Annual Report 2020 - GSK

1 Annual Report 2020 ContentsStrategic reportOur 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 16 Innovation 18 Performance 28 Trust 33 Risk management 43 Group financial review 50 Corporate GovernanceChairman s Governance statement 78 The Board 80 Corporate Executive Team 83 Board architecture 85 Board roles and responsibilities 86 Board activity and principal decisions 87 Our purpose.

2 Values and culture 90 The Board s approach to engagement 91 Board performance 94 Board Committee information 96 Our Board Committee reports 97 Section 172 statement 108 Directors Report 109 Remuneration reportChairman s Annual statement 112 Annual Report on remuneration 1142020 Remuneration policy summary 133 Financial statementsDirectors statement of responsibilities 140 Independent Auditor s Report 142 Financial statements 154 Notes to the financial statements 158 Financial statements of GlaxoSmithKline plc prepared under UK GAAP 238 Investor informationQuarterly trend 244 Five-year record 249 Product development pipeline 255 Products, competition and intellectual property 258 Principal risks and uncertainties 261 Share capital and share price 276 Dividends 278 Financial calendar 2021 279 Annual General Meeting 2021 279 Tax information for shareholders 280 Shareholder services and contacts 282US law and regulation 284 Group companies 287 Glossary of terms 299We are a science-led global healthcare companyCautionary statementSee the inside back cover of this document for the cautionary statement regarding forward-looking statements.

3 Non-IFRS measuresWe 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 51 to 53 and reconciliations to the nearest IFRS measures are on pages 64 and 68. turnover and specialty medicines 9major pipeline approvals2ndin the pharmaceutical industry for Dow Jones Sustainability Index1stin the Access to Medicine Index 80pDividend 2020 performance summaryAER + 1% CER +3%AER + 11% CER +12% operating profit 7.

4 8 b nTotal operating profit AER +12% CER +15%AER - 1% CER +2% earnings per share earnings per shareAER +23% CER +26%AER - 6% CER - 4%Investor informationFinancial statementsStrategic reportGovernance and remunerationGSK Annual Report 2020 01 Our business modelEvery day, we help improve the health of millions of people around the world by discovering, developing and manufacturing innovative medicines, vaccines and consumer healthcare operations span the value chain from identifying, researching, developing and testing ground breaking discoveries, to regulatory approval, manufacturing and commercialisation. We remained resilient through a challenging year for the world by being agile and maintaining focus on our purpose and strategic long-term priorities.

5 Central to our success are our people: experts in science, technology, regulation, intellectual property and commercialisation. We also collaborate with world-leading experts and form strategic partnerships to complement our existing capabilities. Our purpose and strategyOur purpose is to improve the quality of human life by helping people do more, feel better and live longer. It guides all of our actions and is key to the delivery of our strategy to bring differentiated, high-quality and needed healthcare products to as many people as possible, preventing and treating disease and keeping people well with our scientific and technical know-how and talented people.

6 Our long-term prioritiesOur priorities of Innovation, Performance and Trust are underpinned by our ambition to build a more purpose and performance driven culture, aligned to our values patient focus, transparency, respect and integrity and expectations courage, accountability, development and is critical to how we improve health and create financial value. In 2020 Total R&D expenditure was billion, which was of turnover, and an increase of 12% (AER and CER) from the previous year. On an Adjusted basis, R&D expenditure was billion ( of turnover), 6% higher at AER, 7% higher at CER, than in 2019. On a pro-forma basis, Adjusted R&D expenditure grew 6% CER compared with 2019.

7 In Pharmaceuticals and Vaccines, we focus on science related to the immune system, human genetics and advanced technology. In Consumer Healthcare we leverage our scientific expertise and deep consumer insights to create healthcare products that meet consumer demands. As a research-based healthcare company we rely on intellectual property protection to help ensure a reasonable return on our investments so we can continue to research and develop new and innovative is delivered by investing effectively in our business and our people and executing competitively. Our ability to launch new products successfully and grow sales from our existing portfolio is key to our commercial is also critical to our success.

8 We are a responsible company and commit to use our science and technology to address health needs, make our products affordable and available, and be a modern employer. Our 13 public commitments support our Trust priority and cover a broad range of environmental, social and governance (ESG) aspects. The commitments are designed to help us respond to ESG challenges and opportunities within our industry and society more broadly and contribute to many of the UN Sustainable Development Goals particularly Goal 3: ensure healthy lives and promote wellbeing. The value we createBy delivering on our purpose, the greatest contribution we make is to improve the health of people around the world.

9 In 2020 that included delivering billion packs of medicines, over 580 million vaccine doses and billion consumer healthcare our shareholders , as part of our capital allocation framework, we invest in our business to provide shareholder returns . In 2020 we paid a dividend of 80p per share and delivered billion of free cash make a positive contribution to the communities in which we operate. We employ over 94,000 people across 96 countries and work directly with 36,000 suppliers. In 2020 we paid billion in corporation tax. We also pay a significant amount of other business and employment related taxes. We aim to be a modern employer and offer a broad range of employee benefits, including preventative healthcare services, so that we are able to attract and retain the best people.

10 02 GSK Annual Report 2020 Creating two new companiesIn early 2020, consistent with our strategic priorities and previous announcements, we started a two-year programme to prepare GSK for separation into two new leading companies: New GSK, a new biopharma company, focused on specialty medicines and vaccines with an R&D approach focused on the science related to the immune system, the use of human genetics and new technologies; and a new leader in consumer healthcare with category-leading power brands and innovation based on science and consumer are on track for separation into new standalone Biopharma and Consumer Healthcare companies in 2022. The programme is using the unique catalyst of separation to reset the capabilities and cost base for both companies, and help support delivery of the significant value creation opportunities we see in both New GSK and new Consumer New GSK, we see a clear opportunity to drive a common approach to R&D as the science related to the immune system converges across both pharmaceuticals and vaccines.