,424 8,732 17,202

Net book value at 31 December 2019 1,058 10,277 19,620 30,955

The weighted average interest rate for capitalised borrowing costs in the year was 3% (2018 – 3%).

The net book value of computer software included £560 million (2018 – £578 million) of internally generated costs.

The carrying value at 31 December 2019 of intangible assets, for which impairments have been charged or reversed in the year,

following those impairments or reversals, was £175 million (2018 – £73 million).

The patent expiry dates of the Group’s most signiﬁcant assets, where relevant, are set out on pages 272 and 273.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

197

Notes to the ﬁnancial statements continued

Amortisation and impairment losses, net of reversals, have been charged in the income statement as follows:

Amortisation Net impairment losses

2019

£m

2018

£m

2019

£m

2018

£m

Cost of sales 781 593 34 69

Selling, general and administration 163 178 43 19

Research and development 159 131 49 46

1,103 902 126 134

Licences, patents, amortised brands 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. Note 40, ‘Acquisitions and disposals’ gives details of

additions through business combinations in the year. The book values of the largest individual items are as follows:

2019

£m

2018

£m

Zejula 2,878 –

Meningitis portfolio 2,139 2,363

Dolutegravir 1,280 1,319

Benlysta 834 905

BMS 286 277

Merck Assets 264 –

Fluarix/FluLaval 237 274

Stiefel trade name 204 –

Others 2,155 2,286

10,277 7,424

The Meningitis portfolio includes Menveo, Bexsero, Men ABCWY and Menjugate. The Stiefel trade name has been moved into

licences, patents, amortised brands etc. following the decision to start amortisation during 2019.

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, CNS, Inc. in 2006, the Novartis consumer healthcare business in 2015

and the Pﬁzer consumer healthcare business in 2019. The book values of the major brands are as follows:

2019

£m

2018

£m

Advil 3,408 –

Voltaren 2,725 2,735

Centrum 1,808 –

Caltrate 1,648 –

Otrivin 1,385 1,385

Preparation H 1,171 –

Robitussin 1,138 –

Nexium 682 –

Fenistil 598 651

Chapstick 523 –

Emergen-C 447 –

Theraﬂu 438 449

Panadol 397 388

Lamisil 291 293

Sensodyne 270 265

Breathe Right 251 262

Stiefel trade name – 236

Others 2,440 2,068

19,620 8,732

20. Other intangible assets continued

198

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

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 factors which could limit their useful lives. Accordingly, they are not amortised.

Each brand is tested annually for impairment and other amortised intangible assets are tested when indicators of impairment arise.

This testing applies a fair value less costs of disposal methodology, generally using post-tax cash ﬂow forecasts with a terminal

value calculation and a discount rate equal to the Group post-tax WACC of 7%, adjusted where appropriate for speciﬁc segment,

country and currency risks. This valuation methodology uses signiﬁcant inputs which are not based on observable market data, and

therefore this valuation technique is classiﬁed as level 3 of the fair value hierarchy. The main assumptions include future sales price

and volume growth, product contribution, the future expenditure required to maintain the product’s marketability and registration

in the relevant jurisdictions and exchange rates. 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 intangible assets.

21. Investments in associates and joint ventures

Joint

ventures

£m

Associates

£m

2019

Total

£m

Joint

ventures

£m

Associates

£m

2018

Total

£m

At 1 January 19 217 236 13 170 183

Exchange adjustments (1) (9) (10) 1 11 12

Additions 16 11 27 1 9 10

Disposals (1) – (1) – – –

Distributions received – (7) (7) – (40) (40)

Other movements (7) 2 (5) 1 39 40

Proﬁt/(loss) after tax recognised in the consolidated income statement (11) 85 74 3 28 31

At 31 December 15 299 314 19 217 236

The Group held one signiﬁcant associate at 31 December 2019, Innoviva, Inc. At 31 December 2019, the Group owned 32 million

shares or 31.6% of Innoviva, which is a biopharmaceutical company listed on NASDAQ. Innoviva partnered with GSK in the

development of the long acting beta agonist, vilanterol, and currently receives royalty income from sales of products that contain

this component, namely Relvar/Breo Ellipta and Anoro Ellipta. It also has a 15% economic interest in royalties paid by GSK on

sales of Trelegy Ellipta. The remaining 85% of the economic interest in these royalties is held by Theravance Biopharma Inc., in

which the Group holds 17% of the common stock. The investment in Innoviva had a market value of £343 million at 31 December

2019 (2018 – £440 million).

Summarised balance sheet information, based on information published post the balance sheet date, in respect of Innoviva is set

out below:

At 31 December

2019

£m

At 31 December

2018

£m

Non-current assets 222 275

Current assets 326 157

Current liabilities (4) (4)

Non-current liabilities (286) (302)

Net assets 258 126

The carrying value of the Group’s investment in Innoviva is analysed as follows:

2019

£m

2018

£m

Interest in net assets of associate 82 40

Goodwill 88 91

Fair value and other adjustments 91 58

Carrying value at 31 December 261 189

20. Other intangible assets continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

199

Notes to the ﬁnancial statements continued

22. Other investments

Investments

designated as

measured at

FVTOCI

£m

Investments

measured at

FVTPL

£m

2019

£m

Investments

designated as

measured at

FVTOCI

£m

Investments

measured at

FVTPL

£m

2018

£m

At 1 January 1,250 72 1,322 869 49 918

Additions 274 3 277 363 9 372

Net fair value movements through Other comprehensive income 314 – 314 166 – 166

Net fair value movements through proﬁt or loss – (14) (14) – 20 20

Disposals and settlements (57) (5) (62) (89) (6) (95)

Transfers to Assets held for sale – – – (59) – (59)

At 31 December 1,781 56 1,837 1,250 72 1,322

Other investments comprise non-current equity investments which are 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, recent ﬁnancing rounds and discounted cash ﬂows of the underlying net assets. Net

fair value movements include the impact of exchange (losses of £66 million through Other comprehensive income and £2 million

through proﬁt or loss) (2018 – gains of £48 million and £4 million respectively). Other investments include listed investments of

£1,128 million (2018 – £656 million).

GSK has elected to designate the majority of its equity investments as measured at fair value through other comprehensive income

(FVTOCI). The most signiﬁcant of these investments held at 31 December 2019 were in 23andMe in which the Group holds

14.5% of the common stock, Progyny, Inc. in which the Group holds 12.5%, Theravance Biopharma, Inc. in which the Group

holds 17.0% and Lyell Immunopharma, Inc in which the Group holds 15.0%. These investments had a fair value at 31 December

2019 of £227 million (2018 – £229 million), £213 million (2018 – £21 million), £189 million (2018 – £194 million) and £155 million,

respectively. No other investment is individually material. The other investments include equity stakes in companies with which GSK

has research collaborations and in companies which provide access to biotechnology developments of potential interest.

On disposal of equity investments measured at FVTOCI, the accumulated fair value movements are reclassiﬁed from the fair value

reserve to retained earnings. Investments with a fair value of £57 million (2018 – £148 million) were disposed of during the year.

The cumulative gain on these investments after tax was £4 million (2018 – £56 million).

Certain other investments, such as investments in funds with limited lives, are measured at fair value through proﬁt or loss (FVTPL).

Investments with a fair value of £5 million were disposed of during the year.

Cumulative impairments on those Other investments designated as measured at FVTOCI under IFRS 9 were transferred from

retained earnings to the fair value reserve on 1 January 2018 on adoption of IFRS 9.

23. Other non-current assets

2019

£m

2018

£m

Amounts receivable under insurance contracts 743 675

Pension schemes in surplus 127 760

Other receivables 150 141

1,020 1,576

Amounts receivable under insurance contacts are held at fair value through proﬁt or loss.

Within the other receivables of £150 million (2018 – £141 million), £88 million (2018 – £89 million) is classiﬁed as ﬁnancial assets

of which £44 million (2018 – £41 million) is classiﬁed as fair value through proﬁt or loss. On the remaining balance of £44 million

(2018 – £48 million), the expected credit loss allowance was immaterial at 31 December 2019 and 2018.

200

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

24. Inventories

2019

£m

2018

£m

Raw materials and consumables 1,195 1,122

Work in progress 2,505 2,286

Finished goods 2,247 2,068

5,947 5,476

25. Trade and other receivables

2019

£m

2018

£m

Trade receivables, net of loss allowance 5,487 5,176

Accrued income 7 9

Other prepayments 316 330

Interest receivable 3 4

Employee loans and advances 13 14

Other receivables 1,376 890

7,202 6,423

Trade receivables included £nil (2018 – £15 million) due from associates and joint ventures. Other receivables included £nil

(2018 – £nil) due from associates and joint ventures.

Loss allowance

2019

£m

2018

£m

At 1 January 128 140

Implementation of IFRS 9 – 15

At 1 January, as adjusted 128 155

Exchange adjustments (3) –

Charge for the year 16 7

Subsequent recoveries of amounts provided for (5) (30)

Utilised (6) (4)

At 31 December 130 128

Of the total trade receivables balance, £110 million (2018 – £71 million) was considered credit impaired, against which an

£11 million (2018 – £7 million) expected credit loss allowance has been applied. No amount was purchased or originated

credit impaired.

Within the other receivables of £1,376 million (2018 – £890 million), £707 million (2018 – £376 million) was classiﬁed as ﬁnancial

assets of which £nil (2018 – £41 million) was classiﬁed as fair value through proﬁt and loss. On the remaining balance of £707

million (2018 – £335 million), an expected credit loss allowance of £8 million (2018 – £5 million) was recognised at 31 December

2019 with no charge reported in proﬁt or loss during the year.

For more discussion on credit risk practices, please refer to Note 43.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

201

Notes to the ﬁnancial statements continued

26. Cash and cash equivalents

2019

£m

2018

£m

Cash at bank and in hand 795 569

Short-term deposits 3,912 3,305

4,707 3,874

In addition, £507 million (2018 – £485 million) of cash and cash equivalents has been reported in Assets held for sale, see

Note 27, ‘Assets held for sale’.

Cash and cash equivalents included £0.2 billion (2018 – £0.2 billion) not available for general use due to restrictions applying

in the subsidiaries where it is held. Restrictions include exchange controls and taxes on repatriation.

27. Assets held for sale

2019

£m

2018

£m

Property, plant and equipment 80 10 9

Right of use assets 7 –

Lease liabilities (7) –

Goodwill 124 144

Other intangibles 175 1

Inventory 109 50

Cash and cash equivalents 507 485

Other (122) (136)

873 653

Non-current assets and disposal groups are transferred to assets held for sale when it is expected that their carrying amounts

will be recovered principally through disposal and a sale is considered highly probable. They are held at the lower of carrying

amount and fair value less costs to sell.

Assets held for sale primarily reﬂect the Thermacare disposal group, which was acquired from Pﬁzer as part of its consumer

healthcare business and has to be sold by the Group in 2020 to meet anti-trust requirements and the disposal group representing

the Horlicks and other Consumer Healthcare nutritional brands to be sold to Unilever plc.

Included within assets held for sale is inventory written down to fair value less costs to sell of £109 million (2018 – £50 million).

The valuation methodology used signiﬁcant inputs which were not based on observable market data and therefore this valuation

is classiﬁed as level 3 in the fair value hierarchy.

An impairment of allocated goodwill of £4 million has been recognised to reﬂect fair value less costs to sell of a disposal group.

202

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

28. Trade and other payables

2019

£m

2018

£m

Trade payables 4,144 3,645

Wages and salaries 1,470 1,355

Social security 164 139

ViiV Healthcare put option 1,011 1,240

Other payables 515 401

Deferred income 158 216

Customer return and rebate accruals 5,108 5,064

Other accruals 2,369 1,977

14,939 14,037

Trade and other payables included £63 million (2018 – £64 million) due to associates and joint ventures. The Group provides

limited supplier ﬁnancing arrangements to certain customers. The amounts involved at 31 December 2019 were not material.

Revenue recognised in the year that was included in deferred income at 1 January 2019 was £72 million (2018 – £66 million).

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, and included £4,200 million (2018 – £4,356 million) in respect of US

Pharmaceuticals and Vaccines, as more fully described in the Group ﬁnancial review on page 72. 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 light of historical experience of

actual amounts paid 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.

Pﬁzer’s put option over its shareholding in ViiV Healthcare is currently exercisable. Pﬁzer may request an IPO of ViiV Healthcare

at any time and if either GSK does not consent to such IPO or an offering is not completed within nine months, Pﬁzer could

require GSK to acquire its shareholding. The amount of the liability for this put option, which is held on the gross redemption

basis, is derived from an internal valuation of the ViiV Healthcare business, utilising both discounted forecast future cash ﬂow

and multiples-based methodologies.

The table below shows on an indicative basis the income statement and balance sheet sensitivity of the Pﬁzer put option to

reasonably possible changes in key assumptions.

Increase/(decrease) in ﬁnancial liability and loss/(gain) in Income statement

2019

£m

10% increase in sales forecasts 119

10% decrease in sales forecasts (118)

10 cent appreciation of US Dollar 58

10 cent depreciation of US Dollar (49)

10 cent appreciation of Euro 37

10 cent depreciation of Euro (31)

An explanation of the accounting for ViiV Healthcare is set out on page 51.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

203

Notes to the ﬁnancial statements continued

29. Net debt

Listing exchange

2019

£m

2018

£m

Current assets:

Liquid investments 79 84

Cash and cash equivalents 4,707 3,874

Cash and cash equivalents reported in Assets held for sale 507 485

5,293 4,443

Short-term borrowings:

Commercial paper (3,586) (630)

Bank loans, overdrafts and other (434) (290)

Drawn bank facility (1,000) (3,500)

0.625% € European Medium Term Note 2019 London Stock Exchange – (1,349)

EURIBOR +0.20% € European Medium Term Note 2020 London Stock Exchange (638) –

0.000% € European Medium Term Note 2020 London Stock Exchange (1,020) –

Lease liabilities (240) (24)

(6,918) (5,793)

Long-term borrowings:

EURIBOR +0.20% € European Medium Term Note 2020 London Stock Exchange – (677)

0.000% € European Medium Term Note 2020 London Stock Exchange – (1,079)

3.125% US$ US Medium Term Note 2021 New York Stock Exchange (944) (980)

LIBOR +0.35% US$ US Medium Term Note 2021 New York Stock Exchange (567) (589)

EURIBOR +0.60% € European Medium Term Note 2021 London Stock Exchange (1,281) –

0.000% € European Medium Term Note 2021 London Stock Exchange (426) –

2.850% US$ US Medium Term Note 2022 New York Stock Exchange (1,509) (1,568)

2.875% US$ US Medium Term Note 2022 New York Stock Exchange (1,132) –

2.800% US$ US Medium Term Note 2023 New York Stock Exchange (941) (978)

3.375% US$ US Medium Term Note 2023 New York Stock Exchange (941) (977)

0.000% € European Medium Term Note 2023 London Stock Exchange (425) –

3.000% US$ US Medium Term Note 2024 New York Stock Exchange (751) –

1.375% € European Medium Term Note 2024 London Stock Exchange (844) (893)

4.000% € European Medium Term Note 2025 London Stock Exchange (633) (670)

3.625% US$ US Medium Term Note 2025 New York Stock Exchange (751) (780)

1.000% € European Medium Term Note 2026 London Stock Exchange (593) (629)

1.250% € European Medium Term Note 2026 London Stock Exchange (846) (897)

3.375% £ European Medium Term Note 2027 London Stock Exchange (594) (593)

3.875% US$ US Medium Term Note 2028 New York Stock Exchange (1,319) (1,372)

3.375% US$ US Medium Term Note 2029 New York Stock Exchange (746) –

1.375% € European Medium Term Note 2029 London Stock Exchange (422) (447)

1.750% € European Medium Term Note 2030 London Stock Exchange (635) (673)

5.250% £ European Medium Term Note 2033 London Stock Exchange (983) (982)

5.375% US$ US Medium Term Note 2034 New York Stock Exchange (375) (390)

6.375% US$ US Medium Term Note 2038 New York Stock Exchange (2,061) (2,143)

6.375% £ European Medium Term Note 2039 London Stock Exchange (694) (694)

5.250% £ European Medium Term Note 2042 London Stock Exchange (987) (986)

4.200% US$ US Medium Term Note 2043 New York Stock Exchange (371) (386)

4.250% £ European Medium Term Note 2045 London Stock Exchange (789) (788)

Other long-term borrowings (20) (56)

Lease liabilities (1,010) (44)

(23,590) (20,271)

Net debt (25,215) (21,621)

204

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

Current assets

Liquid investments are classiﬁed as ﬁnancial assets at amortised cost. At 31 December 2019, they included US Treasury Notes

and other government bonds. The effective interest rate on liquid investments at 31 December 2019 was approximately 1.1%

(2018 – approximately 1.0%). Liquid investment balances at 31 December 2019 earning interest at ﬂoating rates amount to

£1 million (2018 – £84 million). Liquid investment balances at 31 December 2019 earning interest at ﬁxed rates amount to

£78 million (2018 – £nil).

Balances reported within cash and cash equivalents have an original maturity of three months or less. The effective interest

rate on cash and cash equivalents at 31 December 2019 was approximately 1.6% (2018 – approximately 1.9%). Cash

and cash equivalents at 31 December 2019 earning interest at ﬂoating and ﬁxed rates amounted to £5,039 million and

£10 million respectively (2018 – £4,094 million and £2 million) and non-interest bearing holdings amounted to £164 million

(2018 – £263 million).

GSK’s policy regarding the credit quality of cash and cash equivalents is set out in Note 43, ‘Financial instruments and

related disclosures’.

Short-term borrowings

GSK has a $10 billion (£7.6 billion) US commercial paper programme, of which $4.8 billion (£3.6 billion) was in issue at

31 December 2019 (2018 – $0.8 billion (£0.6 billion)). GSK has a £1.9 billion three-year committed facility and $2.5 billion

(£1.9 billion) under a 364 day committed facility. Both the three-year committed facility and the 364 day committed facility were

agreed in September 2019 and were undrawn at 31 December 2019. An additional bank facility was agreed in 2018 to support

transactions and remained active at 31 December 2019. In June 2018, £3.5 billion was drawn to support the acquisition from

Novartis of the remaining stake in the Consumer Healthcare Joint Venture. £2.5 billion was repaid in November 2019, leaving

£1.0 billion outstanding at 31 December 2019.

The weighted average interest rate on commercial paper borrowings at 31 December 2019 was 1.8% (2018 – 2.5%).

The weighted average interest rate on current bank loans and overdrafts at 31 December 2019 was 4.6% (2018 – 12.0%).

Short-term loan rates of 60% in Argentina had a disproportionate effect on the weighted average interest rate in 2018.

The average effective pre-swap interest rate of notes classiﬁed as short-term at 31 December 2019 was 0.0% (2018 – 0.8%).

The continued decrease in the rate reﬂects the maturities of a EURIBOR +0.20% coupon note in May 2020 and a 0.0% coupon

note in September 2020.

Long-term borrowings

At the year-end, GSK had long-term borrowings of £23.6 billion (2018 – £20.3 billion), of which £13.3 billion (2018 – £13.3 billion)

fell due in more than ﬁve years. The average effective pre-swap interest rate of all notes in issue at 31 December 2019 was

approximately 3.8% (2018 – approximately 4.4%).

Long-term borrowings repayable after ﬁve years carry interest at effective rates between 1.0% and 6.5%, with repayment dates

ranging from 2025 to 2045.

Pledged assets

The Group held pledged investments in US Treasury Notes with a par value of $50 million (£38 million), (2018 – $50 million

(£39 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 31,

‘Other provisions’.

Lease liabilities

The maturity analysis of discounted lease liabilities recognised on the Group balance sheet is as follows:

2019

£m

2018

(revised)

£m

Rental payments due within one year 240 24

Rental payments due between one and two years 227 18

Rental payments due between two and three years 119 12

Rental payments due between three and four years 105 6

Rental payments due between four and ﬁve years 93 3

Rental payments due after ﬁve years 466 5

Total lease liabilities 1,250 68

29. Net debt continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

205

Notes to the ﬁnancial statements continued

30. Pensions and other post-employment beneﬁts

Pension and other post-employment costs

2019

£m

2018

£m

2017

£m

UK pension schemes 181 246 198

US pension schemes 120 10 0 113

Other overseas pension schemes 185 190 218

Unfunded post-retirement healthcare schemes 74 50 87

560 586 616

Analysed as:

Funded deﬁned beneﬁt/hybrid pension schemes 300 369 335

Unfunded deﬁned beneﬁt pension schemes 41 43 55

Unfunded post-retirement healthcare schemes 74 50 87

Deﬁned beneﬁt schemes 415 462 477

Deﬁned contribution pension schemes 145 124 139

560 586 616

The costs of the deﬁned beneﬁt pension and post-retirement healthcare schemes are charged in the income statement as follows:

2019

£m

2018

£m

2017

£m

Cost of sales 149 160 162

Selling, general and administration 195 228 238

Research and development 71 74 77

415 462 477

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.

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. 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 SAPS S2 standard mortality tables to reﬂect recent scheme experience. These

rates are then projected to reﬂect improvements in life expectancy in line with the CMI 2018 projections with a long-term rate of

improvement of 1.25% per year for both males and females. In the US, mortality rates are calculated using the RP2014 white collar

table adjusted to reﬂect recent experience. These rates are projected using MP-2017 to allow for future improvements in life

expectancy.

206

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The average life expectancy assumed now for an individual at the age of 60 and projected to apply in 2039 for an individual then at

the age of 60 is as follows:

UK US

Male

Years

Female

Years

Male

Years

Female

Years

Current 2 7. 4 29.0 2 7. 1 28.8

Projected for 2039 28.8 30.5 28.8 30.4

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. The physical asset allocation

strategy for three of the four UK plans has been adjusted from 55% in return-seeking assets and 45% in liability-matching assets to

45% in return-seeking assets and 55% in liability-matching assets. During 2019, a buy-in insurance contract was purchased to

cover substantially all of the obligations of the other UK plan. At 31 December 2019, the value of the insurance contract was

£607 million. The asset allocation of the US plans is currently set at 30% return-seeking assets and 70% liability-matching assets.

The pension plans are exposed to risk that arises because the estimated market value of the plans’ assets might decline, the

investment returns might reduce, or the estimated value of the plans’ liabilities might increase.

In line with the agreed mix of return-seeking assets to generate future returns and liability-matching assets to better match future

pension obligations, the Group has deﬁned an overall long-term investment strategy for the plans, with investments across a broad

range of assets. The main market risks within the asset and hedging portfolio are against credit risk, interest rates, long-term

inﬂation, equities, property, currency and bank counterparty risk.

The plan liabilities are a series of future cash ﬂows with relatively long duration. On an IAS 19 basis, these cash ﬂows are sensitive

to changes in the expected long-term inﬂation rate and the discount rate (AA corporate bond yield curve) where an increase in

long-term inﬂation corresponds with an increase in the liabilities, and an increase in the discount rate corresponds with a decrease

in the liabilities.

The interest rate risk and credit rate risk in the US are partially hedged. The targets are based on an accounting measure of the

plan liabilities.

For the UK plans, there is an interest rate and inﬂation hedging strategy in place. The targets are based on an economic measure of

the plan liabilities. Furthermore, the plans also currently hedge a portion of their equity exposure with a staggered maturity proﬁle.

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 addition, the Group operates a number of post-retirement

healthcare schemes, the principal one of which is in the US.

The Group has applied the following ﬁnancial assumptions in assessing the deﬁned beneﬁt liabilities:

UK US Rest of World

2019

% pa

2018

% pa

2017

% pa

2019

% pa

2018

% pa

2017

% pa

2019

% pa

2018

% pa

2017

% pa

Rate of increase of future earnings 2.00 2.00 2.00 4.00 4.00 4.00 2.70 2.70 2.80

Discount rate 2.00 2.90 2.50 3.20 4.20 3.60 1.10 1.80 1.60

Expected pension increases 3.00 3.20 3.20 n/a n/a n/a 2.10 2.10 2.20

Cash balance credit/conversion rate n/a n/a n/a 2.60 3.20 2.90 0.10 0.40 0.30

Inﬂation rate 3.00 3.20 3.20 2.25 2.25 2.25 1.40 1.50 1.70

Sensitivity analysis detailing the effect of changes in assumptions is provided on page 213. The analysis provided reﬂects the

assumption changes which have the most material impact on the results of the Group.

30. Pensions and other post-employment beneﬁts continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

207

Notes to the ﬁnancial statements continued

The amounts recorded in the income statement and statement of comprehensive income for the three years ended 31 December

2019 in relation to the deﬁned beneﬁt pension and post-retirement healthcare schemes were as follows:

Pensions

Post-retirement

beneﬁts

2019

£m

Rest of World

£m

Group

£m

Group

£m

Amounts charged to operating proﬁt

Current service cost 62 74 130 266 22

Past service cost/(credit) 49 (3) (15) 31 –

Net interest (income)/cost (19) 29 16 26 52

Gains from settlements – – (9) (9) –

Expenses 7 20 – 27 –

99 120 122 341 74

Remeasurement losses recorded in the statement of

comprehensive income (894) (1) (78) (973) (77)

Pensions

Post-retirement

beneﬁts

2018

£m

Rest of World

£m

Group

£m

Group

£m

Amounts charged to operating proﬁt

Current service cost 75 72 134 281 29

Past service cost/(credit) 93 1 – 94 (27)

Net interest (income)/cost (3) 20 19 36 49

Gains from settlements – – (14) (14) (1)

Expenses 8 7 – 15 –

173 100 139 412 50

Remeasurement gains/(losses) recorded in the statement of

comprehensive income 495 (108) 196 583 145

Pensions

Post-retirement

beneﬁts

2017

£m

Rest of World

£m

Group

£m

Group

£m

Amounts charged to operating proﬁt

Current service cost 79 70 131 280 30

Past service cost/(credit) 37 – – 37 (2)

Net interest cost 7 31 16 54 59

Expenses 7 12 – 19 –

130 113 147 390 87

Remeasurement gains/(losses) recorded in the statement of

comprehensive income 259 240 (14) 485 64

The amounts included within past service costs in the UK included £58 million (2018 – £43 million; 2017 – £37 million) of

augmentation costs of which £47 million arose from Major restructuring programmes (see Note 31, ‘Other provisions’). In 2018,

past service costs in the UK included a charge of £40 million in relation to the estimated impact of GMP equalisation.

30. Pensions and other post-employment beneﬁts continued

208

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

A summarised balance sheet presentation of the Group deﬁned beneﬁt pension schemes and other post-retirement beneﬁts is set

out in the table below:

2019

£m

2018

£m

2017

£m

Recognised in Other non-current assets:

Pension schemes in surplus 127 760 538

Recognised in Assets held for sale:

Post-retirement beneﬁts (9) (9) –

Recognised in Pensions and other post-employment beneﬁts:

Pension schemes in deﬁcit (2,048) (1,755) (2,043)

Post-retirement beneﬁts (1,409) (1,370) (1,496)

(3,457) (3,125) (3,539)

In the event of a plan wind-up, GSK believes the UK pension scheme rules provide the company with the right to a refund of surplus

assets following the full settlement of plan liabilities. As a result, the net surplus in the UK deﬁned beneﬁt pension schemes is

recognised in full.

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:

At 31 December 2019

£m

Rest of World

£m

Group

£m

Equities: – listed 2,904 671 638 4,213

– unlisted – – 8 8

Multi-asset funds 2,700 – – 2,700

Property: – listed – – 55 55

– unlisted 460 145 2 607

Corporate bonds: – listed 297 855 141 1,293

– unlisted 326 – 23 349

Government bonds: – listed 4,923 803 889 6,615

Insurance contracts 1,406 – 832 2,238

Other assets (35) 315 74 354

Fair value of assets 12,981 2,789 2,662 18,432

Present value of scheme obligations (13,293) (3,506) (3,554) (20,353)

Net surplus/(obligation) (312) (717) (892) (1,921)

Included in Other non-current assets 70 – 57 127

Included in Pensions and other post-employment beneﬁts (382) (717) (949) (2,048)

(312) (717) (892) (1,921)

Actual return on plan assets 787 356 345 1,488

The multi-asset funds comprise investments in pooled investment vehicles that are invested across a range of asset classes,

increasing diversiﬁcation within the growth portfolio. The ‘Other assets’ category comprises cash and mark to market values of

derivative positions.

Index-linked gilts held as part of a UK repo programme are included in government bonds. The related loan of £243 million at

31 December 2019 (2018 – £nil; 2017 – £773 million) is deducted within ‘Other assets’.

30. Pensions and other post-employment beneﬁts continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

209

Notes to the ﬁnancial statements continued

At 31 December 2018

£m

Rest of World

£m

Group

£m

Equities: – listed 3,257 1,280 518 5,055

– unlisted – – 7 7

Multi-asset funds 2,997 – – 2,997

Property: – listed – – 33 33

– unlisted 423 231 4 658

Corporate bonds: – listed 404 783 111 1,298

– unlisted 306 – 25 331

Government bonds: – listed 3,835 286 795 4,916

Insurance contracts 770 – 831 1,601

Other assets 589 228 66 883

Fair value of assets 12,581 2,808 2,390 17,779

Present value of scheme obligations (12,087) (3,474) (3,213) (18,774)

Net surplus/(obligation) 494 (666) (823) (995)

Included in Other non-current assets 711 – 49 760

Included in Pensions and other post-employment beneﬁts (217) (666) (872) (1,755)

494 (666) (823) (995)

Actual return on plan assets (88) (123) 55 (156)

At 31 December 2017

£m

Rest of World

£m

Group

£m

Equities: – listed 4,902 1,448 544 6,894

– unlisted – – 13 13

Multi-asset funds 2,517 – – 2,517

Property: – unlisted 352 209 32 593

Corporate bonds: – listed 297 820 103 1,220

– unlisted 326 – 20 346

Government bonds: – listed 5,127 239 762 6,128

Insurance contracts 849 – 707 1,556

Other assets (1,216) 158 71 (987)

Fair value of assets 13,154 2,874 2,252 18,280

Present value of scheme obligations (13,101) (3,445) (3,239) (19,785)

Net surplus/(obligation) 53 (571) (987) (1,505)

Included in Other non-current assets 470 – 68 538

Included in Pensions and other post-employment beneﬁts (417) (571) (1,055) (2,043)

53 (571) (987) (1,505)

Actual return on plan assets 893 394 82 1,369

30. Pensions and other post-employment beneﬁts continued

210

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

30. Pensions and other post-employment beneﬁts continued

Pensions

Post-retirement

beneﬁts

Movements in fair values of assets

£m

Rest of World

£m

Group

£m

Group

£m

Assets at 1 January 2017 12,583 2,890 2,097 17,570 –

Exchange adjustments – (244) 24 (220) –

Interest income 333 10 4 33 470 –

Expenses (7) (12) – (19) –

Settlements and curtailments – – (4) (4) –

Remeasurement 560 290 49 899 –

Employer contributions 225 103 116 444 101

Scheme participants’ contributions 4 – 17 21 17

Beneﬁts paid (544) (257) (80) (881) (118)

Assets at 31 December 2017 13,154 2,874 2,252 18,280 –

Exchange adjustments – 171 53 224 –

Interest income 323 102 29 454 –

Expenses (8) (7) – (15) –

Settlements and curtailments – – (14) (14) –

Remeasurement (411) (225) 26 (610) –

Employer contributions 119 150 117 386 93

Scheme participants’ contributions 4 – 16 20 16

Beneﬁts paid (600) (257) (89) (946) (109)

Assets at 31 December 2018 12,581 2,808 2,390 17,779 –

Exchange adjustments – (110) (120) (230) –

Additions through business combinations – – 14 14 –

Interest income 360 111 37 508 –

Expenses (7) (20) – (27) –

Settlements and curtailments – – 1 1 –

Remeasurement 427 245 312 984 –

Employer contributions 187 40 116 343 110

Scheme participants’ contributions 3 – 17 20 17

Beneﬁts paid (570) (285) (105) (960) (127)

Assets at 31 December 2019 12,981 2,789 2,662 18,432 –

During 2019, the Group made special funding contributions to the UK pension schemes of £78 million (2018 – £nil; 2017 –

£136 million) but £nil (2018 – £125 million; 2017 – £78 million) to the US schemes. In 2018, GSK reached a revised agreement

with the trustees of the UK pension schemes to make additional contributions to eliminate the pension deﬁcits identiﬁed within the

schemes at the 31 December 2017 actuarial funding valuation. Based on these funding agreements, the additional contributions

to eliminate the pension deﬁcit are expected to be £75 million in 2020. Further payments have been agreed for the years 2021 to

2022 and these are included within Note 35, ‘Commitments’ on page 216. This funding commitment supersedes the previous

agreement made in 2016. The contributions were based on a government bond yield curve approach to selecting the discount rate;

the rate chosen included an allowance for expected investment returns which reﬂected the asset mix of the schemes.

Employer contributions for 2020, including special funding contributions, are estimated to be approximately £400 million in respect

of deﬁned beneﬁt pension schemes and £90 million in respect of post-retirement beneﬁts.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

211

Notes to the ﬁnancial statements continued

Pensions

Post-retirement

beneﬁts

Movements in deﬁned beneﬁt obligations

£m

Rest of World

£m

Group

£m

Group

£m

Obligations at 1 January 2017 (12,884) (3,752) (3,018) (19,654) (1,693)

Exchange adjustments – 305 (45) 260 119

Service cost (79) (70) (131) (280) (30)

Past service cost/(credit) (37) – – (37) 2

Interest cost (340) (135) (49) (524) (59)

Settlements and curtailments – – 4 4 –

Remeasurement (301) (50) (63) (414) 64

Scheme participants’ contributions (4) – (17) (21) (17)

Beneﬁts paid 544 257 80 881 118

Obligations at 31 December 2017 (13,101) (3,445) (3,239) (19,785) (1,496)

Exchange adjustments – (208) (63) (271) (71)

Service cost (75) (72) (134) (281) (29)

Past service cost/(credit) (93) (1) – (94) 27

Interest cost (320) (122) (48) (490) (49)

Settlements and curtailments – – 28 28 1

Remeasurement 906 117 170 1,193 145

Scheme participants’ contributions (4) – (16) (20) (16)

Beneﬁts paid 600 257 89 946 109

Obligations at 31 December 2018 (12,087) (3,474) (3,213) (18,774) (1,379)

Exchange adjustments – 140 177 317 50

Additions through business combinations – – (56) (56) (48)

Service cost (62) (74) (130) (266) (22)

Past service cost (49) 3 15 (31) –

Interest cost (341) (140) (53) (534) (52)

Settlements and curtailments – – 8 8 –

Remeasurement (1,321) (246) (390) (1,957) (77)

Scheme participants’ contributions (3) – (17) (20) (17)

Beneﬁts paid 570 285 105 960 127

Obligations at 31 December 2019 (13,293) (3,506) (3,554) (20,353) (1,418)

The deﬁned beneﬁt pension obligation is analysed as follows:

2019

£m

2018

£m

2017

£m

Funded (19,547) (18,025) (19,052)

Unfunded (806) (749) (733)

(20,353) (18,774) (19,785)

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 6.25% (2018 – 6.50%) in 2020, grading down to 5.0% in

2025 and thereafter. At 31 December 2019, the US post-retirement healthcare scheme obligation was £1,198 million

(2018 – £1,179 million; 2017 – £1,254 million). Post-retirement beneﬁts are unfunded.

30. Pensions and other post-employment beneﬁts continued

212

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The movement in the net deﬁned beneﬁt liability is as follows:

2019

£m

2018

£m

2017

£m

At 1 January (995) (1,505) (2,084)

Exchange adjustments 87 (47) 40

Additions through business combinations (42) – –

Service cost (266) (281) (280)

Past service cost (31) (94) (37)

Interest cost (26) (36) (54)

Settlements and curtailments 9 14 –

Remeasurements:

Return on plan assets, excluding amounts included in interest 984 (610) 899

Gain from change in demographic assumptions 78 131 209

(Loss)/gain from change in ﬁnancial assumptions (2,022) 1,149 (555)

Experience losses (13) (87) (68)

Employer contributions 343 386 444

Expenses (27) (15) (19)

At 31 December (1,921) (995) (1,505)

The remeasurements included within post-retirement beneﬁts are detailed below:

2019

£m

2018

£m

2017

£m

Gain from change in demographic assumptions – 6 47

(Loss)/gain from change in ﬁnancial assumptions (80) 100 (1)

Experience gains 3 39 18

(77) 145 64

The deﬁned beneﬁt pension obligation analysed by membership category is as follows:

2019

£m

2018

£m

2017

£m

Active 4,572 4,427 4,611

Retired 10,485 9,542 9,805

Deferred 5,296 4,805 5,369

20,353 18,774 19,785

The post-retirement beneﬁt obligation analysed by membership category is as follows:

2019

£m

2018

£m

2017

£m

Active 549 499 514

Retired 869 879 981

Deferred – 1 1

1,418 1,379 1,496

The weighted average duration of the deﬁned beneﬁt obligation is as follows:

2019

years

2018

years

2017

years

Pension beneﬁts 15 15 16

Post-retirement beneﬁts 12 11 11

30. Pensions and other post-employment beneﬁts continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

213

Notes to the ﬁnancial statements continued

Sensitivity analysis

The effect of changes in assumptions used on the beneﬁt obligations and on the 2020 annual deﬁned beneﬁt pension and post-

retirement costs are detailed below. This information has been determined by taking into account the duration of the liabilities and

the overall proﬁle of the plan memberships.

£m

A 0.25% decrease in discount rate would have the following approximate effect:

Increase in annual pension cost 23

Decrease in annual post-retirement beneﬁts cost (1)

Increase in pension obligation 798

Increase in post-retirement beneﬁts obligation 40

A 0.5% decrease in discount rate would have the following approximate effect:

Increase in annual pension cost 43

Decrease in annual post-retirement beneﬁts cost (2)

Increase in pension obligation 1,640

Increase in post-retirement beneﬁts obligation 82

A one-year increase in life expectancy would have the following approximate effect:

Increase in annual pension cost 19

Increase in annual post-retirement beneﬁts cost 2

Increase in pension obligation 725

Increase in post-retirement beneﬁts obligation 39

A 1% increase in the rate of future healthcare inﬂation would have the following approximate effect:

Increase in annual post-retirement beneﬁts cost 2

Increase in post-retirement beneﬁts obligation 42

A 0.25% increase in inﬂation would have the following approximate effect:

Increase in annual pension cost 17

Increase in pension obligation 532

30. Pensions and other post-employment beneﬁts continued

214

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

31. Other provisions

Legal

and other

disputes

£m

Major

restructuring

programmes

£m

Employee

provisions

£m

Other

provisions

£m

Total

£m

At 1 January 2019 219 641 350 213 1,423

Implementation of IFRS 16 – (30) – (5) (35)

At 1 January 2019, as adjusted 219 611 350 208 1,388

Exchange adjustments (11) (14) (13) (4) (42)

Additions through business combinations 12 – – 24 36

Charge for the year 367 345 158 56 926

Reversed unused (4) (148) (53) (16) (221)

Unwinding of discount 3 5 – – 8

Utilised (389) (309) (49) (48) (795)

Reclassiﬁcations and other movements 1 62 (6) (19) 38

Transfer to Pension obligations – (47) – – (47)

At 31 December 2019 198 505 387 201 1,291

To be settled within one year 134 298 138 51 621

To be settled after one year 64 207 249 150 670

At 31 December 2019 198 505 387 201 1,291

Legal and other disputes

The Group is involved in a substantial number of legal and other

disputes, including notiﬁcation of possible claims, as set out in

Note 46 ‘Legal proceedings’. Provisions for legal and other

disputes include amounts relating to product liability, anti-trust,

government investigations, contract terminations and self

insurance.

The net charge for the year of £363 million (including reversals

and estimated insurance recoveries) primarily related to

provisions for product liability cases, commercial disputes

and various other government investigations.

The discount on the provisions increased by £3 million in 2019

(2018 – increased by £2 million). The discount was calculated

using risk-adjusted projected cash ﬂows and risk-free rates of

return.

In respect of product liability claims related to certain products,

provision is made when 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.

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 may be the subject of negotiation and litigation

over many years. Litigation proceedings, including the various

appeal procedures, often take many years to reach resolution,

and out-of-court settlement discussions can also often be

protracted. Indemniﬁed disputes will result in a provision

charge and a corresponding receivable.

The Group is in potential settlement discussions in a number of

the disputes for which amounts have been provided and, based

on its current assessment of the progress of these disputes,

estimates that £134 million of the amount provided at 31

December 2019 will be settled within one year. At 31 December

2019, it was expected that £9 million (2018 – £37 million)

of the provision made for legal and other disputes will be

reimbursed by third parties. For a discussion of legal issues,

see Note 46, ‘Legal proceedings’.

Major restructuring programmes

During 2019, the Group was undertaking three major

restructuring programmes: the Combined restructuring

and integration programme, which is now substantially complete,

the 2018 major restructuring programme and the Consumer

Healthcare Joint Venture integration programme. The

programmes are focused primarily on simplifying supply chain

processes, rationalising the Group’s manufacturing network,

restructuring the Pharmaceuticals commercial operations and

integrating the Pﬁzer consumer healthcare business.

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 and appropriate consultation procedures

completed, where appropriate. No provision is made for staff

severance payments that are made immediately.

Pension augmentations arising from staff redundancies of

£47 million (2018 – £21 million) have been charged during the

year and then transferred to the pension obligations provision

as shown in Note 30, ‘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.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

215

Notes to the ﬁnancial statements continued

32. Contingent consideration liabilities

The consideration for certain acquisitions includes amounts contingent on future events such as development milestones or sales

performance. The Group has provided for the fair value of this contingent consideration as follows:

Shionogi-

ViiV

Healthcare

£m

Novartis

Vaccines

£m

Other

£m

Total

£m

At 1 January 2017 5,304 545 47 5,896

Remeasurement through income statement 909 53 (1) 961

Cash payments: operating cash ﬂows (587) (7) – (594)

Cash payments: investing activities (84) (7) – (91)

At 31 December 2017 5,542 584 46 6,172

Remeasurement through income statement 1,188 56 7 1,251

Cash payments: operating cash ﬂows (703) (281) – (984)

Cash payments: investing activities (90) (63) – (153)

At 31 December 2018 5,937 296 53 6,286

Remeasurement through income statement 31 67 (15) 83

Cash payments: operating cash ﬂows (767) (13) – (780)

Cash payments: investing activities (98) (11) (4) (113)

Other movements – – 3 3

At 31 December 2019 5,103 339 37 5,479

Of the contingent consideration payable at 31 December 2019, £755 million (2018 – £837 million) is expected to be paid within

one year.

The consideration payable for the acquisition of the Shionogi-ViiV Healthcare joint venture and the Novartis Vaccines business is

expected to be paid over a number of years. As a result, the total estimated liabilities are discounted to their present values, shown

above. The Shionogi-ViiV Healthcare contingent consideration liability is discounted at 8.5% and the Novartis Vaccines contingent

consideration liability is discounted at 8% for commercialised products and at 9% for pipeline assets.

The Shionogi-ViiV Healthcare and Novartis Vaccines contingent consideration liabilities are calculated principally based on the

forecast sales performance of speciﬁed products over the lives of those products.

The table below shows on an indicative basis the income statement and balance sheet sensitivity to reasonably possible changes

in key inputs to the valuations of the contingent consideration liabilities.

Increase/(decrease) in ﬁnancial liability and loss/(gain) in Income statement

Shionogi-

ViiV Healthcare

£m

Novartis

Vaccines

£m

10% increase in sales forecasts 489 65

10% decrease in sales forecasts (490) (65)

1% increase in discount rate (192) (24)

1% decrease in discount rate 205 27

5% increase in probability of milestone success 7

5% decrease in probability of milestone success (7)

10 cent appreciation of US Dollar 302 (8)

10 cent depreciation of US Dollar (261) 7

10 cent appreciation of Euro 10 6 26

10 cent depreciation of Euro (91) (22)

An explanation of the accounting for ViiV Healthcare is set out on page 51.

31. Other provisions continued

Employee related provisions

Employee related provisions include obligations for certain

medical beneﬁts to disabled employees and their spouses in

the US. At 31 December 2019, the provision for these beneﬁts

amounted to £85 million (2018 – £87 million). Other employee

beneﬁts reﬂect a variety of provisions for severance costs,

jubilee awards and other long-service beneﬁts.

Given the nature of these provisions, the amounts are likely to

be settled over many years.

Other provisions

Included in other provisions are insurance provisions of

£14 million (2018 – £20 million), and a number of other

provisions including vehicle insurance and regulatory matters.

216

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

33. Other non-current liabilities

2019

£m

2018

£m

Accruals 42 71

Deferred income 24 19

Other payables 778 848

844 938

Other payables includes a number of employee-related liabilities including employee savings plans. In the prior year, it also included

acquisition accounting market value lease adjustments which were reclassiﬁed to the Right of use asset on transition to IFRS 16.

34. Contingent liabilities

At 31 December 2019, contingent liabilities, comprising guarantees, discounted bills and other items arising in the normal course

of business, amounted to £97 million (2018 – £93 million). At 31 December 2019, £1 million (2018 – £nil) of ﬁnancial assets were

pledged as collateral for contingent liabilities. Provision is made for the outcome of tax, legal and other disputes where it is both

probable that the Group will suffer an outﬂow of funds and it is possible to make a reliable estimate of that outﬂow. At 31 December

2019, other than for those disputes where provision has been made, it was not possible to make a reliable estimate of the potential

outﬂow of funds that might be required to settle disputes where the possibility of there being an outﬂow was more than remote.

Descriptions of the signiﬁcant legal and other disputes to which the Group is a party are set out in Note 46, ‘Legal proceedings’.

35. Commitments

Contractual obligations and commitments

2019

£m

2018

£m

Contracted for but not provided in the ﬁnancial statements:

Intangible assets 9,727 4,762

Property, plant and equipment 413 665

Investments 47 82

Purchase commitments 1,047 561

Pensions 163 238

Interest on loans 8,952 9,418

Future ﬁnance charges on leases 223 16

20,572 15,742

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. The increase in intangible commitments in 2019 is mainly attributable to

a number of new R&D collaborations, including with Merck KgaA and Lyell Immunopharma.

In 2018, GSK reached an agreement with the trustees of the UK pension schemes to make additional contributions to eliminate the

pension deﬁcit identiﬁed at the 31 December 2017 actuarial funding valuation. A payment of £75 million is due in 2020 and

payments of £44 million are due in both 2021 and 2022. The table above includes this commitment, but excludes the normal

ongoing annual funding requirement in the UK of approximately £140 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.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

217

Notes to the ﬁnancial statements continued

36. Share capital and share premium account

Ordinary Shares of 25p each

premium

Number £m £m

Share capital issued and fully paid

At 1 January 2017 5,368,316,062 1,342 2,954

Issued under employee share schemes 4,237,758 1 55

Ordinary shares acquired by ESOP Trusts – – 10

At 31 December 2017 5,372,553,820 1,343 3,019

Issued under employee share schemes 6,513,804 2 72

At 31 December 2018 5,379,067,624 1,345 3,091

Issued under employee share schemes 4,034,607 1 50

Ordinary shares acquired by ESOP Trusts – – 33

At 31 December 2019 5,383,102,231 1,346 3,174

31 December 2019

000

31 December 2018

000

Number of shares issuable under employee share schemes 57,871 56,723

Number of unissued shares not under option 4,559,027 4,564,209

At 31 December 2019, of the issued share capital, 36,365,045 shares were held in the ESOP Trusts, 393,505,950 shares were

held as Treasury shares and 4,953,231,236 shares were in free issue. All issued shares are fully paid. The nominal, carrying and

market values of the shares held in the ESOP Trusts are disclosed in Note 44, ‘Employee share schemes’.

218

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

37. Movements in equity

Retained earnings and other reserves amounted to £6,885 million at 31 December 2019 (2018 – £655 million loss, as revised;

2017 – £4,430 million loss) of which £394 million (2018 – £337 million; 2017 – £334 million) related to associates and joint

ventures.

An adjustment of cumulative translation exchange between retained earnings and non-controlling interests of £396 million has

been made in 2019 as described in Note 1, ‘Presentation of the ﬁnancial statements’. The cumulative translation exchange in

equity is as follows:

Net translation exchange included in:

Retained

earnings

£m

Fair value

reserve

£m

Non-

controlling

interests

£m

Total

translation

exchange

£m

At 1 January 2017 (128) 23 494 389

Exchange movements on overseas net assets 462 – (149) 313

Reclassiﬁcation of exchange on liquidation or disposal of overseas subsidiaries 109 – – 109

At 31 December 2017 443 23 345 811

Exchange movements on overseas net assets (458) (22) (1) (481)

At 31 December 2018, as reported (15) 1 344 330

Adjustment of exchange movements on overseas net assets 396 – (396) –

At 31 December 2018, as revised 381 1 (52) 330

Exchange movements on overseas net assets (830) (2) (75) (907)

Reclassiﬁcation of exchange movements on liquidation or disposal of overseas subsidiaries (75) – – (75)

At 31 December 2019 (524) (1) (127) (652)

The analysis of other comprehensive income by equity category is as follows:

2019

Retained

earnings

£m

Other

reserves

£m

Non-

controlling

interests

£m

Total

£m

Items that may be subsequently reclassiﬁed to income statement:

Exchange movements on overseas net assets and net investment hedges (830) (2) – (832)

Reclassiﬁcation of exchange movements on liquidation or disposal of overseas subsidiaries (75) – – (75)

Fair value movements on cash ﬂow hedges – (20) – (20)

Reclassiﬁcation of cash ﬂow hedges to income and expense – 3 – 3

Deferred tax on fair value movements on cash ﬂow hedges – 16 – 16

Items that will not be reclassiﬁed to income statement:

Exchange movements on overseas net assets of non-controlling interests – – (75) (75)

Fair value movements on equity investments – 372 – 372

Deferred tax on fair value movements on equity investments – (95) – (95)

Remeasurement losses on deﬁned beneﬁt plans (1,050) – – (1,050)

Tax on remeasurement losses in deﬁned beneﬁt plans 189 – – 189

Other comprehensive (expense)/income for the year (1,766) 274 (75) (1,567)

2018

Retained

earnings

£m

Other

reserves

£m

Non-

controlling

interests

£m

Total

£m

Items that may be subsequently reclassiﬁed to income statement:

Exchange movements on overseas net assets and net investment hedges (458) (22) – (480)

Fair value movements on cash ﬂow hedges – 140 – 140

Reclassiﬁcation of cash ﬂow hedges to income and expense – (175) – (175)

Deferred tax on fair value movements on cash ﬂow hedges – (22) – (22)

Deferred tax reversed on reclassiﬁcation of cash ﬂow hedges – 20 – 20

Items that will not be reclassiﬁed to income statement:

Exchange movements on overseas net assets of non-controlling interests – – (1) (1)

Fair value movements on equity investments – 180 – 180

Deferred tax on fair value movements on equity investments – 10 – 10

Remeasurement gains on deﬁned beneﬁt plans 728 – – 728

Tax on remeasurement gains in deﬁned beneﬁt plans (146) – – (146)

Other comprehensive income/(expense) for the year 124 131 (1) 254

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

219

Notes to the ﬁnancial statements continued

2017

Retained

earnings

£m

Other

reserves

£m

Non-

controlling

interests

£m

Total

£m

Items that may be subsequently reclassiﬁed to income statement:

Exchange movements on overseas net assets and net investment hedges 462 – – 462

Reclassiﬁcation of exchange on liquidation or disposal of overseas subsidiaries 10 9 – – 109

Fair value movements on available-for-sale investments – (14) – (14)

Reclassiﬁcation of fair value movements on available-for-sale investments – (42) – (42)

Deferred tax on fair value movements on available-for-sale investments – 47 – 47

Deferred tax reversed on reclassiﬁcation of available-for-sale investments – (18) – (18)

Fair value movements on cash ﬂow hedges – (10) – (10)

Items that will not be reclassiﬁed to income statement:

Exchange movements on overseas net assets of non-controlling interests – – (149) (149)

Remeasurement gains on deﬁned beneﬁt plans 549 – – 549

Tax on remeasurement gains in deﬁned beneﬁt plans (221) – – (221)

Other comprehensive income/(expense) for the year 899 (37) (149) 713

The analysis of other reserves is as follows:

ESOP Trust

£m

Fair value

reserve

£m

Cash ﬂow

hedge reserve

£m

Other

reserves

£m

Total

£m

At 1 January 2017 (286) 380 (3) 2,129 2,220

Exchange adjustments 22 – – – 22

Transferred to income and expense in the year on disposals – (42) – – (42)

Net fair value movement in the year – (9) (8) – (17)

Ordinary shares acquired by ESOP Trusts (656) – – – (656)

Write-down of shares held by ESOP Trusts 520 – – – 520

At 31 December 2017 (400) 329 (11) 2,129 2,047

Implementation of IFRS 9 – (288) – – (288)

At 31 December, as adjusted (400) 41 (11) 2,129 1,759

Exchange adjustments (26) – – – (26)

Transferred to Retained earnings in the year on disposal of equity investments – (94) – – (94)

Net fair value movement in the year – 193 (36) – 157

Write-down of shares held by ESOP Trusts 265 – – – 265

At 31 December 2018 (161) 140 (47) 2,129 2,061

Exchange adjustments 10 – – – 10

Transferred to Retained earnings in the year on disposal of equity investments – 5 – – 5

Net fair value movement in the year – 264 (1) – 263

Ordinary shares acquired by ESOP Trusts (328) – – – (328)

Write-down of shares held by ESOP Trusts 344 – – – 344

At 31 December 2019 (135) 409 (48) 2,129 2,355

Other reserves include various non-distributable merger and pre-merger reserves amounting to £1,849 million at 31 December 2019

(2018 – £1,849 million; 2017 – £1,849 million). Other reserves also include the capital redemption reserve created as a result of the

share buy-back programme amounting to £280 million at 31 December 2019 (2018 – £280 million; 2017 – £280 million).

37. Movements in equity continued

220

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

38. Non-controlling interests

Total non-controlling interests includes the following individually material non-controlling interests. Other non-controlling interests

are individually not material.

ViiV Healthcare

GSK holds 78.3% of the ViiV Healthcare sub-group, giving rise to a material non-controlling interest. Summarised ﬁnancial

information in respect of the ViiV Healthcare sub-group is as follows:

2019

£m

2018

£m

2017

£m

Turnover 4,816 4,665 4,269

Proﬁt after taxation 2,574 560 825

Other comprehensive (expense)/income (29) 19 20

Total comprehensive income 2,545 579 845

2019

£m

2018

£m

Non-current assets 2,660 2,787

Current assets 2,905 2,643

Total assets 5,565 5,430

Current liabilities (2,742) (2,638)

Non-current liabilities (7,811) (8,895)

Total liabilities (10,553) (11,533)

Net liabilities (4,988) (6,103)

2019

£m

2018

£m

2017

£m

Net cash inﬂow from operating activities 2,375 2,212 2,132

Net cash outﬂow from investing activities (202) (237) (207)

Net cash outﬂow from ﬁnancing activities (1,947) (1,982) (1,820)

Increase/(decrease) in cash and bank overdrafts in the year 226 (7) 105

The above ﬁnancial information relates to the ViiV Healthcare group on a stand-alone basis, before the impact of Group-related

adjustments, primarily related to the recognition of preferential dividends. The proﬁt after taxation of £2,574 million (2018 –

£560 million; 2017 – £825 million) is stated after charging preferential dividends payable to GSK, Shionogi and Pﬁzer and after a

charge of £37 million (2018 – £1,194 million; 2017 – £908 million) for remeasurement of contingent consideration payable. This

consideration is expected to be paid over a number of years.

The following amounts attributable to the ViiV Healthcare group are included in GSK’s Financial statements:

2019

£m

2018

£m

2017

£m

Share of proﬁt for the year attributable to non-controlling interest 482 254 187

Dividends paid to non-controlling interest (310) (332) (381)

Non-controlling interest in the Consolidated balance sheet (344) (543) (476)

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

221

Notes to the ﬁnancial statements continued

Consumer Healthcare Joint Venture

GSK holds 68% of the Consumer Healthcare sub-group, giving rise to a material non-controllling interest. Summarised ﬁnancial

information in respect of the Consumer Healthcare sub-group is as follows:

2019

£m

Turnover 4,240

Proﬁt after taxation 150

Other comprehensive expenses (721)

Total comprehensive expenses (571)

2019

£m

Non-current assets 29,899

Current assets 5,713

Total assets 35,612

Current liabilities (4,219)

Non-current liabilities (4,027)

Total liabilities (8,246)

Net assets 27,366

2019

£m

Net cash inﬂow from operating activities 1,014

Net cash outﬂow from investing activities (776)

Net cash outﬂow from ﬁnancing activities (78)

Decrease in cash and bank overdrafts in the period 160

The above ﬁnancial information relates to the Consumer Healthcare Joint Venture on a stand-alone basis since its formation on

31 July 2019, before the impact of Group-related adjustments and the classiﬁcation of cash pooling accounts with Group

companies outside the Consumer Healthcare Joint Venture but after and the Major restructuring charges.

The following amounts attributable to the Consumer Healthcare Joint Venture are included in GSK’s Financial statements:

2019

£m

Share of proﬁt for the period attributable to non-controlling interest 69

Non-controlling interest in the Consolidated balance sheet 6,911

38. Non-controlling interests continued

222

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

39. Related party transactions

At 31 December 2019, GSK owned 32 million shares or 31.6% of Innoviva Inc. which is a biopharmaceutical company listed on

NASDAQ. GSK began recognising Innoviva as an associate on 1 September 2015. The royalties due from GSK to Innoviva in the

year were £215 million (2018 – £209 million). At 31 December 2019, the balance payable by GSK to Innoviva was £63 million

(2018 – £64 million).

At 1 January 2019, GSK held a 50% interest in Japan Vaccine Co. Ltd (JVC) through its subsidiary GlaxoSmithKline K.K. This joint

venture with Daiichi Sankyo Co., Ltd was primarily responsible for the development and marketing of certain prophylactic vaccines

in Japan. During 2019, GSK sold £11 million of its vaccine products into the joint venture. Daiichi Sankyo’s shares in JVC were

acquired by GSK during 2019 at which point, JVC ceased to be a related party.

Loans of £3.8 million to Medicxi Ventures I LP and £10.6 million to Index Ventures Life VI (Jersey) LP remained due to GSK at

31 December 2019. In 2019, GSK increased the investment in Kurma Biofund II, FCPR by £1.1 million and Apollo Therapeutics

LLP by £2.1 million. Further investments were also made in Medicxi Ventures I LP of £3.1 million and in Index Ventures Life VI

(Jersey) LP of £1.8 million. As part of the joint venture agreement with Qura Therapeutics LLC, the Group has an obligation to

fund the joint venture $1 million per quarter up to April 2020. On 26 June 2019, the agreement was extended for a second ﬁve-year

period up to April 2025, with both GSK and its joint venture partner committing additional ﬁnancial support in the amount of

$20 million. At 31 December 2019, the outstanding liability due to Qura was £16.1 million. Cash distributions were received from

our investments in Medicxi Ventures I LP of £18.5 million and in Longwood Founders Fund LP of £2.8 million.

The aggregate compensation of the Directors and CET is given in Note 9, ‘Employee costs’.

40. Acquisitions and disposals

Details of the acquisition and disposal of signiﬁcant subsidiaries and associates, joint ventures and other businesses are given below:

2019

Business acquisitions

Pﬁzer consumer healthcare business

The acquisition of Pﬁzer’s consumer healthcare business completed on 31 July 2019.

GSK and Pﬁzer have contributed their respective consumer healthcare businesses into a new Consumer Healthcare Joint Venture

in a non-cash transaction, whereby GSK has acquired Pﬁzer’s consumer healthcare business in return for shares in the Joint

Venture. GSK has an equity interest of 68% and majority control of the Joint Venture and Pﬁzer has an equity interest of 32%.

As the Group has control over the Consumer Healthcare Joint Venture it is consolidated within the Group’s ﬁnancial statements.

In a number of territories, legal completion of the acquisition has not occurred because of regulatory constraints. However, the

Consumer Healthcare Joint Venture obtained control of the majority of these businesses in these territories from 31 July 2019

and has consolidated the net assets of those businesses from that date, but in all cases is entitled to the beneﬁts of the trading

of businesses in the delayed territories.

The non-controlling interest in the Consumer Healthcare Joint Venture, calculated applying the proportionate goodwill method,

represents Pﬁzer’s share of the net assets of the Joint Venture, excluding goodwill.

Goodwill of £3.9 billion, which is not expected to be deductible for tax purposes, has been recognised. The goodwill represents

the potential for further synergies arising from combining the acquired businesses with GSK’s existing business together with the

value of the workforce acquired. Total transaction costs recognised in 2018 and 2019 for the acquisition amounted to £77 million.

Since acquisition on 31 July 2019, sales of £1.2 billion arising from the Pﬁzer consumer healthcare business have been included in

Group turnover. If the business had been acquired at the beginning of the year, it is estimated that Group turnover in 2019 would

have been approximately £1.5 billion higher. The business has been integrated into the Group’s existing activities and it is not

practicable to identify the impact on the Group proﬁt in the period.

Tesaro Inc.

On 22 January 2019, GSK acquired 100% of Tesaro Inc., an oncology focused biopharmaceutical company, for cash consideration

of $5.0 billion (£3.9 billion), in order to strengthen the Group’s pharmaceutical pipeline. Transaction costs amounted to £31 million.

Goodwill of £1.2 billion, none of which is expected to be tax-deductible, has been recognised. The goodwill represents the

potential for further synergies arising from combining the acquired businesses with GSK’s existing business together with the value

of the workforce acquired. Since acquisition on 22 January 2019, sales of £0.2 billion arising from the Tesaro business have been

included in Group turnover. The business has been integrated into the Group’s existing activities and it is not practicable to identify

the impact on the Group proﬁt in the period.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

223

Notes to the ﬁnancial statements continued

The fair value of the assets acquired in business combinations, including goodwill, are set out in the table below. Amounts related to

the Pﬁzer consumer healthcare business acquisition are provisional and subject to change.

Pﬁzer

consumer

healthcare

business

£m

Tesaro

£m

Other

£m

Net assets acquired:

Intangible assets 12,357 3,092 –

Property, plant and equipment 354 6 –

Right of use assets 39 40 –

Inventory 986 162 –

Trade and other receivables 546 115 35

Other assets including cash and cash equivalents 302 254 16

Trade and other payables (779) (282) (39)

Net deferred tax liabilities (2,591) (252) –

Other liabilities (99) (5) –

Term loan – (445) –

Non-controlling interest (3,577) – –

Goodwill 3,854 1,169 –

Total 11,392 3,854 12

Consideration settled by shares in GSK Consumer Healthcare Joint Venture 11,392 – –

Cash consideration paid – 3,854 6

Fair value of investment in joint venture converted into subsidiary – – 6

Total consideration 11,392 3,854 12

The non-controlling interest of £3,577 million represents Pﬁzer’s share of the fair value of the Pﬁzer consumer healthcare business,

excluding goodwill. The total non-controlling interest initially recognised in the Consolidated statement of changes in equity of

£6,887 million also includes Pﬁzer’s share of the book value of GSK Consumer Healthcare.

Business disposals

GSK made a number of business disposals for net cash consideration received in the year of £104 million. The proﬁt on the

disposal of the businesses in the year of £201 million was calculated as follows:

£m

Total

£m

Cash consideration receivable net of subsidy payable 106

Net assets sold:

Goodwill (4)

Intangible assets (1)

Property, plant and equipment (44)

Inventory (7)

Cash and cash equivalents (12)

Other net assets (4)

(72)

Transaction costs (27)

Reclassiﬁcation of exchange from other comprehensive income 75

Non-controlling interest divested 16

Transaction signed but not yet completed - gain on embedded derivative 143

Transaction signed but not yet completed - transaction costs (40)

Total proﬁt on disposal 201

Transaction signed but not yet completed

In December 2018, GSK agreed to divest Horlicks and other Consumer Healthcare nutrition brands to Unilever plc and to form

a merger of GlaxoSmithKline Consumer Healthcare Limited with Hindustan Unilever Limited for a total consideration valued at

approximately £3.1 billion. GlaxoSmithKline Consumer Healthcare Limited is a public company listed on the National Stock

Exchange (NSE) and Bombay Stock Exchange (BSE), in which GSK holds a 72.5% stake. Following the merger of

GlaxoSmithKline Consumer Healthcare Limited with Hindustan Unilever Limited, a public company listed on the NSE and

BSE, GSK will own 133.8 million Hindustan Unilever Limited shares.

40. Acquisitions and disposals continued

224

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The Group has entered into forward foreign exchange contracts in relation to the transaction. Contracts with a value of £1.7 billion

have been designated as a cash ﬂow hedge of part of the foreign exposure arising on the transaction. Further contracts with a value

of £0.6 billion have been designated as net investment hedges against INR and EUR assets. In addition, the exposure to share

price movements in the forward purchase of shares in Hindustan Unilever Limited has been recognised as an embedded derivative.

The embedded derivative was in an asset position and had a fair value of £240 million at 31 December 2019 (2018 – £100 million).

Associates and joint ventures

During the year, GSK made investments of £27 million into associates and joint ventures of which £11 million was paid in cash.

Cash ﬂows

Business

acquisitions

£m

Business

disposals

£m

Associates

and joint

venture

investments

£m

Cash consideration (paid)/received (3,860) 161 (11)

Net deferred consideration received – 29 –

Transaction costs (95) (73) –

Cash and cash equivalents acquired/divested 384 (13) –

Cash (outﬂow)/inﬂow (3,571) 10 4 (11)

2018

Business acquisitions

There were no business acquisitions during 2018.

Business disposals

GSK made a number of small business disposals during the year for a net cash consideration of £2 million.

Cash ﬂows

Business

disposals

£m

Associates

and joint

venture

investments

£m

Associates

and joint

venture

disposals

£m

Cash consideration 2 (10) 3

Net deferred consideration received 24 – –

Cash inﬂow/(outﬂow) 26 (10) 3

2017

Business acquisitions

There were no business acquisitions during 2017.

Business disposals

GSK made a number of small business disposals during the year for a net cash consideration of £342 million, including contingent

consideration receivable of £86 million. The proﬁt on disposal was determined as follows:

£m

Total

£m

Consideration including currency forwards and purchase adjustments 342

Net assets sold:

Goodwill (16)

Intangible assets (21)

Property, plant and equipment (18)

Inventory (11)

Cash and cash equivalents (6)

Other net assets (5)

(77)

Transaction costs (8)

Reclassiﬁcation of exchange from other comprehensive income (100)

Proﬁt on disposal 157

40. Acquisitions and disposals continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

225

Notes to the ﬁnancial statements continued

Associates and joint ventures

During the year, GSK made cash investments of £15 million into associates and joint ventures. In addition, GSK sold its holdings in

two associates for £198 million in cash.

Total

£m

Cash consideration 198

Net book value of shares (92)

Reclassiﬁcation of exchange from other comprehensive income (7)

Transaction costs (5)

Proﬁt on disposal 94

Cash ﬂows

Business

disposals

£m

Associates

and joint

venture

investments

£m

Associates

and joint

venture

disposals

£m

Cash consideration 256 (15) 198

Net deferred consideration received 39 – –

Cash and cash equivalents divested (6) – –

Transaction costs paid (7) – (2)

Cash inﬂow/(outﬂow) 282 (15) 196

41. Adjustments reconciling proﬁt after tax to operating cash ﬂows

2019

£m

2018

£m

2017

£m

Proﬁt after tax 5,268 4,046 2,169

Tax on proﬁts 953 754 1,356

Share of after-tax proﬁts of associates and joint ventures (74) (31) (13)

Finance expense net of ﬁnance income 814 717 669

Depreciation 1,231 954 988

Amortisation of intangible assets 1,103 902 934

Impairment and assets written off 825 350 1,061

Proﬁt on sale of businesses (201) (63) (157)

Proﬁt on sale of intangible assets (342) (201) (46)

Proﬁt on sale of investments in associates – (3) (94)

Proﬁt on sale of equity investments (2) (4) (37)

Gain on Novartis Consumer Healthcare Joint Venture put option hedging – (513) –

Business acquisition costs 59 47 –

Changes in working capital:

Decrease/(increase) in inventories 300 51 (461)

Increase in trade receivables (32) (429) (287)

Increase in trade payables 263 131 11

(Increase)/decrease in other receivables (160) 18 74

Contingent consideration paid (see Note 32) (780) (984) (594)

Other non-cash increase in contingent consideration liabilities 83 1,250 961

Increase in other payables 89 2,362 1,741

(Decrease)/increase in pension and other provisions (188) 102 (255)

Share-based incentive plans 365 360 333

Fair value adjustments 19 (7) –

Other (61) (62) (95)

4,264 5,701 6,089

Cash generated from operations 9,532 9,747 8,258

40. Acquisitions and disposals continued

226

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

42. Reconciliation of net cash ﬂow to movement in net debt

2019

£m

2018

£m

2017

£m

Net debt, as previously reported (21,621) (13,178) (13,804)

Implementation of IFRS 16 (1,303) – –

Net debt at beginning of year, as adjusted (22,924) (13,178) (13,804)

Increase/(decrease) in cash and bank overdrafts 826 479 (905)

Decrease in liquid investments (1) – (4)

Net increase in long-term loans (4,794) (10,138) (2,233)

Repayment of short-term Notes 4,160 2,067 2,636

(Increase in)/repayment of other short-term loans (3,095) (81) 564

Repayment of lease liabilities 214 28 23

Debt of subsidiary undertakings acquired (524) – –

Exchange adjustments 1,015 (776) 585

Other non-cash movements (92) (22) (40)

Movement in net debt (2,291) (8,443) 626

Net debt at end of year (25,215) (21,621) (13,178)

Analysis of changes in net debt

At 1 January

2019

£m

IFRS 16

Implement-

ation

£m

Exchange

£m

Debt

acquired

£m

Other

£m

Proﬁt

and loss

£m

Reclass-

iﬁcations

£m

Cash ﬂow

£m

31 December

2019

£m

Liquid investments 84 – (6) – – – – 1 79

Cash and cash equivalents 3,874 – (86) – – – (22) 941 4,707

Cash and cash equivalents – AHFS 485 – – – – – 22 – 507

Overdrafts (272) – 4 – – – – (115) (383)

4,087 – (82) – – – – 826 4,831

Debt due within one year:

Commercial paper (630) – 109 – – – – (3,065) (3,586)

European/US Medium Term Notes and

bank facilities

(4,849)

–

233

(445)

(1)

–

(1,756)

4,160

(2,658)

Lease liabilities (24) (229) 4 (19) 5 – (2) 25 (240)

Other (18) – 2 – (5) – – (30) (51)

(5,521) (229) 348 (464) (1) – (1,758) 1,090 (6,535)

Debt due after one year:

European/US Medium Term Notes and

bank facilities

(20,227)

–

715

–

(3)

(27)

1,756

(4,794)

(22,580)

Lease liabilities (44) (1,074) 40 (60) (101) – 2 227 (1,010)

(20,271) (1,074) 755 (60) (104) (27) 1,758 (4,567) (23,590)

Net debt (21,621) (1,303) 1,015 (524) (105) (27) – (2,650) (25,215)

Analysis of changes in liabilities from ﬁnancing activities

Debt due within one year (5,521) (229) 348 (464) (1) – (1,758) 1,090 (6,535)

Debt due after one year (20,271) (1,074) 755 (60) (104) (27) 1,758 (4,567) (23,590)

Hedge of borrowings:

Derivative ﬁnancial instruments 129 – (1) – 188 21 – (2) 335

Other ﬁnancing items – – (189) – – – – 189 –

Interest payable (239) – 1 – (3) (898) – 895 (244)

Total liabilities from ﬁnancing activities (25,902) (1,303) 914 (524) 80 (904) – (2,395) (30,034)

For further information on signiﬁcant changes in net debt see Note 29, ‘Net debt’.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

227

Notes to the ﬁnancial statements continued

The objective of GSK’s Treasury activity is to minimise the

post-tax net cost of ﬁnancial operations and reduce its volatility

to beneﬁt earnings and cash ﬂows. GSK uses a variety of

ﬁnancial instruments to ﬁnance its operations and derivative

ﬁnancial instruments to manage market risks from these

operations. Derivatives principally comprise of foreign exchange

forward contracts and swaps which are used to swap

borrowings and liquid assets into currencies required for Group

purposes as well as interest rate swaps which are used to

manage exposure to ﬁnancial risks from changes in interest

rates. These ﬁnancial instruments reduce the uncertainty of

foreign currency transactions and interest payments.

Derivatives are used exclusively for hedging purposes in

relation to underlying business activities and not as trading or

speculative instruments.

Capital management

GSK’s ﬁnancial strategy supports the Group’s strategic

priorities and is regularly reviewed by the Board. GSK manages

the capital structure of the Group through an appropriate mix

of debt and equity.

The capital structure of the Group consists of net debt of

£25.2 billion (see Note 29, ‘Net debt’) and total equity,

including items related to non-controlling interests, of

£18.4 billion (see ‘Consolidated statement of changes in

equity’ on page 168). Total capital, including that provided

by non-controlling interests, is £43.6 billion.

The Group continues to manage its ﬁnancial policies to a credit

proﬁle that particularly targets short-term credit ratings of A-1

and P-1 while maintaining single A long-term ratings consistent

with those targets. The Group’s long-term credit rating with

Standard and Poor’s is A+ (negative outlook) and with Moody’s

Investor Services (‘Moody’s’) it is A2 (negative outlook).

The Group’s short-term credit ratings are A-1 and P-1 with

Standard and Poor’s and Moody’s respectively.

Liquidity risk management

GSK’s policy is to borrow centrally in order to meet anticipated

funding requirements. The strategy is to diversify liquidity

sources using a range of facilities and to maintain broad access

to ﬁnancial markets.

At 31 December 2019, GSK had £6.9 billion of borrowings

repayable within one year and held £5.3 billion of cash and

cash equivalents and liquid investments of which £3.6 billion

was held centrally. GSK has access to short-term ﬁnance under

a $10 billion (£7.6 billion) US commercial paper programme;

$4.8 billion (£3.6 billion) was in issue at 31 December 2019

(2018 – $0.8 billion (£0.6 billion)). GSK has a £1.9 billion

three-year committed facility and a $2.5 billion (£1.9 billion)

364-day committed facility. Both the three-year committed

facility and the 364-day committed facility were agreed in

September 2019. These facilities were undrawn at 31

December 2019. GSK considers this level of committed

facilities to be adequate, given current liquidity requirements.

Additional bank facilities were agreed in 2018 to support

transactions and one remains active at 31 December 2019.

In June 2018, £3.5 billion was drawn to support the acquisition

from Novartis of the remaining stake in the Consumer

Healthcare Joint Venture. £2.5 billion was repaid in November

2019 leaving £1.0 billion outstanding at 31 December 2019.

In December 2019, this facility was extended to June 2020.

GSK has a £20.0 billion European Medium Term Note

programme and at 31 December 2019, £11.8 billion of

notes were in issue under this programme. The Group also had

$16.4 billion (£12.4 billion) of notes in issue at 31 December

2019 under a US shelf registration. GSK’s borrowings mature

at dates between 2020 and 2045.

The put option owned by Pﬁzer in ViiV Healthcare is

exercisable. In reviewing liquidity requirements GSK considers

that sufﬁcient ﬁnancing options are available should the put

option be exercised.

Market risk

Interest rate risk management

The objective of GSK’s Treasury activity is to minimise the

effective net interest cost and to balance the mix of debt at ﬁxed

and ﬂoating rates over time.

The Group’s main interest rate risk arises from borrowings and

investments with ﬂoating rates and reﬁnancing of maturing ﬁxed

rate debt where any changes in interest rates will affect future

cash ﬂows or the fair values of ﬁnancial instruments. The policy

on interest rate risk management limits the net amount of

ﬂoating rate debt to a speciﬁc cap, reviewed and agreed no

less than annually by the Board.

The majority of debt is issued at ﬁxed interest rates and

changes in the ﬂoating rates of interest do not signiﬁcantly

affect the Group’s net interest charge. This includes some

borrowings for which interest rate swaps are in place which

removes the impact of the associated periodic repricing.

Short-term borrowings including bank facilities are exposed to

the risk of future changes in market interest rate as are the

majority of cash and liquid investments.

Interest rate benchmark reform

‘Interest rate benchmark reform – Amendments to IFRS 9,

IAS 39 and IFRS 7’ was issued by the IASB in September

2019. These amendments modify speciﬁc hedge accounting

requirements to allow hedge accounting to continue for

affected hedges during the period of uncertainty before the

hedged items or hedging instruments affected by the current

interest rate benchmarks are amended as a result of the

ongoing interest rate benchmark reforms.

At 31 December 2019, the Group was not directly exposed

to interest rate benchmark reform as it held no interest rate

derivatives that referenced LIBOR and matured after the end

of 2021 and all ﬂoating rate bonds were due to mature before

the end of 2021.

43. Financial instruments and related disclosures

228

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The Group has closely monitored the market and the output

from the various industry working groups managing the

transition to new benchmark interest rates. This includes

announcements made by LIBOR regulators, including the

Financial Conduct Authority (FCA) and the US Commodity

Futures Trading Commission, regarding the transition away

from LIBOR (including GBP LIBOR, USD LIBOR and

EURIBOR) to the Sterling Overnight Index Average Rate

(SONIA), the Secured Overnight Financing Rate (SOFR),

and the Euro Short-Term Rate (€STR) respectively. The FCA

has made it clear that, at the end of 2021, it will no longer

seek to persuade, or compel, banks to submit to LIBOR.

The Group is undertaking an interest rate benchmark transition

programme to identify potential exposures within the business

and deliver a smooth transition to appropriate alternative

benchmark rates.

Foreign exchange risk management

The Group’s objective is to minimise the exposure of overseas

operating subsidiaries to transaction risk by matching local

currency income with local currency costs where possible.

Foreign currency transaction exposures arising on external

and internal trade ﬂows are selectively hedged. GSK’s internal

trading transactions are matched centrally and inter-company

payment terms are managed to reduce foreign currency risk.

Where possible, GSK manages the cash surpluses or

borrowing requirements of subsidiary companies centrally

using forward contracts to hedge future repayments back

into the originating currency.

In order to reduce foreign currency translation exposure, the

Group seeks to denominate borrowings in the currencies of

our principal assets and cash ﬂows. These are primarily

denominated in US Dollars, Euros and Sterling. 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 in major currencies are also used to reduce exposure

to the Group’s investment in overseas assets (see ‘Net

investment hedges’ section of this note for further details).

Credit risk

Credit risk is the risk that a counterparty will default on its

contractual obligations resulting in ﬁnancial loss to the Group

and arises on cash and cash equivalents and favourable

derivative ﬁnancial instruments held with banks and ﬁnancial

institutions as well as credit exposures to wholesale and retail

customers, including outstanding receivables.

The Group considers its maximum credit risk at 31 December

2019 to be £12,991 million (31 December 2018 – £11,080

million) which is the total of the Group’s ﬁnancial assets with

the exception of ’Other investments’ (comprising equity

investments) which bear equity risk rather than credit risk.

See page 231 for details on the Group’s total ﬁnancial assets.

At 31 December 2019, GSK’s greatest concentration of

credit risk was £0.9 billion with Legal and General Investment

Management Class 4 GBP liquidity fund (AAA/Aaa)

(2018 – £0.7 billion with Citibank (A/A1)).

There has been no change in the estimation techniques or

signiﬁcant assumptions made during the current reporting

period in assessing the loss allowance for ﬁnancial assets at

amortised cost since the adoption of IFRS 9 at the start of

the 2018 reporting period.

Treasury-related credit risk

GSK sets global counterparty limits for each of GSK’s banking

and investment counterparties based on long-term credit

ratings from Moody’s and Standard and Poor’s. Usage of these

limits is monitored daily.

GSK actively manages its exposure to credit risk, reducing

surplus cash balances wherever possible. This is part of GSK’s

strategy to regionalise cash management and to concentrate

cash centrally as much as possible. The table below sets out

the credit exposure to counterparties by rating 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, although, under ISDA

agreements, the amount at risk is the net position with each

counterparty. Table (e) on page 239 sets out the Group’s

ﬁnancial assets and liabilities on an offset basis.

At 31 December 2019, £23 million of cash is categorised as

held with unrated or sub-investment grade rated counterparties

(lower than BBB-/Baa3) of which £2 million is cash in transit.

The remaining exposure is concentrated in overseas banks used

for local cash management or investment purposes, including:

£8 million in Nigeria held with United Bank for Africa, Zenith

Bank and Stanbic IBTC Bank; £3 million with BTV in Austria;

£1 million with Bradesco in Brazil; £1 million with Banco de

la Nacion in Panama; and £1 million with Halk Bank in the UK.

Of the £605 million of bank balances and deposits held with

BBB/Baa rated counterparties, £46 million was held with

BBB-/Baa3 rated counterparties, including balances or

deposits of £25 million with HDFC Bank in India and

£20 million with State Bank of India. These banks are used

for local investment purposes.

GSK measures expected credit losses over cash and cash

equivalents as a function of individual counterparty credit ratings

and associated 12 month default rates. Expected credit losses

over cash and cash equivalents and third-party ﬁnancial

derivatives are deemed to be immaterial and no such loss has

been experienced during 2019.

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

229

Notes to the ﬁnancial statements continued

GSK’s centrally managed cash reserves amounted to

£3.6 billion at 31 December 2019, all available within three

months. This includes £1.3 billion of cash managed by the

Group for ViiV Healthcare, a 78.3% owned subsidiary and

£1.0 billion of cash managed by the Group for GSK Consumer

Healthcare, a 68% owned subsidiary. The Group has invested

centrally managed liquid assets in bank deposits, Aaa/AAA

rated US Treasury and Treasury repo only money market funds

and Aaa/AAA rated liquidity funds.

Wholesale and retail credit risk

Outside the US, no customer accounts for more than 5% of the

Group’s trade receivables balance.

In the US, 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 amounted to

approximately 78% of the sales of the US Pharmaceuticals

and Vaccines businesses in 2019. At 31 December 2019, the

Group had trade receivables due from these three wholesalers

totalling £2,079 million (2018 – £2,134 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 include a 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.

All new customers are subject to a credit vetting process and

existing customers will be subject to a review at least annually.

The vetting process and subsequent reviews involve obtaining

information including the customer’s status as a government or

private sector entity, audited ﬁnancial statements, credit bureau

reports, debt rating agency (e.g. Moody’s, Standard & Poor’s)

reports, payment performance history (from trade references,

industry credit groups) and bank references.

Trade receivables consist of amounts due from a large number

of customers, spread across diverse industries and

geographical areas. Ongoing credit evaluation is performed

on the ﬁnancial condition of accounts receivable and, where

appropriate, credit insurance is purchased or factoring

arrangements put in place.

The amount of information obtained is proportional to the level

of exposure being considered. The information is evaluated

quantitatively (i.e. credit score) and qualitatively (i.e. judgement)

in conjunction with the customer’s credit requirements to

determine a credit limit.

Trade receivables are grouped into customer segments that

have similar loss patterns to assess credit risk while other

receivables and other ﬁnancial assets are assessed individually.

Historical and forward-looking information is considered to

determine the appropriate expected credit loss allowance.

The Group believes there is no further credit risk provision

required in excess of the allowance for expected credit losses

(see Note 25, ‘Trade and other receivables’).

43. Financial instruments and related disclosures continued

Credit ratings are assigned by Standard and Poor’s and Moody’s respectively. Where the opinions of the two rating agencies

differ, GSK assigns the lower rating of the two to the counterparty. Where local rating agency or Fitch data is the only source

available, the ratings are converted to global ratings equivalent to those of Standard and Poor’s or Moody’s using published

conversion tables. These credit ratings form the basis of the assessment of the expected credit loss on Treasury related balances

held at amortised cost being bank balances and deposits and Government securities.

2019

AAA/Aaa

£m

AA/Aa

£m

A/A

£m

BBB/Baa

£m

BB+/Ba1

and below

/unrated

£m

Total

£m

Bank balances and deposits – 538 1,906 605 23 3,072

US Treasury and Treasury repo only money market funds 10 2 – – – – 102

Liquidity funds 2,040 – – – – 2,040

Government securities – 78 – 1 – 79

3rd party ﬁnancial derivatives – 35 225 10 – 270

Total 2,142 651 2,131 616 23 5,563

2018

AAA/Aaa

£m

AA/Aa

£m

A/A

£m

BBB/Baa

£m

BB+/Ba1

and below

/unrated

£m

Total

£m

Bank balances and deposits – 662 1,275 381 20 2,338

US Treasury and Treasury repo only money market funds 449 – – – – 449

Liquidity funds 1,572 – – – – 1,572

Government securities – 83 – 1 – 84

3rd party ﬁnancial derivatives – 19 127 4 – 150

Total 2,021 764 1,402 386 20 4,593

230

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

Credit enhancements

The Group uses credit enhancements including factoring

and credit insurance to minimise the credit risk of the trade

receivables in the Group. At 31 December 2019, £250 million

(2018 – £240 million) of GSK trade receivables were insured

protecting GSK’s trade receivables balance from loss due

to credit risks such as default, insolvency and bankruptcy.

Each Group entity assesses the credit risk of its private

customers to determine if credit insurance is required.

Factoring arrangements are managed locally by entities and

are used to mitigate risk arising from large credit risk

concentrations. All factoring arrangements are non-recourse.

Fair value of ﬁnancial assets and liabilities

The table on page 231 presents the carrying amounts

and the fair values of the Group’s ﬁnancial assets and liabilities

at 31 December 2019 and 31 December 2018.

The fair values of the ﬁnancial assets and liabilities are included

at the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market

participants at the measurement date.

The following methods and assumptions are used to measure

the fair values of signiﬁcant ﬁnancial instruments carried at fair

value on the balance sheet:

– Other investments – equity investments traded in an active

market determined by reference to the relevant stock

exchange quoted bid price; other equity investments

determined by reference to the current market value of similar

instruments, recent ﬁnancing rounds or the discounted cash

ﬂows of the underlying net assets

– Trade receivables – based on invoiced amount

– Interest rate swaps, foreign exchange forward contracts,

swaps and options – based on the present value of

contractual cash ﬂows or option valuation models using

market sourced data (exchange rates or interest rates) at the

balance sheet date

– Company-owned life insurance policies – based on cash

surrender value

– Cash and cash equivalents – based on net asset value of the

funds

– Contingent consideration for business acquisitions and

divestments – based on present values of expected future

cash ﬂows.

The following methods and assumptions are used to estimate

the fair values of signiﬁcant ﬁnancial instruments which are not

measured at fair value on the balance sheet:

– Receivables and payables, including put options –

approximates to the carrying amount

– Liquid investments – approximates to the carrying amount

– Cash and cash equivalents – approximates to the carrying

amount

– Long-term loans – based on quoted market prices (a level 1

fair value measurement) in the case of European and US

Medium Term Notes; approximates to the carrying amount in

the case of other ﬁxed rate borrowings and ﬂoating rate bank

loans

– Short-term loans, overdrafts and commercial paper –

approximates to the carrying amount because of the short

maturity of these instruments

– Lease liabilities – approximates to the carrying amount.

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

231

Notes to the ﬁnancial statements continued

2019 2018

Notes

Carrying

value

£m

Fair

value

£m

Carrying

value

£m

Fair

value

£m

Financial assets measured at amortised cost:

Other non-current assets b 76 76 49 49

Trade and other receivables b 4,533 4,533 3,761 3,761

Liquid investments 79 79 84 84

Cash and cash equivalents 3,072 3,072 2,338 2,338

Other items in Assets held for sale b 69 69 47 47

Financial assets measured at fair value through other comprehensive

income (FVTOCI):

Other investments designated at FVTOCI a 1,781 1,781 1,250 1,250

Trade and other receivables a,b 1,665 1,665 1,687 1,687

Financial assets mandatorily measured at fair value through proﬁt or loss (FVTPL):

Other investments a 56 56 72 72

Other non-current assets a,b 787 787 716 716

Trade and other receivables a,b 44 44 120 120

Held for trading derivatives that are not in a designated and

effective hedging relationship a,d,e 357 357 188 188

Cash and cash equivalents a 2,142 2,142 2,021 2,021

Derivatives designated and effective as hedging instruments (fair value movements

through Other comprehensive income)

a,d,e

167

Total ﬁnancial assets 14,828 14,828 12,402 12,402

Financial liabilities measured at amortised cost:

Borrowings excluding obligations under lease liabilities:

– bonds in a designated hedging relationship d (8,636) (9,085) (8,213) (8,279)

– other bonds (15,582) (19,048) (13,307) (15,475)

– bank loans and overdrafts (416) (416) (290) (290)

– commercial paper (3,586) (3,586) (630) (630)

– other borrowings (1,038) (1,038) (3,556) (3,556)

Total borrowings excluding lease liabilities f (29,258) (33,173) (25,996) (28,230)

Lease liabilities (1,250) (1,250) (68) (68)

Total borrowings (30,508) (34,423) (26,064) (28,298)

Trade and other payables c (14,177) (14,177) (13,338) (13,338)

Other provisions c (94) (94) (58) (58)

Other non-current liabilities c (84) (84) (149) (149)

Other items in Assets held for sale c (126) (126) (167) (167)

Financial liabilities mandatorily measured at fair value through proﬁt or loss (FVTPL):

Contingent consideration liabilities a,c (5,479) (5,479) (6,286) (6,286)

Held for trading derivatives that are not in a designated and

effective hedging relationship a,d,e (141) (141) (23) (23)

Derivatives designated and effective as hedging instruments (fair value movements

through Other comprehensive income)

a,d,e

(48)

(105)

Total ﬁnancial liabilities (50,657) (54,572) (46,190) (48,424)

Net ﬁnancial assets and ﬁnancial liabilities (35,829) (39,744) (33,788) (36,022)

The valuation methodology used to measure fair value in the above table is described and categorised on page 230.

Trade and other receivables, Other non-current assets, Trade and other payables, Other provisions, Other non-current liabilities,

Contingent consideration liabilities and Other items in Assets held for sale are reconciled to the relevant Notes on pages 233

and 234.

Cash and cash equivalents in the table above include £507 million reported in Assets held for sale (see Note 27, ‘Assets held

for sale’).

43. Financial instruments and related disclosures continued

232

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

Fair value of investments in GSK shares

At 31 December 2019, the Employee Share Ownership Plan (ESOP) Trusts held GSK shares with a carrying value of £135 million

(2018 – £161 million) and a market value of £647 million (2018 – £619 million) based on quoted market price. The shares are held

by the ESOP Trusts to satisfy future exercises of options and awards under employee incentive schemes. In 2019, 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 31 December 2019, GSK held Treasury shares at a cost of £5,505 million (2018 – £5,800 million) which has been deducted

from retained earnings.

(a) Financial instruments held at fair value

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. Other investments classiﬁed as Level 3 in the tables below comprise equity investments in unlisted entities

with which the Group has entered into research collaborations and also investments in emerging life science companies.

At 31 December 2019

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

Financial assets at fair value

Financial assets measured at fair value through other comprehensive income (FVTOCI):

Other investments designated at FVTOCI 1,128 – 653 1,781

Trade and other receivables – 1,665 – 1,665

Financial assets mandatorily measured at fair value through proﬁt or loss (FVTPL):

Other investments – – 56 56

Other non-current assets – 743 44 787

Trade and other receivables – 44 – 44

Held for trading derivatives that are not in a designated and effective hedging relationship – 353 4 357

Cash and cash equivalents 2,142 – – 2,142

Derivatives designated and effective as hedging instruments (fair value movements through OCI) – 167 – 167

3,270 2,972 757 6,999

Financial liabilities at fair value

Financial liabilities mandatorily measured at fair value through proﬁt or loss (FVTPL):

Contingent consideration liabilities – – (5,479) (5,479)

Held for trading derivatives that are not in a designated and effective hedging relationship – (141) – (141)

Derivatives designated and effective as hedging instruments (fair value movements through OCI) – (48) – (48)

– (189) (5,479) (5,668)

At 31 December 2018

Level 1

£m

Level 2

£m

Level 3

£m

Total

£m

Financial assets at fair value

Financial assets at fair value through other comprehensive income (FVTOCI):

Other investments designated at FVTOCI 656 – 594 1,250

Trade and other receivables – 1,687 – 1,687

Financial assets mandatorily measured at fair value through proﬁt or loss (FVTPL):

Other investments – – 72 72

Other non-current assets – 675 41 716

Trade and other receivables – 79 41 120

Held for trading derivatives that are not in a designated and effective hedging relationship – 182 6 188

Cash and cash equivalents 2,021 – – 2,021

Derivatives designated and effective as hedging instruments (fair value movements through OCI) – 69 – 69

2,677 2,692 754 6,123

Financial liabilities at fair value

Financial liabilities mandatorily measured at fair value through proﬁt or loss (FVTPL):

Contingent consideration liabilities – – (6,286) (6,286)

Held for trading derivatives that are not in a designated and effective hedging relationship – (23) – (23)

Derivatives designated and effective as hedging instruments (fair value movements through OCI) – (105) – (105)

– (128) (6,286) (6,414)

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

233

Notes to the ﬁnancial statements continued

Movements in the year for ﬁnancial instruments measured using Level 3 valuation methods are presented below:

2019

£m

2018

£m

At 1 January (5,532) (5,657)

Net losses recognised in the income statement (103) (1,229)

Net gains recognised in other comprehensive income 31 146

Settlement of contingent consideration liabilities 893 1,137

Settlement of contingent consideration receivables (42) (42)

Additions 241 381

Disposals and settlements (33) (27)

Transfers from Level 3 (174) (241)

Other movements (3) –

At 31 December (4,722) (5,532)

Net losses of £103 million (2018 – £1,229 million) attributable to Level 3 ﬁnancial instruments which were recognised in the

income statement included net losses of £97 million (2018 – £1,229 million) in respect of ﬁnancial instruments which were held

at the end of the year. Losses of £105 million (2018 – £1,229 million) were reported in Other operating income and gains of

£2 million (2018 – £nil) were reported in Finance income. Charges of £31 million (2018 – £1,188 million) arose from

remeasurement of the contingent consideration payable for the acquisition of the former Shionogi-ViiV Healthcare joint venture

and £67 million (2018 – £56 million) arose from remeasurement of the contingent consideration payable for the acquisition of the

Novartis Vaccines business. Net gains of £31 million (2018 – £146 million) attributable to Level 3 ﬁnancial instruments reported in

Other comprehensive income as Fair value movements on equity investments included net gains of £38 million (2018 – net gains

of £140 million) in respect of ﬁnancial instruments held at the end of the year, of which net gains of £174 million (2018 – net gains

of £98 million) arose prior to transfer from Level 3 on equity investments which transferred to a Level 1 valuation methodology as

a result of listing on a recognised stock exchange during the year. Net gains and losses include the impact of exchange movements.

Financial liabilities measured using Level 3 valuation methods at 31 December included £5,103 million (2018 – £5,937 million) in

respect of contingent consideration payable for the acquisition in 2012 of the former Shionogi-ViiV Healthcare joint venture. This

consideration is expected to be paid over a number of years and will vary in line with the future performance of speciﬁed products

and movements in certain foreign currencies. They also included £339 million (2018 – £296 million) in respect of contingent

consideration for the acquisition in 2015 of the Novartis Vaccines business. This consideration is expected to be paid over a

number of years and will vary in line with the future performance of speciﬁed products, the achievement of certain milestone

targets and movements in certain foreign currencies. Sensitivity analysis on these balances is provided in Note 32, ‘Contingent

consideration liabilities’.

(b) Trade and other receivables, Other non-current assets and other items in Assets held for sale in scope of IFRS 9

The following table reconciles ﬁnancial instruments within Trade and other receivables, Other non-current assets and other items

in Assets held for sale which fall within the scope of IFRS 9 to the relevant balance sheet amounts. The ﬁnancial assets are

predominantly non-interest earning. Financial instruments within the Other non-current assets balance include company-owned

life insurance policies. Non-ﬁnancial instruments include tax receivables, pension surplus balances and prepayments, which are

outside the scope of IFRS 9.

2019 2018

FVTPL

£m

FVTOCI

£m

Amortised

cost

£m

Financial

instruments

£m

Non-

ﬁnancial

instruments

£m

Total

£m

FVTPL

£m

FVTOCI

£m

Amortised

cost

£m

Financial

instruments

£m

Non-

ﬁnancial

instruments

£m

Total

£m

Trade and other receivables

(Note 25)

1,665

4,533

6,242

960

7,202

120

1,687

3,761

5,568

855

6,423

Other non-current assets

(Note 23)

787

–

863

157

1,020

716

–

765

811

1,576

Other items in Assets held

for sale (Note 27) – – 69 69 22 91 – – 47 47 37 84

831 1,665 4,678 7, 174 1,139 8,313 836 1,687 3,857 6,380 1,703 8,083

43. Financial instruments and related disclosures continued

234

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

(c) Trade and other payables, Other provisions, Other non-current liabilities, Contingent consideration liabilities and other

items in Assets held for sale in scope of IFRS 9

The following table reconciles ﬁnancial instruments within Trade and other payables, Other provisions, Other non-current liabilities,

Contingent consideration liabilities and other items in Assets held for sale which fall within the scope of IFRS 9 to the relevant

balance sheet amounts. The ﬁnancial liabilities are predominantly non-interest bearing. Accrued wages and salaries are included

within ﬁnancial liabilities. Non-ﬁnancial instruments include payments on account, tax and social security payables and provisions

which do not arise from contractual obligations to deliver cash or another ﬁnancial asset, which are outside the scope of IFRS 9.

2019 2018

At FVTPL

£m

Amortised

cost

£m

Financial

instruments

£m

Non-

ﬁnancial

instruments

£m

Total

£m

At FVTPL

£m

Amortised

cost

£m

Financial

instruments

£m

Non-

ﬁnancial

instruments

£m

Total

£m

Trade and other payables

(Note 28)

–

(14,177)

(762)

(14,939)

–

(13,338)

(699)

(14,037)

Other provisions

(Note 31)

–

(94)

(1,197)

(1,291)

–

(58)

(1,365)

(1,423)

Other non-current liabilities

(Note 33)

–

(84)

(760)

(844)

–

(149)

(789)

(938)

Contingent consideration

liabilities (Note 32) (5,479) – (5,479) – (5,479) (6,286) – (6,286) – (6,286)

Other items in Assets held

for sale (Note 27) – (126) (126) (87) (213) – (167) (167) (53) (220)

(5,479) (14,481) (19,960) (2,806) (22,766) (6,286) (13,712) (19,998) (2,906) (22,904)

(d) Derivative ﬁnancial instruments and hedging programmes

Derivatives are only used for economic hedging purposes and not as speculative investments and are classiﬁed as ‘held for trading’,

other than designated and effective hedging instruments, and are presented as current assets or liabilities if they are expected to be

settled within 12 months after the end of the reporting period, otherwise they are classiﬁed as non-current. The Group has the

following derivative ﬁnancial instruments:

2019

Fair value

2018

Fair value

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Non-current

Cash ﬂow hedges – Interest rate swap contracts

(principal amount – £850 million (2018 – £1,267 million)) 1 – – (1)

Net investment hedges – Cross currency swaps

(principal amount – £1,514 million (2018 – £1,575 million)) 98 – 64 –

Current

Cash ﬂow hedges – Interest rate swap contracts

(principal amount – £637 million (2018 – £nil)) – (1) – –

Cash ﬂow hedges – Foreign exchange contracts

(principal amount – £1,746 million (2018 – £1,809 million)) 24 (17) 1 (56)

Net investment hedges – Foreign exchange contracts

(principal amount – £9,376 million (2018 – £7,316 million)) 44 (30) 4 (48)

Derivatives designated and effective as hedging instruments 167 (48) 69 (105)

Non-current

Embedded and other derivatives 4 (1) 4 –

Current

Foreign exchange contracts

(principal amount – £18,856 million (2018 – £18,537 million)) 103 (140) 82 (23)

Embedded and other derivatives 250 – 102 –

Derivatives classiﬁed as held for trading 357 (141) 188 (23)

Total derivative instruments 524 (189) 257 (128)

Fair value hedges

At 31 December 2019, the Group had no designated fair value hedges.

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

235

Notes to the ﬁnancial statements continued

Net investment hedges

At 31 December 2019, certain foreign exchange contracts were designated as net investment hedges in respect of the foreign

currency translation risk arising on consolidation of the Group’s net investment in its European (Euro), Singaporean (SGD), Indian

(INR) and Japanese (JPY) foreign operations as shown in the table above.

The carrying value of bonds on page 231 included £8,636 million (2018 – £8,213 million) that were designated as hedging

instruments in net investment hedges.

Cash ﬂow hedges

During 2018 and 2019, the Group entered into forward foreign exchange contracts which have been designated as cash ﬂow

hedges. These were entered into to hedge the foreign exchange exposure arising on cash ﬂows from Euro denominated coupon

payments relating to notes issued under the Group’s European Medium Term Note programme, on the buyout of Novartis’

non-controlling interest in the Consumer Healthcare Joint Venture in 2018, on the planned divestment of Horlicks and other

nutrition brands in 2019 and on reﬁnancing existing debt maturities.

The Group manages its cash ﬂow interest rate risk by using ﬂoating-to-ﬁxed interest rate swaps. In addition, the Group carries a

balance in reserves that arose from pre-hedging ﬂuctuations in long-term interest rates when pricing bonds issued in prior years

and in the current year. The balance is reclassiﬁed to ﬁnance costs over the life of these bonds.

Foreign exchange risk

In the current year, the Group has designated certain foreign exchange forward contracts and swaps as cash ﬂow and net

investment hedges. Foreign exchange derivative ﬁnancial assets and liabilities are presented in the line ‘Derivative ﬁnancial

instruments’ (either as assets or liabilities) on the Consolidated balance sheet. The following tables detail the foreign exchange

forward contracts and swaps outstanding at the end of the reporting period, as well as information on the related hedged items.

The notional value of foreign exchange forward contracts and swaps is the absolute total of outstanding positions at the balance

sheet date.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness

assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Group enters

into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and so

a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that

the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical

derivative method to assess effectiveness.

The main source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group’s own

credit risk on the fair value of the foreign exchange forward contracts and swaps, which is not reﬂected in the fair value of the

hedged item attributable to changes in foreign exchange rates and ineffectiveness on rolling the cash ﬂow hedges of the

divestments mentioned above. No other sources of ineffectiveness emerged from these hedging relationships. Ineffectiveness

to be recorded from cash ﬂow hedges amounted to £7 million in 2019 (2018 – £nil). No ineffectiveness was recorded from net

investment hedges (2018 – £nil).

Included in the table below under ‘Borrowings’ are bonds with notional value of US$2 billion that have been swapped to ﬁxed

interest rate EUR debt with a cross currency interest rate swap.

2019

Hedging instruments

Average

exchange rate

Foreign

currency

Notional

value

£m

Carrying

value

£m

Cash ﬂow hedges

Foreign exchange contracts

Buy foreign currency:

3 to 6 months 1.14 EUR 47 (1)

Over 6 months 1.15 EUR 23 –

Sell foreign currency:

Less than 3 months 93.85 INR/GBP 999 5

Less than 3 months 52.82 INR/SGD 677 3

1,746 7

43. Financial instruments and related disclosures continued

236

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

2019

Hedging instruments

Average

exchange rate

Foreign

currency

Notional

value

£m

Carrying

value

£m

Net investment hedges

Foreign exchange contracts

Sell foreign currency:

Less than 3 months 1.18 EUR 8,250 2

Less than 3 months 1.77 SGD 471 3

Less than 3 months 92.23 INR 239 6

Less than 3 months 142.26 JPY 416 3

Borrowings (including cross currency interest rate swaps):

3 to 6 months EUR 638 (638)

Over 6 months EUR 7,914 (7,998)

17,928 (8,622)

2019

Hedged items

Periodic change in value

for calculating hedge

ineffectiveness

£m

Cumulative balance in cash

ﬂow hedge reserve/foreign

currency translation reserve

for continuing hedges

£m

Cash ﬂow hedges

Variability in cash ﬂows from a highly probable forecast transaction (7) (42)

Variability in cash ﬂows from foreign exchange exposure arising on

Euro denominated coupon payments relating to debt issued

(1)

Net investment hedges

Net investment in foreign operations (987) (1,080)

There are no balances in the cash ﬂow hedge reserve arising from hedging relationships for which hedge accounting is no longer

applied.

2018

Hedging instruments

Average

exchange rate

Foreign

currency

Notional

value

£m

Carrying

value

£m

Cash ﬂow hedges

Foreign exchange contracts

Buy foreign currency:

3 to 6 months 1.13 EUR 26 1

Sell foreign currency:

Over 6 months 96.40 INR 1,783 (56)

1,809 (55)

Net investment hedges

Foreign exchange contracts

Sell foreign currency:

Less than 3 months 1.11 EUR 6,933 (40)

Over 6 months 1.11 EUR 383 (4)

Borrowings (including cross currency interest rate swaps):

Over 6 months EUR 8,155 (8,213)

15,471 (8,257)

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

237

Notes to the ﬁnancial statements continued

2018

Hedged items

Periodic change in value

for calculating hedge

ineffectiveness

£m

Cumulative balance in cash

ﬂow hedge reserve/foreign

currency translation reserve

for continuing hedges

£m

Cash ﬂow hedges

Variability in cash ﬂows from a highly probable forecast transaction 56 (49)

Variability in cash ﬂows from foreign exchange exposure arising on

Euro denominated coupon payments relating to debt issued

(1)

Net investment hedges

Net investment in European foreign operations 286 (2,067)

There are no balances in the cash ﬂow hedge reserve arising from hedging relationships for which hedge accounting is no longer

applied.

The following table details the effectiveness of the hedging relationships and the amounts reclassiﬁed from the hedging reserve to

proﬁt or loss:

2019

Amount reclassiﬁed to proﬁt or loss

Hedging

gains/(losses)

recognised in

reserves

£m

Amount

of hedge

ineffectiveness

recognised in

proﬁt or loss

£m

Line item

in proﬁt or

loss in

which hedge

ineffectiveness

is included

Hedged

future cash

ﬂows

no longer

expected to

occur

£m

As hedged

item affects

proﬁt or loss

£m

Line item

in which

reclassiﬁcation

adjustment

is included

Cash ﬂow hedges

Variability in cash ﬂows from a highly probable forecast transaction – (7) Other

operating

income/

(expense)

– – Other

operating

income/

(expense)

Variability in cash ﬂows from foreign exchange exposure arising on

Euro denominated coupon payments relating to debt issued

1 – Finance

income/

(expense)

– – Finance

income/

(expense)

Net investment hedges

Net investment in foreign operations 987 – Finance

income/

(expense)

– – Finance

income/

(expense)

The following table details the effectiveness of the hedging relationships and the amounts reclassiﬁed from the hedging reserve to

proﬁt or loss:

2018

Amount reclassiﬁed to proﬁt or loss

Hedging

gains/(losses)

recognised in

reserves

£m

Amount

of hedge

ineffectiveness

recognised in

proﬁt or loss

£m

Line item

in proﬁt or

loss in

which hedge

ineffectiveness

is included

Hedged

future cash

ﬂows

no longer

expected to

occur

£m

As hedged

item affects

proﬁt or loss

£m

Line item

in which

reclassiﬁcation

adjustment

is included

Cash ﬂow hedges

Variability in cash ﬂows from a highly probable forecast transaction 127 – Other

operating

income/

(expense)

– (176) Other

operating

income/

(expense)

Variability in cash ﬂows from foreign exchange exposure arising on

Euro denominated coupon payments relating to debt issued

1 – Finance

income/

(expense)

– – Finance

income/

(expense)

Net investment hedges

Net investment in European foreign operations (286) – Finance

income/

(expense)

– – Finance

income/

(expense)

43. Financial instruments and related disclosures continued

238

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

Interest rate risk

The Group manages its cash ﬂow interest rate risk by using ﬂoating-to-ﬁxed interest rate swaps, where at quarterly intervals the

difference between ﬁxed contract rates and ﬂoating rate interest amounts calculated by reference to the agreed notional principal

amounts are exchanged.

The interest rate swap contracts, exchanging ﬂoating rate interest for ﬁxed interest, have been designated as cash ﬂow hedges to

hedge the variability of the interest cash ﬂows associated with ﬂoating rate debt relating to notes issued under the Group’s

European Medium Term Note programme. The interest rate swaps and the interest payments on the loan occur simultaneously and

the amount accumulated in equity is reclassiﬁed to proﬁt or loss over the period that the ﬂoating rate interest payments affect proﬁt

or loss.

The critical terms of the interest rate swap contracts and their corresponding hedged items are the same. A qualitative assessment

of effectiveness is performed and it is expected that the value of the interest rate swap contracts and the value of the corresponding

hedged items will systematically change in opposite directions in response to movements in the underlying interest rates. The main

sources of ineffectiveness in these hedge relationships are the effects of the Group’s own credit risk on the fair value of the interest

rate swap contracts, which are not reﬂected in the fair value of the hedged item attributable to the change in interest rates. No other

sources of ineffectiveness emerged from these hedging relationships.

The following tables provide information regarding interest rate swap contracts outstanding and the related hedged items at

31 December 2019 and 31 December 2018. Interest rate swap contract assets and liabilities are presented in the line ‘Derivative

ﬁnancial instruments’ (either as assets or liabilities) on the Consolidated balance sheet.

2019

Hedging instruments

Average

contracted ﬁxed

rate

Notional

principal

value

£m

Change in

fair value for

recognising

hedge

ineffectiveness

£m

Fair value

assets/

(liabilities)

£m

Less than 1 year 0.11 637 – (1)

1 to 2 years 0.13 1,418 (6) 33

2019

Hedged items

Change in value

used for

calculating

hedge

ineffectiveness

£m

Balance in cash

ﬂow hedge

reserve for

continuing

hedges

£m

Variable rate borrowings 6 4

2018

Hedging instruments

Average

contracted ﬁxed

rate

Notional

principal

value

£m

Change in

fair value for

recognising

hedge

ineffectiveness

£m

Fair value

assets/

(liabilities)

£m

1 to 2 years 0.11 676 – (1)

2 to 5 years 0.16 591 – 23

2018

Hedged items

Change in value

used for

calculating

hedge

ineffectiveness

£m

Balance in cash

ﬂow hedge

reserve for

continuing

hedges

£m

Variable rate borrowings 3 (3)

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

239

Notes to the ﬁnancial statements continued

The following table details the effectiveness of the hedging relationships and the amounts reclassiﬁed from the hedging reserve to

proﬁt or loss:

2019

Amount reclassiﬁed to proﬁt or loss

Hedging

gains/(losses)

recognised in

reserves

£m

Amount

of hedge

ineffectiveness

recognised in

proﬁt or loss

£m

Line item

in proﬁt or

loss in

which hedge

ineffectiveness

is included

Hedged

future cash

ﬂows

no longer

expected to

occur

£m

As hedged

item affects

proﬁt or loss

£m

Line item

in which

reclassiﬁcation

adjustment is

included

Cash ﬂow hedges

Variability in cash ﬂows (7) – Finance

income/

(expense)

– (2) Finance

income/

(expense)

Pre-hedging of long-term interest rates (12) – Finance

income/

(expense)

– 3 Finance

income/

(expense)

2018

Amount reclassiﬁed to proﬁt or loss

Hedging

gains/(losses)

recognised in

reserves

£m

Amount

of hedge

ineffectiveness

recognised in

proﬁt or loss

£m

Line item

in proﬁt or

loss in

which hedge

ineffectiveness

is included

Hedged

future cash

ﬂows

no longer

expected to

occur

£m

As hedged

item affects

proﬁt or loss

£m

Line item

in which

reclassiﬁcation

adjustment is

included

Cash ﬂow hedges

Variability in cash ﬂows (3) – Finance

income/

(expense)

– (2) Finance

income/

(expense)

Pre-hedging of long-term interest rates 15 – Finance

income/

(expense)

– 3 Finance

income/

(expense)

(e) Offsetting of ﬁnancial assets and liabilities

Financial assets and liabilities are offset and the net amount reported in the balance sheet where there is a legally enforceable right

to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability

simultaneously. There are also arrangements that do not meet the criteria for offsetting but still allow for the related amounts to be

offset in certain circumstances, such as bankruptcy or the termination of a contract.

The following tables set out the ﬁnancial assets and liabilities that are offset, or subject to enforceable master netting arrangements

and other similar agreements but not offset, as at 31 December 2019 and 31 December 2018. The column ‘Net amount’ shows the

impact on the Group’s balance sheet if all offset rights were exercised.

At 31 December 2019

Gross

ﬁnancial

assets/

(liabilities)

£m

Financial

(liabilities)/

assets

offset

£m

Net ﬁnancial

assets/

(liabilities)

£m

amounts not

offset

£m

Net

amount

£m

Financial assets

Trade and other receivables 6,246 (4) 6,242 (62) 6,180

Derivative ﬁnancial instruments 524 – 524 (131) 393

Financial liabilities

Trade and other payables (14,181) 4 (14,177) 62 (14,115)

Derivative ﬁnancial instruments (189) – (189) 131 (58)

43. Financial instruments and related disclosures continued

240

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

At 31 December 2018

Gross

ﬁnancial

assets/

(liabilities)

£m

Financial

(liabilities)/

assets

offset

£m

Net ﬁnancial

assets/

(liabilities)

£m

amounts not

offset

£m

Net

balance

£m

Financial assets

Trade and other receivables 5,568 – 5,568 (37) 5,531

Derivative ﬁnancial instruments 257 – 257 (62) 195

Financial liabilities

Trade and other payables (13,338) – (13,338) 37 (13,301)

Derivative ﬁnancial instruments (128) – (128) 62 (66)

Amounts which do not meet the criteria for offsetting on the balance sheet but could be settled net in certain circumstances

principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each

party has the option to settle amounts on a net basis in the event of default of the other party. As there is presently not a legally

enforceable right of offset, these amounts have not been offset in the balance sheet, but have been presented separately in the

table above.

(f) Debt interest rate repricing table

The following table sets out the exposure of the Group to interest rates on debt, including commercial paper. 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 lease liabilities.

2019 2018

Total

debt

£m

Total

£m

Floating and ﬁxed rate debt less than one year (6,678) (5,769)

Between one and two years (3,235) (1,757)

Between two and three years (2,643) (1,570)

Between three and four years (2,308) (1,568)

Between four and ﬁve years (1,595) (2,010)

Between ﬁve and ten years (5,904) (5,833)

Greater than ten years (6,895) (7,489)

Total (29,258) (25,996)

Original issuance proﬁle:

Fixed rate interest (21,763) (20,322)

Floating rate interest (7,495) (5,635)

Total interest bearing (29,258) (25,957)

Non-interest bearing – (39)

(29,258) (25,996)

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

241

Notes to the ﬁnancial statements continued

(g) Sensitivity analysis

The tables below illustrate the estimated impact on the income statement and equity as a result of hypothetical market movements

in foreign exchange and interest rates in relation to the Group’s ﬁnancial instruments. The range of variables chosen for the

sensitivity analysis reﬂects management’s view of changes which are reasonably possible over a one-year period.

Foreign exchange sensitivity

The Group operates internationally and is primarily exposed to foreign exchange risk in relation to Sterling against movements in US

Dollar, Euro and Japanese Yen. Foreign exchange risk arises from the translation of ﬁnancial assets and liabilities which are not in

the functional currency of the entity that holds them. Based on the Group’s net ﬁnancial assets and liabilities as at 31 December, a

weakening and strengthening of Sterling against these currencies, with all other variables held constant, is illustrated in the tables

below. The tables exclude ﬁnancial instruments that expose the Group to foreign exchange risk where this risk is fully hedged with

another ﬁnancial instrument.

2019 2018

Income statement impact of non-functional currency foreign exchange exposures

Increase/(decrease) in

income

£m

Increase/(decrease) in

income

£m

10 cent appreciation of the US Dollar 3 36

10 cent appreciation of the Euro (29) (7)

10 yen appreciation of the Yen – 15

2019 2018

Income statement impact of non-functional currency foreign exchange exposures

Increase/(decrease) in

income

£m

Increase/(decrease) in

income

£m

10 cent depreciation of the US Dollar (3) (30)

10 cent depreciation of the Euro 25 6

10 yen depreciation of the Yen – (13)

The equity impact, shown below, for foreign exchange sensitivity relates to derivative and non-derivative ﬁnancial instruments

hedging the Group’s net investments in its European (Euro) foreign operations and cash ﬂow hedges of its foreign exchange

exposure arising on Euro denominated coupon payments relating to notes issued under the Group’s European Medium Term Note

programme.

2019 2018

Equity impact of non-functional currency foreign exchange exposures

Increase/(decrease)

in equity

£m

Increase/(decrease)

in equity

£m

10 cent appreciation of the Euro (1,561) (1,307)

2019 2018

Equity impact of non-functional currency foreign exchange exposures

Increase/(decrease)

in equity

£m

Increase/(decrease)

in equity

£m

10 cent depreciation of the Euro 1,316 1,091

43. Financial instruments and related disclosures continued

242

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The tables below present the Group’s sensitivity to a weakening and strengthening of Sterling against the relevant currency based

on the composition of net debt as shown in Note 29 adjusted for the effects of foreign exchange derivatives that are not part of net

debt but affect future foreign currency cash ﬂows.

2019 2018

Impact of foreign exchange movements on net debt

(Increase)/decrease

in net debt

£m

(Increase)/decrease

in net debt

£m

10 cent appreciation of the US Dollar (1,051) (714)

10 cent appreciation of the Euro 74 (60)

10 yen appreciation of the Yen (5) 15

2019 2018

Impact of foreign exchange movements on net debt

(Increase)/decrease

in net debt

£m

(Increase)/decrease

in net debt

£m

10 cent depreciation of the US Dollar 903 610

10 cent depreciation of the Euro (63) 50

10 yen depreciation of the Yen 5 (13)

Interest rate sensitivity

The Group is exposed to interest rate risk on its outstanding borrowings and investments where any changes in interest rates will

affect future cash ﬂows or the fair values of ﬁnancial instruments.

The majority of debt is issued at ﬁxed interest rates and changes in the ﬂoating rates of interest do not signiﬁcantly affect the

Group’s net interest charge, although the majority of cash and liquid investments earn ﬂoating rates of interest.

The table below hypothetically shows the Group’s sensitivity to changes in interest rates in relation to Sterling, US Dollar and Euro

ﬂoating rate ﬁnancial assets and liabilities. If the interest rates applicable to ﬂoating rate ﬁnancial assets and liabilities were to have

increased by 1% (100 basis points), and assuming other variables had remained constant, it is estimated that the Group’s ﬁnance

income for 2019 would have decreased by approximately £9 million (2018 – £13 million decrease). A 1% (100 basis points)

movement in interest rates is not deemed to have a material effect on equity.

2019 2018

Income statement impact of interest rate movements

Increase/(decrease)

in income

£m

Increase/(decrease)

in income

£m

1% (100 basis points) increase in Sterling interest rates 14 (2)

1% (100 basis points) increase in US Dollar interest rates (4) 1

1% (100 basis points) increase in Euro interest rates (19) (12)

43. Financial instruments and related disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

243

Notes to the ﬁnancial statements continued

(h) Contractual cash ﬂows for non-derivative ﬁnancial liabilities and derivative instruments

The following tables provide an analysis of the anticipated contractual cash ﬂows including interest payable for the Group’s non-

derivative ﬁnancial liabilities on an undiscounted basis. For the purpose of this table, debt is deﬁned as all classes of borrowings

except for lease liabilities. Interest is calculated based on debt held at 31 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 31 December.

At 31 December 2019

Debt

£m

Interest

on debt

£m

Lease

liabilities

£m

Finance

charge

on lease

liabilities

£m

Trade payables

and other

liabilities not

in net debt

£m

Total

£m

Due in less than one year (6,678) (780) (240) (41) (14,952) (22,691)

Between one and two years (3,232) (742) (227) (36) (912) (5,149)

Between two and three years (2,651) (667) (119) (30) (806) (4,273)

Between three and four years (2,318) (600) (105) (23) (835) (3,881)

Between four and ﬁve years (1,607) (559) (93) (19) (799) (3,077)

Between ﬁve and ten years (5,946) (2,276) (296) (52) (3,131) (11,701)

Greater than ten years (6,976) (3,328) (170) (22) (984) (11,480)

Gross contractual cash ﬂows (29,408) (8,952) (1,250) (223) (22,419) (62,252)

Contractual cash ﬂows in respect of operating lease vacant space provisions at 31 December 2018 are excluded from the table

below.

At 31 December 2018

Debt

£m

Interest

on debt

£m

Obligations

under ﬁnance

leases

£m

Finance charge

on obligations

under ﬁnance

leases

£m

Trade payables

and other

liabilities not

in net debt

£m

Total

£m

Due in less than one year (5,771) (714) (24) (5) (14,278) (20,792)

Between one and two years (1,775) (708) (18) (2) (1,107) (3,610)

Between two and three years (1,592) (675) (11) (2) (902) (3,182)

Between three and four years (1,592) (620) (6) (1) (851) (3,070)

Between four and ﬁve years (1,970) (567) (3) (1) (826) (3,367)

Between ﬁve and ten years (5,875) (2,370) (6) (5) (3,748) (12,004)

Greater than ten years (7,579) (3,764) – – (1,468) (12,811)

Gross contractual cash ﬂows (26,154) (9,418) (68) (16) (23,180) (58,836)

Anticipated contractual cash ﬂows for the repayment of debt and debt interest have increased by £2.8 billion over the year primarily

due to funding of the acquisition of Tesaro.

The table below provides an analysis of the anticipated contractual cash ﬂows for the Group’s derivative instruments excluding

equity options which do not give rise to cash ﬂows, and other embedded derivatives, which are not material, using undiscounted

cash ﬂows. Cash ﬂows in foreign currencies are translated using spot rates at 31 December. The gross cash ﬂows of foreign

exchange contracts are presented for the purpose of this table although, in practice, the Group uses standard settlement

arrangements to reduce its liquidity requirements on these instruments.

Cash ﬂows on interest rate swaps are not shown in the table below as they are not signiﬁcant.

2019 2018

Gross cash inﬂows Gross cash ouﬂows Gross cash inﬂows Gross cash outﬂows

Cross

currency

interest rate

swaps

£m

Foreign

exchange

forward

contracts

and swaps

£m

Cross

currency

interest rate

swaps

£m

Foreign

exchange

forward

contracts

and swaps

£m

Cross

currency

interest rate

swaps

£m

Foreign

exchange

forward

contracts

and swaps

£m

Cross

currency

interest rate

swaps

£m

Foreign

exchange

forward

contracts

and swaps

£m

Due in less than one year 33 33,273 (2) (33,290) 49 26,680 (3) (26,802)

Between one and two years 1,529 – (1,430) – 48 – (2) –

Between two and three years – – – – 1,599 – (1,515) –

Gross contractual cash ﬂows 1,562 33,273 (1,432) (33,290) 1,696 26,680 (1,520) (26,802)

The amounts in Gross cash inﬂows and outﬂows under Foreign exchange forward contracts and swaps in less than one year have

increased compared with 31 December 2018 predominantly from increased levels of net investment hedging and hedging increased

levels of external and internal commercial paper balances.

43. Financial instruments and related disclosures continued

244

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

44. Employee share schemes

GSK operates several employee share schemes, including 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 and 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. The granting of these restricted share awards has replaced the granting of options

to employees as the cost of the schemes more readily equates to the potential gain to be made by the employee. The Group also

operates savings related share option schemes, whereby options are granted to employees to acquire shares in GlaxoSmithKline

plc at a discounted price.

Grants of restricted share awards are normally exercisable at the end of the three-year vesting or performance period. Awards are

normally granted to employees to acquire shares or ADS in GlaxoSmithKline plc but in some circumstances may be settled in cash.

Grants under savings-related share option schemes are normally exercisable after three years’ saving. 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. Options under historical share option schemes were granted at the market price ruling at the date of grant.

The total charge for share-based incentive plans in 2019 was £432 million (2018 – £393 million; 2017 – £347 million). Of this

amount, £302 million (2018 – £304 million; 2017 – £276 million) arose from the Share Value Plan. See Note 9, ‘Employee Costs’

for further details.

GlaxoSmithKline share award schemes

Share Value Plan

Under the Share Value Plan, share awards are granted to certain employees at no cost. The awards vest after two and a half to

three years and there are no performance criteria attached. The fair value of these awards is determined based on the closing share

price on the day of grant, after deducting the expected future dividend yield of 4.2% (2018 – 4.8%; 2017 – 4.8%) over the duration

of the award.

Number of shares and ADS issuable

Number (000)

Weighted

fair value

ADS

Number (000)

Weighted

fair value

At 1 January 2017 32,855 17,083

Awards granted 13,018 £13.68 6,610 $35.63

Awards exercised (10,596) (5,674)

Awards cancelled (1,352) (627)

At 31 December 2017 33,925 17,392

Awards granted 12,751 £13.74 6,503 $35.28

Awards exercised (11,089) (5,583)

Awards cancelled (1,519) (925)

At 31 December 2018 34,068 17,387

Awards granted 12,814 £15.85 7,008 $37.90

Awards exercised (11,709) (6,079)

Awards cancelled (1,704) (976)

At 31 December 2019 33,469 17,340

Performance Share Plan

Under the Performance Share Plan, share 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 deﬁned measurement period with dividends reinvested

during the same period. For awards granted from 2015, the performance conditions are based on three equally weighted measures

over a three-year performance period. These are adjusted free cash ﬂow, TSR and R&D new product performance.

The fair value of the awards is determined based on the closing share price on the day of grant. For TSR performance elements,

this is adjusted by the likelihood of that condition being met, as assessed at the time of grant.

During 2019, awards were made of 3.8 million shares at a weighted fair value of £12.40 and 1.4 million ADS at a weighted fair value

of $32.41. At 31 December 2019, there were outstanding awards over 12.0 million shares and 3.6 million ADS.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

245

Notes to the ﬁnancial statements continued

Share options and savings-related options

For the purposes of valuing savings-related options to arrive at the share-based payment charge, a Black-Scholes option pricing

model has been used. The assumptions used in the model are as follows:

2019 Grant 2018 Grant 2017 Grant

Risk-free interest rate 0.44% 0.76% 0.54%

Dividend yield 4.5% 5.3% 5.9%

Volatility 22% 21% 23%

Expected life 3 years 3 years 3 years

Savings-related options grant price (including 20% discount) £14.15 £12.09 £10.86

Options outstanding

Share option

schemes – shares

Share option

schemes – ADS

Savings-related

share option schemes

Number

000

Weighted

exercise

price

Number

000

Weighted

exercise

price

Number

000

Weighted

exercise

price

At 31 December 2019 337 £12.04 290 $37.21 6,016 £12.21

Range of exercise prices on options outstanding at year end £12.04 – £12.04 $36.63 – $37.32 £10.13 – £14.15

Weighted average market price on exercise during year £16.13 $41.10 £15.60

Weighted average remaining contractual life 0.2 years 0.2 years 2.1 years

Options over 1.0 million shares were granted during the year under the savings-related share option scheme at a weighted average

fair value of £3.00. At 31 December 2019, 5.3 million of the savings-related share options were not exercisable. All of the other

share options and ADS options are currently exercisable and all will expire if not exercised on or before 22 July 2020.

There has been no change in the effective exercise price of any outstanding options during the year.

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 with ﬁnance provided by the Group by way of loans or contributions. The costs of running the ESOP

Trusts are charged to the income statement. Shares held by the ESOP Trusts are deducted from other reserves and amortised

down to the value of proceeds, if any, receivable from employees on exercise by a transfer to retained earnings. The trustees have

waived their rights to dividends on the shares held by the ESOP Trusts.

Shares held for share award schemes 2019 2018

Number of shares (000) 36,225 41,391

£m £m

Nominal value 9 10

Carrying value 134 160

Market value 645 617

Shares held for share option schemes

2019 2018

Number of shares (000) 139 139

£m £m

Nominal value – –

Carrying value 1 1

Market value 2 2

44. Employee share schemes continued

246

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

45. Principal Group companies

The following represent the principal subsidiaries and their countries of incorporation of the Group at 31 December 2019. The

equity share capital of these entities 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.

England US

Glaxo Group Limited

Glaxo Operations UK Limited

GlaxoSmithKline Capital plc

GlaxoSmithKline Consumer Healthcare Holdings Limited*

GlaxoSmithKline Consumer Healthcare (UK) Trading Limited (68%)

GlaxoSmithKline Export Limited

GlaxoSmithKline Finance plc

GlaxoSmithKline Holdings Limited *

GlaxoSmithKline Research & Development Limited

GlaxoSmithKline Services Unlimited *

GlaxoSmithKline UK Limited

Setﬁrst Limited

SmithKline Beecham Limited

ViiV Healthcare Finance Limited (78.3%)

ViiV Healthcare Limited (78.3%)

ViiV Healthcare UK Limited (78.3%)

Block Drug Company, Inc. (68%)

Corixa Corporation

GlaxoSmithKline Capital Inc.

GlaxoSmithKline Consumer Healthcare Holdings (US) LLC (68%)

GlaxoSmithKline Consumer Healthcare, L.P. (59.84%)

GlaxoSmithKline Holdings (Americas) Inc.

GlaxoSmithKline LLC

Human Genome Sciences, Inc.

GSK Consumer Health, Inc. (68%)

PF Consumer Healthcare 1 LLC (68%)

S.R. One, Limited

Stiefel Laboratories, Inc.

Tesaro, Inc.

ViiV Healthcare Company (78.3%)

Europe Others

GlaxoSmithKline Pharmaceuticals SA (Belgium)

GlaxoSmithKline Sante Grand Public SAS (France) (68%)

Laboratoire GlaxoSmithKline (France)

ViiV Healthcare SAS (France) (78.3%)

GlaxoSmithKline Consumer Healthcare GmbH & Co. KG (Germany) (68%)

GlaxoSmithKline GmbH & Co. KG (Germany)

GSK Vaccines GmbH (Germany)

GlaxoSmithKline Consumer Healthcare S.p.A. (Italy) (68%)

GlaxoSmithKline S.p.A. (Italy)

GSK Vaccines S.r.l. (Italy)

Pﬁzer Consumer Manufacturing Italy S.r.l. (Italy) (68%)

GSK Services Sp z o.o. (Poland)

GlaxoSmithKline Trading Services Limited (Republic of Ireland) (i)

GlaxoSmithKline Healthcare AO (Russia) (68%)

GlaxoSmithKline S.A. (Spain)

Laboratorios ViiV Healthcare, S.L. (Spain) (78.3%)

GSK Consumer Healthcare S.A. (Switzerland) (68%)

GlaxoSmithKline Australia Pty Ltd (Australia)

GlaxoSmithKline Consumer Healthcare Australia Pty Ltd (Australia) (68%)

GlaxoSmithKline Brasil Limitada (Brazil)

GlaxoSmithKline Consumer Healthcare Inc. (Canada) (68%)

GlaxoSmithKline Inc. (Canada)

ID Biomedical Corporation of Quebec (Canada)

PF Consumer Healthcare Canada ULC/PF Soins De Sante SRI (Canada) (68%)

GlaxoSmithKline Limited (China (Hong Kong))

Sino-American Tianjin Smith Kline & French Laboratories Ltd (China) (55%)

Wyeth Pharmaceutical Co. Ltd (China) (68%)

GlaxoSmithKline Asia Pvt. Limited (India)

GlaxoSmithKline Consumer Healthcare Limited (India) (72.5%)

GlaxoSmithKline Pharmaceuticals Limited (India) (75%)

GlaxoSmithKline Consumer Healthcare Japan K.K. (Japan) (68%)

GlaxoSmithKline K.K. (Japan)

ViiV Healthcare Kabushiki Kaisha (Japan) (78.3%)

GlaxoSmithKline Pakistan Limited (Pakistan) (82.6%)

Glaxo Wellcome Manufacturing Pte Ltd. (Singapore)

GlaxoSmithKline Korea Limited (Republic of Korea)

GlaxoSmithKline llaclari Sanayi ve Ticaret A.S. (Turkey)

(i) Exempt from the provisions of section 347 and 348 of the Companies Act 2014 (Ireland), in accordance with the exemptions

noted in Section 357 of that Act. Further subsidiaries, as disclosed on pages 299 to 310, are exempt from these provisions as

they are also consolidated in the group ﬁnancial statements.

* Directly held wholly-owned subsidiary of GlaxoSmithKline plc.

The subsidiaries and associates listed above principally affect the ﬁgures in the Group’s ﬁnancial statements. Each of

GlaxoSmithKline Capital Inc., GlaxoSmithKline Capital plc and GlaxoSmithKline LLC, 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.,

GlaxoSmithKline Capital plc and GlaxoSmithKline LLC.

See pages 299 to 310 for a complete list of subsidiary undertakings, associates and joint ventures, which form part of these

ﬁnancial statements.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

247

Notes to the ﬁnancial statements continued

The Group is involved in signiﬁcant legal and administrative

proceedings, principally product liability, intellectual property,

tax, anti-trust, consumer fraud and governmental investigations.

The most signiﬁcant of these matters, other than tax matters,

are described below. The Group makes provision for these

proceedings on a regular basis as summarised in Note 2,

‘Accounting principles and policies’ and Note 31, ‘Other

provisions’.

The Group may become involved in signiﬁcant 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

in this note, but no provision would be made for the cases.

With respect to each of the legal proceedings described

below, other than those for which a provision has been made,

the Group is unable to make a reliable estimate of the expected

ﬁnancial effect at this stage. The Group does not believe that

information about the amount sought by the plaintiffs, if that

is known, would be meaningful with respect to those legal

proceedings. This is due to a number of factors, including,

but not limited to, the stage of proceedings, the entitlement of

parties to appeal a decision and clarity as to theories of liability,

damages and governing law.

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. For certain product liability claims, the Group will make

a provision where 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. At

31 December 2019, the Group’s aggregate provision for legal

and other disputes (not including tax matters described in Note

14, ‘Taxation’) was £198 million. 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 by a material

amount the amount of the provisions reported in the Group’s

ﬁnancial statements. If this were to happen, it could have a

material adverse impact on the results of operations of the

Group in the reporting period in which the judgements are

incurred or the settlements entered into.

Intellectual property

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.

Dolutegravir/Tivicay/Triumeq/Dovato/Juluca

In September and October 2017, ViiV Healthcare received patent

challenge letters under the Hatch-Waxman Act from Cipla,

Dr. Reddy’s Labs and Apotex for Triumeq and Tivicay; letters

from Lupin and Mylan for Triumeq, and a letter from Sandoz for

Tivicay. ViiV Healthcare lists two patents in the FDA Orange

Book for T ivicay and Triumeq. One patent covers the molecule

dolutegravir and expires on 5 October 2027. The second patent

claims a crystal form of dolutegravir and expires on 8 December

2029. All the letters challenged only the later-expiring crystal

form patent. Several of the generic companies allege only that

the crystal form patent is invalid while others claim the crystal

form patent is both invalid and not infringed by their proposed

products. In 2017, ViiV Healthcare ﬁled patent infringement

suits against all six generic companies. The case against Mylan

is now proceeding in the Northern District of West Virginia and

is set for trial on 21 September 2020. The cases against the

other defendants are proceeding in the US District Court for

the District of Delaware. The court has yet to set a trial date for

those matters.

In September 2019, ViiV Healthcare received a paragraph IV

letter from Cipla relating to Dovato and challenging only the

crystal form patent. On 4 November 2019 ViiV Healthcare

ﬁled suit against Cipla in the US District Court for the District

of Delaware.

In January 2020, ViiV Healthcare received a paragraph IV letter

from Lupin relating to Juluca and challenging the crystal form

patent as well as a patent relating to the combination of

dolutegravir and rilpivirine that expires on 24 January 2031.

On 28 February 2020 ViiV Healthcare ﬁled suit against Lupin

on both patents.

On 7 February 2018, ViiV Healthcare ﬁled patent infringement

litigation against Gilead Sciences Inc. (Gilead) over bictegravir

in the US District Court for the District of Delaware (U.S. Patent

No. 8,129,385) and the Canadian Federal Court (Canadian

patent No. 2,606,282). ViiV Healthcare alleged that Gilead’s

triple combination HIV drug containing the HIV integrase

inhibitor bictegravir infringes ViiV Healthcare’s patent covering

dolutegravir and other compounds that include dolutegravir’s

unique chemical scaffold. In both the US and Canada, ViiV

Healthcare is seeking ﬁnancial redress rather than injunctive

relief.

46. Legal proceedings

248

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

On 12 July 2019, Gilead ﬁled a motion for judgement on the

pleadings in the US case, arguing that as a matter of law its

bictegravir compound does not infringe ViiV Healthcare’s

patent. On 5 February the court denied Gilead’s motion.

The US case against Gilead is set for trial on 21 September

2020. In the Canadian matter, a four-day summary trial on the

issue of infringement was held on 27-30 January 2020. A

decision from the Canadian court is expected by the end of

March 2020. On 20 November 2019, ViiV Healthcare

commenced actions in the UK, France, Germany, Japan,

Korea and Australia against Gilead alleging that Gilead’s

Biktarvy infringes certain of ViiV Healthcare’s HIV integrase

inhibitor patents.

Kivexa

In June 2017, Biogaran commenced proceedings in France

seeking revocation of the French SPC covering Kivexa. No

trial date has been set for this action.

In Q2 2018, ViiV Healthcare commenced proceedings against

Sandoz in Switzerland. Sandoz countered, challenging the

validity of the patent relating to Kivexa. This matter was settled

in Q4 2019.

Product liability

The Group is currently a defendant in a number of product

liability lawsuits related to the Group’s Pharmaceuticals,

Vaccines, and Consumer Healthcare products. The Group

has been able to make a reliable estimate of the expected

ﬁnancial effect of the matters discussed in this category and

has included a provision, as appropriate, for the matters below

in the provision for legal and other disputes. Matters for which

the Group has made a provision are also noted in Note 31,

‘Other provisions.’

Avandia

As of January 2020, there are three remaining US Avandia

cases. Two are class actions brought by third-party payers

asserting claims under the Racketeer Inﬂuenced and Corrupt

Organizations Act (RICO) and state consumer protection laws.

In December 2019, the Third Circuit Court of Appeals reversed

the summary judgements granted in favour of the Group and

remanded the third-party payer cases back to district court. In

the third case, the Santa Clara County (California) Action, the

parties have reached an agreement to settle all remaining

claims.

Additionally, the class action settlement in Canada has now

been approved, and all Avandia class actions in Canada have

been either discontinued or dismissed.

Seroxat/Paxil and Paxil CR

The Group has received numerous lawsuits and claims alleging

that use of Paxil (paroxetine) has caused a variety of injuries.

Most of these lawsuits contain one or more of the following

allegations: (i) that use of Paxil during pregnancy caused

congenital malformations, persistent pulmonary hypertension

or autism; (ii) that Paxil treatment caused patients to commit

suicidal or violent acts; and (iii) that the Group failed to warn

that patients could experience certain symptoms on

discontinuing Paxil treatment.

– Pregnancy

The Group has reached agreements to settle the majority of the

US claims relating to the use of Paxil during pregnancy as of

January 2020, but eleven lawsuits related to use during

pregnancy are still pending in various courts in the US.

The Singh action in Alberta, Canada, seeks to certify a national

class action relating to birth defects generally. The court heard

argument in January 2020 on the plaintiffs’ class certiﬁcation

motion but has not yet ruled.

Another Canadian class action, Jensen, alleging claims of Paxil

(and other SSRI) use and autism was ﬁled in Saskatchewan in

January 2017; however, there has been no activity in the case

since the ﬁling.

– Acts of violence

As of January 2020, there were six pending claims or cases

concerning allegations that patients who took paroxetine or

Paxil committed or attempted to commit suicide or acts of

violence: ﬁve claims or cases are in the US and one case is in

Canada. One of the US cases, Dolin, involving the suicide of a

man who allegedly took generic paroxetine manufactured by

Mylan, resulted in a $3 million verdict for the plaintiff; however,

on 22 August 2018 the US Court of Appeals for the Seventh

Circuit reversed the jury verdict and found in favour of the

Group. The US Supreme Court then denied plaintiff’s certiorari

request to review the case. Thereafter, however, the plaintiff

ﬁled a motion in the federal district court, asking it to reinstate

the jury verdict in light of the US Supreme Court’s pre-emption

decision in Merck v. Albrecht. The district court denied the

plaintiff’s motion on 11 July 2019, but the plaintiff appealed that

decision to the Seventh Circuit, where oral argument was heard

on 22 January 2020. A ruling from the Court of Appeals is

pending. The remaining US cases involving claims of violence

are largely dormant.

In the one pending Canadian action, Carmichael, the Group

ﬁled a motion for summary judgement based on the statute of

limitations, which was denied. The Group appealed that ruling,

and oral argument took place on 16 December 2019. A ruling

has not yet been issued.

46. Legal proceedings continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

249

Notes to the ﬁnancial statements continued

46. Legal proceedings continued

– Discontinuation

In the UK, a long-pending group action alleges that Seroxat

caused severe discontinuation symptoms. In 2010, the Legal

Services Commission (LSC) withdrew public funding from

hundreds of claimants, causing termination of most claims. In

2015, the Legal Aid Agency (formerly the LSC) discharged the

public funding certiﬁcate following a 2013 recommendation of

its Special Cases Review Panel that these cases have poor

prospects of success.

However, more recently, Fortitude Law was engaged with the

purpose of resurrecting the Seroxat group action and obtained

third-party funding for the experts and the 103 remaining

claimants. The Group asked the court to require the third-party

funder to provide security for the litigation costs in the event

plaintiffs lose.

On 8 December 2017, the High Court ruled in favour of the

Group on its application for an order that the claimants’ litigation

funder give security for costs for a sum in excess of the total

funding it had committed to the case. The trial of the action

commenced in April 2019. The judge dismissed the cases on

the grounds that the allegations were insufﬁcient to prove the

plaintiffs’ claims and that the cases were too far advanced to

allow plaintiffs to reframe them. The plaintiffs’ appeal was

heard in late October 2019. On 8 November 2019, the Court

of Appeal held in favour of GSK, dismissing the appeal

unanimously. On 24 January, the Supreme Court issued an

order denying plaintiffs’ request to appeal to that court.

The case will be sent back to the trial court judge for a

determination on whether judgement on these cases now

can be entered for GSK.

In addition to the UK matters, there is one individual US

discontinuation-type claim pending in the Central District

of California. The plaintiff in that matter alleges claims of

dystonia/dyskinesia caused by ingestion of Paxil. Trial is set

for 27 October 2020.

PPI litigation

The Group is a defendant in the ongoing proton pump inhibitor

(PPI) litigation, in which plaintiffs allege that their use of PPIs

caused serious bodily injuries, including acute kidney injury,

chronic kidney disease or end-stage renal failure. As of January

2020, there are approximately 1,900 personal injury lawsuits

involving Prevacid24HR pending against the Group, nearly all of

which are pending in a multi-district litigation (MDL) proceeding

in the District of New Jersey. In addition, as part of the

consumer business transaction with Pﬁzer, there are now

approximately 2,500 cases involving Nexium24HR pending

against the Group in the same MDL. A small subset of cases

involving both products are also pending in several state courts.

Manufacturers of other PPIs also are named as co-defendants

in the MDL. The Group has ﬁled motions to dismiss several

hundred cases, but the MDL Court has not yet ruled on those

motions. The ﬁrst PPI bellwether trial is set for November 2021.

Zantac

The Group has been contacted by several regulatory authorities

regarding the detection of genotoxic nitrosamine (NDMA) in

Zantac (ranitidine) products. Based on the information received

to date and correspondence with regulators, the Group made

the decision in September 2019 to suspend the release,

distribution and supply of all dose forms of Zantac to all markets

pending the outcome of the ongoing tests and investigations.

Also, as a precautionary action, the Group made the decision in

early October 2019 to initiate a voluntary pharmacy/retail level

recall of all Zantac products globally. Ranitidine is subject to

regulatory scrutiny and the Group is continuing with

investigations into the potential source of NDMA. The ﬁrst

Zantac personal injury claim was ﬁled on 15 October 2019

against GSK and several other pharmaceutical companies in

US federal court in the Eastern District of California, followed by

additional ﬁlings, and on 6 February 2020, a multi-district

litigation (MDL) proceeding to hear Zantac cases was

established in the Southern District of Florida.

Zofran

Plaintiffs allege that their children suffered birth defects as a

result of the mothers’ ingestion of Zofran and/or generic

ondansetron for pregnancy-related nausea and vomiting.

Plaintiffs assert that the Group sold Zofran knowing it was

unsafe for pregnant women, failed to warn of the risks, and

illegally marketed Zofran ‘off-label’ for use by pregnant women.

As of January 2020, the Group is a defendant in 413 personal

injury lawsuits. All but two of the lawsuits are part of a multi-

district litigation (MDL) proceeding in US federal court in the

District of Massachusetts.

In the wake of the US Supreme Court’s pre-emption decision

in Merck v. Albrecht, the MDL judge directed GSK to re-ﬁle its

motion for summary judgment on federal pre-emption grounds.

250

GSK Annual Report 2019

Notes to the ﬁnancial statements continued

The Court heard oral argument on GSK’s renewed motion on

5 November 2019. Additionally, in response to plaintiffs’ claims

that FDA would have changed Zofran’s labelling had GSK

provided certain additional information to FDA, on 1 November

2019, GSK submitted a Citizen Petition to FDA providing the

information identiﬁed by plaintiffs and requesting that FDA

provide guidance on whether such information merits a label

change. The Court has deferred the ﬁrst trial date to 4 May

2020 to allow FDA time to respond to the Petition.

GSK is also a defendant in four proposed class actions in

Canada. There has been no signiﬁcant activity in these matters.

Sales and marketing and regulation

The Group’s marketing and promotion of its Pharmaceutical and

Vaccine products are the subject of certain governmental

investigations and private lawsuits brought by litigants under

various theories of law. The Group has been able to make a

reliable estimate of the expected ﬁnancial effect of the matters

discussed in this category and has included a provision for such

matters in the provision for legal and other disputes, except as

noted below.

Matters for which the Group has made a provision are also

noted in Note 31, ‘Other provisions’.

SFO and SEC/DOJ Anti-corruption enquiries

On 27 May 2014, the UK Serious Fraud Ofﬁce (SFO) began

a formal criminal investigation into the Group’s commercial

operations in a number of countries, including China. The

SFO inquiry followed investigations initiated by China’s Ministry

of Public Security in June 2013 (the ‘China Investigations’).

Parallel investigations were undertaken by the US Securities

and Exchange Commission (SEC) and the US Department of

Justice (DOJ).

While the underlying commercial operations investigations have

been resolved, as previously reported, in the course of its

inquiry, the SFO had requested additional information from the

Group regarding third-party advisers engaged by the company

in the course of the China Investigations. The SEC and DOJ are

also investigating these matters. The Group is co-operating and

responding to these requests. On 22 February 2019, the SFO

announced that it had closed its investigation and conﬁrmed

that it would be taking no further action against the Group.

The SEC and DOJ investigations into these matters continue.

The Group is unable to make a reliable estimate of the expected

ﬁnancial effect of these investigations, and no provision has

been made for them.

Average wholesale price

The Attorney General in Illinois ﬁled suit against the Group

and a number of other pharmaceutical companies claiming

damages and restitution due to average wholesale price (AWP)

and/or wholesale acquisition cost (WAC) price reporting for

pharmaceutical products covered by the state’s Medicaid

programmes. The case alleged that the Group reported or

caused to be reported false AWP and WAC prices, which, in

turn, allegedly caused the state Medicaid agency to reimburse

providers more money for covered medicines than the agency

intended. The state sought recovery on behalf of itself as payer

and on behalf of in-state patients as consumers. GSK settled

the matter with the state as announced in October 2019,

thereby concluding the matter.

Cidra third-party payer litigation

On 25 July 2013, 41 major US healthcare insurers ﬁled a lawsuit

against the Group, seeking compensation for reimbursements

they made for medicines manufactured between 2000 and

2006 at the Group’s former Cidra plant in Puerto Rico. The

insurers claimed that the Group knowingly marketed and sold

adulterated drugs manufactured under conditions non-compliant

with cGMP (current good manufacturing practices) and that

they, as third-party insurers, were unlawfully induced to pay

for them. In November 2019, the Group resolved the lawsuit

and reached a settlement with all plaintiffs, thereby concluding

the matter.

46. Legal proceedings continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

251

Notes to the ﬁnancial statements continued

Anti-trust/competition

Certain governmental actions and private lawsuits have been

brought against the Group alleging violation of competition or

anti-trust laws. The Group has been able to make a reliable

estimate of the expected ﬁnancial effect of the matters

discussed in this category and has included a provision for

such matters in the provision for legal and other disputes,

except as noted below.

Matters for which the Group has made a provision are also

noted in Note 31, ‘Other provisions’.

UK Competition and Markets Authority investigation

On 12 February 2016, the UK Competition and Markets

Authority (CMA) issued a decision ﬁning the Group

£37.6 million for infringement of the Competition Act, in

connection with agreements to settle patent disputes the

Group entered into in 2001 and 2002 with potential suppliers

of generic paroxetine formulations. The Group appealed to the

Competition Appeal Tribunal (CAT), which delivered its initial

judgement upholding the ﬁne on 8 March 2018 but referred

certain questions of law to the European Union Court of Justice

(ECJ). On 30 January 2020, the ECJ issued its judgement

endorsing the criteria used by the CMA in levying the ﬁne,

and the matter now will return to the CAT for entry of a ﬁnal

judgement.

Lamictal

Purported classes of direct and indirect purchasers ﬁled suit in

the US District Court for the District of New Jersey alleging that

the Group and Teva Pharmaceuticals unlawfully conspired to

delay generic competition for Lamictal, resulting in overcharges

to the purchasers, by entering into an allegedly anti-competitive

reverse payment settlement to resolve patent infringement

litigation. A separate count accuses the Group of monopolising

the market.

On 26 June 2015, the Court of Appeals reversed the trial

court’s decision to dismiss the case and remanded the action

back to the trial court. On 18 May 2016, the trial court denied

the indirect purchaser class plaintiffs’ motion for reconsideration

of the Court’s dismissal of their claims. As a result, the indirect

purchaser class representatives agreed to a settlement to exit

the case and resolve their remaining claims. On 13 December

2018, the trial judge granted plaintiffs’ class certiﬁcation motion,

certifying a class of direct purchasers in this action. The Group

is pursuing an appeal with the Court of Appeals regarding the

class certiﬁcation. On 18 March 2019, the Third Circuit Court

of Appeals granted the Group’s motion agreeing to review the

class certiﬁcation decision. Brieﬁng for the appeal has

concluded. Oral argument is expected to occur in March 2020.

Commercial and corporate

The Group is a defendant in certain cases which allege

violations of US federal securities and ERISA laws. The Group

has been able to make a reliable estimate of the expected

ﬁnancial effect of the matters discussed in this category and

has included a provision for such matters in the provision for

legal and other disputes. Matters for which the Group has made

a provision are also noted in Note 31, ‘Other provisions’.

Securities/ERISA class actions – Stiefel

On 12 December 2011, the US Securities and Exchange

Commission (SEC) ﬁled a formal complaint against Stiefel

Laboratories, Inc., and Charles Stiefel in the US District Court

for the District of Florida, alleging that Stiefel and its principals

violated federal securities laws by inducing Stiefel employees

to sell their shares in the employee stock plan back to the

company at a greatly undervalued price and without disclosing

to employees that the company was about to be sold to the

Group. After several years of inactivity, the case was

re-assigned to a new judge, who set a trial date of 6 July 2020.

On 26 February 2020, the parties reached an agreement in

principle to settle the case, which is subject to ﬁnal approval

by the SEC.

In addition to the SEC case, one private matter (the Martinolich

case) remains. It is also pending in federal district court in

Florida but has been stayed pending the trial of the SEC matter.

The allegations in the Martinolich case largely track those in the

SEC matter: the plaintiff, a former Stiefel employee, alleges that

Stiefel and its ofﬁcers and directors violated the 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.

46. Legal proceedings continued

252

GSK Annual Report 2019

Notes

2019

£m

2019

£m

2018

£m

2018

£m

Fixed assets – investments E 54,854 19,987

Current assets:

Trade and other receivables F 2,210 8,394

Cash at bank 12 12

Total current assets 2,222 8,406

Bank overdrafts – (12)

Short term borrowings G (1,000) (3,500)

Trade and other payables H (609) (610)

Total current liabilities (1,609) (4,122)

Net current assets 613 4,284

Total assets less current liabilities 55,467 24,271

Provisions for liabilities I (4) (16)

Other non-current liabilities J (317) (282)

Net assets 55,146 23,973

Capital and reserves

Share capital K 1,346 1,345

Share premium account K 3,174 3,091

Other reserves 1,420 1,420

Retained earnings:

At 1 January 18,117 22,106

Loss for the year (53) (62)

Other changes in retained earnings 31,142 (3,927)

L 49,206 18,117

Equity shareholders’ funds 55,146 23,973

The ﬁnancial statements on pages 252 to 256 were approved by the Board on 3 March 2020 and signed on its behalf by

Sir Jonathan Symonds

Chairman

GlaxoSmithKline plc

Registered number: 3888792

Company statement of changes in equity

for the year ended 31 December 2019

capital

£m

Share premium

account

£m

Other

reserves

£m

Retained

earnings

£m

Total

equity

£m

At 1 January 2018 1,343 3,019 1,420 22,106 27,888

Loss and Total comprehensive expense attributable to shareholders – – – (62) (62)

Dividends to shareholders – – – (3,927) (3,927)

Shares issued under employee share schemes 2 72 – – 74

At 31 December 2018 1,345 3,091 1,420 18,117 23,973

Loss for the year – – – (53) (53)

Distribution received of GlaxoSmithKline Consumer Healthcare Holdings Limited – – – 34,800 34,800

Total comprehensive income for the year – – – 34,747 34,747

Dividends to shareholders – – – (3,953) (3,953)

Shares issued under employee share schemes 1 50 – – 51

Treasury shares transferred to the ESOP Trusts – 33 – 295 328

At 31 December 2019 1,346 3,174 1,420 49,206 55,146

Company balance sheet – UK GAAP

(including FRS 101 ‘Reduced Disclosure Framework’) as at 31 December 2019

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

253

A) Presentation of the ﬁnancial statements

Description of business

GlaxoSmithKline plc is the parent company of GSK, 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.

Preparation of ﬁnancial statements

The ﬁnancial statements, which are prepared using the

historical cost convention (as modiﬁed to include the revaluation

of certain ﬁnancial instruments) and on a going concern basis,

are prepared in accordance with Financial Reporting Standard

101 ‘Reduced Disclosure Framework’ and with UK accounting

presentation and the Companies Act 2006 as at 31 December

2019, with comparative ﬁgures as at 31 December 2018.

As permitted by section 408 of the Companies Act 2006, the

income statement of the company is not presented in this

Annual Report.

The company is included in the Group ﬁnancial statements of

GlaxoSmithKline plc, which are publicly available.

The following exemptions from the requirements of IFRS have

been applied in the preparation of these ﬁnancial statements,

in accordance with FRS 101:

– Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based

payment’

– IFRS 7, ‘Financial Instruments – Disclosures’

– Paragraphs 91-99 of IFRS 13, ‘Fair value measurement’

– Paragraph 38 of IAS 1, ‘Presentation of ﬁnancial statements’

comparative information requirements in respect of

paragraph 79(a) (iv) of IAS 1

– Paragraphs 10(d), 10(f), 16, 38(A), 38 (B to D), 40 (A to D),

111 and 134 to 136 of IAS 1, ‘Presentation of ﬁnancial

statements’

– IAS 7, ‘Statement of cash ﬂows’

– Paragraph 30 and 31 of IAS 8, ‘Accounting policies, changes

in accounting estimates and errors’

– Paragraph 17 of IAS 24, ‘Related party disclosures’ and the

further requirement in IAS 24 to disclose related party

transactions entered into between two or more members

of a Group.

Accounting convention and standards

The balance sheet has been prepared using the historical

cost convention and complies with applicable UK accounting

standards.

Accounting principles and policies

The preparation of the balance sheet 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 balance sheet. Actual

amounts could differ from those estimates.

The balance sheet has been prepared in accordance with the

company’s accounting policies approved by the Board and

described in Note B. These policies have been consistently

applied, unless otherwise stated.

Key accounting judgements and estimates

No key accounting judgements or estimates were required in

the current year.

B) Accounting policies

Foreign currency transactions

Foreign currency transactions are recorded at the exchange

rate ruling on the date of transaction. Foreign currency assets

and liabilities are translated at rates of exchange ruling at the

balance sheet date.

Dividends paid and received

Dividends paid and received are included in the ﬁnancial

statements in the period in which the related dividends are

actually paid or received.

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.

Investments in subsidiary companies

Investments in subsidiary companies are held at cost less any

provision for impairment and also adjusted for movements in

contingent consideration.

Impairment of investments

The carrying value of investments are reviewed for impairment

when there is an indication that the investment might be

impaired. Any provision resulting from an impairment review

is charged to the income statement in the year concerned.

Share-based payments

The issuance by the company to its subsidiaries of a grant over

the company’s shares, represents additional capital

contributions by the company in its subsidiaries. An additional

investment in subsidiaries results in a corresponding increase

in shareholders’ equity. The additional capital contribution is

based on the fair value of the grant issued, allocated over the

underlying grant’s vesting period.

Notes to the company balance sheet –

UK GAAP (including FRS 101 ‘Reduced Disclosure Framework’)

254

GSK Annual Report 2019

E) Fixed assets – investments

2019

£m

2018

£m

Shares in GlaxoSmithKline Services Unlimited 637 613

Shares in GlaxoSmithKline Holdings (One) Limited 18 18

Shares in GlaxoSmithKline Holdings Limited 17,888 17,888

Shares in GlaxoSmithKline Consumer Healthcare Holdings Limited 34,800 –

Shares in GlaxoSmithKline Mercury Limited 33 33

53,376 18,552

Capital contribution relating to share-based payments 1,139 1,139

Contribution relating to contingent consideration 339 296

54,854 19,987

The shares in GlaxoSmithKline Consumer Healthcare Holdings Limited were received during the year as a dividend in specie as

part of a Group reorganisation prior to the acquisition of the Pﬁzer consumer healthcare business.

F) Trade and other receivables

2019

£m

2018

£m

Amounts due within one year:

UK Corporation tax recoverable 14 10

Amounts owed by Group undertakings 1,645 7,889

1,659 7,899

Amounts due after more than one year:

Amounts owed by Group undertakings 551 495

2,210 8,394

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 only recognised to the

extent that they are considered recoverable against future

taxable proﬁts.

Deferred tax is measured at the average tax rates that are

expected to apply in the periods in which the temporary

differences are expected to be realised or settled. Deferred

tax liabilities and assets are not discounted.

Financial guarantees

Liabilities relating to guarantees issued by the company on

behalf of its subsidiaries are initially recognised at fair value

and amortised over the life of the guarantee.

C) Operating proﬁt

A fee of £12,000 (2018 – £12,000) relating to the audit of the

company has been charged in operating proﬁt.

D) Dividends

The directors declared four interim dividends resulting in a

dividend for the year of 80 pence, in line with the dividend for

2018. For further details, see Note 16 to the Group ﬁnancial

statements, ‘Dividends’.

Notes to the company balance sheet – UK GAAP

(including FRS 101 ‘Reduced Disclosure Framework’) continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

255

G) Short-term borrowings

The £1 billion borrowing at 31 December 2019 relates to the balance of a facility taken out in June 2018 as part of the ﬁnancing

of the buyout of the non-controlling interest in the Consumer Healthcare Joint Venture held by Novartis. The maturity date of the

remaining borrowing is now 1 June 2020.

H) Trade and other payables

2019

£m

2018

£m

Amounts due within one year:

Other creditors 564 567

Contingent consideration payable 22 14

Amounts owed to Group undertakings 23 29

609 610

The company has guaranteed debt issued by its subsidiary companies from two of which it receives fees. In aggregate, the company

has outstanding guarantees over £27.8 billion of debt instruments (2018 – £22.2 billion). The amounts due from the subsidiary

company in relation to these guarantee fees will be recovered over the life of the bonds and are disclosed within ‘Trade and other

receivables’ (see Note F).

I) Provisions for liabilities

2019

£m

2018

£m

At 1 January 16 27

Exchange adjustments – 2

Charge for the year 5 16

Utilised (17) (29)

At 31 December 4 16

The provisions relate to a number of legal and other disputes in which the company is currently involved.

J) Other non-current liabilities

2019

£m

2018

£m

Contingent consideration payable 317 282

317 282

The contingent consideration relates to the amount payable for the acquisition in 2015 of the Novartis Vaccines portfolio. The

current year liability is included within ‘Trade and other payables’.

Notes to the company balance sheet – UK GAAP

(including FRS 101 ‘Reduced Disclosure Framework’) continued

256

GSK Annual Report 2019

K) Share capital and share premium account

Ordinary Shares of 25p each

premium

account

Number £m £m

Share capital issued and fully paid

At 1 January 2018 5,372,553,820 1,343 3,019

Issued under employee share schemes 6,513,804 2 72

At 31 December 2018 5,379,067,624 1,345 3,091

Issued under employee share schemes 4,034,607 1 50

Ordinary shares acquired by ESOP trusts – – 33

At 31 December 2019 5,383,102,231 1,346 3,174

31 December

2019

000

31 December

2018

000

Number of shares issuable under employee share schemes 57,871 56,723

Number of unissued shares not under option 4,559,027 4,564,209

At 31 December 2019, of the issued share capital, 36,365,045 shares were held in the ESOP Trusts, 393,505,950 shares were

held as Treasury shares and 4,953,231,236 shares were in free issue. All issued shares are fully paid. The nominal, carrying and

market values of the shares held in the ESOP Trusts are disclosed in Note 44, ‘Employee share schemes’.

L) Retained earnings

The loss of GlaxoSmithKline plc for the year was £53 million (2018 – £62 million loss). After dividends paid of £3,953 million

(2018 – £3,927 million), the effect of £295 million Treasury shares transferred to a subsidiary company (2018 – £nil) and the

£34,800 million distribution received of the shares in a subsidiary company, retained earnings at 31 December 2019 stood at

£49,206 million (2018 – £18,117 million), of which £38,896 million was unrealised (2018 – £4,096 million). Dividends to

shareholders are paid out of the realised proﬁts of the company, which at 31 December 2019 amounted to £10,310 million

(2018 – £14,021 million).

M) Group companies

See pages 299 to 310 for a complete list of subsidiaries, associates and joint ventures, which forms part of these ﬁnancial

statements.

Notes to the company balance sheet – UK GAAP

(including FRS 101 ‘Reduced Disclosure Framework’) continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

257

Investor

information

In this section

Quarterly trend 258

Pharmaceuticals turnover 260

Vaccines turnover 262

Five year record 263

Product development pipeline 269

Products, competition and intellectual property 272

Principal risks and uncertainties 275

Share capital and share price 288

Dividends 290

Financial calendar 291

Annual General Meeting 2020 291

Tax information for shareholders 292

Shareholder services and contacts 294

US law and regulation 296

Group companies 299

Glossary of terms 311

GSK Annual Report 2019

257

Investor information

Financial statements

Strategic report

Governance and remuneration

258

GSK Annual Report 2019

Quarterly trend

An unaudited analysis of the Group results is provided by quarter in Sterling for the ﬁnancial year 2019.

Income statement – Total

12 months 2019 Q4 2019 Q3 2019 Q2 2019 Q1 2019

£m

Reported Pro-forma

£m

Reported

£m

Reported

£m

Reported

£m

Reported

£% CER% CER% £% CER% £% CER% £% CER% £% CER%

Turnover

Pharmaceuticals 17,554 2 – – 4,558 (5) (4) 4,531 7 3 4,307 2 (1) 4,158 4 2

Vaccines 7,157 21 19 19 1,742 18 21 2,308 20 15 1,585 26 23 1,522 23 20

Consumer Healthcare 8,995 17 17 2 2,571 35 37 2,526 30 25 1,917 5 4 1,981 – 1

33,706 9 8 4 8,871 8 10 9,365 16 11 7,809 7 5 7,661 6 5

Corporate and other unallocated turnover 48 28 20 – –

Total turnover 33,754 10 8 4 8,899 9 11 9,385 16 11 7,809 7 5 7,661 6 5

Cost of sales (11,863) 16 16 (3,248) 12 14 (3,245) 23 21 (2,637) 14 14 (2,733) 14 15

Selling, general and administration (11,402) 15 13 (3,443) 31 31 (2,892) 14 11 (2,590) 5 3 (2,477) 7 6

Research and development (4,568) 17 15 (1,243) 16 17 (1,206) 22 18 (1,113) 20 17 (1,006) 11 8

Royalty income 351 17 17 82 4 4 118 26 24 78 7 4 73 38 42

Other operating income/(expense) 689 855 (13) (63) (90)

Operating proﬁt 6,961 27 23 1,902 22 29 2,147 12 3 1,484 90 80 1,428 15 10

Net ﬁnance costs (814) (195) (213) (216) (190)

Share of after-tax proﬁts of associates

and joint ventures 74 4 17 (4) 57

Proﬁt before taxation 6,221 30 25 1,711 25 32 1,951 14 4 1,264 >100 94 1,295 17 11

Taxation (953) (194) (235) (214) (310)

Tax rate % 15.3% 11.3% 12.0% 16.9% 23.9%

Proﬁt after taxation for the period 5,268 30 26 1,517 17 23 1,716 13 3 1,050 >100 >100 985 30 23

Proﬁt attributable to non-controlling interests 623 218 164 86 155

Proﬁt attributable to shareholders 4,645 1,299 1,552 964 830

Basic earnings per share (pence) 93.9p 27 23 26.2p 6 12 31.4p 9 (1) 19.5p >100 >100 16.8p 50 42

Diluted earnings per share (pence) 92.6p 25.9p 31.0p 19.3p 16.7p

Income statement – Adjusted

Total turnover 33,754 10 8 4 8,899 9 11 9,385 16 11 7,809 7 5 7,661 6 5

Cost of sales (10,079) 10 10 5 (2,848) 12 15 (2,785) 17 15 (2,243) 8 7 (2,203) 1 2

Selling, general and administration (10,715) 13 12 7 (3,117) 23 23 (2,768) 20 16 (2,433) 4 2 (2,397) 5 4

Research and development (4,339) 16 14 13 (1,164) 14 16 (1,164) 21 17 (1,040) 20 16 (971) 9 6

Royalty income 351 17 17 17 82 4 4 118 26 24 78 7 4 73 38 42

Operating proﬁt 8,972 3 – (3) 1,852 (16) (11) 2,786 10 3 2,171 3 (1) 2,163 12 9

Net ﬁnance costs (810) (197) (206) (220) (187)

Share of after-tax proﬁts of associates

and joint ventures 74 4 17 (4) 57

Proﬁt before taxation 8,236 2 (1) 1,659 (18) (13) 2,597 12 4 1,947 – (4) 2,033 13 10

Taxation (1,318) (207) (411) (300) (400)

Tax rate % 16.0% 12.5% 15.8% 15.4% 19.7%

Proﬁt after taxation for the period 6,918 6 3 1,452 (13) (8) 2,186 16 8 1,647 6 2 1,633 14 10

Proﬁt attributable to non-controlling interests 787 225 275 138 149

Proﬁt attributable to shareholders 6,131 1,227 1,911 1,509 1,484

Adjusted earnings per share (pence) 123.9p 4 1 24.8p (21) (16) 38.6p 9 1 30.5p 9 4 30.1p 22 18

The calculation of Adjusted results is described on page 50.

Financial record

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

259

Quarterly trend

An unaudited analysis of the Group results is provided by quarter in Sterling for the ﬁnancial year 2019.

Income statement – Total

12 months 2019 Q4 2019 Q3 2019 Q2 2019 Q1 2019

£m

Reported Pro-forma

£m

Reported

£m

Reported

£m

Reported

£m

Reported

£% CER% CER% £% CER% £% CER% £% CER% £% CER%

Turnover

Pharmaceuticals 17,554 2 – – 4,558 (5) (4) 4,531 7 3 4,307 2 (1) 4,158 4 2

Vaccines 7,157 21 19 19 1,742 18 21 2,308 20 15 1,585 26 23 1,522 23 20

Consumer Healthcare 8,995 17 17 2 2,571 35 37 2,526 30 25 1,917 5 4 1,981 – 1

33,706 9 8 4 8,871 8 10 9,365 16 11 7,809 7 5 7,661 6 5

Corporate and other unallocated turnover 48 28 20 – –

Total turnover 33,754 10 8 4 8,899 9 11 9,385 16 11 7,809 7 5 7,661 6 5

Cost of sales (11,863) 16 16 (3,248) 12 14 (3,245) 23 21 (2,637) 14 14 (2,733) 14 15

Selling, general and administration (11,402) 15 13 (3,443) 31 31 (2,892) 14 11 (2,590) 5 3 (2,477) 7 6

Research and development (4,568) 17 15 (1,243) 16 17 (1,206) 22 18 (1,113) 20 17 (1,006) 11 8

Royalty income 351 17 17 82 4 4 118 26 24 78 7 4 73 38 42

Other operating income/(expense) 689 855 (13) (63) (90)

Operating proﬁt 6,961 27 23 1,902 22 29 2,147 12 3 1,484 90 80 1,428 15 10

Net ﬁnance costs (814) (195) (213) (216) (190)

Share of after-tax proﬁts of associates

and joint ventures 74 4 17 (4) 57

Proﬁt before taxation 6,221 30 25 1,711 25 32 1,951 14 4 1,264 >100 94 1,295 17 11

Taxation (953) (194) (235) (214) (310)

Tax rate % 15.3% 11.3% 12.0% 16.9% 23.9%

Proﬁt after taxation for the period 5,268 30 26 1,517 17 23 1,716 13 3 1,050 >100 >100 985 30 23

Proﬁt attributable to non-controlling interests 623 218 164 86 155

Proﬁt attributable to shareholders 4,645 1,299 1,552 964 830

Basic earnings per share (pence) 93.9p 27 23 26.2p 6 12 31.4p 9 (1) 19.5p >100 >100 16.8p 50 42

Diluted earnings per share (pence) 92.6p 25.9p 31.0p 19.3p 16.7p

Income statement – Adjusted

Total turnover 33,754 10 8 4 8,899 9 11 9,385 16 11 7,809 7 5 7,661 6 5

Cost of sales (10,079) 10 10 5 (2,848) 12 15 (2,785) 17 15 (2,243) 8 7 (2,203) 1 2

Selling, general and administration (10,715) 13 12 7 (3,117) 23 23 (2,768) 20 16 (2,433) 4 2 (2,397) 5 4

Research and development (4,339) 16 14 13 (1,164) 14 16 (1,164) 21 17 (1,040) 20 16 (971) 9 6

Royalty income 351 17 17 17 82 4 4 118 26 24 78 7 4 73 38 42

Operating proﬁt 8,972 3 – (3) 1,852 (16) (11) 2,786 10 3 2,171 3 (1) 2,163 12 9

Net ﬁnance costs (810) (197) (206) (220) (187)

Share of after-tax proﬁts of associates

and joint ventures 74 4 17 (4) 57

Proﬁt before taxation 8,236 2 (1) 1,659 (18) (13) 2,597 12 4 1,947 – (4) 2,033 13 10

Taxation (1,318) (207) (411) (300) (400)

Tax rate % 16.0% 12.5% 15.8% 15.4% 19.7%

Proﬁt after taxation for the period 6,918 6 3 1,452 (13) (8) 2,186 16 8 1,647 6 2 1,633 14 10

Proﬁt attributable to non-controlling interests 787 225 275 138 149

Proﬁt attributable to shareholders 6,131 1,227 1,911 1,509 1,484

Adjusted earnings per share (pence) 123.9p 4 1 24.8p (21) (16) 38.6p 9 1 30.5p 9 4 30.1p 22 18

The calculation of Adjusted results is described on page 50.

Quarterly trend continued

Financial record continued

260

GSK Annual Report 2019

Therapeutic area/major products

Total US Europe International

2019 2018 Growth 2019 Growth 2019 Growth 2019 Growth

£m £m £% CER% £m £% CER% £m £% CER% £m £% CER%

Respiratory 3,081

2,612

18 15 1,742 10 6 783 29 29 556 33 31

Ellipta products 2,313 2,049 13 10 1,289 4 – 577 26 27 447 29 27

Anoro Ellipta 514 476 8 5 324 2 (2) 120 19 20 70 23 21

Arnuity Ellipta 48 44 9 5 41 5 3 – – – 7 40 20

Incruse Ellipta 262 284 (8) (10) 161 (13) (17) 73 (1) (1) 28 17 17

Relvar/Breo Ellipta 971 1,089 (11) (13) 381 (34) (37) 282 11 12 308 21 19

Trelegy Ellipta 518 156 >100 >100 382 >100 >100 102 >100 >100 34 >100 >100

Nucala 768 563 36 33 453 33 28 206 36 37 10 9 56 50

HIV 4,854 4,722 3 1 3,004 3 (1) 1,156 (3) (2) 694 13 13

Dolutegravir products 4,633 4,420 5 2 2,938 4 – 1,086 – – 609 22 22

Tivicay 1,662 1,639 1 (1) 977 (6) (9) 395 5 6 290 28 28

Triumeq 2,549 2,648 (4) (6) 1,611 (4) (7) 626 (11) (11) 312 15 15

Juluca 366 133 >100 >100 303 >100 >100 56 >100 >100 7 >100 >100

Dovato 56 – – – 47 – – 9 – – – – –

Epzicom/Kivexa 75 117 (36) (35) 3 (57) (57) 23 (48) (48) 49 (26) (24)

Selzentry 97 115 (16) (17) 53 (9) (12) 29 (17) (14) 15 (32) (32)

Other 49 70 (30) (31) 10 (44) (44) 18 (25) (29) 21 (25) (25)

Immuno-inﬂammation 613

472

30 25 535 27 23 46 28 28 32 >100 94

Benlysta 613 473 30 25 535 27 23 46 24 24 32 >100 94

Oncology 230

–

– – 134 – – 96 – – – – –

Zejula 229 – – – 134 – – 95 – – – – –

Established pharmaceuticals 8,776

9,463

(7) (8) 1,987 (22) (24) 2,044 (8) (8) 4,745 1 1

Established Respiratory 3,900 4,316 (10) (11) 1,415 (21) (23) 807 (13) (12) 1,678 4 3

Seretide/Advair 1,730 2,422 (29) (29) 502 (54) (56) 502 (16) (16) 726 – (1)

Flixotide/Flovent 629 595 6 4 368 11 6 88 (5) (4) 173 2 2

Ventolin 938 737 27 25 547 55 49 120 (8) (7) 271 6 7

Avamys/Veramyst 324 300 8 6 (2) >(100) >(100) 69 (7) (5) 257 14 11

Other Respiratory 279 262 6 2 – – – 28 – (4) 251 7 3

Dermatology 445 435 2 3 3 – – 159 (1) (1) 283 4 6

Augmentin 602 570 6 6 – – – 172 (5) (4) 430 11 11

Avodart 574 572 – (1) 4 (67) (67) 208 (13) (12) 362 13 11

Imigran/Imitrex 138 141 (2) (3) 59 2 – 52 (9) (7) 27 4 –

Lamictal 566 617 (8) (10) 284 (8) (12) 112 (1) – 170 (12) (13)

Seroxat/Paxil 160 170 (6) (6) – – – 37 (5) (5) 123 (6) (7)

Valtrex 107 123 (13) (15) 14 (33) (38) 31 3 3 62 (14) (15)

Other 2,284 2,519 (9) (9) 208 (40) (43) 466 (5) (4) 1,610 (4) (4)

Pharmaceuticals 17,554 17,269 2 – 7,402 (1) (4) 4,125 1 2 6,027 5 4

Pharmaceutical turnover by therapeutic area 2019

Financial record continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

261

Therapeutic area/major products

Total US Europe International

2018 2017 Growth 2018 Growth 2018 Growth 2018 Growth

£m £m £% CER% £m £% CER% £m £% CER% £m £% CER%

Respiratory 2,612 1,930 35 38 1,586 28 31 609 55 54 417 40 45

Ellipta products 2,049 1,586 29 32 1,245 24 27 457 42 41 347 33 38

Anoro Ellipta 476 342 39 42 318 36 39 101 46 45 57 46 54

Arnuity Ellipta 44 35 26 29 39 22 25 – – – 5 67 67

Incruse Ellipta 284 201 41 44 186 39 42 74 45 45 24 50 56

Relvar/Breo Ellipta 1,089 1,006 8 10 581 (3) (1) 253 25 24 255 26 31

Trelegy Ellipta 156 2 >100 >100 121 >100 >100 29 >100 >100 6 – –

Nucala 563 344 64 66 341 44 48 152 >100 >100 70 84 89

HIV 4,722 4,350 9 11 2,913 8 10 1,194 7 6 615 14 20

Dolutegravir products 4,420 3,870 14 16 2,830 11 13 1,091 18 17 499 28 35

Tivicay 1,639 1,404 17 19 1,036 12 15 377 20 18 226 37 47

Triumeq 2,648 2,461 8 9 1,670 2 5 706 17 15 272 21 25

Juluca 133 5 >100 >100 124 >100 >100 8 – – 1 – –

Dovato – – – – – – – – – – – – –

Epzicom/Kivexa 117 234 (50) (48) 7 (74) (74) 44 (61) (61) 66 (28) (24)

Selzentry 115 128 (10) (9) 58 (12) (11) 35 (17) (17) 22 10 15

Other 70 118 (41) (40) 18 (59) (59) 24 (35) (38) 28 (26) (21)

Immuno-inﬂammation 472 377 25 28 420 24 27 36 33 33 16 45 64

Benlysta 473 375 26 29 420 24 27 37 37 33 16 60 80

Oncology

– – – – – – – – – – – – –

Zejula – – – – – – – – – – – – –

Established pharmaceuticals 9,463 10,619 (11) (8) 2,534 (23) (21) 2,233 (9) (10) 4,696 (4) 1

Established Respiratory 4,316 5,061 (15) (13) 1,782 (23) (21) 924 (13) (14) 1,610 (4) –

Seretide/Advair 2,422 3,130 (23) (21) 1,097 (32) (30) 599 (19) (20) 726 (7) (4)

Flixotide/Flovent 595 596 – 3 333 3 6 93 (2) (3) 169 (5) 1

Ventolin 737 767 (4) (1) 352 (7) (5) 130 (2) (2) 255 – 7

Avamys/Veramyst 300 281 7 10 – – – 74 (3) (4) 226 11 16

Other Respiratory 262 287 (9) (7) – – – 28 4 – 234 (9) (7)

Dermatology 435 456 (4) – 3 (57) (57) 161 (1) (2) 271 (5) 2

Augmentin 570 587 (3) 2 – – – 181 (1) (2) 389 (4) 3

Avodart 572 613 (7) (5) 12 (20) (20) 240 (19) (20) 320 6 11

Imigran/Imitrex 141 168 (16) (16) 58 (25) (23) 57 (12) (14) 26 – –

Lamictal 617 650 (5) (3) 310 (7) (5) 113 6 5 194 (8) (4)

Seroxat/Paxil 170 184 (8) (5) – – – 39 – – 131 (10) (7)

Valtrex 123 128 (4) (1) 21 5 5 30 3 3 72 (9) (4)

Other 2,519 2,772 (9) (6) 348 (34) (32) 488 (3) (4) 1,683 (4) 1

Pharmaceuticals 17,269 17,276 – 2 7,453 (2) 1 4,072 2 1 5,744 – 5

Pharmaceutical turnover by therapeutic area 2018

Financial record continued

262

GSK Annual Report 2019

Vaccines turnover 2019

Major products

Total US Europe International

2019 2018 Growth 2019 Growth 2019 Growth 2019 Growth

£m £m £% CER% £m £% CER% £m £% CER% £m £% CER%

Meningitis 1,018 881 16 15 430 15 10 343 2 3 245 43 50

Bexsero 679 584 16 16 260 30 25 319 3 4 100 37 48

Menveo 267 232 15 13 170 (2) (6) 18 6 6 79 93 100

Other 72 65 11 11 – – – 6 (25) (25) 66 16 16

Inﬂuenza 541 523 3 1 412 7 3 56 (15) (15) 73 1 4

Fluarix, FluLaval 541 523 3 1 412 7 3 56 (15) (15) 73 1 4

Shingles 1,810 784 >100 >100 1,669 >100 >100 54 >100 >100 87 78 76

Shingrix 1,810 784 >100 >100 1,669 >100 >100 54 >100 >100 87 78 76

Established vaccines 3,788 3,706 2 1 1,394 15 11 1,035 (11) (10) 1,359 1 2

Infanrix, Pediarix 733 680 8 6 360 22 17 213 (20) (19) 160 36 35

Boostrix 584 517 13 11 299 13 9 156 (4) (3) 129 43 44

Hepatitis 874 808 8 6 529 16 11 231 (6) (5) 114 9 10

Rotarix 558 521 7 6 140 11 6 112 2 3 306 7 8

Synﬂorix 468 424 10 11 – – – 54 (7) (5) 414 13 13

Priorix, Priorix Tetra, Varilrix 232 305 (24) (23) – – – 100 (37) (37) 132 (9) (9)

Cervarix 50 138 (64) (64) – – – 21 5 5 29 (75) (76)

Other 289 313 (8) (7) 66 3 2 148 8 10 75 (33) (33)

Vaccines 7, 15 7 5,894 21 19 3,905 45 39 1,488 (5) (4) 1,764 8 9

£% represents growth at actual exchange rates. CER% represents growth at constant exchange rates.

Vaccines turnover 2018

Major products

Total US Europe International

2018 2017 Growth 2018 Growth 2018 Growth 2018 Growth

£m £m £% CER% £m £% CER% £m £% CER% £m £% CER%

Meningitis 881 890 (1) 2 374 10 13 336 (14) (15) 171 7 22

Bexsero 584 556 5 9 200 32 34 311 (9) (11) 73 18 52

Menveo 232 274 (15) (12) 174 (7) (5) 17 (50) (50) 41 (23) (15)

Other 65 60 8 7 – – – 8 (47) (47) 57 27 24

Inﬂuenza 523 488 7 10 385 7 9 66 35 33 72 (8) (1)

Fluarix, FluLaval 523 488 7 10 385 7 9 66 35 33 72 (8) (1)

Shingles 784 22 >100 >100 733 >100 >100 2 – – 49 – –

Shingrix 784 22 >100 >100 733 >100 >100 2 – – 49 – –

Established vaccines 3,706 3,760 (1) – 1,209 5 8 1,157 – (1) 1,340 (8) (6)

Infanrix, Pediarix 680 743 (8) (7) 296 (10) (8) 266 (16) (17) 118 20 28

Boostrix 517 560 (8) (7) 265 1 3 162 (12) (14) 90 (20) (19)

Hepatitis 808 693 17 19 458 21 24 245 22 21 105 (7) –

Rotarix 521 524 (1) 1 126 (5) (2) 110 16 15 285 (4) (2)

Synﬂorix 424 509 (17) (17) – – – 58 (13) (13) 366 (17) (18)

Priorix, Priorix Tetra, Varilrix 305 301 1 2 – – – 159 (3) (4) 146 6 9

Cervarix 138 134 3 2 – – – 20 (31) (34) 118 12 12

Other 313 296 6 6 64 45 49 137 32 30 112 (24) (25)

Vaccines 5,894 5,160 14 16 2,701 45 48 1,561 (2) (4) 1,632 (3) –

£% represents growth at actual exchange rates. CER% represents growth at constant exchange rates.

Financial record continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

263

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.

Group turnover by geographic region

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

US 13,890 11,982 11,263 10,197 8,222

Europe 8,069 7,973 7,943 7,476 6,435

International 11,79 5 10,866 10,980 10,216 9,266

33,754 30,821 30,186 27,889 23,923

Group turnover by segment

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Pharmaceuticals 17,554 17,269 17,276 16,104 14,157

Vaccines 7, 15 7 5,894 5,160 4,592 3,656

Consumer Healthcare 8,995 7,658 7,7 5 0 7,193 6,038

Segment turnover 33,706 30,821 30,186 27,889 23,851

Corporate and other unallocated turnover 48 – – – 72

33,754 30,821 30,186 27,889 23,923

Pharmaceuticals turnover

2019

£m

2018

(revised)

£m

2017

(revised)

£m

2016

(revised)

£m

2015

(revised)

£m

Respiratory 3,081 2,612 1,930 1,052 354

HIV 4,854 4,722 4,350 3,556 2,322

Immuno-inﬂammation 613 472 377 340 263

Oncology 230 – – – –

Established Pharmaceuticals 8,776 9,463 10,619 11,156 11,218

17,554 17,269 17,276 16,104 14,157

Vaccines turnover

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Meningitis 1,018 881 890 662 326

Inﬂuenza 541 523 488 414 268

Shingles 1,810 784 22 – –

Established Vaccines 3,788 3,706 3,760 3,516 3,062

7, 15 7 5,894 5,160 4,592 3,656

Consumer Healthcare turnover

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Wellness 4,526 3,940 4,001 3,726 2,970

Oral health 2,673 2,496 2,466 2,223 1,875

Nutrition 1,176 643 680 674 684

Skin health 620 579 603 570 509

8,995 7,658 7,7 5 0 7,193 6,038

Five year record

Financial record continued

264

GSK Annual Report 2019

Financial results – Total

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Turnover 33,754 30,821 30,186 27,889 23,923

Operating proﬁt 6,961 5,483 4,087 2,598 10,322

Proﬁt before taxation 6,221 4,800 3,525 1,939 10,526

Proﬁt after taxation 5,268 4,046 2,169 1,062 8,372

pence pence pence pence pence

Basic earnings per share 93.9 73.7 31.4 18.8 174.3

Diluted earnings per share 92.6 72.9 31.0 18.6 172.3

2019

millions

2018

millions

2017

millions

2016

millions

2015

millions

Weighted average number of shares in issue:

Basic 4,947 4,914 4,886 4,860 4,831

Diluted 5,016 4,971 4,941 4,909 4,888

Financial results – Adjusted

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Turnover 33,754 30,821 30,186 27,889 23,923

Operating proﬁt 8,972 8,745 8,568 7,671 5,659

Proﬁt before taxation 8,236 8,078 7,924 7,024 5,021

Proﬁt after taxation 6,918 6,543 6,257 5,526 4,045

pence pence pence pence pence

Adjusted earnings per share 123.9 119.4 111.8 100.6 74.6

% % % % %

Return on capital employed 56.5 134.0 83.4 28.0 152.4

Return on capital employed is calculated as total proﬁt before taxation as a percentage of average net assets over the year.

Five year record continued

Financial record continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

265

Balance sheet

2019

£m

2018

£m

2017

£m

2016

£m

2015

£m

Non-current assets 60,201 41,139 40,474 42,370 36,859

Current assets 19,491 16,927 15,907 16,711 16,587

Total assets 79,692 58,066 56,381 59,081 53,446

Current liabilities (24,050) (22,491) (26,569) (19,001) (13,417)

Non-current liabilities (37,285) (31,903) (26,323) (35,117) (31,151)

Total liabilities (61,335) (54,394) (52,892) (54,118) (44,568)

Net assets 18,357 3,672 3,489 4,963 8,878

Shareholders’ equity (2018 revised - see Note 1) 11,405 3,781 (68) 1,124 5,114

Non-controlling interests (2018 revised - see Note 1) 6,952 (109) 3,557 3,839 3,764

Total equity 18,357 3,672 3,489 4,963 8,878

Number of employees

2019 2018 2017 2016 2015

US 16,676 13,804 14,526 14,491 14,696

Europe 40,524 41,943 43,002 42,330 43,538

International 42,237 39,743 40,934 42,479 43,021

99,437 95,490 98,462 99,300 101,255

Manufacturing 36,925 36,527 38,245 38,372 38,855

Selling 39,184 36,351 37,374 38,158 39,549

Administration 11,249 10,768 11,307 11,244 11,140

Research and development 12,079 11,844 11,536 11,526 11,711

99,437 95,490 98,462 99,300 101,255

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 Bank of England (4pm buying rate).

The average rate for the year is calculated as the average of the 4pm buying rates for each day of the year.

2019 2018 2017 2016 2015

Average 1.28 1.34 1.29 1.35 1.53

2020

Feb

2020

Jan

2019

Dec

2019

Nov

2019

Oct

2019

Sep

High 1.31 1.32 1.33 1.30 1.30 1.25

Low 1.29 1.30 1.29 1.28 1.22 1.21

The 4pm buying rate on 24 February 2020 was £1= US$1.29.

Five year record continued

Financial record continued

266

GSK Annual Report 2019

Adjusted results reconciliation

31 December 2019

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 33,754 33,754

Cost of sales (11,863) 713 30 658 383 – (10,079)

Gross proﬁt 21,891 713 30 658 383 – 23,675

Selling, general and administration (11,402) 4 332 10 4 247 (10,715)

Research and development (4,568) 64 49 114 2 (4,339)

Royalty income 351 351

Other operating (expense)/income 689 1 (142) (548) –

Operating proﬁt 6,961 777 83 1,105 345 (299) 8,972

Net ﬁnance costs (814) 5 (1) (810)

Share of after-tax proﬁts of associates and joint ventures 74 74

Proﬁt before taxation 6,221 777 83 1,110 345 (300) 8,236

Taxation (953) (156) (17) (208) (124) 140 (1,318)

Tax rate 15.3% 16.0%

Proﬁt after taxation 5,268 621 66 902 221 (160) 6,918

Proﬁt attributable to non-controlling interests 623 164 787

Proﬁt attributable to shareholders 4,645 621 66 902 57 (160) 6,131

Earnings per share 93.9p 12.6p 1.3p 18.2p 1.2p (3.3)p 123.9p

Weighted average number of shares (millions) 4,947 4,947

Adjusted results reconciliation

31 December 2018

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 30,821 30,821

Cost of sales (10,241) 536 69 443 15 – (9,178)

Gross proﬁt 20,580 536 69 443 15 – 21,643

Selling, general and administration (9,915) 2 315 98 38 (9,462)

Research and development (3,893) 44 45 49 20 (3,735)

Royalty income 299 299

Other operating (expense)/income (1,588) 2 1,864 (278) –

Operating proﬁt 5,483 580 116 809 1,977 (220) 8,745

Net ﬁnance costs (717) 4 (3) 18 (698)

Proﬁt on disposal of associates 3 (3) –

Share of after-tax proﬁts of associates and joint ventures 31 31

Proﬁt before taxation 4,800 580 116 813 1,974 (205) 8,078

Taxation (754) (109) (19) (170) (239) (244) (1,535)

Tax rate 15.7% 19.0%

Proﬁt after taxation 4,046 471 97 643 1,735 (449) 6,543

Proﬁt attributable to non-controlling interests 423 251 674

Proﬁt attributable to shareholders 3,623 471 97 643 1,484 (449) 5,869

Earnings per share 73.7p 9.6p 2.0p 13.1p 30.2p (9.2)p 119.4p

Weighted average number of shares (millions) 4,914 4,914

Five year record continued

Financial record continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

267

Adjusted results reconciliation

31 December 2017

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

US tax

reform

£m

Adjusted

results

£m

Turnover 30,186 30,186

Cost of sales (10,342) 546 400 545 80 – (8,771)

Gross proﬁt 19,844 546 400 545 80 – 21,415

Selling, general and administration (9,672) 248 83 (9,341)

Research and development (4,476) 45 288 263 18 (3,862)

Royalty income 356 356

Other operating (expense)/income (1,965) 1,519 (220) 666 –

Operating proﬁt 4,087 591 688 1,056 1,599 (119) 666 8,568

Net ﬁnance costs (669) 4 8 (657)

Proﬁt on disposal of associates 94 (94) –

Share of after-tax proﬁts of associates

and joint ventures 13 13

Proﬁt before taxation 3,525 591 688 1,060 1,599 (205) 666 7,924

Taxation (1,356) (134) (176) (209) (619) (251) 1,078 (1,667)

Tax rate 38.5% 21.0%

Proﬁt after taxation 2,169 457 512 851 980 (456) 1,744 6,257

Proﬁt attributable to non-controlling interests 637 42 114 793

Proﬁt attributable to shareholders 1,532 457 512 851 938 (456) 1,630 5,464

Earnings per share 31.4p 9.4p 10.5p 17.4p 19.2p (9.4)p 33.3p 111.8p

Weighted average number of shares (millions) 4,886 4,886

Adjusted results reconciliation

31 December 2016

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 27,889 27,889

Cost of sales (9,290) 547 7 297 86 2 (8,351)

Gross proﬁt 18,599 547 7 297 86 2 19,538

Selling, general and administration (9,366) 514 55 (8,797)

Research and development (3,628) 41 13 159 (81) 28 (3,468)

Royalty income 398 398

Other operating (expense)/income (3,405) 3,914 (509) –

Operating proﬁt 2,598 588 20 970 3,919 (424) 7,671

Net ﬁnance costs (664) 4 8 (652)

Share of after-tax proﬁts of associates and joint ventures 5 5

Proﬁt before taxation 1,939 588 20 974 3,919 (416) 7,024

Taxation (877) (130) (5) (217) (439) 170 (1,498)

Tax rate 45.2% 21.3%

Proﬁt after taxation 1,062 458 15 757 3,480 (246) 5,526

Proﬁt attributable to non-controlling interests 150 487 637

Proﬁt attributable to shareholders 912 458 15 757 2,993 (246) 4,889

Earnings per share 18.8p 9.4p 0.3p 15.6p 61.6p (5.1)p 100.6p

Weighted average number of shares (millions) 4,860 4,860

Five year record continued

Financial record continued

268

GSK Annual Report 2019

Adjusted results reconciliation

31 December 2015

Total

results

£m

Intangible

asset

amortisation

£m

Intangible

asset

impairment

£m

Major

restructuring

£m

Transaction-

£m

Divestments,

signiﬁcant

legal and

other items

£m

Adjusted

results

£m

Turnover 23,923 23,923

Cost of sales (8,853) 522 147 563 89 12 (7,520)

Gross proﬁt 15,070 522 147 563 89 12 16,403

Selling, general and administration (9,232) 7 1,009 88 151 (7,977)

Research and development (3,560) 41 52 319 52 (3,096)

Royalty income 329 329

Other operating (expense)/income 7,715 2,061 (9,776) –

Operating proﬁt 10,322 563 206 1,891 2,238 (9,561) 5,659

Net ﬁnance costs (653) 5 12 (636)

Proﬁt on disposal of associates 843 (843) –

Share of after-tax proﬁts of associates and joint ventures 14 (16) (2)

Proﬁt before taxation 10,526 563 206 1,896 2,238 (10,408) 5,021

Taxation (2,154) (161) (50) (441) (352) 2,182 (976)

Tax rate 20.5% 19.4%

Proﬁt after taxation 8,372 402 156 1,455 1,886 (8,226) 4,045

(Loss)/proﬁt attributable to non-controlling interests (50) 500 (10) 440

Proﬁt attributable to shareholders 8,422 402 156 1,455 1,386 (8,216) 3,605

Earnings per share 174.3p 8.3p 3.2p 30.1p 28.8p (170.1)p 74.6p

Weighted average number of shares (millions) 4,831 4,831

Five year record continued

Financial record continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

269

MAA and NDA/BLA regulatory review 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

Oncology

Zejula

(niraparib)

†

Poly (ADP-ribose) polymerase (PARP) 1/2 inhibitor Fourth line treatment ovarian cancer

First line maintenance ovarian cancer

and other solid tumours

Approved

(QUADRA)

Submitted

(PRIMA)

III

Feb20

Oct19

Dec19

dostarlimab

†

Anti-programmed cell death protein 1 receptor

(PD-1) antibody

dMMR/MSI-H endometrial cancer and

other tumours

Submitted

(GARNET)

III

Dec19

belantamab

mafodotin

(2857916)

†

B-cell maturation antigen antibody drug conjugate multiple myeloma Submitted

(DREAMM-2)

III

Dec19 Dec19

3359609

†

Induced T-cell co-stimulator (ICOS) agonist

antibody

Head and neck squamous cell carcinoma,

non-small cell lung cancer and solid tumours

II/III

bintrafusp alfa

(M7824)

†

Transforming growth factor beta (TGFβ) trap and

immune checkpoint (PD-1) inhibitor bispeciﬁc

Biliary tract cancer 1L and 2L

non-small cell lung cancer and other tumours

II/III

3377794

†

NY-ESO-1 autologous engineered TCR-T cells

(engineered TCR)

Sarcoma, solid and heme malignancies II

molibresib BET family bromodomain inhibitor ER+ breast cancer, other solid tumours II

cobolimab

(TSR-022)

†

Anti-T-cell immunoglobulin and mucin domain-3

(TIM-3) antibody

non-small cell lung cancer and other tumours II

3326595

†

Protein arginine methyltransferase 5 (PRMT5)

inhibitor

Solid tumours, heme malignancies I/II

4074386

(TSR-033)

†

Anti-lymphocyte activation gene-3 (LAG-3)

antibody

Cancer I/II

3174998

†

OX40 agonist monoclonal antibody Cancer I

1795091 Toll-like receptor 4 (TLR4) agonist Cancer I

3368715

†

Type I protein arginine methyltransferase 1

(Type I PRMT) inhibitor

Cancer I

3537142

NY-ESO-1-targeting bispeciﬁc Cancer I

3745417 STING cytosolic DNA pathway agonist Cancer I

HIV^ and Infectious Diseases

Dectova

(zanamivir) i.v.

†

Neuraminidase inhibitor (i.v.) Inﬂuenza Approved Apr19

dolutegravir +

lamivudine

HIV integrase strand transfer inhibitor + nucleoside

reverse transcriptase inhibitor (NRTI)

HIV infection Approved Jul19 Apr19

fostemsavir HIV attachment inhibitor HIV infection Submitted Jan20 Dec19

cabotegravir +

rilpivirine

†

HIV integrase strand transfer inhibitor + non-

nucleoside reverse transcriptase inhibitor (NNRTI)

(long-acting regimen)

HIV infection Submitted Jul19 Apr19

R: Dec19

cabotegravir HIV integrase strand transfer inhibitor (long-acting) HIV pre-exposure prophylaxis III

gepotidacin

†

triazaacenaphthylene bacterial type II topoisomerase

inhibitor

uncomplicated urinary tract infection (uUTI)

and gonorrhea (GC)

III

3228836

†

HBV antisense oligonucleotide Hepatitis B II

† In-license or other alliance relationship with third party,

with the exception of Rituxan owned by Biogen MA Inc

^ ViiV Healthcare, a global specialist HIV company with

GSK, Pﬁzer, Inc. and Shionogi Limited as shareholders,

is responsible for developing and delivering HIV medicines.

1 Option-based alliance with Immunocore Ltd.

R Receipt of Complete Response Letter

BLA Biological Licence Application

MAA Marketing Authorisation Application (Europe)

NDA New Drug Application (US)

Phase I Evaluation of clinical pharmacology, usually conducted

in volunteers

Phase II Determination of dose and initial evaluation of efﬁcacy,

conducted in a small number of patients

Phase III Large comparative study (compound versus placebo

and/or established treatment) in patients to establish

clinical beneﬁt and safety

Pipeline, products and competition

Pharmaceuticals and Vaccines product development pipeline

Key

270

GSK Annual Report 2019

Achieved regulatory

review milestones

Compound Type Indication Phase MAA NDA/BLA

HIV^ and Infectious Diseases continued

3640254 HIV maturation inhibitor HIV infection II

3036656

†

Leucyl t-RNA synthetase inhibitor Tuberculosis II

3810109

†

HIV broadly neutralizing antibody HIV infection I

3186899

†

CRK-12 inhibitor Visceral leishmaniasis I

3732394 Combinectin HIV entry inhibitor HIV infection I

Immuno-inﬂammation

Benlysta + Rituxan

†

B lymphocyte stimulator monoclonal

antibody (s.c.) +

cluster of differentiation 20 (CD20)

monoclonal antibody (i.v.)

Systemic lupus erythematosus

Sjogren's syndrome

III

Benlysta B lymphocyte stimulator monoclonal

antibody (s.c.)

Lupus Nephritis III

otilimab (3196165)

†

Granulocyte macrophage colony-

stimulating factor monoclonal antibody

Rheumatoid arthritis III

2330811 Oncostatin M (OSM) monoclonal

antibody

Systemic sclerosis II

2831781

†

Lymphocyte activation gene 3 (LAG3)

protein monoclonal antibody

Ulcerative colitis II

3858279

†

CCL17 inhibitor Pain in osteoarthritis I

Respiratory

ﬂuticasone furoate +

vilanterol

†

umeclidinium

Glucocorticoid agonist + long-acting

beta2 agonist + muscarinic

acetylcholine antagonist

Asthma Submitted Jan20 Sep19

mepolizumab Interleukin 5 (IL5) monoclonal antibody COPD

Hypereosinophilic syndrome, nasal polyposis

III

3772847

†

Interleukin 33r (IL33r) monoclonal

antibody

Asthma II

2881078 Selective androgen receptor modulator COPD muscle weakness II

3511294

†

Interleukin 5 (IL5) long-acting monoclonal

antibody

Asthma I

nemiralisib Phosphatidylinositol 3-kinase delta

(PI3Kδ) inhibitor

Activated PI3K delta syndrome I

Other Pharmaceuticals

daprodustat Prolyl hydroxylase inhibitor (oral) Anaemia associated with chronic renal disease JNDA

Submitted

III

JNDA:

Aug19

oxytocin (inhaled)

†

Oxytocin Postpartum hemorrhage II

linerixibat Ileal bile acid transporter (IBAT) inhibitor Cholestatic pruritus in PBC II

3439171

†

Hematopoietic prostaglandin D2

(hPGD2) synthase inhibitor

Duchenne muscular dystrophy I

Pharmaceuticals and Vaccines product development pipeline continued

Pipeline, products and competition continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

271

Achieved regulatory

review milestones

Compound Type Indication Phase MAA NDA/BLA

Vaccines

Shingrix

†

(Zoster Vaccine)

Recombinant protein – adjuvanted Herpes Zoster prophylaxis for immunocompromised Submitted Dec19

Bexsero Recombinant protein Meningococcal B disease prophylaxis in infants (US) III

Rotarix Live attenuated, PCV (Porcine circovirus)

free

Rotavirus prophylaxis Submitted Nov19

MMR Live attenuated Measles, mumps, rubella prophylaxis (US) III

Therapeutic

COPD

†

Recombinant protein – adjuvanted Reduction of the frequency of moderate and severe

acute exacerbations in COPD patients by targeting

non-typeable Haemophilus inﬂuenzae and Moraxella

catarrhalis

Malaria next

generation

†

(fractional dose)

Recombinant protein – adjuvanted Malaria prophylaxis (Plasmodium falciparum) II

Men ABCWY Recombinant protein – conjugated Meningococcal A,B,C,W and Y disease prophylaxis

in adolescents

Menveo Conjugated. Liquid formulation Meningococcal A,C,W and Y disease prophylaxis in

adolescents

Shigella

†

Conjugated (tetravalent) and outer

membrane vesicles (monovalent)

Shigella diarrhea prophylaxis II

RSV Replication-defective recombinant

viral vector

Recombinant protein

Recombinant protein – adjuvanted

Respiratory syncytial virus prophylaxis in paediatric

population

Respiratory syncytial virus prophylaxis in pregnant woman

population to prevent respiratory syncytial virus lower

respiratory tract illness in infants during ﬁrst Months of

life by transfer of maternal antibodies

†

Respiratory syncytial virus prophylaxis in older adult

population

†

I/II

Therapeutic HBV

†

Prime-boost with viral vector vaccines

co- or sequentially administrated with

adjuvanted recombinant proteins

Hepatitis B virus therapeutic: functional elimination of

immune system mediated chronic infection

I/II

C. Difﬁcile Recombinant protein – adjuvanted Active immunization for the prevention of the primary C.

Diff diseases and for prevention of recurrences

SAM (Rabies model) Self-Amplifying mRNA Rabies prophylaxis I

Brand names appearing in italics are trade marks owned by or licensed to the GSK group of companies.

Pharmaceuticals and Vaccines product development pipeline continued

Pipeline, products and competition continued

272

GSK Annual Report 2019

Major

Patent expiry dates

Products Compounds Indication(s) competitor brands

US EU

Respiratory

Anoro Ellipta umeclidinium bromide/

vilanterol trifenatate

COPD Stiolto Respimat,

Utibron/Ultibro

Breezhaler,

Duaklir Genuair

Bevespi, Aerosphere

2027

(NCE)

2027-2030

(device/

formulation)

2029

(NCE)

2022-2026

(device/

formulation)

Arnuity Ellipta ﬂuticasone furoate asthma Qvar, Pulmicort

Asmanex, Alvesco

2021

(NCE)

2027-2030

(device/

formulation)

2023

(NCE)

2022-2026

(device/

formulation)

Avamys/Veramyst ﬂuticasone furoate rhinitis Nasonex 2021

2023

Flixotide/Flovent ﬂuticasone propionate asthma/COPD Qvar, Singulair expired

(Diskus device)

2020-2026

(HFA-device)

expired

(Diskus device)

expired

(HFA-device)

Incruse Ellipta umeclidinium bromide COPD Spiriva Handihaler/

Respimat, Eklira Genuair

Seebri Breezhaler

2027

(NCE)

2027-2030

(device/

formulation)

2029

(NCE)

2022-2026

(device/

formulation)

Nucala mepolizumab severe eosinophilic asthma, EGPA Xolair, Cinqair,

Fasenra, Dupixent

expired

2020

Relvar/Breo Ellipta ﬂuticasone furoate/ asthma/COPD Symbicort, Foster, 2025 2027

vilanterol trifenatate Flutiform, Dulera (NCE)

2027-2030

(device/

formulation)

(NCE)

2022-2026

(device/

formulation)

Seretide/Advair salmeterol xinafoate/

ﬂuticasone propionate

asthma/COPD Symbicort, Foster,

Flutiform, Dulera

expired

(Diskus device)

2020-2026

(HFA-device)

expired

(Diskus device)

expired

(HFA-device)

Trelegy Ellipta ﬂuticasone furoate/

vilanterol trifenatate

umeclidinium bromide

COPD Trimbow,

Brextri Aerosphere

2027

(NCE)

2027-2030

(device/

formulation)

2029

(NCE)

2022-2026

(device/

formulation)

Ventolin HFA albuterol sulphate asthma/COPD generic companies 2020-2026

(HFA-device)

expired

(HFA-device)

Anti-virals

Valtrex valaciclovir genital herpes, coldsores, shingles Famvir expired expired

Central nervous system

Lamictal lamotrigine epilepsy, bipolar disorder Keppra, Dilantin expired expired

Imigran/Imitrex sumatriptan migraine Zomig, Maxalt, Relpax expired expired

Seroxat/Paxil paroxetine depression, various anxiety

disorders

Effexor, Cymbalta,

Lexapro

expired expired

Cardiovascular and urogenital

Avodart dutasteride benign prostatic hyperplasia Proscar, Flomax,

ﬁnasteride

expired expired

Anti-bacterials

Augmentin amoxicillin/clavulanate

potassium

common bacterial

infections

generic products NA expired

Oncology

Zejula

niraparib ovarian cancer Lynparza, Rubraca 2030

(NCE)

2028

(NCE)

Immuno-inﬂammation

Benlysta, Benlysta SC belimumab systemic lupus erythematosus 2025 2026

1 Generic competition commenced in 2017.

2 Includes Supplementary Protection Certiﬁcates which were granted in multiple countries in EU and patent term extensions granted in the US.

3 Data exclusivity expires 2025 (EU) and 2027 (US).

Pharmaceutical products, competition and intellectual property

Pipeline, products and competition continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

273

Major

Patent expiry dates

Products Compounds Indication(s) competitor brands

US EU

HIV

Juluca dolutegravir, rilpivirine HIV/AIDS Descovy, Genvoya,

Odefsey, Biktarvy

2027

(NCE)

2029

(NCE)

Dovato dolutegravir, lamivudine HIV/AIDS Descovy, Genvoya,

Odefsey, Biktarvy

2027

(NCE)

2029

(NCE)

Selzentry/Celsentri maraviroc HIV/AIDS Isentress, Intelence,

Prezista

2021

(NCE)

2022

(NCE)

Tivicay dolutegravir HIV/AIDS Isentress, Prezista

Symtuza, Reyataz,

Biktarvy

2027

(NCE)

2029

(NCE)

Triumeq dolutegravir, lamivudine

and abacavir

HIV/AIDS Descovy, Genvoya

Odefsey, Biktarvy

2027

(NCE)

2029

(NCE)

Vaccine products, competition and intellectual property

Major

Patent expiry dates

Products Compounds Indication(s) competitor brands

US EU

Bexsero meningococcal group-B

vaccine

Meningitis group B prevention Trumenba 2027 2028

Boostrix diphtheria, tetanus, acellular

pertussis

diphtheria, tetanus, acellular

Pertussis booster vaccination

Adacel expired expired

Infanrix Hexa/Pediarix diphtheria, tetanus, pertussis, Prophylaxis against diphtheria, Pentacel, Pediacel, expired expired

polio, hepatitis B, Haemophilus

inﬂuenzae type B (EU)

tetanus, pertussis, polio,

hepatitis B, Haemophilus

inﬂuenzae type B (EU)

Pentaxim, Pentavac,

Hexaxim, Hexyon

Vaxelis

Cervarix HPV 16 & 18 virus like

particles (VLPs), AS04

adjuvant (MPL + aluminium

hydroxide)

human papilloma virus

type 16 and 18

Gardasil (Silgard) 2028 2022

Fluarix Tetra split inactivated inﬂuenza

antigens (2 virus subtypes A

and 2 subtype B)

seasonal inﬂuenza prophylaxis Intenza, Flumist QIV,

Vaxigrip QIV,

Fluzone QIV,

Fluzone High Dose

2022 2022

FluLaval split inactivated inﬂuenza

antigens (2 virus subtypes A

and 2 subtype B)

seasonal inﬂuenza prophylaxis Vaxigrip, Mutagrip,

Fluzone, Inﬂuvac,

Aggripal, Fluad,

Intenza, Flumist

2022 2022

Menveo meningococcal group A, C, W-

135 and Y conjugate vaccine

Meningitis group A, C, W-135

and Y prophylaxis

Nimenrix, Menactra 2025 2025

Prepandrix derived split inactivated

inﬂuenza virus antigen,

AS03 adjuvant

pandemic H5N1 inﬂuenza

prophylaxis

Aﬂunov, Vepacel – 2026

Priorix,

Priorix Tetra

a,b

Varilrix

live attenuated measles,

mumps,

rubella and varicella vaccine

measles, mumps, rubella and

chickenpox prophylaxis

MMR II (M-M-RVaxPro)

Proquad, Varivax

expired expired

Rotarix Human rotavirus RIX4414 strain Rotavirus prophylaxis Rotateq – 2020

Synﬂorix conjugated pneumococcal

polysaccharide

Prophylaxis against invasive

disease, pneumonia,

acute otitis media

Prevenar (Prevnar) NA 2024

Shingrix zoster vaccine

recombinant, adjuvanted

herpes zoster

(shingles)

Zostavax 2026 2026

1 See Note 46 to the ﬁnancial statements, ‘Legal proceedings’.

2 Generic competition commenced in many markets during 2016.

3 Includes Supplementary Protection Certiﬁcates which were granted in multiple countries in EU and patent term extensions granted in the US.

a Related compounds/indications are measles, mumps and rubella vaccine/prophylaxis

b Related compound is varicella vaccine

Pharmaceutical products, competition and intellectual property continued

Pipeline, products and competition continued

274

GSK Annual Report 2019

Brand Products Application Markets Competition

Wellness

Respiratory

Otrivin nasal spray nasal decongestant Germany, Netherlands,

Norway, Russia, Sweden

Afrin, Bayer, Nasivin, Proctor &

Gamble, Tyzine, Johnson & Johnson

Theraﬂu hot liquids, tablets, syrups cold and ﬂu relief Russia, Poland, US Tylenol Cold & Flu,

Johnson & Johnson

Mucinex, Reckitt Benckiser

Lemsip, Reckitt Benckiser

Flixonase/Flonase nasal spray, tablets allergy relief US, China, UK, Ireland Claritin, Bayer, Allegra, Sanoﬁ

Piriton Zyrtec, Johnson & Johnson

Nicorette (US),

NicoDerm,

Nicotinell

(ex. Australia)

lozenges, gum and

trans-dermal patches

treatment of nicotine withdrawal

as an aid to smoking reduction

and cessation

global Nicorette, Johnson & Johnson

NiQuitin, Perrigo

Pain relief

Panadol and

Panadol Cold

& Flu

tablets, caplets, infant

syrup drops

paracetamol-based treatment

for headache, joint pain, fever,

cold symptoms

global (except US) Aspirin, Bayer

Tylenol, Johnson & Johnson

Voltaren topical gel non-steroidal, diclofenac based

anti-inﬂammatory

global (except US) Aspirin, Bayer

Tylenol, Johnson & Johnson

Advil

non-respiratory

range

tablets, caplets, gel caplets,

liquid ﬁlled suspension, drops

(children’s)

ibuprofen based treatment for

headache, toothache, backache,

menstrual cramps, muscular

pains, minor pain of arthritis

US, Canada, Brazil,

Colombia, Mexico

Tylenol, Tylenol PM, Tylenol

Children’s Motrin, Motrin

Children’s, Johnson & Johnson

Aleve, Aleve PM, Bayer

Advil Respiratory

Cold and Flu,

Advil Respiratory

Allergy

tablets allergy relief and cold & ﬂu

relief

Tylenol Cold & Flu, Johnson &

Johnson, Lemsip, Mucinex,

Reckit Benckiser

Other

ENO effervescent immediate relief antacid global (except US) Estomazil, Hypermarca, Gelusil

Tums chewable tablets immediate relief antacid US Alka-Seltzer, Bayer

Gaviscon, Reckitt Benckiser

Rolaids, Sanoﬁ

Oral health

Sensodyne,

Pronamel

toothpastes, toothbrushes,

mouth rinse

relief of dentinal hypersensitivity.

Pronamel additionally protects

against acid erosion

global Colgate Sensitive Pro-Relief,

Colgate-Palmolive

Elmex, Colgate-Palmolive

Oral B, Procter & Gamble

parodontax/

Corsodyl

toothpaste, daily/medicated

mouthwash, gel and spray

helps stop and prevent

bleeding gums, treats and

prevents gingivitis

global Colgate Total Gum Health,

Colgate-Palmolive

Oral B Gum & Enamel Repair,

Crest Gum Detoxify,

Procter & Gamble

Polident,

Poligrip,

Corega

denture adhesive, denture

cleanser, wipes

improve retention and comfort

of dentures, cleans dentures

global Fixodent and Kukident,

Procter & Gamble,

Steradent, Reckitt Benckiser

Aquafresh toothpastes, toothbrushes

mouthwashes

aids prevention of dental cavities,

maintains healthy teeth, gums

and fresh breath

global Colgate, Colgate-Palmolive

Crest, Procter & Gamble

Oral-B, Procter & Gamble

Skin health

Zovirax

Abreva

topical cream and

non-medicated patch

lip care to treat and prevent

the onset of cold sores

global Compeed, Johnson & Johnson

Carmex, Carma Labs

Blistex, Blistex Incorporated

retail own label

ChapStick lip balm protect, moisturise, prevent and

soothe chapped lips

global Blistex, Burt’s Bees, Carmex,

Carma Labs, EOS, Nivea,

Beiersdorf, Vaseline, Unilever

Nutrition

Centrum tablets

gummies

vitamin and mineral

supplementation

global Nutralite, Inﬁnitus Cheong-Kwan-

Jung, By-Health, Nature Made,

Herbalife, Swisse

Caltrate tablets, gummies,

soft chews

calcium supplement global Citracal, Bayer, OS-Cal, Nature

Made and private label

Consumer Healthcare products and competition

Pipeline, products and competition continued

GSK Annual Report 2019

275

Investor information

Financial statements

Strategic report

Governance and remuneration

The principal risks discussed below are the risks and

uncertainties relevant to our business, ﬁnancial condition

and results of operations that may affect our performance

and ability to achieve our objectives. They are the risks that

we believe could cause our actual results to differ materially

from expected and historical results.

During 2019, we continued to embed changes to our risk

management and reporting cycle to help us identify, manage

and report our most important risks across the organisation

in a more consistent and proportionate way. We completed

Enterprise Risk Plans for all of our most important risks and

ensured businesses adopted them and only adapted them

with approval. We deployed conﬁrmation across the

organisation, reinforcing leader accountability for risk

management, and measured how well the controls set out

in the Enterprise Risk Plans had been implemented and gaps

closed. We further evolved our risk management process by

introducing new reports to the Board with more focus on data

and key risk indicators, leading to better informed discussions

on risk exposure and action needed. We introduced a new

approach to the annual risk review to support CET decisions

on any changes required to our most important risks.

We are required to comply with a broad range of laws and

regulations which apply to research and development,

manufacturing, testing, approval, distribution, sales and

marketing of Pharmaceutical, Vaccines and Consumer

Healthcare products.

These affect not only the cost of product development but also

the time required to reach the market and the likelihood of doing

so successfully on an uninterrupted basis.

As rules and regulations change, government interpretation

evolves, and our business activities change, the nature of a

particular risk may change. Changes to certain regulatory

regimes may be substantial. Any change in, and any failure to

comply with, applicable laws and regulations could materially

and adversely affect our ﬁnancial results.

Similarly, our global business exposes us to litigation and

government investigations, including but not limited to product

liability litigation, patent and antitrust litigation and sales and

marketing litigation. Litigation and government investigations,

including related provisions we may make for unfavourable

outcomes and increases in related costs such as insurance

premiums, could materially and adversely affect our ﬁnancial

results.

More detail on the status and various uncertainties in our

signiﬁcant unresolved disputes and potential litigation is set

out in Note 46 ‘Legal proceedings’.

UK regulations require a discussion of the mitigation activities

a company takes to address principal risks and uncertainties.

Below is a description of each of our principal risks with a

summary of the activities that we take to manage each risk

across our businesses. The principal risks and uncertainties

are not listed in order of signiﬁcance.

Risk deﬁnition

Failure to appropriately collect, review, follow up, or report

human safety information (HSI), including adverse events from

all potential sources, and to act on any relevant ﬁndings in a

timely manner.

Risk impact

The risk impact has the potential to compromise our ability to

conduct robust safety signal detection and interpretation and to

ensure that appropriate decisions are taken with respect to the

risk/ beneﬁt proﬁle of our products, including the completeness

and accuracy of product labels and the pursuit of additional

studies/ analyses, as appropriate. Additionally, this risk could

potentially negatively impact our ability to incorporate veriﬁed

safety signals into local (country) labelling. This could lead to

potential harm to patients, reputational damage, product liability

claims or other litigation, governmental investigation, regulatory

action such as ﬁnes, penalties or loss of product authorisation.

Context

Pre-clinical and clinical trials are conducted during the

development of investigational Pharmaceutical, Vaccine and

Consumer Healthcare products to determine the safety and

efﬁcacy of the products for use by humans. Notwithstanding the

efforts we make to determine the safety of our products through

appropriate pre-clinical and clinical trials, unanticipated side

effects may become evident only when products are widely

introduced into the marketplace.

Questions about the safety of our products may be raised not

only by our ongoing safety surveillance and post-marketing

studies but also by governmental agencies and third parties

that may analyse publicly available clinical trial results. Constant

vigilance and ﬂexibility are required in order to respond to a varied

regulatory environment which continues to evolve and diverge

globally. Externally, developments in data interrogation present

potential beneﬁts for patient safety but the volume of data to be

analysed presents a signiﬁcant challenge which intensiﬁes when

coupled with fragmented regulatory requirements and privacy

concerns. In the economic arena, mergers and acquisition

activities introduce data integrity risks. Technology presents a

signiﬁcant opportunity for patient safety risk management by

creating more reliable data interrogation tools and more accurate

data collection mechanisms, even though the pace of Artiﬁcial

Intelligence development has not been as great as once

expected. Cyberattacks are an ever-growing concern given

the volume of data and digital dependency.

The Group is currently a defendant in a number of product liability

lawsuits, including class actions, that involve signiﬁcant claims for

damages related to our products. Litigation, particularly in the

US, is inherently unpredictable. Class actions that seek to sweep

together all persons who take our products increase the potential

liability. 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.

Principal risks and uncertainties

Patient safety

276

GSK Annual Report 2019

Risk deﬁnition

Failure by GSK, its contractors or suppliers to ensure:

– Appropriate controls and governance of quality in product

development

– Compliance with good manufacturing practice or good

distribution practice regulations in commercial or clinical

trials manufacture and distribution activities

– Compliance with the terms of GSK product licences and

supporting regulatory activities

Risk impact

A failure to ensure product quality could have far reaching

implications in terms of patient and consumer safety, delays in

launching products, drug shortages, product recalls, as well

as regulatory, legal, and ﬁnancial consequences, which could

materially and adversely affect GSK’s reputation and ﬁnancial

results.

Context

The external environment for product quality continues to

be challenging. The single biggest change since 2018 is the

political instability and uncertainty surrounding the delivery of

Brexit and the implications for medicine supply continuity both

into and out of mainland Europe. Two new sets of requirements

are due to be implemented by EMA shortly and we are

preparing for both. In the ﬁrst quarter of 2020, there will be

new reporting requirements on potential drug shortages

and from May 2020 there are new regulations covering the

licensing of medical devices.

Technological developments are increasingly used to both

enhance manufacture and to support the inclusion of packaging

features that help secure the legitimate supply chain e.g.

serialisation. The threat of cyberattacks remains a key risk to

the integrity of product quality data and its audit trail.

Signiﬁcant changes are taking place in GSK as we implement

the new organisational alignments and IPTc strategy. These

changes are assessed by the Quality organisations to ensure

our quality procedures and governance can facilitate the

strategy whilst also ensuring that no unintended consequences

increase our product quality risk.

Mitigating activities

An extensive global network of quality and compliance

professionals is aligned with each business unit to provide

oversight and assist with the delivery of quality performance and

operational compliance, from site level to senior management

level. Management oversight of those activities is accomplished

through a hierarchy of quality councils and through an

independent Chief Product Quality Ofﬁcer and Global Product

Quality Ofﬁce that provides oversight of product quality risk

across the company.

We have developed and implemented a single Quality

Management System that deﬁnes the quality standards and

systems for our businesses associated with Pharmaceuticals,

Vaccines and Consumer Healthcare products and clinical trial

materials. This system has a broad scope and is applicable

throughout the product lifecycle from R&D to mature

commercial supply. It is augmented by a consolidation of the

numerous regulatory requirements deﬁned by markets across

the world which assures that it meets external expectations for

product quality in the markets supplied. It is based on the

internationally recognised principles from the ‘ICH Q10:

Pharmaceutical Quality Systems’ framework.

Product quality

Patient safety continued

Mitigating activities

The Chief Medical Ofﬁcer (CMO) is accountable for the

patient safety enterprise risk and has the authoritative role for

evaluating and addressing matters of human safety. The CMO

is supported by an enterprise-wide Safety Governance Board

to provide oversight and management of the control framework,

including the risk management process. Product speciﬁc safety

governance boards are in place to ensure that human safety is

addressed proactively throughout the product lifecycle. Each

business has a named medical ofﬁcer and subsidiary business

speciﬁc boards provide further oversight and governance.

It is our policy that employees are required to report immediately

any issues relating to the safety or quality of our products. Each

of our country managers is responsible for monitoring, exception

tracking and training that helps assure the collection of safety

information and reporting the information to the relevant central

safety department, in accordance with policy and legal

requirements.

Once a Group product is approved for marketing, we have

an extensive post-marketing surveillance and signal detection

system. Information on possible side effects of products is

received from several sources including unsolicited reports

from healthcare professionals (HCPs) and patients, regulatory

authorities, medical and scientiﬁc literature, traditional media

and social media.

Information that changes the risk/beneﬁt proﬁle of one of

our products will result in certain actions to characterise,

communicate and minimise the risk. Proposed actions are

discussed with regulatory authorities and can include modifying

the prescribing information, communications to physicians and

other healthcare providers, restrictions on product prescribing/

availability to help assure safe use, and sometimes carrying out

further clinical trials. In certain cases, it may be appropriate to

stop clinical trials or to withdraw the medicine from the market.

In 2019, we implemented organisational changes to create a

more ﬂexible, scalable and ﬁt for purpose organisation to meet

changing internal and external demands. We are also investing

in system upgrades and quality checks to reduce risks of

individual case safety reports.

Principal risks and uncertainties continued

GSK Annual Report 2019

277

Investor information

Financial statements

Strategic report

Governance and remuneration

Financial controls and reporting

Risk deﬁnition

Failure to comply with current tax laws or incurring signiﬁcant

losses due to treasury activities; failure to report accurate

ﬁnancial information in compliance with accounting standards

and applicable legislation.

Risk impact

Non-compliance with existing or new ﬁnancial reporting and

disclosure requirements, or changes to the recognition of income

and expenses, could expose us to litigation and regulatory action

and could materially and adversely affect our ﬁnancial results.

In the current period of signiﬁcant political uncertainty especially

in the USA and UK, there can be signiﬁcant changes at short

notice. Failure to comply with any changes in the substance

or application of the governing laws covering transfer pricing,

dividends, tax credits, and intellectual property could materially

and adversely affect our ﬁnancial results.

Signiﬁcant losses may arise from inconsistent application of

treasury policies, transactional or settlement errors, or

counterparty defaults.

Context

The Group is required by the laws of various jurisdictions to

disclose publicly its ﬁnancial results and events that could

materially affect the ﬁnancial results of the Group. Regulators

routinely review the ﬁnancial statements of listed companies

for compliance with new, revised or existing accounting and

regulatory requirements. The Group believes that it complies

with the appropriate regulatory requirements concerning our

ﬁnancial statements and disclosure of material information

including any transactions relating to business restructuring such

as acquisitions and divestitures. However, should we be subject

to an investigation into potential non-compliance with accounting

and disclosure requirements, this can lead to restatements of

previously reported results and signiﬁcant penalties.

Our Treasury group deals in high value transactions,

mostly foreign exchange and cash management transactions,

daily. These transactions involve market volatility and

counterparty risk.

The Group’s effective tax rate reﬂects rates of tax in the

jurisdictions in which the Group operates that are both higher

and lower than the UK rate and considers regimes that

encourage innovation and investment in science by providing

tax incentives which, if changed, could affect the Group’s tax

rate. In addition, the worldwide nature of our operations means

that our intellectual property, R&D and manufacturing operations

are centered in several key locations. A consequence of this

is that our cross-border supply routes, necessary to ensure

supplies of medicines into numerous end markets, can be

complex and result in conﬂicting claims from tax authorities as

to the proﬁts to be taxed in individual countries. Tax legislation

itself is also complex and differs across the countries in which

we operate. As such, tax risk can also arise due to differences in

the interpretation of such legislation. The tax charge included in

our ﬁnancial statements is our best estimate of tax liability

pending audits by tax authorities.

We expect there to be continued focus on tax reform driven

by initiatives of the Organisation for Economic Cooperation &

Development to address the taxation of the digital economy and

European Commission initiatives including the use of ﬁscal state

aid investigations. Together with domestic initiatives around the

world, these may result in signiﬁcant changes to established

tax principles and an increase in tax authority disputes. These,

regardless of their merit or outcomes, can be costly, divert

management attention and may adversely impact our reputation

and relationship with key stakeholders.

Product quality continued

The Quality Management System is routinely updated to

ensure that it keeps pace with the evolving external regulatory

environment and with new scientiﬁc understanding of our

products and processes. As part of our drive to continually

improve the operational deployment of our Quality Management

System, we are making our policies and procedures simpler to

understand and implement, as well as adopting innovative tools

to give a more user-friendly experience. All staff members are

regularly trained in regulatory expectations, learnings from

inspections and current procedures to ensure continued

maintenance of cGMP standards.

We have implemented a risk-based approach to assessing and

managing third party suppliers that provide materials which are

used in ﬁnished products. Contract manufacturers making our

products are expected to comply with GSK standards and are

regularly audited to provide assurance that standards are met.

Product Incident Committee processes are in place to

investigate product issues and make recommendations on

remediation activities including where necessary, the recall of

product from the marketplace in order to protect patients and

consumers. A complaints process is also in place to ensure

GSK responds to product quality issues raised by patients

and customers.

Allegations of non-compliance or misconduct received through

formal and informal ‘Speak Up’ channels are reviewed and

triaged by independent functions. Global disciplinary and

enforcement procedures apply to any breaches of our

standards, initiated following an investigation.

Key risk indicators are leveraged to support risk management

activities and we provide the Corporate Executive Team and

Risk Oversight and Compliance Council with an integrated

assessment of product quality performance.

Principal risks and uncertainties continued

278

GSK Annual Report 2019

Risk deﬁnition

The ABAC risk comprises ﬁve sub-risk areas:

– Bribery of public ofﬁcials by GSK

– Bribery of commercial and other non-public entities by GSK

– Bribery by third parties acting on behalf of GSK

– GSK employees receiving and/or requesting bribes and/or

other undue personal beneﬁt

– Other corruption-non-compliance with laws and regulations

related to money laundering or facilitation of tax evasion by

third parties/clients/partners.

Risk impact

Failure to mitigate this risk could expose the Group and

associated persons to governmental investigation, regulatory

action, and civil and criminal liability and may compromise the

Group’s ability to supply its products under certain government

contracts. In addition to legal and ﬁnancial penalties, a failure to

prevent bribery through complying with ABAC legislation and

regulations could have substantial implications for the reputation

of the company, the credibility of senior leaders, and an erosion

of investor conﬁdence in our governance and risk management.

Anti-bribery and corruption (ABAC)

Financial controls and reporting continued

Mitigating activities

Financial results are reviewed and approved by regional

management and then reviewed with the Financial Controller

and the Chief Financial Ofﬁcer (CFO). This allows our Financial

Controller and our CFO to assess the evolution of the business

over time, and to evaluate performance to plan. Signiﬁcant

judgments are reviewed and conﬁrmed by senior management.

Technical or organisational transformation and newly acquired

activities are integrated into risk assessments and appropriate

controls and reviews are applied.

We maintain a control environment designed to identify material

errors in ﬁnancial reporting and disclosure. The design and

operating effectiveness of key ﬁnancial reporting controls are

regularly reviewed by management and tested by external third

parties. A minimum standard control set is in place for all

ﬁnance locations irrespective of size and reviewed by

management and monitored independently. This provides us

with the assurance that controls over key ﬁnancial reporting and

disclosure processes have operated effectively. Our Global

Finance Risk Management and Controls Centre of Excellence

provides extra support during signiﬁcant transformations such

as system deployment or management/structural

reorganisations. We also add operational resources to ensure

processes and controls are maintained during such changes.

Additional risk mitigation has been introduced by amending the

programme timelines of system upgrades to optimize delivery.

The Disclosure Committee, reporting to the Board, reviews the

Group’s quarterly results and Annual Report and determines

throughout the year, in consultation with its legal advisors,

whether it is necessary to disclose publicly information about

the Group through Stock Exchange announcements. We keep

up-to-date with the latest developments in ﬁnancial reporting

requirements by working with our external auditor and legal

advisors.

The Treasury Management Group meets on a regular basis to

seek to ensure that liquidity, interest rate, counterparty, foreign

currency transaction and foreign currency translation risks are all

managed in line with the conservative approach as detailed in the

associated risk strategies and policies which have been adopted

by the Board.

Counterparty exposure is subject to deﬁned limits approved by

the Board for both credit rating and individual counterparties.

Oversight of Treasury’s role in managing counterparty risk in line

with agreed policy is performed by a Corporate Compliance

Ofﬁcer, who operates independently of Treasury. Further details

on mitigation of Treasury risks can be found on pages 227 to

229, Note 43 ‘Financial instruments and related disclosures’.

Tax risk is managed through robust internal policies, processes,

training and compliance programmes to ensure we have

alignment across our business and meet our tax obligations.

We seek to maintain open, positive relationships with

governments and tax authorities worldwide and we welcome

constructive debate on taxation policy. We monitor government

debate on tax policy in our key jurisdictions to deal proactively

with any potential future changes in tax law. We engage

advisors and legal counsel to conﬁrm the implications for our

business of tax legislation. Where appropriate, we are active

in providing relevant business input to tax policy makers.

Signiﬁcant decisions are submitted for consideration to the

Tax Governance Board which meets quarterly and comprises

senior personnel from across GSK’s Finance division.

Our tax affairs are managed on a global basis through a

coordinated team of tax professionals led by the Global Head of

Tax who works closely with the business. Our tax professionals

are suitably qualiﬁed for the roles they perform, and we support

their training needs in order that they continue to be able to

provide up to date technical advice. We submit tax returns

according to statutory time limits and engage with tax authorities

to seek to ensure our tax affairs are current, entering

arrangements such as Continuous Audit Programmes and

Advance Pricing Agreements where appropriate. These

agreements provide long-term certainty for both tax authorities

and for us over the tax treatment of our business. In exceptional

cases where matters cannot be settled by agreement with tax

authorities, we may have to resolve disputes through formal

appeals or other proceedings.

Principal risks and uncertainties continued

GSK Annual Report 2019

279

Investor information

Financial statements

Strategic report

Governance and remuneration

Anti-bribery and corruption (ABAC) continued

Context

The macro risk level remains unchanged as we continue to see

legal frameworks similar to the UK and US develop in emerging

economies; high standards are expected of individuals and

corporations aided by improved technology and increased

enforcement.

The overall environment for ABAC in 2019 remained

challenging. Divergence of legislation is making compliance

harder and countries are increasingly holding individuals

accountable as well as corporations, increasing the employer

duty of care. Society is holding corporations to ever higher

standards with technology providing a speedy and anonymous

avenue for dissemination of previously privileged information or

even damaging false reports. Enforcement actions and penalties

have increased across the globe with focus on use of third-

party intermediaries. Supportive aspects of new policies

include Latin America moving towards compliance regimes

like those established by the US and UK. In India there was

an amendment of the Corruption Act (2018) which explicitly

makes an offence to pay a bribe. China has introduced

signiﬁcant anti-bribery and anti-corruption/legislative and

regulatory reforms.

The GSK exposure remains unchanged.

Mitigating activities

Programme governance is provided through Enterprise Risk

Management overseen by the ABAC/TPO Governance Board

which includes representation from key functional areas and

the business. This joint board was created in 2019 to ensure

strategic focus across the two principle risk areas as they have

considerable co-dependency.

We have an enterprise-wide ABAC programme designed to

ensure compliance with our ABAC policies and mitigate the risk

of bribery and corruption. It builds on our business standards,

values and expectations to form a comprehensive and practical

approach to compliance and is ﬂexible to the evolving nature of

our business.

We have appropriate controls in place such as training,

awareness raising, strong monitoring around transactions and

payments to third parties. We plan to continue with pre and

post-transaction ABAC due diligence, increase the capabilities

in the business on monitoring, oversight and red ﬂag resolution

of third parties; review controls and accountabilities of

government ofﬁcials. We continue to understand and assess

our money-laundering risk exposure and mitigate any existing

risk.

Our Code of Conduct, values and expectations, and

commitment to zero tolerance are integral to how we mitigate

this risk. In light of the complexity and geographic breadth of

this risk, we constantly evolve our oversight of activities and

data, reinforce to our workforce clear expectations regarding

acceptable behaviours, and maintain regular communications

between the centre and local markets.

Our ABAC programme is built on best in class principles and

is subject to ongoing review and development. It provides us

with the basis from which we seek to manage the risk from top

down and bottom up. For example, the programme comprises

top-level commitment from the Board of Directors and

leadership, and a new data analytics programme to create

and embed local key risk indicators to enable targeted

intervention and risk management activities.

The programme is underpinned by a global ABAC policy

and written standards that address commercial and other

practices that give rise to ABAC risk. In addition, the

programme mandates enhanced controls over interactions

with government ofﬁcials and during business development

transactions. Controls in our ABAC policy establish due

diligence requirements for the engagement of third parties.

The ABAC team continually works together with the TPO team

to address and improve controls and monitoring requirements

when engaging third parties.

We provide mandatory periodic ABAC training to our staff

and relevant third parties in accordance with their roles,

responsibilities and the risks they face.

We have a dedicated ABAC team responsible for the

implementation and evolution of the programme in response

to developments in the internal and external environment.

For example, in 2019 we introduced a global process to

centrally document conﬂicts of interest (COI) of employees

and complementary workers supported by a simpler policy to

ensure we can collate and report on COI management in the

organisation.

This is complemented with independent oversight and

assurance undertaken by the Audit & Assurance and

Independent Business Monitoring teams. Issues identiﬁed

during oversight and assurance exercises as well as resulting

from investigations are used to identify areas for speciﬁc

intervention in the markets as well as to continuously improve

the programme.

We continually benchmark our ABAC programme against other

large multinational companies and use external expertise and

internal insights to drive improvements in the programme.

Formal and informal ‘Speak Up’ channels are available to report

misconduct or non-compliance. Allegations of non-compliance

are reviewed and triaged by the central investigations team and

allocated for investigation as appropriate.

Principal risks and uncertainties continued

280

GSK Annual Report 2019

Principal risks and uncertainties continued

Risk deﬁnition

Failure to engage in commercial activities that are consistent

with the letter and spirit of the law, industry, or the Group’s

requirements relating to marketing and communications about

our medicines and associated therapeutic areas; appropriate

interactions with healthcare professionals (HCPs) and patients;

and legitimate and transparent transfer of value.

Risk impact

Failure to manage risks related to commercial practices could

materially and adversely affect our ability to deliver our strategy

and long-term priorities. Failure to comply with applicable laws,

rules and regulations may result in governmental investigation,

regulatory action and legal proceedings brought against the

Group by governmental and private plaintiffs which could result

in government sanctions, and criminal and/or ﬁnancial penalties.

Failure to provide accurate and complete information related to

our products may result in incomplete awareness of the risk/

beneﬁt proﬁle of our products and possibly suboptimal

treatment of patients and consumers. Any practices that are

found to be misaligned with our values could also result in

reputational harm and dilute trust established with external

stakeholders.

Context

We continue to evolve our business operations (including

acquisitions and joint ventures) to operate on a global basis in

an industry that is both highly competitive and highly regulated.

Our competitors may make signiﬁcant product innovations

and technical advances and may intensify price competition.

In light of this competitive environment, continued development

of commercially viable new products and the development of

additional uses for existing products that reﬂect insights

which help ensure those products address the needs of

patients/consumers, HCPs, and payers are critical to achieve

our strategic objectives.

As other pharmaceutical, vaccine and consumer companies,

we face downward price pressure in major markets, declining

emerging market growth, rapidly evolving digital landscape,

and negative foreign exchange impact.

Developing new Pharmaceutical, Vaccine and Consumer

Healthcare products is a costly, lengthy and an uncertain

process. A product candidate may fail at any stage, including

after signiﬁcant economic and human resources have been

invested. Our competitors’ products or pricing strategies, or

any failure on our part to develop commercially successful

products, or to develop additional uses for existing products,

could materially and adversely affect our ability to achieve our

strategic objectives.

We are committed to the ethical and responsible

commercialisation of our products to support our purpose

to improve the quality of human life by enabling people to do

more, feel better, and live longer. To accomplish this purpose,

we engage the healthcare community in various ways to

provide important information about our medicines.

Promotion of approved products seeks to ensure that HCPs

globally have access to information they need, that patients and

consumers have access to the information and products they

need and that products are prescribed, recommended or used

in a manner that provides the maximum healthcare beneﬁt to

patients and consumers. We are committed to communicating

information related to our approved products in a responsible,

legal and ethical manner.

Mitigating activities

Our strategic objectives are designed to ensure we achieve our

purpose of helping people do more, feel better and live longer.

We continue to strive for new product launches that are

competitive and resourced effectively. We also strive to have a

healthy proportion of the Group’s sales ratio attributable to new

product or innovation sales.

This innovation helps us defray the effect, for example, of

downward price pressure in major markets, declining emerging

market growth, rapidly evolving digital landscape, and negative

foreign exchange impact. Establishing new products that are

priced to balance expectations of patients and consumers,

HCPs, payers, shareholders, and the community enables us to

maintain a strong global business and remain relevant to the

needs of patients and consumers. Our values and behaviours

provide a guide for how we lead and make decisions. We

constantly strive to do the right thing and deliver quality

products and ensure supply is sustained to meet customer

needs and demand requirements, seeking to ensure our actions

reﬂect our values, behaviours and the purpose of our company.

We have taken action to enhance and improve standards and

the application of data analytics and e-commerce channels.

We have policies and standards governing commercial

activities undertaken by us or on our behalf. Training has been

implemented to support the evolution of our activities to all

relevant employees. All of these activities we conduct worldwide

must conform to high ethical, regulatory, and industry standards.

Where local standards differ from global standards, the more

stringent of the two applies. Where the standards of an acquired

company or joint venture partner differ from our global standards,

we will expediently remediate legacy policies and implement

revisions to gain alignment. We have harmonised policies and

procedures to guide above-country commercial practice

processes as well as clariﬁed applicable standards for

operations in the various markets in which we operate. Each

business has adopted the Internal Control Framework to support

the assessment and management of its risks. Commercial

practices activities have appropriate monitoring programmes and

oversight from business unit Risk Management and Compliance

Boards that manage risks across in-country business activities.

Where in the past we have fallen below our own or any other

regulatory or industry standards, we have sought to improve

both the framework and culture for our compliance processes.

Commercial practices

GSK Annual Report 2019

281

Investor information

Financial statements

Strategic report

Governance and remuneration

Privacy

Risk deﬁnition

The failure to collect, secure, use and destroy personal

information (PI) in accordance with data privacy laws can lead

to harm to individuals and GSK, including ﬁnes and operational,

ﬁnancial and reputational risk.

Risk impact

Non-compliance can lead to harm to individuals and GSK.

It can also damage trust between GSK and individuals,

communities, business partners and government authorities.

The General Data Protection Regulation (GDPR), with other

privacy legislation following suit, increased the enforcement

powers of supervisory authorities, including the ability to impose

ﬁnes and to suspend processing of PI. GDPR and other privacy

laws also give individuals the right to bring collective legal

actions against GSK for failure to comply with data privacy laws.

Context

Data privacy legislation is diverse with limited harmonisation

or simpliﬁcation, despite Europe’s adoption of GDPR. It is

challenging for multi-nationals to standardise their approach

to compliance with data privacy laws due to the high-level of

local variation. Governments are enforcing compliance with

data privacy laws more rigorously. The focus on the ethical use

of PI is growing, over and above compliance with data privacy

laws, due to an increase in data volume processed and

advancements in technology. Individuals are more aware of

their rights under data privacy laws.

Mitigating activities

The Chief Compliance Ofﬁcer is also the chairperson of the

Privacy Governance Board (PGB), which oversees GSK’s

overall data privacy operating model. Each business and

function have appointed a Risk Owner who is accountable for

the oversight of privacy risks in that business or functional area.

They are supported by Privacy Leaders within their business

or function. Additionally, in some countries data privacy laws

require a Data Protection Ofﬁcer (DPO) to be appointed.

GSK has appointed a single DPO for the European Union,

who is represented and supported in speciﬁc countries by

Country Privacy Advisors. The Chief Compliance Ofﬁcer is

the Enterprise Risk Owner (ERO). The ERO has appointed

a delegate risk owner, the Global Privacy Ofﬁcer (GPO) who

has accountability on a day-to-day basis for designing and

implementing the control framework. The GPO co-leads the

cross-functional Privacy Centre of Excellence (CoE), together

with the Global Privacy Counsel. They are supported by Privacy

Ofﬁcers and Privacy Counsel for each Region and multiple

Country Privacy Advisors (who are familiar with local privacy

regulations).

GSK has evolved the initial control framework implemented for

GDPR to be a comprehensive privacy control framework based

on global privacy principles common across many local privacy

laws. This global framework is now being deployed in countries

with robust privacy legislation in place or coming into effect

soon to strengthen local risk mitigation measures.

Commercial practices continued

All promotional materials and activities must be reviewed

and approved according to our policies and standards, and

conducted in accordance with local laws and regulations, to

seek to ensure that these materials and activities fairly represent

the products or services of the Group. When necessary, we

have disciplined (up to and including termination) employees

who have engaged in misconduct and claw back remuneration

from senior management in the event of misconduct

We made changes to our incentive programme for our

Pharmaceutical and Vaccines sales representatives to

better recognise and reward individual effort. Speciﬁcally,

in Specialty Care, the capped variable pay element of a sales

representative’s compensation will be evaluated on the basis

of individual sales targets. The changes were implemented

in the US, UK and Canada from July 2019 supported by a

comprehensive training, control, and monitoring framework to

ensure implementation of the new programme is fully aligned

with GSK’s values-based approach to HCP engagement.

We allow fair market value payments to be made by GSK to

expert practitioners to speak about our innovative medicines

and vaccines in a limited number of countries during a restricted

time period in a product’s lifecycle. Controls and training ensure

appropriate oversight across the markets. We report payments

to individual HCPs as part of our commitment to transparency

and responsible disclosure.

Consumer Healthcare has developed a Digital risk plan to

support implementation of a robust control framework. Actions

include development of new written standards, use of tools to

increase visibility and control over social media presence, and

an increase in management monitoring.

GSK is committed to comply with all applicable sanctions

laws and regulations, and it has deployed a sanctions

programme designed to enable management of sanctions

risk. The programme, owned by Finance, comprises of various

systems and controls including, but not limited to, policies and

procedures, training and awareness, screening, monitoring and

risk reporting.

Principal risks and uncertainties continued

282

GSK Annual Report 2019

Privacy continued

Principal risks and uncertainties continued

Risk deﬁnition

Research practices risk is the failure to adequately conduct

ethical and sound pre-clinical and clinical research. In addition,

it is the failure to engage in scientiﬁc activities that are

consistent with the letter and spirit of the law and industry,

or the Group’s requirements. It comprises the following sub-

risks: Non-clinical & laboratory research; Human subject

research; Data integrity; Care, welfare and treatment of animals;

Human biological samples management; Data disclosure;

Regulatory ﬁlings and engagement; Scientiﬁc engagement;

and Intellectual property.

Risk impact

The impacts of the risk include harm to human subjects,

reputational damage, failure to obtain the necessary regulatory

approvals for our products, governmental investigation, legal

proceedings brought against the Group by governmental and

private plaintiffs (product liability suits and claims for damages),

loss of revenue due to inadequate patent protection or inability

to supply GSK products, and regulatory action such as ﬁnes,

penalties, or loss of product authorisation. Any of these

consequences could materially and adversely affect our ﬁnancial

results and cause loss of trust from our customers and patients.

Context

Research relating to animals can raise ethical concerns

however, in many cases, research in animals is the only method

that can be used to investigate the effects of a potential new

medicine in a living body other than in humans. Animal research

provides critical information about the causes and mechanisms

of diseases and therefore remains a vital part of our research.

We continually seek ways in which we can minimise our use

of animals in research whilst complying with regulatory

requirements and reduce the impact on the animals used.

Clinical trials in healthy volunteers and patients are used to

assess and demonstrate an investigational product’s efﬁcacy

and safety, or further evaluate the product once it has been

approved for marketing. We also work with human biological

samples. These samples are fundamental to the discovery,

development and safety monitoring of our products. GSK is

committed to ensuring that human biological samples are

managed in accordance with relevant laws, regulations and

ethical principles, in a manner that respects the interests of

the sample donors.

The integrity of our data is essential to success in all stages

of the research data lifecycle: design, generation, recording

and management, analysis, reporting, storage and retrieval.

Our research data is governed by legislation and regulatory

requirements. Research data and supporting documents are

core components at various stages of pipeline progression

decision-making and form the content of regulatory

submissions, publications and patent ﬁlings. Poor data integrity

can compromise our research efforts and negatively impact

company reputation.

There are innate complexities and interdependencies required

for regulatory ﬁlings, particularly given our global research and

development footprint. Continually changing and increasingly

stringent submission requirements continue to increase the

complexity of worldwide product registration. The continued

supply of GSK medicines to patients is dependent on the

ongoing compliance and maintenance of these licenses across

many geographies whose requirements and timelines differ. The

secure management of the high volume of lifecycle changes to

these licenses and their renewal is critical to enable compliant

supply. Failure to maintain licenses will directly impact patients

and company revenue.

Scientiﬁc engagement, deﬁned as the interaction and exchange

of information between GSK and external communities to

advance scientiﬁc and medical understanding, including the

appropriate development and use of our products, is an

essential part of scientiﬁc discourse. Such non-promotional

engagement with external stakeholder groups is vital to GSK’s

purpose and necessary for scientiﬁc and medical advance.

Scientiﬁc engagement activities are essential but present legal,

regulatory, and reputational risk if the sharing of data, invited

media coverage or payments to HCPs have, or are perceived

to have, promotional intent.

A wide variety of biological materials are used by GSK in

discovery, research and development phases. Through the

Convention on Biological Diversity (CBD) and the Nagoya

Protocol, the international community has established a global

framework regulating access to, and use of, genetic resources

of non-human origin in R&D.

Research practices

The Privacy Centre of Excellence in Global Ethics and

Compliance is responsible for (i) improving the control

framework further; (ii) implementing the control framework

outside of the European Economic Area; (iii) remediating certain

existing business activities to ensure compliance with GDPR

and (iv) deploying a comprehensive training programme to drive

greater awareness and accountability for managing PI across

the entire organisation. Key roles of the privacy network at

GSK will be certiﬁed with an accredited international privacy

association.

Through monitoring, we continuously improve our processes,

such as issue identiﬁcation, reporting and handling. We have

implemented a legislative scanning process to detect and

assess new privacy regulations early allowing us to prepare

and mitigate regulatory risk to GSK. The Privacy Centre of

Excellence is involved in new business development

opportunities at an early stage to ensure appropriate due

diligence is performed and the right steps are taken when

onboarding or splitting off a business unit.

GSK Annual Report 2019

283

Investor information

Financial statements

Strategic report

Governance and remuneration

We support the principles of access and beneﬁt sharing to

genetic resources as outlined in the CBD and the Nagoya

Protocol, recognising the importance of appropriate, effective

and proportionate implementation measures at national and

regional levels.

Patent rights are awarded to protect innovation and play an

important role in providing GSK with a competitive advantage

in the market for a limited period of time. Any loss of patent

protection in a market for GSK’s products developed through

our R&D, including reducing the term, availability or scope of

patent rights, could materially and adversely affect our ﬁnancial

results in that market. Absence of adequate patent or data

exclusivity protection, which could lead to, for example,

competition from manufacturers of generic or biosimilar

pharmaceutical products, could limit the opportunity to rely on

such markets for future sales growth for our products, which

could also materially and adversely impact our ﬁnancial results.

Following expiration of certain intellectual property rights, a

generic or biosimilar manufacturer may lawfully produce a

generic version of a product. Introduction of generic products

typically leads to a rapid and dramatic loss of sales and reduces

our revenues and margins for our proprietary products.

Mitigating activities

We have an established Ofﬁce of Animal Welfare, Ethics and

Strategy (OAWES), led by the Chief Veterinary Ofﬁcer, that

supports the humane and responsible care of animals, shares

knowledge and advocates for the application of non-animal

alternatives. The OAWES provides a framework of animal

welfare governance, promotes application of 3Rs (replacement,

reﬁnement and reduction of animals in research), conducts

quality assessments, manages a program of external animal

diligence, and develops and deploys strategies on

reproducibility and translatability.

The Chief Medical Ofﬁcer oversees the following enterprise

Medical Governance Boards:

– The Human Subject Research Board is in place to provide

oversight for the human subject research sponsored and

supported by us to ensure it conforms to ethical, medical

and scientiﬁc standards

– The Data Disclosure Board provides oversight for disclosure

of our sponsored and supported human subject research.

We make information available on our clinical studies,

including summaries of the results – whether positive or

negative. We were the ﬁrst company to publish clinical

study reports that form the basis of submissions to regulatory

agencies and we have publicly posted more than 2,500

clinical study reports in addition to more than 6,000 study

result summaries

– Speciﬁc accountability and authorisation for scientiﬁc

engagement is overseen by the Scientiﬁc Engagement and

Promotional Practices Board. This Board is responsible for

oversight of applicable policies and seeking to ensure the

highest level of integrity and continuous development of

scientiﬁc engagement

We have a Global Human Biological Samples Management

(HBSM) governance framework in place to oversee the ethical

and lawful acquisition and management of human biological

samples. Our HBSM Enterprise Risk Management Team works

to minimise the risks related to the acquisition, storage, use,

transfer, and disposal of HBS.

It remains an important priority to enhance our data integrity

controls. Data Integrity Committees are in place to provide

oversight and Data Integrity Quality Assurance teams conduct

assessments to provide independent business monitoring of

our internal controls for R&D activities.

The Regulatory Governance Board serves as the global

regulatory risk management and compliance board, promoting

compliance with regulatory requirements and procedures, and

oversees Group-wide written standards for cross business

regulatory processes. A signiﬁcant program is in progress to

transform regulatory information management systems to

replace and modernise information systems cross-enterprise.

We established an Access and Beneﬁt Sharing Centre of

Excellence to oversee applicable requirements and enforcement

measures for the acquisition and use of genetic material of

non-human origin in scope of the Nagoya Protocol.

R&D maintains and controls pre-publication procedures to

guard against public disclosure in advance of ﬁling patent

applications. In addition, because loss of patent protection

can occur due to lack of data integrity in preparing patent

application data and information, legal experts collaborate with

R&D to support the review process for new patent applications.

The Research practices risk is overseen by an Enterprise

framework that seeks to ensure strengthened governance

across the R&D businesses in Pharmaceuticals, Vaccines and

Consumer Healthcare.

Under the leadership of the Research Practices Enterprise

Risk Owner, management of the risk takes a pragmatic

approach to information sharing, streamlining risk identiﬁcation

and escalation, while ensuring ownership stays with the

business.

Research practices continued

Principal risks and uncertainties continued

284

GSK Annual Report 2019

Principal risks and uncertainties continued

Third party oversight (TPO)

Risk deﬁnition

There is a risk that our third parties fail to meet their contractual,

regulatory or ethical obligations resulting in signiﬁcant

operational, reputational, legal and ﬁnancial risk for GSK

(and in some cases our employees directly).

Put simply, there is a risk that third parties fail to deliver the

goods and services we expect or fail to deliver them in a legal

and compliant way.

Risk impact

Failure to adequately manage third party relationships could

result in business disruption and exposure to risks ranging

from sub-optimal contractual terms and conditions, to severe

business and legal sanctions and/or signiﬁcant reputational

damage. Any of these consequences could materially and

adversely affect our business operations and ﬁnancial results.

Context

Third parties are critical to our business delivery and are an

integral part of the solution to meeting our business objectives.

We rely on third parties, including suppliers, advisors,

distributors, individual contractors, licensees, and other

pharmaceutical and biotechnology collaboration partners for

discovery, manufacture, and marketing of our products and

for supporting other important business processes.

These business relationships present a material risk. For

example, we share critical and sensitive information such as

marketing plans, clinical data, and employee data with speciﬁc

third parties who are conducting the relevant outsourced

business activities. Inadequate protection or misuse of this

information by third parties could have signiﬁcant business

impact. Similarly, we use distributors and agents in a range of

activities such as promotion and tendering which have inherent

risks such as inappropriate promotion or corruption. Insufﬁcient

internal compliance and controls by the distributors could affect

our reputation. These risks are further increased by the

complexities of working with large numbers of third parties

across a diverse geographical spread.

Mitigating activities

To guide and enforce our global principles for interactions with

third parties we have a global policy framework applicable to

buying goods and services, managing our external spend,

paying and working with our third parties. This policy framework

applies to all employees and complementary workers

worldwide.

The enterprise-wide TPO programme takes an enterprise-wide

view of third party related risks to ensure compliance with our

ABAC policies and additional risks such as Labour Rights,

Health and safety and Human safety information. It forms a

comprehensive and practical approach to third party oversight

that is ﬂexible to the evolving nature of our business and the

type of engagement being managed. The programme is

designed and governed through the Global Ethics and

Compliance organisation and has been globally deployed.

The operational service assisting the business in completion

of assessments transitioned to Global Procurement in early

2019 to bring it closer to other core procurement processes.

TPO has strengthened risk assessment, contractual terms and

due diligence efforts on third parties and improved the overall

management of our third party risks through the lifecycle of

the third party engagement.

We have a dedicated TPO team responsible for the

implementation and evolution of the programme in response

to developments in the internal and external environment.

Programme governance is provided through Enterprise Risk

Management overseen by the ABAC and TPO Governance

Board which includes representation from key functional areas

and the business. This joint board was created in 2019 to

ensure strategic focus across the two principle risk areas as

they have considerable co-dependency. An example of this is

the new ABAC Conﬂict of Interest tool which better protects

GSK when working with third parties. Global Ethics and

Compliance are working with the Global Procurement, Legal

and Tech organisations to plan further simpliﬁcations in order

to maintain oversight and reduce complexity for the business.

Each business leadership team retains ultimate accountability

for managing third party interactions and risks. When working

with third parties, our employees are expected to manage

external interactions and commitments responsibly. This

expectation is embedded in our values and Code of Conduct.

It is our responsibility that all activities carried out on our behalf

are performed safely and in compliance with applicable laws

and our values, expectations, standards and Code of Conduct

(See ABAC report above).

Our programme is complemented with independent oversight

and assurance undertaken by the Audit & Assurance and

Independent Business Monitoring teams. We review the TPO

programme against other large multinational companies and use

external expertise and internal insights to drive improvements in

the programme.

GSK Annual Report 2019

285

Investor information

Financial statements

Strategic report

Governance and remuneration

Environment, health and safety & sustainability (EHS&S)

Risk deﬁnition

Failure in management of:

– execution of hazardous activities;

– GSK’s physical assets and infrastructure;

– handling and processing of hazardous chemicals and

biological agents;

– control of releases of substances harmful to the environment

in both the short and long term; leading to incidents which

could disrupt our R&D and Supply activities, harm employees,

harm the communities we operate in and harm the

environment and its longer-term sustainability.

Risk impact

Failure to manage EHS&S risks could lead to signiﬁcant harm to

people, the environment and communities in which we operate,

ﬁnes, failure to meet stakeholder expectations and regulatory

requirements, litigation or regulatory action, and damage to the

Group’s reputation, which could materially and adversely affect

our ﬁnancial results.

Context

GSK is subject to health, safety and environmental laws of

various jurisdictions. These laws impose duties to protect

people, the environment, and the communities in which we

operate, as well as potential obligations to remediate

contaminated sites. Overall, our control framework for managing

EHS&S risk is effective and our frequency of serious events

is similar to peers and lower than for high hazard industries

e.g. petrochemicals.

Mitigating activities

The Corporate Executive Team (CET) is responsible for EHS&S

governance and risk oversight and ensures there is an effective

control framework in place and in use to manage the risks,

impacts and legal compliance issues that relate to EHS&S

across each of our businesses. This includes assigning

responsibility to senior managers for providing and maintaining

those controls and ensuring that tiered monitoring and

governance processes are in place within their businesses.

Individual managers seek to ensure that the EHS&S control

framework is effective and well implemented in their respective

business area and that it is fully compliant with all applicable

laws and regulations, adequately resourced, maintained,

communicated, and monitored. Additionally, each employee

is personally responsible for ensuring that all applicable local

standard operating procedures are followed by them and

expected to take responsibility for EHS&S matters.

Our risk-based, proactive approach is articulated in our Global

EHS&S policy and detailed in our global EHS&S standards

against which we audit all our operations to ensure compliance.

We ensure hazards are appropriately controlled through safe

design of facilities, plant and equipment and by following

rigorous procedures that help us provide effective barriers to

protect employees’ health and well-being.

Control of antibiotic emissions from manufacturing efﬂuents,

is an increasing concern for a number of stakeholders (forming

part of their wider concern around AMR – antimicrobial

resistance). To address this, we are ensuring that all our own

manufacturing facilities and those of our suppliers are following

good operational practice and meeting emission limits as

deﬁned by the AMR Alliance Manufacturing Framework.

During the year we made an assessment of our business

resilience to climate change against the Task Force on Climate-

related Financial Disclosures (TCFD) framework guidelines. We

did not identify any fundamental risks to our overall business.

Principal risks and uncertainties continued

286

GSK Annual Report 2019

Principal risks and uncertainties continued

Risk deﬁnition

The risk that unauthorised disclosure, theft, unavailability or

corruption of GSK’s information or key information systems

may lead to harm to our patients, workforce and customers,

disruption to our business and/or loss of commercial or

strategic advantage, damage to our reputation or regulatory

sanction.

Risk impact

Failure to adequately protect critical and sensitive systems

and information may result in loss of commercial or strategic

advantage and could materially affect our ongoing business

operations, such as scientiﬁc research, clinical trials and

manufacturing and supply chain activities.

Further, inadequately applying controls that would be expected

of GSK may result in regulatory ﬁnes or present a reputational

risk to the organisation.

Context

We rely on critical and sensitive systems and data, such as

corporate strategic plans, intellectual property, manufacturing

systems and trade secrets. There is the potential that our

computer systems or information may be exposed to misuse

or unauthorised disclosure.

GSK operates a highly ‘connected’ information network

that exposes our conﬁdential research and development,

manufacturing, commercial, workforce and ﬁnancial data to

the risk of external attacks. GSK’s Digital and Data Analytics

Strategy also substantially increases the businesses

dependency on digital assets and distributed data, while

increasing the number of assets potentially impacted by a

cyberattack. As threats evolve, we cannot provide broad

assurances that the signiﬁcant efforts we deliver in the

protection and monitoring of our systems and information will

always be successful in preventing compromise or disruption.

Cybersecurity losses increasingly involve highly-resourced

and organised threat actors such as nation-states and online

criminal collectives targeting GSK’s large and complex

information technology (IT) and operational technology (OT)

footprint, as well as the systems of our supply chain partners

(including outsourced operations). This means that our systems

and information have been and will continue to be the target of

cyberattacks. Additionally, extensive use of third parties to store

and process our data increases GSK’s reliance on suppliers to

operate effectively. This dependence increases the complexity

around security controls and practices. It also reduces GSK’s

ability to monitor controls and effectively investigate and

respond to incidents involving GSK information or systems.

While GSK stands at the ready to address cybersecurity

incidents and risks as they occur, in the past year GSK has not

experienced a material cybersecurity incident that would have

resulted in substantial harm to GSK (e.g., injury to reputation,

ﬁnancial performance, and customer and vendor relationships).

Mitigating activities

We have a global information security policy and accompanying

information technology standards and processes that are

supported through a dedicated team and programme of activity.

The GSK Technology, Security, and Risk function provides

strategy, direction, and oversight, including active monitoring of

cybersecurity, while enhancing our global information security

capabilities, through an ongoing programme of investment.

The following mitigation activities represent the signiﬁcant

investments we have made in the past year and will continue

to improve in the coming year:

– Engaging external expertise and next generation tools to fully

map and inventory IT and OT environment to enable high

conﬁdence of a real time snapshot of all connected devices

within the network and improve our patching timeframe on

some systems from months to weeks/days.

– A site technology refresh plan has been approved and

underway for the GSK’s most substantial sites.

– A signiﬁcant upgrade of tools is funded and progressing

focused on key control areas.

– GSK’s core information technology organisation, information

security organisation, and business units are working together

to validate critical apps and data stores to ensure we have

adequate backup and restore capabilities.

– A new uniﬁed security standard has been approved across all

sites and an operational technology security ofﬁce has been

established under the CISO. Tooling in IT is being extended

with each deployment in the OT programme.

– Deployment of new tools and a prioritised deployment plan

for identity and access management is fully resourced and is

moving at speed addressing ﬁnancial and manufacturing

systems as priorities for 2019 and will continue for the

balance of systems over the coming years.

– A plan for the enhancement of third-party practices to

automate the visibility of security of critical vendors has been

established and is in process.

– A team dedicated solely to securing our systems and data

during our expansion in growth markets (e.g. China) has been

formed and is being overseen by the CISO.

Information security

GSK Annual Report 2019

287

Investor information

Financial statements

Strategic report

Governance and remuneration

Risk deﬁnition

Failure to deliver a continuous supply of compliant ﬁnished

product; inability to respond effectively to a crisis incident in a

timely manner to recover and sustain critical operations.

Risk impact

We recognise that failure to supply our products can adversely

impact consumers and patients who rely on them. A material

interruption of supply or exclusion from healthcare programmes

could expose us to litigation or regulatory action and ﬁnancial

penalties that could adversely affect the Group’s ﬁnancial

results. The Group’s international operations, and those of

its partners, expose our workforce, facilities, operations and

information technology to potential disruption from natural

events (e.g. storm, earthquake), man-made events (e.g. trading

barriers imposed at short notice, civil/political unrest, terrorism),

and global emergencies (e.g. coronavirus outbreak, Ebola

outbreak, ﬂu pandemic). It is important that we have robust

crisis management and recovery plans in place to manage

such events.

Context

Our supply chain operations are subject to review and approval

by various regulatory agencies that effectively provide our

license to operate. Failure by our manufacturing and distribution

facilities or by suppliers of key services and materials could lead

to litigation or regulatory action such as product recalls and

seizures, interruption of supply, delays in the approval of new

products, and suspension of manufacturing operations pending

resolution of manufacturing or logistics issues.

We rely on materials and services provided by third party

suppliers to make our products, including active pharmaceutical

ingredients, antigens, intermediates, commodities, and

components for the development, manufacture and packaging

of Pharmaceutical, Vaccine and Consumer Healthcare

products. Some of the third-party services procured, such

as services provided by contract manufacturing and clinical

research organisations to support development of key products,

are important to ensure continuous operation of our business.

Although we undertake risk mitigation, we recognise that certain

events could nevertheless still result in delays or service

interruptions. We use effective crisis management and business

continuity planning to provide for the health and safety of our

people and to minimise impact to us, by maintaining functional

operations following a natural or man-made disaster, or a public

health emergency.

Mitigating activities

The supply chain model adopted in Pharmaceuticals, Vaccines

and Consumer Healthcare business units is designed to ensure

the supply, quality and security of our products globally, as far

as possible.

Supply Chain Governance Committees within each business

unit are used to closely monitor the inventory status and delivery

of our products, with the aim of ensuring that customers have

the products they need. Improved links between commercial

forecasting and manufacturing made possible by our core

commercial cycle should, over time, reduce the risk associated

with demand ﬂuctuations and any impact on our ability to supply

or the cost of write-offs where products exceed their expiry

date. Each node of the supply chain is also periodically

reviewed to ensure adequate safety stock, while balancing

working capital in our end-to-end supply chain. Particular

attention is placed on mitigating supply risks associated with

medically critical and high-revenue products.

We routinely monitor the compliance of manufacturing external

suppliers and service providers to identify and manage risks in

our supply base. Where practical, we minimise our dependence

on single sources of supply for critical items. Where alternative

sourcing arrangements are not possible for certain materials,

our inventory strategy aims to limit the impact and ultimately

protect the supply chain from unanticipated disruption.

We continue to implement anti-counterfeit systems such as

product serialisation in accordance with new and emerging

supply chain requirements around the world such as the EU

Falsiﬁed Medicines Regulation.

A corporate policy requires each business and functional area

head to ensure effective crisis management and business

continuity plans are in place that include authorised response

and recovery strategies, key areas of responsibility and clear

communication routes, before any business disruption occurs.

Corporate Security supports the business by: coordinating

crisis management and business continuity training; facilitating

simulation exercises; assessing our preparedness and recovery

capability; and providing assurance oversight of our central

repository of plans supporting our critical business processes.

Each business unit performs risk oversight through their

respective Risk Management and Compliance Board (RMCB)

to assure adequate risk mitigation including identifying new and

emerging threats. For example, we have taken a coordinated

approach to evaluate and manage the implications for our

business arising from Brexit.

These activities help ensure an appropriate level of readiness

and response capability is maintained. We also develop and

maintain partnerships with external bodies like the Business

Continuity Institute and the UN International Strategy for

Disaster Risk Reduction, which helps improve our business

continuity initiatives in disaster-prone areas and supports the

development of community resilience to disasters.

Supply continuity

Principal risks and uncertainties continued

288

GSK Annual Report 2019

Details of our issued share capital and the number of shares

held in Treasury as at 31 December 2019 can be found in

Note 36 to the ﬁnancial statements, ‘Share capital and share

premium account’.

Our Ordinary 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. For details of listed debt and

where it is listed refer to Note 29 to the ﬁnancial statements,

‘Net debt’.

Holders of Ordinary Shares and ADS are entitled to receive

dividends (when declared), the company’s Annual Report,

to attend and speak at general meetings of the company,

to appoint proxies and to exercise voting rights.

There are no restrictions on the transfer, or limitations on the

holding, of Ordinary Shares and ADS and no requirements

to obtain approval prior to any transfers. No Ordinary Shares

or ADS 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 the Group’s employee share plans

rank equally with the other shares in issue and have no special

rights. The trustees of our Employee Share Ownership Plan

trusts have waived their rights to dividends on shares held by

those trusts.

Exchange controls and other limitations affecting security

holders

Other than certain economic sanctions, which may be in

force from time to time, there are currently no applicable laws,

decrees or regulations in force in the UK restricting the import

or export of capital or restricting the remittance of dividends or

other payments to holders of the company’s shares who are

non-residents of the UK. Similarly, other than certain economic

sanctions which may be in force from time to time, 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.

Interests in voting rights

Other than as stated below, as far as we are aware, there are

no persons with signiﬁcant direct or indirect holdings in the

company. Information provided to the company pursuant to

the Financial Conduct Authority’s Disclosure Guidance and

Transparency Rules (DTR 5) is published on a Regulatory

Information Service and on the company’s website,

www.gsk.com.

The company has received notiﬁcations in accordance with

DTR 5 of the following notiﬁable interests in the voting rights in

the company’s issued share capital:

31 December 2019 24 February 2020

No. of

voting rights

(1)

Percentage

of total voting

rights

(2)

No. of

voting rights

Percentage

of total voting

rights

(2)

BlackRock, Inc 332,238,289 6.40% 332,238,289 6.40%

(1) Comprising an indirect interest in 329,124,508 Ordinary Shares and a

holding of 3,113,781 Qualifying Financial Instruments (CFD).

(2) Percentage of total voting rights at the date of notiﬁcation to the company.

The company has not acquired or disposed of any interests

in its own shares during the period under review, with the

exception of those transferred from Treasury to satisfy awards

under the Group’s employee share plans.

Share buy-back programme

The Board has been authorised to issue and allot Ordinary

Shares under Article 9 of the company’s Articles of Association.

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 our Annual

General Meeting (AGM). Any shares purchased by the

company may be cancelled or held as Treasury shares or

used for satisfying share options and grants under the Group's

employee share plans.

Our programme covers purchases of shares for cancellation

or to be held as Treasury shares, in accordance with the

authority renewed by shareholders at the AGM in May 2019,

when the company was authorised to purchase a maximum

of just under 497 million shares. Details of shares purchased,

those cancelled, those held as Treasury shares and those

subsequently transferred from Treasury to satisfy awards

under the Group’s employee share plans are disclosed in

Note 36 to the ﬁnancial statements, ‘Share capital and share

premium account’.

In determining speciﬁc share repurchase levels, the company

considers the development of free cash ﬂow during the year.

No shares have been purchased since 2014.

The company conﬁrms that it does not currently intend to make

any market purchases in 2020. The company will review the

potential for future share buy-backs in line with its usual annual

cycle and subject to return and ratings criteria.

Shareholder information

Share capital and control

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

289

Nature of trading market

The following tables set out, for the periods indicated, the high and low middle market closing prices in pence for the company’s

shares on the London Stock Exchange, and the high and low closing prices in US dollars for the company’s ADS on the NYSE.

Ordinary Shares ADS

Pence per share US dollars per share

High Low High Low

February 2020* 1815 1630 47.12 41.92

January 2020 1846 1762 47. 8 9 46.21

December 2019 1819 1707 47.32 44.65

November 2019 1762 1697 45.48 43.85

October 2019 1782 1636 45.80 41.19

September 2019 1745 1627 42.68 40.60

Quarter ended 31 December 2019 1819 1636 47.32 41.19

Quarter ended 30 September 2019 1745 1590 42.68 39.68

Quarter ended 30 June 2019 1607 1502 41.88 38.64

Quarter ended 31 March 2019 1597 1436 41.87 37.83

Quarter ended 31 December 2018 1622 1418 41.87 37.07

Quarter ended 30 September 2018 1619 1484 41.87 38.99

Quarter ended 30 June 2018 1580 1378 41.94 38.85

Quarter ended 31 March 2018 1397 1243 35.49 39.38

Year ended 31 December 2018 1622 1243 41.94 35.49

Year ended 31 December 2017 1722 1276 44.37 34.66

Year ended 31 December 2016 1723 1345 45.49 37. 3 9

Year ended 31 December 2015 1642 1238 48.81 37. 5 6

Year ended 31 December 2014 1691 1324 56.66 41.30

Year ended 31 December 2013 1782 1359 53.68 43.93

* to 24 February 2020

Share capital and control continued

Market capitalisation

The market capitalisation, based on shares in issue excluding

Treasury shares, of GSK at 31 December 2019 was £88.76

billion. At that date, GSK was the 5th largest company by

market capitalisation in the FTSE index.

Share price

2019

2018

2017

At 1 January 14.91 13.23 15.62

At 31 December 17.7 9 14.91 13.23

Increase/(decrease) 19.3% 12.7 % (15.3)%

High during the year 18.19 16.22 17.22

Low during the year 14.36 12.43 12.76

The table above sets out the middle market closing prices.

The company’s share price increased by 19.3% in 2019.

This compares with an increase in the FTSE 100 index of

12.1% during the year. The middle market closing share price on

24 February 2020 was £16.30.

UK£ US$

UK share price (UK£) US ADS price (US$)

31/12/16 31/12/17 31/12/18 31/12/19

Shareholder information continued

290

GSK Annual Report 2019

Analysis of shareholdings at 31 December 2019

Number of

accounts

% of total

accounts

% of total

Number of

Holding of shares

Up to 1,000 75,192 71.08 0.48 25,897,162

1,001 to 5,000 23,822 22.52 0.95 51,217,693

5,001 to 100,000 5,552 5.25 1.56 84,013,513

100,001 to 1,000,000 850 0.80 5.43 292,068,276

Over 1,000,000 367 0.35 91.58 4,929,905,587

105,783 100.00 100.00 5,383,102,231

Held by

Nominee companies 4,647 4.39 62.38 3,358,213,237

Investment and trust companies 23 0.02 0.02 976,209

Insurance companies 3 0.00 0.00 768

Individuals and other corporate bodies 101,107 95.58 13.07 703,834,191

Guaranty Nominees Limited 2 0.00 17.21 926,571,876

Held as Treasury shares by GlaxoSmithKline 1 0.00 7.31 393,505,950

Effective 29 July 2019, J.P. Morgan Chase Bank, N.A. was appointed as successor Depositary for the company’s American

Depository Receipt (ADR) programme. The company’s ADS are listed on the NYSE. Ordinary Shares representing the company’s

ADR programme, which is managed by the Depositary, are registered in the name of Guaranty Nominees Limited. At 24 February

2020, Guaranty Nominees Limited held 949,040,388 Ordinary Shares representing 18.92% of the issued share capital (excluding

Treasury shares) at that date.

At 24 February 2020, the number of holders of Ordinary Shares in the US was 951 with holdings of 955,215 Ordinary Shares, and

the number of registered holders of ADS was 20,032 with holdings of 474,520,194 ADS. Certain of these Ordinary Shares and

ADS were held by brokers or other nominees. As a result, the number of holders of record or registered holders in the US is not

representative of the number of beneﬁcial holders or of the residence of beneﬁcial holders.

The company pays dividends quarterly and continues to return

cash to shareholders through its dividend policy. Dividends

remain an essential component of total shareholder return and

GSK recognises the importance of dividends to shareholders.

The company aims to distribute regular dividend payments that

will be determined primarily with reference to the free cash ﬂow

generated by the business after funding the investment

necessary to support the Group’s future growth.

Dividends per share

The table below sets out the dividend per share and per ADS

for the last ﬁve years. The dividend per ADS is translated into

US dollars at applicable exchange rates.

Year Dividend pence US$

2019 80 –

2018 80 2.08

2017 80 2.16

2016 80 2.00

2015 Special* 20 0.57

2015 80 2.37

1 The Q4 2019 ordinary dividend receivable by ADS holders will be calculated based on

the exchange rate on 9 April 2020. An annual fee of $0.03 per ADS (or $0.0075 per

ADS per quarter) will be charged by the Depository. The cumulative dividend receivable

by ADS holders for Q1, Q2 and Q3 2019 was $1.44.

* The 2015 special dividend related to the return of part of the net cash proceeds from

the Novartis transaction completed in March 2015. This was paid with the fourth

quarter ordinary dividend for 2015.

The Board intends to maintain the dividend for 2020 at the

current level of 80p per share, subject to any material change

in the external environment or performance expectations. Over

time, as free cash ﬂow strengthens, it intends to build free cash

ﬂow cover of the annual dividend to a target range of 1.25-

1.50x, before returning the dividend to growth. Details of the

dividends declared, the amounts and the payment dates are

given in Note 16 to the ﬁnancial statements, ‘Dividends’.

2020 Dividend calendar

Quarter

Ex-dividend

date

Record date

Payment date

Q4 2019 20 February 2020 21 February 2020 9 April 2020

Q1 2020 14 May 2020 15 May 2020 9 July 2020

Q2 2020 13 August 2020 14 August 2020 8 October 2020

Q3 2020 12 November 2020 13 November 2020 14 January 2021

Q4 2020 18 February 2021 19 February 2021 8 April 2021

Dividends

Shareholder information continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

291

Event Date

Quarter 1 Results announcement April 2020

Annual General Meeting May 2020

Quarter 2 Results announcement July 2020

Quarter 3 Results announcement October 2020

Preliminary/Quarter 4 Results announcement February 2021

Annual Report publication February/March 2021

Annual Report distribution March 2021

Information about the company, including the share and ADS

price, is available on our website at www.gsk.com. Information

made available on the website does not constitute part of this

Annual Report.

Results announcements

Results announcements are issued to the London Stock

Exchange and are available on its news service. They are also

sent to the US Securities and Exchange Commission and the

NYSE, issued to the media and made available on our website.

Financial reports

The company publishes an Annual Report which is made

available on our website from the date of publication.

Shareholders may elect to receive notiﬁcation by email

of the publication of Annual Reports by registering on

www.shareview.co.uk, and may also elect to receive a

printed copy of the Annual Report by contacting our registrar,

Equiniti Limited.

Copies of previous Annual Reports are available on our website.

Printed copies can also be obtained from our registrar (see

page 294 for the contact details).

Our Annual General Meeting (AGM) will be held at 2.30pm

(UK time) on Wednesday, 6 May 2020 at Soﬁtel London

Heathrow, Terminal 5, London Heathrow Airport, TW6 2GD.

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 CEO on the performance

of the Group and its future development. There will be an

opportunity for questions to be asked of the Board. Chairs of

the Board’s Committees and the Workforce Engagement

Director will take questions relating to their roles.

Investors holding shares through a nominee service should

arrange with that nominee service to be appointed as a proxy

in respect of their shareholding in order to attend and vote at

the meeting.

ADS holders wishing to attend the meeting should contact

the Depositary, J.P. Morgan Chase Bank N.A., to request a

proxy appointment (see page 295 for the contact details).

This will enable them to attend and vote on the business to

be transacted. ADS holders are reminded that if they do not

instruct the Depositary as to the way in which the shares

represented by their ADS should be voted by completing

and returning the voting card provided by the Depositary,

their shares will not be voted.

Documents on display

The Articles of Association of the company and Directors’

service contracts or, where applicable, letters of appointment

between Directors and the company or any of its subsidiaries

(and any side letters relating to severance terms and pension

arrangements) are available for inspection at the company’s

registered ofﬁce and will be made available for inspection at

the AGM.

Annual General Meeting 2020

Financial calendar 2020

Shareholder information continued

292

GSK Annual Report 2019

A summary of certain UK tax and US federal income tax

consequences for holders of shares and ADS who are citizens

of the UK or the US is set out below. It is not a complete

analysis of all the possible tax consequences of the purchase,

ownership or sale 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, ownership or

sale of their shares or ADS and the consequences under state

and local tax laws in the US and the implications of the current

UK/US tax conventions.

US holders of ADS generally will be treated as the owners of

the underlying shares for the purposes of the current US/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 Internal Revenue

Code of 1986, as amended.

UK shareholders

This summary only applies to a UK resident shareholder that

holds shares as capital assets.

Taxation of dividends

For the UK years from 2019/20 UK resident individuals are

entitled to a dividend tax allowance of up to £2,000, so that the

ﬁrst £2,000 of dividends received in a tax year will be free of

tax. Dividends in excess of this allowance will be taxed at 7.5%

for basic rate taxpayers, 32.5% for higher rate taxpayers and

38.1% for additional rate taxpayers.

UK resident shareholders that are corporation taxpayers should

note that dividends payable on ordinary shares are generally

entitled to exemption from corporation tax.

Taxation of capital gains

UK resident shareholders may be liable for UK tax on gains on

the disposal of shares or ADS.

For disposals by individuals in the 2019/20 UK tax year, a

taxable capital gain accruing on a disposal of shares or ADS

will be taxed at 10% for basic rate taxpayers, or 20% if, after

all allowable deductions, the individual’s taxable income for

the year exceeds the basic rate income tax limit. Note this is

following the use of any exemptions available to the individual

taxpayer such as the annual exempt amount.

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.

For assets acquired on or before 1 January 2018, legislation in

the Finance Act 2018 freezes the level of indexation allowance

that is given in calculating a company’s chargeable gains at the

value that would apply to the disposal of an asset in December

2017. For assets acquired from 1 January 2018 onwards,

legislation in the Finance Act 2018 removes any indexation

allowance on disposal.

Inheritance tax

Individual (UK-domiciled or otherwise) shareholders may be

liable to UK inheritance tax on the transfer of shares or ADS.

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 lifetime gift or other disposal at less than full market

value. In the case of a bequest on death, tax may be charged on

the value of the shares at the date of the shareholder’s death.

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 US to be

credited against tax payable in the UK.

Stamp duty and stamp duty reserve tax

UK stamp duty and/or stamp duty reserve tax (SDRT) will,

subject to certain exemptions, be payable on the transfer of

shares at a rate of 0.5% (rounded up to the nearest £5 in

the case of stamp duty) of the consideration for the transfer.

Notwithstanding this, provided that an instrument is executed

in pursuance of the agreement that gave rise to the charge to

SDRT and that instrument is stamped within six years of the

agreement (including being stamped as exempt) any SDRT

charge should be cancelled and any SDRT which has already

been paid will be repaid.

US shareholders

This summary only applies to a shareholder (who is a citizen or

resident of the US 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 ADS) that holds shares or ADS

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 ADS as part of an

integrated investment (including a ‘straddle’) comprised of a

share or ADS and one or more other positions, and persons that

own (directly or indirectly) 10% or more of the company’s stock

(by vote or value), nor does it address tax treatment that may be

applicable as a result of international income tax treaties.

Tax information for shareholders

Shareholder information continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

293

Tax information for shareholders continued

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 ADS are payable in US dollars; dividends on

Ordinary Shares are payable in Sterling. Dividends paid in

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

federal rate of 23.8% plus applicable state and local tax in

respect of qualiﬁed dividends. A qualiﬁed dividend as deﬁned

by the US Internal Revenue Service (IRS) is a dividend that

meets the following criteria:

1. Must be issued by a US corporation, a corporation

incorporated in a US possession, or a corporation that is

eligible for the beneﬁts of a comprehensive income tax treaty

deemed satisfactory, as published by the IRS.

2. The dividends are not listed with the IRS as dividends that do

not qualify.

3. The required dividend holding period has been met. The

shares must have been owned by you for more than 60 days

of the ‘holding period’ – which is deﬁned as the 121-day

period that begins 60 days before the ex-dividend date, or

the day in which the stock trades without the dividend priced

in. For example, if a stock’s ex-dividend date is 1 October,

the shares must be held for more than 60 days in the period

between 2 August and 30 November of that year in order to

count as a qualiﬁed dividend.

Dividends that are not qualiﬁed are subject to taxation at the

US federal graduated tax rates, at a maximum rate of 40.8%.

Some types of dividends are automatically excluded from being

qualiﬁed dividends, even if they meet the other requirements.

These include (but are not limited to):

1. Capital gains distributions

2. Dividends on bank deposits

3. Dividends held by a corporation in an Employee Stock

Ownership Plan (ESOP)

4. Dividends paid by tax-exempt corporations

US state and local tax rates on qualiﬁed and non-qualiﬁed

dividends may vary and would be assessed in addition to the

federal tax rates communicated above.

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 ADS. Such gains will be

long-term capital gains (subject to reduced rates of taxation for

individual holders) if the shares or ADS were held for more than

one year, from the date the shares were vested/released.

Short-term capital gains can be subject to taxation of rates of

up to 40.8%, whereas long-term capital gains may be subject to

rates of up to 23.8%. State and local tax rates on capital gains

may also apply.

Information reporting and backup withholding

Dividends and payments of the proceeds on a sale of shares or

ADS, paid within the US 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. However, a US

capital shareholder may be subject to US Estate and Gift Tax.

Stamp duty

UK stamp duty and/or SDRT will, subject to certain exemptions,

be payable on any transfer of shares to the ADS custodian or

depository at a rate of 1.5% of the amount of any consideration

provided (if transferred on sale), or their value (if transferred for

no consideration).

However, no stamp duty or SDRT should be payable on the

transfer of, or agreement to transfer, an ADS.

Shareholder information continued

294

GSK Annual Report 2019

Other statutory disclosures

Shareholder services and contacts

Registrar

The company’s registrar is:

Equiniti Limited

Aspect House, Spencer Road, Lancing, BN99 6DA

www.shareview.co.uk

Tel: 0371 384 2991 (in the UK)*

Tel: +44 (0)121 415 7067 (outside the UK)

Equiniti provides a range of services for shareholders:

Service What it offers How to participate

Dividend Reinvestment Plan

(DRIP)

As an alternative to receiving cash dividends you may choose

to reinvest your dividends to buy more GSK shares.

A DRIP election form can be downloaded

from www.shareview.co.uk or requested by

contacting Equiniti.

Dividend payment direct to your bank

account (Bank Mandate)

From April 2020, GSK will cease paying dividends via cheque.

All dividends will be paid directly into your bank or building

society account. To receive your cash dividends, you must

provide Equiniti with your bank or building society account

details. This is a quicker and more secure method of payment

and avoids the risk of cheques going astray.

A dividend bank mandate form can be

downloaded from www.shareview.co.uk

or requested by contacting Equiniti.

Dividend payment direct to bank

account for overseas shareholders

From April 2020, GSK will cease paying dividends via cheque.

Instead, Equiniti can convert your dividend into your local

currency and send it direct to your local bank account. This

service is available in over 100 countries worldwide.

For more details on this service and the costs

involved please contact Equiniti.

Electronic communications Shareholders may elect to receive electronic notiﬁcations

of company communications including our Annual Report,

dividend payments, dividend conﬁrmations and the availability of

online voting for all general meetings. Each time GSK mails out

hard copy shareholder documents you will receive an email

containing a link to the document or relevant website.

Please register at www.shareview.co.uk

Shareview portfolio service This enables you to create a free online portfolio to view your

share balance and movements, update your address and

dividend payment instructions and register your votes for

our general meetings.

Please register at www.shareview.co.uk

Deduplication of publications or mailings If you receive duplicate copies of mailings, you may have more

than one account. Please contact Equiniti and they will arrange

for your accounts to be merged into one for your convenience

and to avoid waste and unnecessary costs.

Please contact Equiniti.

Share dealing service

†

(please note that market trading hours

are from 8.00am to 4.30pm UK time,

Monday to Friday (excluding public

holidays in England and Wales))

Shareholders may trade shares, either held in certiﬁcated

form or held in our Corporate Sponsored Nominee, online, by

telephone or via postal dealing service provided by Equiniti

Financial Services Limited.

For online transactions, please log on to:

www.shareview.co.uk/dealing.

For telephone transactions, please call:

0345 603 7037 (in the UK) or

+44 (0)121 415 7560 (outside the UK).

For postal transactions, please call:

0371 384 2991* to request a

dealing form.

Corporate Sponsored Nominee Account This is a convenient way to manage your shares without requiring

a share certiﬁcate. The service provides a facility for you to hold

your shares in a nominee account sponsored by the company.

You will continue to receive dividend payments, Annual Reports

and can attend and vote at the company’s general meetings.

Shareholders’ names do not appear on the publicly available

share register and the service is free to join.

An application form can be requested

from www.shareview.co.uk or by

contacting Equiniti.

Individual Savings Accounts (ISAs)

†

The company has arranged for Equiniti Financial Services

Limited to provide a GSK Corporate ISA to hold GSK shares.

Details are available from www.shareview.co.uk

or can be requested by telephoning Equiniti,

on 0345 300 0430. Lines are open 8.00am

to 4.30pm for dealing, and until 6.00pm for

enquiries Monday to Friday (excluding public

holidays in England and Wales).

* Llines are open from 8.30am to 5.30pm, Monday to Friday (excluding public holidays in England and Wales).

†

The provision of share dealing details 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.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

295

ADS Depositary

The ADR programme is administered by J.P. Morgan

Chase Bank, N.A:

Regular Correspondence:

EQ Shareowner Services

P.O. Box 64504

St. Paul, MN 55164-0504

Delivery of Stock Certiﬁcates and Overnight Mail:

EQ Shareowner Services

110 Centre Point Curve, Suite 101

Mendota Heights, MN 55120-4100

www.shareowneronline.com

General: +1 800 990 1135

From outside the U.S: +1 651 453 2128

The Depository also provides Global Invest Direct, a direct

ADS purchase/sale and dividend reinvestment plan for ADS

holders. For details on how to enrol please visit www.adr.com

or call the above helpline number to obtain an enrolment pack.

Glaxo Wellcome and SmithKline Beecham

Corporate PEPs

The Share Centre Limited

Oxford House, Oxford Road, Aylesbury, Bucks HP21 8SZ

Tel: +44 (0)1296 414 141

www.share.com

Donating shares to Save the Children

In 2013, GSK embarked on an ambitious global partnership

with Save the Children to share our expertise and resources

with the aim of helping to save the lives of one million children.

Shareholders with a small number of shares, the value of which

makes it uneconomical to sell, may wish to consider donating

them to Save the Children. Donated shares will be aggregated

and sold by Save the Children who will use the funds raised to

help them reach the above goal.

†

To obtain a share donation form, please contact our registrar,

Equiniti, which is managing the donation and sale of UK shares

to Save the Children free of charge.

†

The provision of share dealing details 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.

Contacts

Investor relations

Investor relations may be contacted as follows:

980 Great West Road

Brentford, Middlesex, TW8 9GS

Tel: +44 (0)20 8047 5000

5 Crescent Drive

Philadelphia PA 19112

Tel: +1 888 825 5249 (US toll free)

Tel: +1 215 751 4611 (outside the US)

GSK Response Center

Tel: +1 888 825 5249 (US toll free)

Share scam alert

If you receive an unsolicited telephone call offering to sell or buy

your shares, please take extra care. The caller may be part of a

highly organised ﬁnancial scam.

If you are a UK shareholder, please contact the Financial

Conduct Authority at www.fca.org.uk/consumers or on its

consumer helpline:

Tel: 0800 111 6768 (in the UK)*

Tel: +44 (0)20 7066 1000 (outside the UK)

* Lines are open from 8.00am to 6.00pm, UK time, Monday to Friday, except UK public

holidays, and 9.00am to 1.00pm on Saturdays.

Shareholders services and contacts continued

Other statutory disclosures continued

296

GSK Annual Report 2019

A number of provisions of US law and regulation apply to the

company because our 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

US, provided that we explain any signiﬁcant variations. This

explanation is contained in our Form 20-F, which can be

accessed from the Securities and Exchange Commission’s

(SEC) EDGAR database or via our website. NYSE rules require

us to ﬁle annual and interim written afﬁrmations concerning our

Audit & Risk Committee (ARC) and our statement on signiﬁcant

differences in corporate governance.

Sarbanes-Oxley Act of 2002

Following a number of corporate and accounting scandals in

the US, 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, the company has established a

Disclosure Committee. The Committee reports to the CEO, the

CFO and to the ARC. It is chaired by the Company Secretary

and its members consist of senior managers from ﬁnance, legal,

corporate communications and investor relations.

External legal counsel, the external auditors and internal experts

are invited to attend the Disclosure Committee’s meetings

periodically. The Committee 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 2019, the Committee met

18 times.

Sarbanes-Oxley requires that the annual report on Form 20-F

contains a statement as to whether a member of the ARC is an

audit committee ﬁnancial expert, as deﬁned in rules under

Sarbanes-Oxley. Such a statement for the relevant member of

the ARC (Judy Lewent) is included in the ARC report on page

96 and in her biography on page 81. 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 requires for the CEO and the CFO to complete

formal certiﬁcations, conﬁrming that:

– they have each reviewed the annual report on Form 20-F

– based on their knowledge, the annual report on Form 20-F

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

on 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 on 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 on Form 20-F any

changes in internal controls over ﬁnancial reporting during the

period covered by the annual report on Form 20-F that have

materially affected, or are reasonably likely to affect materially,

the company’s internal control over ﬁnancial reporting, and

they have disclosed, based on their most recent evaluation of

internal control over ﬁnancial reporting, to the external auditor

and the ARC, 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 its management, including the CEO

and CFO, of the effectiveness of the design and operation of

the Group’s disclosure controls and procedures as at 31

December 2019.

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.

US law and regulation

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

297

The CEO and CFO expect to complete these certiﬁcations

and report their conclusions on the effectiveness of disclosure

controls and procedures in March 2020, following which the

certiﬁcations will be ﬁled with the SEC as part of our Group’s

Form 20-F.

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, as amended

(the Exchange Act)):

– 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, Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organisations of

the Treadway Commission (COSO)

– there have been no changes in the Group’s internal control

over ﬁnancial reporting during 2019 that have materially

affected, or are reasonably likely to affect materially, the

Group’s internal control over ﬁnancial reporting

– management has assessed the effectiveness of internal

control over ﬁnancial reporting as at 31 December 2019

and its conclusion will be ﬁled as part of the Group’s Form

20-F, and

– Deloitte LLP, which has audited the consolidated ﬁnancial

statements of the Group for the year ended 31 December

2019, has also assessed the effectiveness of the Group’s

internal control over ﬁnancial reporting under Auditing

Standard 2201 of the Public Company Accounting Oversight

Board (United States). Their audit report will be ﬁled with the

Group’s Form 20-F.

Section 13(r) of the Exchange Act

Section 13(r) of the Exchange Act requires issuers to make

speciﬁc disclosure in their annual reports of certain types of

dealings with Iran, including transactions or dealings with

government-owned entities, as well as dealings with entities

sanctioned for activities related to terrorism or proliferation of

weapons of mass destruction, even when those activities are

not prohibited by US law and do not involve US persons.

The Group exports certain pharmaceutical, vaccine and

consumer products to Iran, via sales by non-US entities that

are not subsidiaries of a US entity, to two privately held Iranian

distributors.

The Group does not regularly receive information regarding

the identity of its distributors' downstream customers and

intermediaries in Iran, and it is possible that these parties

include entities, such as government-owned hospitals and

pharmacies, that are owned directly or indirectly by the Iranian

government or by persons or entities sanctioned in connection

with terrorism or proliferation activities. The Group understands

that a sub-distributor to which the Group's privately held

distributor in Iran previously sold Group medicines may be an

entity whose property is blocked pursuant to Executive Order

13224 as a consequence of its indirect ownership structure.

Upon learning of the sub-distributor's potential ownership

structure, the Group required its distributor in Iran to terminate

the relevant sub-distributor.

Because the Group does not regularly receive information

regarding the identity of its distributors' downstream customers

it cannot establish the proportion of gross revenue or sales

potentially attributable to entities afﬁliated with the Iranian

government or parties sanctioned for disclosable activities.

As a result, the Group is reporting the entire gross revenues

(£3.2 million) and net loss (£0.16 million) from the Group's

sales to Iran in 2019.

The Group is also aware that some hospitals or other medical

facilities in Lebanon may be afﬁliated with or controlled by

Hezbollah or other groups that are designated by the United

States pursuant to Executive Order 13224. Again, the Group

does not deal directly with such hospitals or facilities and sells

through distributors. The Group is unable to establish the

proportion of gross revenue or sales potentially attributable

to reportable activities. As a result, the Group is reporting

the entire gross revenues (£47.8 million) and net proﬁts

(£20.9 million) from the Group's sales to Lebanon in 2019.

Unless noted, the Group intends to continue the activities

described above.

In addition to Section 13(r) of the Exchange Act, US law

generally restricts dealings by US persons and dealings that

otherwise are subject to US jurisdiction with certain countries or

territories that are subject to comprehensive sanctions, currently

Crimea, Cuba, Iran, North Korea, and Syria, as well as with the

Government of Venezuela (though not with the country of

Venezuela as a whole). The Group does business, via non-US

entities (which are not owned or controlled by US entities), in

certain such jurisdictions. While we believe the Group complies

with all applicable US sanctions in all material respects, such

laws are complex and continue to evolve rapidly.

US law and regulation continued

Other statutory disclosures continued

298

GSK Annual Report 2019

To ensure a consistent approach to political contributions

across the Group, in 2009 a global policy was introduced

to voluntarily stop all corporate political contributions.

In the period from 1 January 2009 to 31 December 2019,

the Group did not make any political donations to EU or

non-EU organisations.

Notwithstanding the introduction of this policy, in accordance

with the Federal Election Campaign Act in the US, we continue

to support an employee-operated Political Action Committee

(PAC) that facilitates voluntary political donations by eligible

GSK employees.

The PAC is not controlled by GSK. Decisions on the

amounts and recipients of contributions are made by

participating employees exercising their legal right to pool

their resources and make political contributions, which are

subject to strict limitations. In 2019, a total of US$ 265,185

(2018 – US$ 345,190) was donated to political organisations

by the GSK employee PAC.

English law requires prior shareholder approval for political

contributions to EU political parties and independent election

candidates as well as for any EU political expenditure. The

deﬁnitions of political donations, political expenditure, and

political organisations used in the legislation are, however,

quite broad. 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.

As a result, the deﬁnitions may cover legitimate business

activities not in the ordinary sense considered to be political

donations or political expenditure, nor are they designed to

support any political party or independent election candidate.

Therefore, notwithstanding our policy, and while we do

not intend to make donations to any EU political parties or

organisations, nor to incur any EU political expenditure, we

annually seek shareholder authorisation for any inadvertent

expenditure.

The authority is a precautionary measure to ensure that the

company and its subsidiaries do not inadvertently breach the

legislation.

This authorisation process, for expenditure of up to £100,000

each year, dates back to the AGM held in May 2001, following

the introduction of the Political Parties, Elections and

Referendums Act 2000. The authority has since been

renewed annually.

Donations to political organisations and political expenditure

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

299

Group companies

In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associates, joint ventures and joint

arrangements, the address of the registered ofﬁce and effective percentage of equity owned, as at 31 December 2019 are

disclosed below. Unless otherwise stated the share capital disclosed comprises Ordinary shares which are indirectly held by

GlaxoSmithKline plc. The percentage held by class of share is stated where this is less than 100%. Unless otherwise stated,

all subsidiary companies have their registered ofﬁce and are tax resident in their country of incorporation.

Name Security Registered address

Wholly owned subsidiaries

1506369 Alberta ULC Common 3500 855-2nd Street SW, Calgary, AB, T2P 4J8, Canada

Action Potential Venture Capital Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Adechsa GmbH (ii) Ordinary c/o PRV Provides Treuhandgesellschaft AG, Dorfstrasse 38, Baar,

6341, Switzerland

Affymax Research Institute Common Corporation Service Company, 2710 Gateway Oaks Drive, Suite 150N,

Sacramento, California, 95833, United States

Alenfarma – Especialidades Farmaceuticas, Limitada (ii) Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Allen & Hanburys Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Allen & Hanburys Pharmaceutical Nigeria Limited Ordinary 24 Abimbola Way, Ilasamaja, Isolo, Lagos, Nigeria

Allen Farmaceutica, S.A. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

Allen Pharmazeutika Gesellschaft m.b.H. Ordinary Wagenseilgasse 3, Euro Plaza, Gebäude I, 4. Stock, Vienna, A-1120,

Austria

Barrier Therapeutics, Inc. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Beecham Group p.l.c 20p Shares ‘A’; 5p Shares ‘B’ 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Beecham Pharmaceuticals (Pte) Limited Ordinary 38 Quality Road, Jurong Industrial Estate, Jurong, 618809, Singapore

Beecham Portuguesa-Produtos Farmaceuticos e Quimicos, Lda Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Beecham S.A. (ii) Ordinary Parc de la Noire Epine, rue Fleming 20, 1300 Wavre, Belgium

Biovesta Ilaçlari Ltd. Sti. (ii) Nominative Büyükdere Caddesi No. 173, 1.Levent Plaza B Blok, 1.Levent, Istanbul,

34394, Turkey

Burroughs Wellcome & Co (Bangladesh) Limited Ordinary Sweden Tower, 1, Harinnachala, Konabari, Gazipur, Bangladesh

Cascan GmbH & Co. KG Partnership Capital Industriestrasse 32-36, Bad Oldesloe, 23843, Germany

Castleton Investment Ltd (iv) Ordinary c/o DTOS, 19 Cybercity, 10th Floor Standard Chartered Tower,

Ebene, Mauritius

Cellzome GmbH Ordinary Meyerhofstrasse 1, Heidelberg, 69117, Germany

Cellzome Therapeutics, Inc. (ii) Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Cellzome, Inc. Common;

Series A Preferred;

Series B Preferred;

Series C-1 Convertible Preferred;

Series C-3 Convertible Preferred

Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Charles Midgley Limited (ii) Ordinary; 7% Cumulative Preference 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Clarges Pharmaceuticals Trustees Limited (ii) (iv) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Colleen Corporation Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Corixa Corporation Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Coulter Pharmaceutical, Inc. (ii) Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Dealcyber Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Desarrollo Energia Solar Alternativa S.L. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

Duncan Flockhart Australia Pty Limited (ii) (iv) Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Etex Farmaceutica Ltda Social Capital Avenue Andres Bello 2687, Piso 19, Las Condes, Santiago, C.P.

7550611, Chile

Fipar (Thailand) Ltd (in liquidation) Ordinary 12th Floor Wave Place, 55 Wireless Road, Lumpini, Pathumwan,

Bangkok, 10330, Thailand

Genelabs Technologies, Inc. Common Corporation Service Company, 2710 Gateway Oaks Drive, Suite 150N,

Sacramento, California, CA, 95833, United States

Glaxo Group Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Glaxo Kabushiki Kaisha (ii) Ordinary 1-8-1 Akasaka Minato-Ku, Tokyo, Japan

Glaxo Laboratories (Nigeria) Limited (ii) Ordinary 82 Marine Road, Apapa, Lagos, Nigeria

Glaxo Laboratories Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Other statutory disclosures continued

300

GSK Annual Report 2019

Name Security Registered address

Wholly owned subsidiaries continued

Glaxo New Zealand Pension Plan Trustee Limited Ordinary Level 11, Zurich House, 21 Queen Street, Auckland, 1010, New Zealand

Glaxo Operations UK Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Glaxo Properties BV Ordinary Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

Glaxo Trustees Limited (ii) (iv) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Glaxo Verwaltungs GmbH Ordinary Industriestrasse 32-36, Bad Oldesloe, 23843, Germany

Glaxo Wellcome Australia Pty Ltd (ii) (iv) Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Glaxo Wellcome Farmaceutica, Limitada Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Glaxo Wellcome International B.V. (ii) (iii) Ordinary Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

Glaxo Wellcome Manufacturing Pte Ltd Ordinary 1 Pioneer Sector 1, Jurong Industrial Estate, Jurong, 628413, Singapore

Glaxo Wellcome Production S.A.S. Ordinary 23 rue François Jacob, 92500, Rueil-Malmaison, France

Glaxo Wellcome Vidhyasom Limited (ii) Ordinary 12th Floor Wave Place, 55 Wireless Road, Lumpini, Pathumwan,

Bangkok, 10330, Thailand

Glaxo Wellcome, S.A. Ordinary Poligono Industrial Allendeduero, Avenida de Extremadura, 3, Aranda de

Duero, Burgos, 09400, Spain

Glaxo, S.A. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

Glaxo-Allenburys (Nigeria) Limited (ii) Ordinary 41 Creek Road, Apapa, Lagos, PMB 1401, Nigeria

Glaxochem Pte Ltd (iii) Ordinary 23 Rochester Park, 139234, Singapore

GlaxoSmithKline – Produtos Farmaceuticos, Limitada Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

GlaxoSmithKline (Cambodia) Co., Ltd. (in liquidation) Ordinary 5th Floor DKSH Building, No. 797 Preah Monivong Boulevard (Corner of

Street 484), Sangkat Phsar Deum Thakov, Khan Chamkarmon, Phnom

Penh, Cambodia

GlaxoSmithKline (China) Investment Co Ltd Ordinary Room 901-910, Building A, Ocean International Center, 56 Mid 4th

East Ring Road, Bejing, Chaoyang District, China

GlaxoSmithKline (China) R&D Company Limited Equity F1-3, No. 18 building, 999 Huanke Road, Pilot Free Trade Zone,

Shanghai, 201210, China

GlaxoSmithKline (Cyprus) Limited Ordinary Arch. Makariou III, 2-4, Capital Center, 9th Floor, Nicosia, P.C. 1505,

Cyprus

GlaxoSmithKline (GSK) S.R.L. Ordinary 1-5 Costache Negri Street, Opera Center One, 5th and 6th ﬂoors,

Zone 1, District 5, Bucharest, Romania

GlaxoSmithKline (Ireland) Limited (vii) Ordinary 12 Riverwalk Citywest Business Campus, Dublin, 24, Ireland

GlaxoSmithKline (Israel) Ltd Ordinary 25 Basel Street, PO Box 10283, Petach-Tikva, 49002, Israel

GlaxoSmithKline (Malta) Limited Ordinary 1, First Floor, De La Cruz Avenue, Qormi, QRM2458, Malta

GlaxoSmithKline (Private) Limited (ii) Ordinary Unit 3, 20 Anthony Road, Msasa, Harare, Zimbabwe

GlaxoSmithKline (Thailand) Limited Ordinary 12th Floor Wave Place, 55 Wireless Road, Lumpini, Pathumwan,

Bangkok, 10330, Thailand

GlaxoSmithKline A.E.B.E. Ordinary 266 Kiﬁssias Avenue, Halandri, Athens, 152 32, Greece

GlaxoSmithKline AB Ordinary Hemvarnsg. 9, Solna, 171 54, Sweden

GlaxoSmithKline AG Ordinary Talstrasse 3-5, 3053 Muenchenbuchsee, Switzerland

GlaxoSmithKline Angola Unipessoal Limitada (iv) Quotas Luanda, Bairro Petrangol, Estrada de Cacuaco n° 288, Angola

GlaxoSmithKline Argentina S.A. Ordinary Tucumán 1, piso 4, Buenos Aires, C1049AAA, Argentina

GlaxoSmithKline AS Ordinary Drammensveien 288, 0283 Oslo, Norway

GlaxoSmithKline Asia Pvt. Limited Equity Patiala Road, Nabha 147201, Dist Patiala, Punjab, India

GlaxoSmithKline Australia Pty Ltd Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

GlaxoSmithKline B.V. Ordinary Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

GlaxoSmithKline Beteiligungs GmbH Ordinary Prinzregentenplatz 9, Munchen, 81675, Germany

GlaxoSmithKline Biologicals (Shanghai) Ltd. Ordinary No. 277 Niudun Road, China (Shanghai) Pilot Free Trade Zone

GlaxoSmithKline Biologicals Kft. Ordinary 2100 Gödöllõ, Homoki Nagy István utca 1, Hungary

GlaxoSmithKline Biologicals S.A.S. Ordinary 637 Rue des Aulnois, Saint-Amand Les Eaux, 59230, France

GlaxoSmithKline Biologicals SA Ordinary; Preference Rue de l'Institut 89, B-1330 Rixensart, Belgium

GlaxoSmithKline Brasil Limitada Quotas Estrada dos Bandeirantes, 8464, Rio de Janeiro, 22783-110, Brazil

GlaxoSmithKline Capital Inc. Common Wilmington Trust SP Services Inc., 1105 North Market Street,

Suite 1300, Wilmington, Delaware, 19801, United States

GlaxoSmithKline Capital plc Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Caribbean Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Chile Farmaceutica Limitada Social Capital Avenue Andres Bello No. 2687, Piso 19, Las Condes, Santiago,

C.P. 7550611, Chile

GlaxoSmithKline Colombia S.A. Ordinary Avenida El Dorado, #69B-45/Piso 9, Bogota, Colombia

GlaxoSmithKline Consumer Healthcare Holdings Limited (i) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare Investments (Ireland)

Limited (iii) (iv)

Ordinary Knockbrack, Dungarvan, Co Waterford, X35 RY76, Ireland

Group companies continued

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

301

Name Security Registered address

Wholly owned subsidiaries continued

GlaxoSmithKline Consumer Healthcare Ireland IP Limited (iii) (iv) Ordinary Knockbrack, Dungarvan, Co Waterford, X35 RY76, Ireland

GlaxoSmithKline Consumer Holding B.V. (ii) Ordinary Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

GlaxoSmithKline d.o.o Quotas Zmja od Bosne broj 7-7a, Sarajevo, 71000, Bosnia and Herzegovina

GlaxoSmithKline d.o.o. Equity capital Ulica Damira Tomljanovica Gavrana 15, Zagreb, Croatia

GlaxoSmithKline doo Beograd Ordinary Omladinskih brigada 88, New Belgrade, City of Belgrade, 11070, Serbia

GlaxoSmithKline Ecuador S.A. Ordinary Av 10 De Agosto N36-239, y Naciones Unidas, Ediﬁcio

Electroectuatoriana, 2do piso, Quito, Ecuador

GlaxoSmithKline Eesti OU Ordinary Lõõtsa 8a, Tallinn, 11415, Estonia

GlaxoSmithKline El Salvador S.A. de C.V. Ordinary Avenida El Boqueron y Calle Izalco No 7 y 8 Parque Industrial El

Boqueron, Santa Elen, Antiguo Custatlan, La Libertad, El Salvador

GlaxoSmithKline EOOD Ordinary 115 G Tsarigradsko Shose Blvd., ﬂoor 9, Mladost Region, Soﬁa,

1784, Bulgaria

GlaxoSmithKline Export Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Export Panama S.A. Ordinary Panama City, Republic of Panama, Panama

GlaxoSmithKline Far East B.V. Ordinary Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

GlaxoSmithKline Finance plc Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline GmbH & Co. KG Partnership Capital Prinzregentenplatz 9, Munchen, 81675, Germany

GlaxoSmithKline Guatemala S.A. Ordinary Novena Avenida 0-09, Zona 4, Guatemala City, Guatemala

GlaxoSmithKline Holding AS Ordinary Drammensveien 288, 0283 Oslo, Norway

GlaxoSmithKline Holdings (Americas) Inc. Common Wilmington Trust SP Services Inc., 1105 North Market Street, Suite 1300,

Wilmington, Delaware, 19801, United States

GlaxoSmithKline Holdings (Ireland) Limited Ordinary; Deferred 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Holdings (One) Limited (i) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Holdings Limited (i) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Holdings Pty Ltd Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

GlaxoSmithKline Honduras S.A. Ordinary Tegucigalpa, MDC, Honduras

GlaxoSmithKline IHC Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Ilaclari Sanayi ve Ticaret A.S. Nominative Büyükdere Caddesi No. 173, 1.Levent Plaza B Blok, 1.Levent, Istanbul,

34394, Turkey

GlaxoSmithKline Inc. Class A Common; Class C Preference 7333 Mississauga Road North, Mississauga, ON, L5N 6L4, Canada

GlaxoSmithKline Insurance Ltd. Ordinary 19 Par-La-Ville Road, Hamilton, HM11, Bermuda

GlaxoSmithKline Intellectual Property (No.2) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property (No.3) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property (No.4) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property (No.5) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property Development Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property Holdings Limited A Ordinary; B Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property Limited Ordinary; Deferred 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Intellectual Property Management Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline International Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Investigación y Desarrollo, S.L. Ordinary Severo Ochoa 2 Parque Tecnológico de Madrid, Tres Cantos, Madrid,

28760, Spain

GlaxoSmithKline Investments (Ireland) Limited (iii) (iv) Ordinary 12 Riverwalk Citywest Business Campus, Dublin, 24 Ireland

GlaxoSmithKline Investments Pty Ltd Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

GlaxoSmithKline K.K. Ordinary 1-8-1 Akasaka Minato-Ku, Tokyo, Japan

GlaxoSmithKline Korea Limited Ordinary 9F LS Yongsan Tower 92, Hangangdae-ro Yongsan-gu, Seoul, 04386,

Republic of Korea

GlaxoSmithKline Latin America, S.A. Ordinary Panama City, Republic of Panama, Panama

GlaxoSmithKline Latvia SIA Ordinary Duntes iela 3, Riga, Latvia

GlaxoSmithKline Lietuva UAB Ordinary Ukmerges st. 120, Vilnius, LT-08105, Lithuania

GlaxoSmithKline Limited Ordinary 23/F., Tower 6, The Gateway, 9 Canton Road, Tsimshatsui, Kowloon,

Hong Kong

GlaxoSmithKline LLC LLC Interests Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline Manufacturing SpA Ordinary Via Alessandro Fleming 2, Verona, 37135, Italy

GlaxoSmithKline Maroc S.A. Ordinary 42-44 Angle Bd, Rachidi et Abou Hamed El Glaza, Casablanca, Morocco

GlaxoSmithKline Medical and Healthcare Products Limited Ordinary H-1124, Csorsz utca 43, Budapest, Hungary

GlaxoSmithKline Mercury Limited (i) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Mexico S.A. de C.V. Ordinary A; Ordinary B Calzada, Mexico-Xochimilco 4900, Colonia San Lorenzo, Huipulco,

Delegacion Tlalpan, 14370, Mexico

Group companies continued

Other statutory disclosures continued

302

GSK Annual Report 2019

Name Security Registered address

Wholly owned subsidiaries continued

GlaxoSmithKline NZ Limited Ordinary Level 11, Zurich House, 21 Queen Street, Auckland, 1010, New Zealand

GlaxoSmithKline Oy Ordinary Piispansilta 9A, P.O. Box 24, Espoo, FIN-02230, Finland

GlaxoSmithKline Peru S.A. Ordinary Av. Javier Prado Oeste, 995, San Isidro, Lima 27, Peru

GlaxoSmithKline Pharma A/S Ordinary Nykaer 68, Brondby, DK-2605, Denmark

GlaxoSmithKline Pharma GmbH Ordinary Wagenseilgasse 3, Euro Plaza, Gebäude I, 4. Stock, Vienna,

A-1120, Austria

GlaxoSmithKline Pharmaceutical Kenya Limited Ordinary Likoni Road, PO Box 10643, 00100, Nairobi, Kenya

GlaxoSmithKline Pharmaceutical Nigeria Limited Ordinary 1 Industrial Avenue, Ilupeju, Ikeja, Lagos, PM B 21218, Nigeria

GlaxoSmithKline Pharmaceutical Sdn Bhd Ordinary Level 6, Quill 9, 112, Jalan Prof. Khoo Kay Kim, 46300 Petaling Jaya,

Selangor, Malaysia

GlaxoSmithKline Pharmaceuticals (Pvt) Ltd Ordinary 121 Galle Road, Kaldemulla, Moratuwa, Sri Lanka

GlaxoSmithKline Pharmaceuticals Costa Rica S.A Ordinary 300 metros al este de la Rotonda de la Betania, Mercedes de Montes de

Oca, Sabanilla, Montes de Oca, San Jose, Costa Rica

GlaxoSmithKline Pharmaceuticals S.A. Ordinary A; Ordinary B;

Ordinary C; Ordinary D

Ul. Grunwaldzka 189, Poznan, 60-322, Poland

GlaxoSmithKline Pharmaceuticals SA Ordinary Site Apollo, Avenue Pascal 2-4-6, Wavre, 1300, Belgium

GlaxoSmithKline Pharmaceuticals Ukraine LLC Chartered Capital Pavla Tychyny avenue, 1-V, Kiev, 02152, Ukraine

GlaxoSmithKline Pte Ltd Ordinary 23 Rochester Park, 139234, Singapore

GlaxoSmithKline Puerto Rico, Inc. Common The Prentice-Hall Corporation System, Puerto Rico, Inc., c/o Fast

Solutions, LLC, 252 Ponce de Leon Avenue, Floor 20, San Juan,

00918, Puerto Rico

GlaxoSmithKline Republica Dominicana S.A. Ordinary Ave. Lope de Vega #29, Torre NovoCentro, Local 406, Santo Domingo,

Dominican Republic

GlaxoSmithKline Research & Development Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline S.A. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos,

Madrid, 28760, Spain

GlaxoSmithKline S.p.A. Ordinary Via Alessandro Fleming 2, Verona, 37135, Italy

GlaxoSmithKline s.r.o. Ordinary Hvezdova 1734/2c, Prague, 4 140 00, Czech Republic

GlaxoSmithKline Services GmbH & Co. KG Partnership Capital Prinzregentenplatz 9, Munchen, 81675, Germany

GlaxoSmithKline Services Inc. (ii) Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline Services Unlimited (i) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline SL Holdings, LLC LLC Interests Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline SL LLC LLC Interests Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline SL LP (ii) (ix) Partnership 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Slovakia s.r.o. Ordinary Galvaniho 7/A, Bratislava, 821 04, Slovakia

GlaxoSmithKline South Africa (Pty) Limited Ordinary Flushing Meadows Building, The Campus, 57 Sloane Street,

Bryanston 2021, South Africa

GlaxoSmithKline Trading Ordinary Leningradskiy Prospect 37A, Building 4, Floor 3, Premises XV, Room 1,

Moscow, 125167, Russian Federation

GlaxoSmithKline Trading Services Limited (iii) (vii) Ordinary 12 Riverwalk Citywest Business Campus, Dublin, 24, Ireland

GlaxoSmithKline Tunisia S.A.R.L. Ordinary Immeuble Les Quatres R, Rue du Lac Lochness, Berges du Lac, Tunis,

Tunisia

GlaxoSmithKline UK Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Uruguay S.A. Registered shares provisory stock Salto 1105, CP 11.200 Montevideo, Uruguay

GlaxoSmithKline US Trading Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Venezuela C.A. Ordinary Urbanizacion La Trinidad, Calle luis De Camoems, Edif No 115-117

Apatado Posta, Caracas, 1010, Venezuela

GlaxoSmithKline Vietnam Limited Liability Company (ii) (iv) Equity capital The Metropolitan, 235 Dong Khoi Street, District 1, 7th Floor Unit 701, Ho

Chi Minh City, Viet Nam

GlycoVaxyn AG (iv) Common; Preferred A; Preferred B;

Preferred C

Grabenstrasse 3, 8952 Schlieren, Switzerland

Groupe GlaxoSmithKline S.A.S. Ordinary 23 Rue françois Jacob, 92500, Rueil-Malmaison, France

GSK Australia NVD Pty Ltd (ii) (iv) Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

GSK Business Service Centre Sdn Bhd Ordinary Level 6, Quill 9, 112, Jalan Prof. Khoo Kay Kim, 46300 Petaling Jaya,

Selangor, Malaysia

GSK Capital K.K. Ordinary 1-8-1 Akasaka Minato-Ku, Tokyo, Japan

GSK CH Argentina S.A. Nominative non endorseable ordinary

Tucumán 1, piso 4, Buenos Aires, C1049AAA, Argentina

GSK Commercial Sp. z o.o. Ordinary ul. Rzymowskiego 53, Warsaw, 02-697, Poland

GSK d.o.o., Ljubljana Ordinary Ameriška ulica 8,Ljubljana, 1000, Slovenia

Group companies continued

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

303

Name Security Registered address

Wholly owned subsidiaries continued

GSK Finance (No 2) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GSK Kazakhstan LLP Participation/Participating Interest 273, Nursultan Nazarbayev ave., Almaty, Medeu District, 050059,

Kazakhstan

GSK Limited (ii) Ordinary 980, Great West Road, Brentford, Middlesex, TW8 9GS, England

GSK Pharmaceutical Trading SA (ii) (iv) Ordinary 5 Poienelor Street, Brasov, Romania

GSK Services Sp z o.o. Ordinary Ul. Grunwaldzka 189, Poznan, 60-322, Poland

GSK Vaccines BV Ordinary Hullenbergweg 85, Amsterdam, 1101 CL, Netherlands

GSK Vaccines GmbH Ordinary Emil-von-Behring-Str.76, 35041 Marburg, Germany

GSK Vaccines Institute for Global Health S.r.l. Quotas Via Fiorentina 1, Siena, 53100, Italy

GSK Vaccines S.r.l. Quotas Via Fiorentina 1, Siena, 53100, Italy

GSK Vaccines Vertriebs GmbH (ii) Ordinary Rudolf-Diesel-Ring 27, Holzkirchen, 83607, Germany

HGS France S.a.r.l. (ii) (iv) Ordinary 52-54, Rue de la Belle Feuille, Boulogne-Billancourt, 92100, France

Horlicks Limited Ordinary; Preference 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Human Genome Sciences, Inc. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

ID Biomedical Corporation of Quebec Common 2323, boul. Du Parc Technologique, Québec, G1P 4R8, Canada

Instituto Luso Farmaco, Limitada (ii) Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

InterPharma Dienstleistungen GmbH Quotas Wagenseilgasse 3, Euro Plaza, Gebäude I, 4. Stock, Vienna, A-1120,

Austria

J&J Technologies, LC (ii) LLC Interests Corporation Service Company, 100 Shockoe Slip, 2nd Floor, Richmond,

VA 23219, United States

Laboratoire GlaxoSmithKline Ordinary 23 rue François Jacob, 92500, Rueil-Malmaison, France

Laboratoire Pharmaceutique Algérien LPA Production SPA Ordinary Zone Industrielle Est, Boudouaou, Boumerdes, Algeria

Laboratoire Pharmaceutique Algérien SPA Ordinary Zone Industrielle Est, Boudouaou, Boumerdes, Algeria

Laboratoires Paucourt (ii) Ordinary 23 rue François Jacob, 92500, Rueil-Malmaison, France

Laboratoires Saint-Germain (ii) Ordinary 23 rue François Jacob, 92500, Rueil-Malmaison, France

Laboratorios Dermatologicos Darier, S.A de C.V. Ordinary A; Ordinary B Calzada Mexico Xochimilco, 4900 San Lorenzo Huipulco, District Federal

Mexico, 14370, Mexico

Laboratorios Farmaceuticos Stiefel (Portugal) LTDA (ii) Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Laboratorios Stiefel de Venezuela SA Ordinary Calle Luis de Camoens, Ediﬁcio GlaxoSmithKline, No. 115-117,

Urb. La Trinidad, Caracas, Venezuela

Laboratorios Stiefel Ltda. Ordinary Rua Professor Joao Cavalheiro Salem, no.1077, Bairro de Bonsucesso,

Municipality of Guarulhos, Sao Paulo, CEP 07243-580, Brazil

Laboratorios Wellcome De Portugal Limitada (ii) Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Montrose Pharma Company Limited (ii) (iv) Ordinary Quota H-1124, Csorsz utca 43, Budapest, Hungary

Okairos AG (in liquidation) Common; Preferred A; Preferred B c/o OBC Suisse AG, Aeschenvorstadt 71, 4051, Basel, Switzerland

Penn Labs Inc. (ii) Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

S.R. One International B.V. Ordinary Huis ter Heideweg, 62 3705, LZ Zeist, Netherlands

S.R. One, Limited Units (Common) Corporation Service Company, 2595 Interstate Drive, Suite 103,

Harrisburg, Pennsylvania, 17110, United States

Setﬁrst Limited Ordinary; Preference 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Sitari Pharma, Inc. Common Stock Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, DE, 19808, United States

Smith Kline & French Portuguesa-Produtos Farmaceuticos,

LDA (ii)

Ordinary Quota Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

SmithKline Beecham (Bangladesh) Private Limited (ii) Ordinary House 2A, Road 138, Gaishari-1, Dhaka 1212, Bangladesh

SmithKline Beecham (Cork) Limited (vii) Ordinary 12 Riverwalk Citywest Business Campus, Dublin, 24, Ireland

SmithKline Beecham (Manufacturing) Limited (vii) Ordinary 12 Riverwalk Citywest Business Campus, Dublin, 24, Ireland

SmithKline Beecham Biologicals US Partnership Partnership Interest Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

SmithKline Beecham Egypt L.L.C. Quotas Amoun Street, El Salam City, Cairo, Egypt

SmithKline Beecham Farma, S.A. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos,

Madrid, 28760, Spain

SmithKline Beecham Inter-American Corporation (ii) Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

SmithKline Beecham Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Group companies continued

Other statutory disclosures continued

304

GSK Annual Report 2019

Name Security Registered address

Wholly owned subsidiaries continued

SmithKline Beecham Overseas Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

SmithKline Beecham Pension Plan Trustee Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

SmithKline Beecham Pension Trustees Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

SmithKline Beecham Pharma GmbH & Co KG Partnership Capital Prinzregentenplatz 9, Munchen, 81675, Germany

SmithKline Beecham Pharma Verwaltungs GmbH Ordinary Prinzregentenplatz 9, Munchen, 81675, Germany

SmithKline Beecham Pharmaceuticals (Pty) Limited (ii) (iv) Ordinary Flushing Meadows Building, The Campus, 57 Sloane Street,

Bryanston 2021, South Africa

SmithKline Beecham Pharmaceuticals Co. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

SmithKline Beecham Port Louis Limited (iv) Ordinary c/o CIM Corporate Services Ltd, Les Cascades Building,

Edith Cavell Street, Port Louis, Mauritius

SmithKline Beecham Senior Executive Pension Plan

Trustee Limited (ii)

Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Stiefel Distributors (Ireland) Limited (ii) (iv) (vii) Ordinary Finisklin Business Park, Sligo, Ireland

Stiefel Dominicana, S.R.L. (ii) (iv) Ordinary Ave. Lope de Vega #29, Torre NovoCentro, Local 406, Santo Domingo,

Dominican Republic

Stiefel Farma, S.A. Ordinary Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

Stiefel GmbH & Co. KG Partnership Capital Industriestrasse 32-36, Bad Oldesloe, 23843, Germany

Stiefel India Private Limited Equity 401-402, A, Wing, 4th Floor,Floral Deck Plaza, Opp Rolta Bhavan,

Central MIDC Road, Mumbai, Andheri (E), 400093, India

Stiefel Laboratories Legacy (Ireland) Limited (vii) Ordinary Finisklin Business Park, Sligo, Ireland

Stiefel Laboratories Limited (ii) Ordinary Eurasia Headquarters, Concorde Road, Maidenhead, Berkshire,

SL6 4BY, England

Stiefel Laboratories Pte Limited (ii) Ordinary 103 Gul Circle, 629589, Singapore

Stiefel Laboratories, Inc. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Stiefel Maroc SARL (ii) (iv) Ordinary 275 Boulevard Zerktouni, Casablanca, Morocco

Stiefel Research (Australia) Holdings Pty Ltd Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Stiefel Research Australia Pty Ltd Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Stiefel West Coast LLC LLC Interests Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Strebor Inc. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Tempero Pharmaceuticals, Inc. Series A Preference;

Series B Preference; Common

Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Tesaro Bio Austria GmbH Common Fleischmarkt 1/6/12, Vienna, 1010, Austria

Tesaro Bio France SAS Shares 235 avenue Le Jour Se Lève, Boulogne, 92100, France

Tesaro Bio Germany GmbH Shares Leopoldstr. 37A, Munich, 80802, Germany

Tesaro Bio GmbH Ordinary Poststrasse 6, 6300 Zug, Switzerland

Tesaro Bio Italy S.R.L Shares Via Vincenzo, Bellini 22 00198, Roma, Italy

Tesaro Bio Netherlands B.V (x) Shares Joop Geesinkweg 901, 1114 AB, Amsterdam-Duivendrecht, Netherlands

Tesaro Bio Spain S.L.U. Shares/Participation Quota Severo Ochoa, 2 Parque Tecnológico de Madrid, 28760, Tres Cantos,

Madrid, Spain

Tesaro Bio Sweden AB Common c/o BDO Mälarden AB, Skatt Box 24193, Stockholm 10451, Sweden

Tesaro Development Limited Shares Clarendon House, 2 Church Street, Hamilton HM11, Bermuda

Tesaro Securities Corporation (iv) Common CT Corporation, 155 Federal St, Ste. 700, Boston, 02110, United States

Tesaro, Inc. Common Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, DE, 19808, United States

The Sydney Ross Co. (ii) Common Corporation Service Company, Princeton South Corporate Center, Suite

160, 100 Charles Ewing Blvd, Ewing, New Jersey, 08628, United States

The Wellcome Foundation Investment Company Limited (ii) (iv) Limited by guarantee 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

UCB Pharma Asia Paciﬁc Sdn Bhd (ii) Ordinary 12th Floor, Menara Symphony, No.5, Jalan Prof. Khoo Kay Kim, Seksyen

13, Petaling Jaya, 46200, Malaysia

Wellcome Consumer Healthcare Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Wellcome Consumer Products Limited (ii) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Wellcome Developments Pty Ltd (ii) (iv) Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Wellcome Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Wellcome Operations Pty Ltd (ii) (iv) Ordinary 1061 Mountain Highway, Boronia, VIC, 3155, Australia

Group companies continued

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

305

Name Security

Effective %

Ownership Registered address

Subsidiaries where the effective interest is less than 100%

Alacer Corp. Common 68 C T Corporation System, 818 West 7th Street, Los Angeles, California,

90017, United States

Amoun Pharmaceutical Industries Co. S.A.E. New Monetary Shares

(99.5%)

90.7 El Salam City 11491, PO Box 3001, Cairo, Egypt

Beecham Enterprises Inc. (ii) Common 59.84 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Biddle Sawyer Limited Equity 75 252 Dr Annie Besant Road, Mumbai, 400030, India

Block Drug Company, Inc. Common 68

Corporation Service Company, Princeton South Corporate Center, Suite

160, 100 Charles Ewing Blvd, Ewing, New Jersey, 08628, United States

Block Drug Corporation (ii) Common 68 Corporation Service Company, Princeton South Corporate Center, Suite

160, 100 Charles Ewing Blvd, Ewing, New Jersey, 08628, United States

British Pharma Group Limited (i) Captial (50%) 50 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Consumer Healthcare Holdings Limited Ordinary 68 Ramsgate Road, Sandwich, Kent, CT13 9NJ, England

Consumer Healthcare Intermediate Holdings Limited Ordinary 68 Ramsgate Road, Sandwich, Kent, CT13 9NJ, England

Duncan Consumer Healthcare Philippines Inc Common 68 2266 Don Chino Roces Avenue, Makati City, Philippines

Duncan Pharmaceuticals Philippines Inc. Common 92.52

2266 Chino Roces Avenue, City of Makati, 1231, Philippines

Ex-Lax, Inc. Common 68 The Prentice Hall Corporation System, Puerto Rico, Inc., c/o Fast

Solutions, LLC, Citi Tower, 252 Ponce de Leon Avenue, Floor 20,

San Juan, 00918, Puerto Rico

Ferrosan ApS A Shares; B Shares 68 Lautrupvang 8, 2750 Ballerup, Denmark

Ferrosan International ApS Ordinary 68 Lautrupvang 8, 2750 Ballerup, Denmark

Ferrosan S.R.L. Registered capital 68 178/C Calea Turzii, Cluj-Napoca, Cluj County, Romania

Galvani Bioelectronics Inc. Common 55 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Galvani Bioelectronics Limited A Ordinary; B Ordinary (0%) 55 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Glaxo Saudi Arabia Limited Ordinary 75 PO Box 22617, Area No 56 to 73, Warehouse City, First Stage Al

Khomrah, Jeddah 21416, Saudi Arabia

Glaxo Wellcome Ceylon Limited Ordinary; Ordinary B 67. 8 121 Galle Road, Kaldemulla, Moratuwa, Sri Lanka

GlaxoSmithKline (Tianjin) Co. Ltd Ordinary 90 No. 65, the Fifth Avenue, Tai Feng Industrial Park, Tianjin Economic

and Technolog, Tianjin, 300457, China

GlaxoSmithKline Algérie S.P.A. Ordinary 99.99 Zone Industrielle Est, Boudouaou, Wilaya de Boumerdes, Algeria

GlaxoSmithKline Bangladesh Limited (iv) Ordinary (82%) 82 Fouzderhat Industrial Area, Dhaka Trunk Road, North Kattali,

Chittagong - 4217, Bangladesh

GlaxoSmithKline Brasil Produtos para Consumo

e Saude Ltda

Quotas 68 66 BL1/302, Vitor Civita Street, Barra Tijuca, Rio de Janeiro,

22775-044, Brazil

GlaxoSmithKline Consumer Healthcare (China) Co. Ltd Ordinary 68 Floor 8, 168 Xizangzhong Road, Huangpu District, Shanghai, China

GlaxoSmithKline Consumer Healthcare (Hong Kong)

Limited

Ordinary 68 23/F., Tower 6, The Gateway, 9 Canton Road, Tsimshatsui, Kowloon,

Hong Kong

GlaxoSmithKline Consumer Healthcare (Ireland) Limited (vii) Ordinary 68 12 Riverwalk Citywest Business Campus, Dublin, 24, Ireland

GlaxoSmithKline Consumer Healthcare (Overseas) Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare (Thailand) Limited Ordinary 68 13th Floor, Unit 13.05 and 13.06 Wave Place, 55 Wireless Road,

Lumpini, Pathumwan, Bangkok, 10330, Thailand

GlaxoSmithKline Consumer Healthcare (UK) IP Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare (UK) Trading

Limited

Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare (US) IP LLC LLC Interests 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline Consumer Healthcare A/S Ordinary 68 Nykaer 68, Brondby, DK-2605, Denmark

GlaxoSmithKline Consumer Healthcare AB (v) Ordinary 68 Nykaer 68, Brondby, DK-2605, Denmark

GlaxoSmithKline Consumer Healthcare Australia Pty ltd Ordinary 68 82 Hughes Avenue, Ermington, NSW, 2115, Australia

GlaxoSmithKline Consumer Healthcare B.V. Ordinary 68 Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

GlaxoSmithKline Consumer Healthcare Colombia SAS Ordinary 68 Avenida El Dorado, #69B-45/Piso 9, Bogota, Colombia

GlaxoSmithKline Consumer Healthcare Czech

Republic s.r.o.

Ordinary 68 Hvezdova 1734/2c, Prague, 4 140 00, Czech Republic

GlaxoSmithKline Consumer Healthcare Finance Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare Finance

No.2 Limited

Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare Finland Oy Ordinary 68 Piispansilta 9A, Fin-02230, Espoo, Finland

GlaxoSmithKline Consumer Healthcare GmbH Ordinary 68 Wagenseilgasse 3, Euro Plaza, Gebäude I, 4. Stock, Vienna, A-1120,

Austria

GlaxoSmithKline Consumer Healthcare GmbH & Co. KG Partnership Capital 68

Barthstr. 4, München, 80339, Germany

Group companies continued

Other statutory disclosures continued

306

GSK Annual Report 2019

Group companies continued

Name Security

Effective %

Ownership Registered address

Subsidiaries where the effective interest is less than 100% continued

GlaxoSmithKline Consumer Healthcare Greece Societe

Anonyme

Ordinary 68 274 Kiﬁssias Avenue Halandri, Athens, 152 32, Greece

GlaxoSmithKline Consumer Healthcare Holdings

(No.2) Limited

A; B(0%); Preference 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Consumer Healthcare Holdings (US) LLC LLC Interests 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline Consumer Healthcare Inc. Common 68 7333 Mississauga Road North, Mississagua, ON, L5N 6L4, Canada

GlaxoSmithKline Consumer Healthcare Investments

(Ireland) (No 3) Limited (iii) (vii)

Ordinary 68 Knockbrack, Dungarvan, Co Waterford, X35 RY76, Ireland

GlaxoSmithKline Consumer Healthcare Investments

(Ireland) (No.2) Unlimited Company (iii) (vii)

Ordinary 68 Knockbrack, Dungarvan, Co Waterford, X35 RY76, Ireland

GlaxoSmithKline Consumer Healthcare Japan K.K. Ordinary 68 1-8-1 Akasaka Minato-Ku, Tokyo, Japan

GlaxoSmithKline Consumer Healthcare Korea Co., Ltd. Ordinary 68 9F LS Yongsan Tower, 92, Hangang-daero, Yongsan-gu, Seoul,

04386, Korea, Republic of

GlaxoSmithKline Consumer Healthcare L.L.C. LLC Interests 68 Corporation Service Company, 2595 Interstate Drive Suite 103,

Harrisburg, Pennsylvania, 17110, United States

GlaxoSmithKline Consumer Healthcare Limited (iv) Ordinary 72.5 Patiala Road, Nabha 147201, Dist Patiala, Punjab, India

GlaxoSmithKline Consumer Healthcare Mexico,

S. De R.L. de C.V.

Ordinary 68 Calzada Mexico-Xochimilco 4900, Colonia San Lorenzo Huipulco,

Delegacion Tlalpan, Mexico, D.F. 14370, Mexico

GlaxoSmithKline Consumer Healthcare New Zealand ULC Ordinary 68 Level 11, Zurich House, 21 Queen Street, Auckland, 1010, New Zealand

GlaxoSmithKline Consumer Healthcare Norway AS Ordinary 68 Drammensveien 288, 1326 Lysaker, Norway

GlaxoSmithKline Consumer Healthcare Pakistan Limited Ordinary (85.8%) 58.30% The Sykes Building, 35 Dockyard Road, West Wharf, Karachi,

74000, Pakistan

GlaxoSmithKline Consumer Healthcare Philippines Inc Common 68 2266 Don Chino Roces Avenue, Makati City, Philippines

GlaxoSmithKline Consumer Healthcare Pte. Ltd. Ordinary 68 23 Rochester Park, 139234, Singapore

GlaxoSmithKline Consumer Healthcare S.A. Ordinary 68 Site Apollo, Avenue Pascal 2-4-6, Wavre, 1300, Belgium

GlaxoSmithKline Consumer Healthcare S.A. Ordinary 68 Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

GlaxoSmithKline Consumer Healthcare S.p.A. Ordinary 68 Via Zambeletti snc,Baranzate, Milan, 20021, Italy

GlaxoSmithKline Consumer Healthcare Saudi Limited Ordinary 68 603 Salamah Tower 6th Floor, Madinah Road Al-Salamah District Jeddah

21425, Saudi Arabia

GlaxoSmithKline Consumer Healthcare Sdn. Bhd. Ordinary 68 Lot 89, Jalan Enggang, Ampang/Ulu Kelang Industrial Estate, 6800

Ampang, Selangor, Darul Ehsan, Malaysia

GlaxoSmithKline Consumer Healthcare Slovakia s. r. o. Ownership interest 68 Galvaniho 7/A, Bratislava, 821 04, Slovakia

GlaxoSmithKline Consumer Healthcare South Africa

(Pty) Ltd

Ordinary 68 Flushing Meadows Building, The Campus, 57 Sloane Street, Bryanston

2021, South Africa

GlaxoSmithKline Consumer Healthcare Sp.z.o.o. Ordinary 68 Ul. Grunwaldzka 189, Poznan, 60-322, Poland

GlaxoSmithKline Consumer Healthcare SRL Ordinary 68 1-5 Costache Negri Street, Opera Center One, 6th ﬂoor (Zone 2), District

5, Bucharest, Romania

GlaxoSmithKline Consumer Healthcare Vietnam

Company Limited (ii)

Charter Capital 68 Floor 16, Metropolitan, 235 Dong Khoi, Ben Nghe Ward, District 1,

Ho Chi Minh City, Viet Nam

GlaxoSmithKline Consumer Healthcare, L.P. Partnership Capital 59.84 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GlaxoSmithKline Consumer Healthcare, Produtos para a

Saude e Higiene, Lda

Ordinary Quota 68 Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

GlaxoSmithKline Consumer Nigeria plc (vi) Ordinary (46.4%) 46.4 1 Industrial Avenue, Ilupeju, Ikeja, Lagos, PM B 21218, Nigeria

GlaxoSmithKline Consumer Private Limited Equity 68 Patiala Road, Nabha 147201, Dist Patiala, Punjab, India

GlaxoSmithKline Consumer Trading Services Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GlaxoSmithKline Costa Rica S.A. Ordinary 68 300 metros al este de la Rotonda de la Betania, Mercedes de Montes

de Oca, Sabanilla, Montes de Oca, San Jose, Costa Rica

GlaxoSmithKline Dungarvan Limited (vii) Ordinary 68 Knockbrack, Dungarvan, Co Waterford, X35 RY76, Ireland

GlaxoSmithKline Healthcare AO Ordinary 68 Premises III, Room 9, ﬂoor 6, Presnenskaya nab. 10, Moscow, 123112,

Russian Federation

GlaxoSmithKline Healthcare GmbH Ordinary 68 Barthstr. 4, München, 80339, Germany

GlaxoSmithKline Healthcare Ukraine O.O.O. Ownership interest 68 Pavla Tychyny avenue, 1-V, Kiev, 02152, Ukraine

GlaxoSmithKline Limited Ordinary 68 Likoni Road; PO Box 78392; Nairobi; Kenya

GlaxoSmithKline Pakistan Limited Ordinary (82.6%) 82.6 The Sykes Building, 35 Dockyard Road, West Wharf, Karachi, 74000,

Pakistan

GlaxoSmithKline Panama S.A. Ordinary 68 Urbanizacion Industrial Juan D, Calles A Y B, Republic of Panama,

Panama

GlaxoSmithKline Paraguay S.A. Ordinary 68 Oﬁcial Gilberto Aranda 333, Planta Alta casi Salvador del Mundo,

Asuncion, Paraguay

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

307

Group companies continued

Name Security

Effective %

Ownership Registered address

Subsidiaries where the effective interest is less than 100% continued

GlaxoSmithKline Pharmaceuticals Limited Equity (75%) 75 252 Dr Annie Besant Road, Mumbai, 400030, India

GlaxoSmithKline Philippines Inc Common 92.52 2266 Chino Roces Avenue, City of Makati, 1231, Philippines

GlaxoSmithKline S.A.E. Ordinary (91.2%) 91.2 Boomerang Ofﬁce Building – Land No. 46, Zone (J) – 1st District, Town

Center – 5th Tagammoe, New Cairo City, Egypt

GlaxoSmithKline Sante Grand Public SAS Ordinary 68 23 rue François Jacob, 92500, Rueil-Malmaison, France

GlaxoSmithKline Tuketici Sagligi Anonim Sirketi Nominative 68 Büyükdere Caddesi No. 173, 1.Levent Plaza B Blok, 1.Levent, Istanbul,

34394, Turkey

GlaxoSmithKline-Consumer Hungary Limited Liability

Company

Membership 68 H-1124, Csorsz utca 43, Budapest, Hungary

GSK Canada Holding Company Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GSK CH Kazakhstan LLP Charter Capital 68 32 A Manasa Str., Bostandyk District, Almaty, 050008, Kazakhstan

GSK Consumer Health, Inc. Common 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, DE, 19808, United States

GSK Consumer Healthcare Holdings (US) Inc. Common 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, DE, 19808, United States

GSK Consumer Healthcare Holdings No. 2 LLC (iii) Unit 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, DE, 19808, United States

GSK Consumer Healthcare Israel Ltd (iv) Ordinary 68 25 Basel Street, Petech Tikva 49510, Israel

GSK Consumer Healthcare Levice, s.r.o. Ordinary 68 Priemyselny Park Gena, Ul. E. Sachsa 4-6, 934 01, Levice, Slovakia

GSK Consumer Healthcare S.A. Ordinary 68 Route de I'Etraz, 1197 Prangins, Switzerland

GSK Consumer Healthcare Schweiz AG Ordinary 68 Suurstofﬁ 14, Rotkreuz, 6343, Switzerland

GSK Consumer Healthcare Services, Inc. Common 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

GSK Consumer Healthcare Singapore Pte. Ltd. Ordinary 68 23 Rochester Park, 139234, Singapore

GSK New Zealand Holding Company Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

GSK-Gebro Consumer Healthcare GmbH Ordinary (60%) 40.8 Bahnhofbichl 13, 6391 Fieberbrunn, Kitzbühel, Austria

Iodosan S.p.A. Ordinary 68 Via Zambeletti snc,Baranzate, Milan, 20021, Italy

Kuhs GmbH Ordinary 68 Barthstr. 4, München, 80339, Germany

Laboratorios ViiV Healthcare, S.L. Ordinary 78.3 Severo Ochoa, 2, Parque Tecnologico de Madrid, Tres Cantos, Madrid,

28760, Spain

Modern Pharma Trading Company L.L.C. Quotas (98.2%) 98.2 Amoun Street, PO Box 3001, El Salam City, Cairo, 11491, Egypt

N.C.H. – Nutrition Consumer Health Ltd (ii) Ordinary 68 14 Hamephalsim St, Petach Tikva, Israel

New PCH LLC Membership Interest 68 The Corporation Trust Company, Corporation Trust Center,

1209 Orange Street, Wilmington, Delaware, 19801, United States

P.T. SmithKline Beecham Pharmaceuticals A Shares; B Shares (0%) 99 Jl. Pulobuaran Raya, Kav. III DD/2,3,4, Kawasan Industri Pulogadung,

Jakarta, 13930, Indonesia

P.T. Sterling Products Indonesia A Shares; B Shares 68 Graha Paramita Building, 5th F, Jalan Denpasar Raya Blok D-2, Jakarta,

12940, Indonesia

Panadol GmbH Ordinary 68 Barthstr. 4, München, 80339, Germany

PF Consumer FZ-LLC Ordinary 68 3-6 Atlas Business Center, Dubai, United Arab Emirates

PF Consumer Healthcare 1 LLC Membership Interest 68 The Corporation Trust Company, Corporation Trust Center, 1209 Orange

Street, Wilmington, Delaware, 19801, United States

PF Consumer Healthcare B.V. Class A; Class B 68 Rivium Westlaan 142, 2909LD Capelle aan den IJssel, Netherlands

PF Consumer Healthcare Brazil Importadora e Distribuidora

de Medicamentos Ltda

Quota 68 Barueri, State of Sao Paolo, at Avenida Ceci, No. 1900, Block III,

Park 67, Tambore District, 06460-120, Brazil

PF Consumer Healthcare Canada ULC / PF Soins De

Sante SRI

Common 68 595 Burrad Street, Three Bentall Centre, P.O Box 49314, Suite 2600,

Vancouver, British Columbia Canada V7X 1L3

PF Consumer Healthcare Holding B.V. Ordinary 68 Rivium Westlaan 142, 2909LD Capelle aan den IJssel, Netherlands

PF Consumer Healthcare Mexico, S. de R.L. de C.V. Quota 68 Paleo de los Tamarindos no. 40, Piso 3, Bosques de las Lomas,

Cuajimalpa de Morelos, Mexico, 05120, Mexico

PF Consumer Healthcare New Zealand ULC Ordinary 68 Level 11, 21 Queen Street, Auckland Central, Auckland, 1010,

New Zealand

PF Consumer Healthcare Singapore Pte. Ltd Ordinary 68 80 Pasir Panjang Road, #16-81/82, Mapletree Business Centre,

117372, Singapore

PF Consumer Healthcare UK Limited Ordinary 68

Ramsgate Road, Sandwich, Kent, CT13 9NJ, England

PF Consumer Ireland Company Limited Ordinary 68 9 Riverwalk, National Digital Park, Citywest Business Park, Dublin,

24, Ireland

PF Healthcare Australia Pty Ltd Ordinary 68 82 Hughes Avenue, Emington, NSW 2115, Australia

Pﬁzer Consumer Healthcare AB Ordinary 68 Vetenskapsvagen 10, SE-191 90, Sollentuna, Sweden

Pﬁzer Consumer Healthcare GmbH Ordinary 68 Linkstrasse 10, 10785, Berlin, Germany

Pﬁzer Consumer Healthcare Italy S.r.l Quota (no stock) 68 04100 Latina, Via Isonzo 71, Italy

Pﬁzer Consumer Manufacturing Italy S.r.l. Quota (no stock) 68 90, Via Nettunese, 04011, Aprilia (Prov. di Latin), Italy

Other statutory disclosures continued

308

GSK Annual Report 2019

Name Security

Effective %

Ownership Registered address

Subsidiaries where the effective interest is less than 100% continued

Pﬁzer Laboratories PFE (Pty) Ltd. Common 68 Flushing Meadows Building, The Campus, 57 Sloane, Bryanston 2021,

South Africa

Pﬁzer PFE Colombia SAS Common 68 Avenida Suba No. 95-66, Bogota, Colombia

Pﬁzer Sante Familiale SAS Ordinary 68 23-25 Avenue du Docteur Lannelongue, 75014 Paris, France

PHIVCO Jersey II Limited (ii) (iii) (iv) (vii) Ordinary 78.3 IFC 5, St Helier, JE1 1ST, Jersey, United Kingdom

PHIVCO Jersey Limited (ii) (iii) (iv) (vii) Ordinary 78.3 IFC 5, St Helier, JE1 1ST, Jersey, United Kingdom

PHIVCO UK II Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

PHIVCO UK Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

PHIVCO-1 LLC LLC Interests 78.3 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

PHIVCO-2 LLC LLC Interests 78.3 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

PRISM PCH Limited Voting Shares; Non Voting

68 Ramsgate Road, Sandwich, Kent, CT13 9NJ, England

PT Glaxo Wellcome Indonesia A Shares; B Shares (0%) 95 Jl Pulobuaran Raya Kav III DD/2, 3, 4, Kawasan Industri Pulogadung,

Timur, Jakarta, 13930, Indonesia

PT GSK Consumer Healthcare Indonesia Ordinary 68 Graha Paramita Building, 5th F, Jalan Denpasar Raya Blok D-2, Kuningan,

JAKARTA SELATAN, 12940, Indonesia

PT. Bina Dentalindo (in liquidation) Ordinary 68 Gedung Graha Ganesha Lantai 3, Jl Raya Bekasi Km 17, No5, Jakarta

Timur 13930, Indonesia

Shionogi-ViiV Healthcare LLC (ii) Common Interests 78.3 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Sino-American Tianjin Smith Kline & French Laboratories

Ltd

Ordinary (55%) 55 Cheng Lin Zhuang Industrial Zone, Dong Li District, Tianjin, 300163,

China

SmithKline Beecham (Private) Limited Ordinary (99.6%) 67. 8 World Trade Center, Level 34, West Tower, Echelon Square,

Colombo 1, Sri Lanka

SmithKline Beecham Research Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

SmithKline Beecham S.A. Ordinary 68 Ctra de Ajalvir Km 2.500, Alcala de Henares, Madrid, 28806, Spain

SmithKline Beecham-Biomed O.O.O. Participation Interest (97%) 97 Leningradskiy Prospect 37A, Building 4, Floor 2, Premises XIV, Room 2,

Moscow, 125167, Russian Federation

Stafford-Miller (Ireland) Limited (vii) Ordinary 68 Clocherane, Youghal Road, Dungarvan, Co. Waterford, Ireland

Sterling Drug (Malaya) Sdn Berhad Ordinary 68 Lot 89, Jalan Enggang, Ampang/Hung Kelang Industrial Estate 68000

Ampang, Selangor, Darul Ehsan, Malaysia

Sterling Products International, Incorporated (ii) Common 68 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Stiefel Consumer Healthcare (UK) Limited Ordinary 68 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

Stiefel Egypt LLC (ii) Quota (99%) 99 Amoun Street, PO Box 3001, El Salam City, Cairo, 11491, Egypt

Stiefel Laboratories (Ireland) Limited (vii) Ordinary 68 Finisklin Business Park, County Sligo, Ireland

Treerly Health Co., Ltd Capital Contribution 68 Unit 01A, Room 3901, No 16. East Zhujiang Road, Tianhe District,

Guangzhou City, the PRC, China

Vesteralens Naturprodukter AB Ordinary 68 Uddevallavägen 3, SE-452 31, Strömstad, Sweden

Vesteralens Naturprodukter ApS Ordinary 68 Lautrupvang 8, 2750 Ballerup, Denmark

Vesteralens Naturprodukter AS Common 68 Drammensveien 288, 0283 Oslo, 1324 Lysaker, Norge, P.O Box No.3,

Norway

Vesteralens Naturprodukter OY Common 68 Tietokuja 4, FI-00330, Helsinki, Finland

ViiV Healthcare (South Africa) (Proprietary) Limited (ii) (iv) Ordinary 78.3 Flushing Meadows Building, The Campus, 57 Sloane Street,

Bryanston 2021, South Africa

ViiV HealthCare BV Ordinary 78.3 Huis ter Heideweg 62, 3705 LZ, Zeist, Netherlands

ViiV Healthcare Company Common 78.3 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

ViiV Healthcare Finance 1 Limited (iv) Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare Finance 2 Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare Finance Limited Ordinary; Redeemable

Preference

78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare GmbH Ordinary 78.3

Prinzregentenplatz 9, Munchen, 81675, Germany

ViiV Healthcare GmbH Ordinary 78.3 Talstrasse 3-5, 3053 Muenchenbuchsee, Switzerland

ViiV Healthcare Hong Kong Limited (ii) Ordinary 78.3 23/F Tower 6, The Gateway, 9 Canton Road, Harbour City, Tsimshatsui,

Kowloon, Hong Kong

ViiV Healthcare Kabushiki Kaisha Ordinary 78.3 1-8-1 Akasaka Minato-Ku, Tokyo, Japan

Group companies continued

Other statutory disclosures continued

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

309

Group companies continued

Name Security

Effective %

Ownership Registered address

Subsidiaries where the effective interest is less than 100% continued

ViiV Healthcare Limited Class A Shares, Deferred;

Class B Shares (0%);

Class C Shares (0%);

Class D1 (0%); Class D2

(0%); Class E 5% Cumulative

Preference (0%)

78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare Pty Ltd Ordinary 78.3 1061 Mountain Highway, Boronia, VIC, 3155, Australia

ViiV Healthcare Puerto Rico, LLC LLC Interests 78.3 Centro International de Mercadeo, 90 carr. 165 Torre 2, Suite 800,

Guaynabo, 00968, Puerto Rico

ViiV Healthcare S.r.l. Quota 78.3 Via Alessandro Fleming 2, Verona, 37135, Italy

ViiV Healthcare SAS Ordinary 78.3 23 rue François Jacob, 92500, Rueil-Malmaison, France

ViiV Healthcare sprl Ordinary 78.3 Site Apollo, Avenue Pascal 2-4-6, Wavre, 1300, Belgium

ViiV Healthcare Trading LLC (ii) Participation Interest 78.3 Leningradskiy Prospect 37A, Building 4, Floor 2, Premises XIV, Room 28,

Moscow, 125167, Russian Federation

ViiV Healthcare Trading Services UK Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare UK (No.2) Limited (ii) (iv) Ordinary 78.3 IFC 5, St Helier, JE1 1ST, Jersey, United Kingdom

ViiV Healthcare UK (No.3) Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare UK (No.4) Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare UK (No.5) Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare UK (No.6) Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare UK Limited Ordinary 78.3 980 Great West Road, Brentford, Middlesex, TW8 9GS, England

ViiV Healthcare ULC Common 78.3 3500 855-2nd Street SW, Calgary, AB, T2P 4J8, Canada

ViiV Healthcare Venture LLC LLC Interests 78.3 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

ViiVHIV Healthcare Unipessoal Lda Quota 78.3 Rua Dr Antonio Loureiro Borges No 3, Arquiparque, Miraﬂores, Alges,

1495-131, Portugal

Vog AU PTY LTD (ii) Ordinary; Redeemable

Preference

68 82 Hughes Avenue, Ermington, NSW, 2115, Australia

Winster Pharmaceuticals Limited (ii) Ordinary 46.4 2A Association Avenue, Ilupeju Industrial Estate, Lagos, PO Box 3199,

Nigeria

Wyeth Consumer Healthcare LLC Membership Interest 68 CT Corporation System, 600 N 2nd St, Suite 401, Harrisburg,

Pennsylvania, 17101, United States

Wyeth Pharmaceutical Co. Ltd Registered capital 68 4 Baodai West Road, Suzhou, Jiangsu Province, 215128, China

Wyeth Pharmaceuticals Company (viii) Capital Contribution 68 State Road No 3, Kilometer 141.3, Guayama, 00784, Puerto Rico

Associates

Apollo Therapeutics LLP Partnership Interest (25%) 25 Gunnels Wood Road, Stevenage SG1 2FX, England

GlaxoSmithKline Landholding Company, Inc. Common (40%) 39.9 2266 Chino Roces Avenue, City of Makati, 1231, Philippines

Index Ventures Life VI (Jersey) LP Partnership Interest (25%) 25 44 Esplanade, St. Helier, JE4 9WG, Jersey

Innoviva, Inc. Common (31.7%) 31.6 2000 Sierra Point Parkway, Suite 500, Brisbane, CA 94005,

United States

Kurma Biofund II, FCPR Partnership Interest (32%) 32 24 Rue Royale, 5e étage, 75008 Paris, France

Longwood Founders Fund LP Partnership Interest (28%) 28 The Prudential Tower, 800 Boylston Street, Suite 1555, Boston,

MA 02199, United States

Medicxi Ventures I LP Partnership Interest (26.2%) 26.2 25 Great Pulteney Street, Soho, London W1F 9ND, England

Joint Ventures

Chiron Panacea Vaccines Private Limited (ii) Equity Shares (50%) 50 708/718, 7th Floor, A Wing, Sagar Tech Plaza, Saki Naka, Andheri East,

Mumbai, Maharashtra, 400072, India

Qualivax Pte. Limited Ordinary (50%) 50 80 Robinson Road, #02-00, 068898 Singapore

Quell Intellectual Property Corp., LLC Membership Interest (34%) 34 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Qura Therapeutics, LLC Units (39.2%) 39.2 Corporation Service Company, 251 Little Falls Drive, Wilmington,

Delaware, 19808, United States

Other statutory disclosures continued

310

GSK Annual Report 2019

Key

(i) Directly owned by GlaxoSmithKline plc.

(ii) Dormant entity.

(iii) Tax resident in the UK.

(iv) Entity expected to be disposed of or removed.

(v) Incorporated in Sweden.

(vi) Consolidated as a subsidiary in accordance with section 1162 (4)(a) of the Companies Act 2006 on the grounds of dominant inﬂuence.

(vii) Exempt from the provisions of section 347 and 348 of the Companies Act 2014 (Ireland), in accordance with the exemptions noted in section 357 of that Act.

(viii) Principal business address in Puerto Rico.

(ix) Exempt from the provisions of Regulations 4-6 of the Partnership (Accounts) Regulation 2008, in accordance with the exemptions noted in Regulation 7 of that Regulation.

(x) The Company has provided an undertaking in accordance with Article 2:403 paragraph 1, sub-paragraph F of the Dutch Civil Code to asume joint and several liability for the acts of

Tesaro Bio Netherlands B.V.

Group companies continued

Other statutory disclosures continued

The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006

for the period ended 31 December 2019. Unless otherwise stated, the undertakings listed below are owned, either directly or

indirectly, by GlaxoSmithKline plc.

Name Security Registered address

Company

Number

UK registered subsidiaries exempted from audit

Burroughs Wellcome International Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00543757

Cellzome Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 05001893

Clarges Pharmaceuticals Limited Ordinary; Preference

(99.97%)

980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00100583

Domantis Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 03907643

Edinburgh Pharmaceutical Industries Limited Ordinary; Preference Shewalton Road, Irvine, Ayrshire, KA11 5AP, Scotland SC005534

Eskaylab Limited 10p Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00099025

Glaxochem (UK) Unlimited Ordinary; Ordinary B;

Ordinary C

980 Great West Road, Brentford, Middlesex, TW8 9GS, England 04299472

GlaxoSmithKline Consumer Healthcare Sri Lanka

Holdings Limited

Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 09400298

GlaxoSmithKline Consumer Healthcare (UK) (No.1) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00753340

GlaxoSmithKline Investment Holdings Limited (iv) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 07089743

GlaxoSmithKline Investment Services Limited (iv) Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 06968741

Glaxo Wellcome UK Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00480080

Mixis Genetics Limited (iv) Ordinary; Ordinary Euro 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 03225840

Montrose Fine Chemical Company Ltd Ordinary Shewalton Road, Irvine, Ayrshire, KA11 5AP, Scotland SC190635

SmithKline Beecham (Export) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 02860752

SmithKline Beecham (H) Limited Non-cumulative

non-redeemables;

Ordinary

980 Great West Road, Brentford, Middlesex, TW8 9GS, England 03296131

SmithKline Beecham (Investments) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00302065

SmithKline Beecham Marketing and Technical

Services Limited

Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00494385

SmithKline Beecham Nominees Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00503868

SmithKline Beecham (SWG) Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00190223

Smith Kline & French Laboratories Limited Ordinary

980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00052207

Stafford-Miller Ltd Ordinary; Non-Cumulative

Non Redeemable Preference

980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00318499

Stiefel Laboratories (Maidenhead) Ltd (iv) Ordinary Eurasia Headquarters, Concorde Road, Maidenhead, Berkshire,

SL6 4BY, England

05354860

Stiefel Laboratories (U.K.) Ltd Ordinary Eurasia Headquarters, Concorde Road, Maidenhead, Berkshire,

SL6 4BY, England

00831160

Tesaro UK Limited Ordinary 55 Baker Street, London, W1U 7EU, England 07890847

The Wellcome Foundation Limited Ordinary 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 00194814

ViiV Healthcare Overseas Limited Ordinary* 980 Great West Road, Brentford, Middlesex, TW8 9GS, England 07027385

* The company has an effective ownership in ViiV Healthcare Overseas Limited of 78.3%

In accordance with section 479C of the Companies Act 2006, the Company will guarantee debts and liabilities of the above UK subsidiary undertakings. As at 31 December 2019 the

total sum of these debts and liabilities is £16 million.

Investor information

Financial statements

Strategic report

Governance and remuneration

GSK Annual Report 2019

311

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 equivalent of tax depreciation.

American Depositary Receipt (ADR) Receipt evidencing title to an ADS. Each GSK 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.

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.

Equity Shareholders’ funds Shareholders’ equity.

Finance lease Capital lease.

Freehold Ownership with absolute rights in perpetuity.

The Group GlaxoSmithKline plc and its subsidiary undertakings.

GSK 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.

Novartis transaction The three-part inter-conditional transaction with Novartis AG involving the Consumer

Healthcare, Vaccines and Oncology businesses completed on 2 March 2015.

Ordinary Share A fully paid up ordinary share in the capital of the company.

Proﬁt Income.

Proﬁt attributable to shareholders Net income.

Share capital Ordinary Shares, capital stock or common stock issued and fully paid.

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 GSK exercises control.

Treasury share Treasury stock.

Turnover Revenue.

UK Corporate Governance Code As required by the UK Listing Authority, the company has disclosed in the Annual Report how

it has applied the best practice corporate governance provisions of the Financial Reporting

Council’s UK Corporate Governance Code.

Glossary of terms

312

GSK Annual Report 2019

2020 Remuneration policy report 141

2020 Remuneration policy summary 140

Accounting principles and policies 172

Acquisitions and disposals 222

Adjustments reconciling proﬁt after tax to operating

cash ﬂows 225

Affordability and availability 33

Annual General Meeting 2020 291

Approach to tax 53

Assets held for sale 201

Associates and joint ventures 188

Audit & Risk Committee Report 96

Business model 01

Cash and cash equivalents 201

Cash generation and conversion 65

CEO’s statement 04

Chairman’s statement 03

Chairman’s Governance statement 76

Chairman’s Remuneration annual statement 116

Climate-related ﬁnancial disclosure 46

Commitments 216

Composition, succession and evaluation 92

Consolidated balance sheet 167

Consolidated cash ﬂow statement 169

Consolidated income statement 166

Consolidated statement of changes in equity 168

Consolidated statement of comprehensive income 166

Consumer Healthcare 27

Consumer Healthcare products and competition 274

Contingent consideration liabilities 215

Contingent liabilities 216

Corporate Executive Team 82

Corporate governance 75

Corporate Responsibility Committee Report 109

Critical accounting policies 72

Data and engagement 39

Directors and senior management 139

Directors’ interests in shares 137

Directors’ statement of responsibilities 152

Dividends 192

Donations to political organisations and

political expenditure 298

Earnings per share 192

Employee costs 185

Employee share schemes 244

Environment 41

Ethics and values 37

Exchange rates 180

Executive Director remuneration 119

Finance expense 187

Finance income 187

Financial calendar 2020 291

Financial instruments and related disclosures 227

Financial performance 06

Financial position and resources 66

Financial statements of GlaxoSmithKline plc, prepared

under UK GAAP 252

Five year record 263

Glossary of terms 311

Goodwill 195

Group companies 299

Group ﬁnancial review 49

Independent Auditor’s report 154

Industry trends 12

Inventories 200

Investments in associates and joint ventures 198

Investor relations 295

Key accounting judgements and estimates 178

Key performance indicators 11

Legal proceedings 247

Major restructuring costs 186

Modern employer 35

Movements in equity 218

Net debt 203

New accounting requirements 179

Nominations Committee Report 92

Non-controlling interests 220

Non-controlling interests in ViiV Healthcare 51

Non-Executive Directors’ fees 136

Non-ﬁnancial information statement 48

Notes to the ﬁnancial statements 170

Operating proﬁt 184

Other intangible assets 196

Other investments 199

Other non-current assets 199

Other non-current liabilities 216

Other operating income/(expense) 183

Other provisions 214

Our Board 78

Our culture 10

Our long-term priorities 09

Our preparation for Brexit 48

Pensions and other post-employment beneﬁts 205

Pharmaceuticals 17

Pharmaceutical products, competition and

intellectual property 272

Pipeline 269

Presentation of the ﬁnancial statements 170

Principal Group companies 246

Principal risks and uncertainties 275

Property, plant and equipment 193

Quarterly trend 258

Reconciliation of net cash ﬂow to movement in net debt 226

Registrar 294

Related party transactions 222

Reliable supply 37

Remuneration governance 134

Remuneration report 119

Reporting framework 50

Responsible leadership 84

Right of use assets 194

Risk management 43

Science and technology 31

Science Committee report 107

Section 172 statement 111

Share capital and control 288

Share capital and share premium account 217

Shareholder information 288

Shareholder services and contacts 294

Stakeholder engagement 15

Taxation 189

Tax information for shareholders 292

Trade and other payables 202

Trade and other receivables 200

Treasury policies 71

Trust 30

Turnover and segment information 180

US law and regulation 296

Vaccines 23

Vaccine products, competition and intellectual property 273

Viability statement 47

Page Page

Index

GlaxoSmithKline plc was incorporated as an English

public limited company on 6 December 1999. We were

formed by a merger between Glaxo Wellcome plc and

SmithKline Beecham plc. GSK acquired these two

English companies on 27 December 2000 as part

of the merger arrangements.

Our shares are listed on the London Stock Exchange

and the New York Stock Exchange.

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’, ‘target’ 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,

dividend payments and ﬁnancial results. Other than in

accordance with its legal or regulatory obligations

(including under the Market Abuse Regulations, the

UK Listing Rules and the Disclosure and Transparency

Rules of the Financial Conduct Authority), the Group

undertakes no obligation to update any forward-looking

statements, whether as a result of new information, future

events or otherwise. The reader should, however, consult

any additional disclosures that the Group may make in any

documents which it publishes and/or ﬁles with the SEC.

All readers, wherever located, should take note of these

disclosures. Accordingly, no assurance can be given that

any particular expectation will be met and investors are

cautioned not to place undue reliance on the forward-

looking statements.

Forward-looking statements are subject to assumptions,

inherent risks and uncertainties, many of which relate to

factors that are beyond the Group’s control or precise

estimate. The Group cautions investors that a number of

important factors, including those in this document, could

cause actual results to differ materially from those

expressed or implied in any forward-looking statement.

Such factors include, but are not limited to, those discussed

under ‘Principal risks and uncertainties’ on pages 275 to

287 of this Annual Report. Any forward-looking statements

made by or on behalf of the Group speak only as of the date

they are made and are based upon the knowledge and

information available to the Directors on the date of this

Annual Report.

A number of non-IFRS measures are used to report the

performance of our business. These measures are deﬁned

on pages 50 to 52 and a reconciliation of Adjusted results

to Total results is set out on page 62.

The information in this document does not constitute an

offer to sell or an invitation to buy shares in GlaxoSmithKline

plc or an invitation or inducement to engage in any other

investment activities. Past performance cannot be relied

upon as a guide to future performance. Nothing in this

Annual Report should be construed as a proﬁt forecast.

Assumptions related to 2016-2020 outlook

In outlining the expectations for 2020 and the ﬁve-year

period 2016-2020, the Group has made certain

assumptions about the healthcare sector, the different

markets in which the Group operates and the delivery of

revenues and ﬁnancial beneﬁts from its current portfolio,

pipeline and restructuring programmes.

For the Group speciﬁcally, over the period to 2020, GSK

expects further declines in sales of Seretide/Advair. The

introduction of a generic alternative to Advair in the US

has been factored into the Group’s assessment of its

future performance. The Group assumes no premature

loss of exclusivity for other key products over the period.

The assumptions for the Group’s revenue, earnings and

dividend expectations assume no material interruptions

to supply of the Group’s products, no material mergers,

acquisitions or disposals, except for the acquisition of

Tesaro, the proposed divestment of Horlicks and other

Consumer Healthcare products to Unilever and the

formation of a new Consumer Healthcare Joint Venture

with Pﬁzer, all announced in December 2018, no material

litigation or investigation costs for the Company (save for

those that are already recognised or for which provisions

have been made), no share repurchases by the Company,

and no change in the Group’s shareholdings in ViiV

Healthcare. The assumptions also assume no material

changes in the macro-economic and healthcare

environment. The 2020 guidance and 2016-2020 outlook

have factored in all divestments and product exits since

2015, including the divestment and exit of more than

130 non-core tail brands (£0.5 billion in annual sales) as

announced on 26 July 2017 and the product divestments

planned in connection with the formation of the Consumer

Healthcare Joint Venture with Pﬁzer.

The Group’s expectations assume successful delivery of

the Group’s integration and restructuring plans over the

period 2016-2020, including the extension and

enhancement to the combined programme announced on

26 July 2017, the new Major restructuring plan announced

on 25 July 2018, the Consumer Healthcare Joint Venture

integration programme and the new Separation Preparation

programme. They also assume that the proposed

divestment of Horlicks and other Consumer Healthcare

products to Unilever closes in Q1 2020 and that the

integration and investment programmes following the

Tesaro acquisition and the Consumer Healthcare Joint

Venture with Pﬁzer over this period are delivered

successfully.

Material costs for investment in new product launches and

R&D have been factored into the expectations given. Given

the potential development options in the Group’s pipeline,

the outlook may be affected by additional data-driven R&D

investment decisions. The expectations are given on a

constant currency basis (2016-2020 outlook at 2015 CER).

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 Directors’ Report (for which see page

94), the Strategic report and the Remuneration report.

Under English law the Directors would be liable to the

company, but not to any third party, if one or more of these

reports contained errors as a result of recklessness or

knowing misstatement or dishonest concealment of a

material fact, but would otherwise not be liable. Pages 75

to 114, 152 to 153, and 275 to 310 inclusive comprise the

Directors’ Report, pages 1 to 74 inclusive comprise the

Strategic report and pages 115 to 150 inclusive comprise

the Remuneration report, each of which have been drawn

up and presented in accordance with and in reliance upon

English company law and the liabilities of the Directors in

connection with these reports shall be subject to the

limitations and restrictions provided by such law.

Website

GSK’s website www.gsk.com gives additional information

on the Group. Notwithstanding the references we make

in this Annual Report to GSK’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.