GlaxoSmithKline : Annual Report 2021 PDF - 4.8MB

Annual Report 2021

New ambitions for patients, shareholders and our people

In 2021, we made major progress on our journey towards the most significant corporate change for GSK in more than 20 years. We are on track to separate in 2022 to create two new leading companies, both with the opportunity to impact human health at scale and deliver compelling performance for shareholders.

GSK

GSK will unite science, talent and technology to get Ahead of disease Together. We will prioritise innovation in vaccines and specialty medicines, maximising the increasing opportunities to prevent and treat disease.

Haleon

Haleon will be a global leader 100% focused on consumer health. It will have a clear purpose to deliver better everyday health with humanity, and a focused strategy to deliver sustainable above-market growth and attractive returns to shareholders.

Step change in growth

• Expected sales growth of more than 5% and adjusted operating profit growth of more than 10% on a compound basis 2021-26
• R&D focused on the science of the immune system, human genetics and advanced technologies
• Positively impacting the health of more than 2.5 billion people over ten years
• Leading ESG performance to be maintained
• • We set out our new purpose, growth commitments and R&D catalysts at an investor update in June 2021. For more detail see gsk.com

Strong prospects for growth

• Exceptional portfolio of category-leading brands with attractive global footprint and competitive capabilities
• Compelling strategy to outperform in a growing, £150 billion plus sector which is more relevant than ever
• 4-6%annual organic sales growth in the medium term, sustainable moderate margin expansion and high cash conversion
• Attractive growth profile with capacity to invest and deliver shareholder returns
• • We set out our strategy, capabilities and growth ambitions at a Consumer Healthcare capital markets day in February 2022. For more detail see gsk.com

Contents

Strategic report		Board committee information	93	Financial statements	168
Our business model	01	Board architecture	94	Notes to the financial statements	172
2021 performance summary	02	Board activity	95	Financial statements of
Chair's statement	03	Board progress in 2021	96	GlaxoSmithKline plc prepared
CEO's statement	05	Board's approach to continuous		under UK GAAP	252
Financial performance	07	engagement	99
Our long-term priorities	10	Board-led purpose and culture	102	Investor information
Our culture	11	Board performance	103	Quarterly trend	258
Key performance indicators	12	Board committee reports	104
Five-year record	263
Our external environment	13	Section 172 statement	116
Product development pipeline	269
Innovation	17	Directors' report	117
Products, competition and
Performance	29
Remuneration report		intellectual property	272
Trust	34
	Principal risks and uncertainties	275
Consumer Healthcare	41	Chair's annual statement	120
Share capital and share price	288
Stakeholder engagement	44	Annual report on remuneration	125	Dividends	290
Risk management	46	2022 Remuneration policy summary	143	Financial calendar 2022	291
Group financial review	55	2022 Remuneration policy report	144	Annual General Meeting 2022	291
Corporate governance		Financial statements		Tax information for shareholders	292
		Shareholder services and contacts	294
The Board and GSK Leadership Team	83	Directors' statement of		US law and regulation	296
Chair's Governance statement	89	responsibilities	154	Group companies	299
Board roles and responsibilities	92	Independent Auditor's report	156	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-International Financial Reporting Standards (IFRS) measures to report the performance of our business. Total reported results represent the Group's overall performance under IFRS. 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 56 and 59 and reconciliations to the nearest IFRS measures are on pages 70 to 73.

Our business model

As we prepare for a new future, we continue to help improve the health of hundreds of millions of people around the world by discovering, developing and manufacturing innovative medicines, vaccines and consumer healthcare products.

report Strategic

What we do

We develop and deliver medicines, vaccines and consumer healthcare products that impact human health at scale. Our operations span the value chain from identifying, researching, developing and testing ground-breaking discoveries, to regulatory approval, manufacturing and commercialisation.

Central to our success are our people: experts in science, technology, manufacturing, regulation, intellectual property and commercialisation. We also collaborate with world-leading experts and form strategic partnerships to complement our existing capabilities.

The value we create: now and in the future

and Governance

The greatest contribution we make is to improve the health of people around the world. In 2021 that included delivering

1. billion medicines, over 767 million vaccines1 and 3.7 billion consumer healthcare products. Looking ahead, GSK has a clear ambition to positively impact the health of more than

1. billion people over the next ten years.

We create value for shareholders by investing in our business to provide shareholder returns, and in 2021 we paid a dividend of 80 pence per share. We have made new commitments

to growth and a step change in performance over the next five years.

We aim to be a modern employer, developing our people and offering a broad range of benefits, including preventative healthcare services, that help us attract and retain the best people.

We employ over 90,000 people across 92 countries and work directly with 37,500 suppliers. In 2021 we paid £1.3 billion in corporation tax, as well as a significant amount of other business and employment-related taxes.

remuneration

statements Financial

Delivering strategic transformation by prioritising Innovation, Performance and Trust

In recent years, we have transformed GSK to improve performance, strengthen capabilities and prepare for a new future. We have done this by prioritising Innovation, Performance and Trust - across the entire company - driving a multi-year programme to improve R&D productivity, commercial execution, Group structure and capital allocation. This is underpinned by a new culture with more ambition and accountability.

Innovation is critical to how we improve health and create financial value. In 2021, our total R&D expenditure was £5.3 billion, up by 3.5% AER on 2020. We have a robust late-stage R&D pipeline with many assets having the potential to be first or best in class. We continue to believe the rapid convergence of science and technology in biopharmaceuticals provides significant opportunity and is why our R&D will continue to focus on the science of the immune system, human genetics and use of advanced technologies.

Performance 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 success. Over the next five years, with 2021 as a base year, we expect GSK to deliver highly attractive growth with sales and adjusted operating profit of more than 5% and more than 10% respectively on a compound basis.

Trust underpins everything we do. We have maintained our acknowledged leadership in environmental, social and governance (ESG) issues, demonstrated by our sector-leading position in the Dow Jones Sustainability Index and our longstanding leadership in the Access to Medicine Index.

We remain deeply committed to addressing the issues that matter for the sustainability of our company, including pricing and access, global health, the environment, and inclusion and diversity, working with integrity and care.

information Investor

1 Including AS03 adjuvant sales

GSK Annual Report 2021 01

2021 performance summary

Strong commercial execution drives growth across Pharmaceuticals, Vaccines and Consumer Healthcare (excluding divestments/brands under review)

• £34.1 billion Group turnover stable at AER, +5% CER
• Pharmaceuticals £17.7 billion +4% AER, +10% CER; new and specialty medicines £10 billion +20% AER, +26% CER
• Vaccines £6.8 billion -3% AER, +2% CER
• COVID-19solutions sales £1.4 billion
• Consumer Healthcare £9.6 billion -4% AER, stable CER (+4% excluding brands divested/under review)

Cost discipline supports delivery of adjusted EPS growth

• Total EPS 87.6p -24% AER, -13% CER
• Adjusted EPS 113.2p -2% AER, +9% CER; contribution to growth from COVID-19 solutions +8% AER, +9% CER
• Total operating profit £6.2 billion -20% AER, -9% CER
• Adjusted operating profit £8.8 billion -1% AER, +9% CER
• Dividend of 80p

Continued momentum in R&D delivery and strengthening of pipeline

• Three major product approvals; 8 phase III starts; 22 vaccines and medicines in pivotal trials
• Strong pipeline of 21 vaccines and 43 medicines, many of which offer potential best or first-in-class opportunities for patients
• 20+ deals executed securing access to novel clinical programmes including in immuno-oncology,immuno-neurology and flu, plus technologies that expand our capabilities in human genetics and artificial intelligence/machine learning (AI/ML)

On track to create two new leading companies through demerger in mid-2022

• New GSK investor update in June 2021 set out our new purpose, growth commitments and R&D catalysts. For detail see gsk.com
• Consumer Healthcare capital markets day in February 2022 highlighted our strategic priorities, key growth drivers and detailed financial information. For detail see gsk.com

Leading ESG performance

• 1st in the pharmaceutical industry for Dow Jones Sustainability Index
• 1st in the Access to Medicine Index
• Gold recognition in S&P's Sustainability Yearbook
• A- in CDP Climate Change

02 GSK Annual Report 2021

Chair's statement

We made significant progress towards demerging GSK into two leading and competitive companies in mid-2022.

report Strategic

GSK has been delivering a programme of fundamental strategic transformation since Emma started as CEO five years ago, designed to tackle the root causes of the company's long-term underperformance, including on shareholder returns.

The Board is pleased that under Emma's leadership 2021 saw further progress against the clear priorities set to enable this: improving the pipeline and R&D productivity, sharpening commercial execution and cost discipline and tackling the Group's structure and capital allocation priorities, underpinned by a shift in culture.

Building on the significant progress made over this period, I believe we are now firmly on track to demerge GSK into two world-class companies in mid-2022 - one focused on pharmaceuticals and vaccines and one focused on consumer healthcare.

2021 delivery

The Board remains focused on ensuring GSK's fundamentals continue to be enhanced to ensure both companies are fully competitive at the point of split.

While the COVID-19 pandemic continued to mean a highly dynamic operating environment, the Board was pleased the company exceeded its earnings per share guidance set at the start of the year. This was achieved through over-delivery across the business, including excellent commercial execution in key markets and therapy areas, showing our ability to compete and grow market share. The Board was also pleased to see the commercial performance and patient impact of Xevudy, our leading monoclonal antibody for COVID-19 developed through our partnership with Vir Biotechnology.

Savings programmes announced in early 2020 have delivered and, as a result, GSK's cost base is now competitive versus our peers. Capital allocation priorities are clear - to invest in the R&D pipeline, new product launches, and delivering returns to shareholders.

We have made considerable advances on our distinctive approach to R&D based on the science of the immune system, human genetics and advanced technologies under our Chief Scientific Officer (CSO) Hal Barron. Tony Wood will transition into the role of CSO from August as part of a carefully considered succession plan and will build on the significant progress already made. Tony is one of the world's leading chemists and has an impressive track record of medicine development over his 30-year career in the UK and US.

Progress was started to be reflected in the share price performance during 2021. However, the Board (and management) recognise that sustaining this over the long term will depend on consistent performance, delivery and further strengthened competitiveness.

Targets for sustained performance

As well as performance in-year, the Board maintains a clear focus and oversight of the company's strategy and plans to separate which is proposed, subject to shareholder approval, to happen in mid-2022.

At the investor update in June 2021, the purpose and strategy of new GSK was set out and clear performance targets for sales and operating profit margin growth, beginning in 2022, were communicated. If achieved, these would represent top quartile performance in our sector. Similar stretching ambitions are being set for the consumer health business.

Of course, management must now deliver against the targets set. And we are clear remuneration must be tied to enhancing shareholder value. As such, we are linking executive remuneration to reward for outperformance. Further details of these proposals are laid out later in this report and there will be a chance for shareholders to vote on them at our AGM in May.

In addition to what new GSK does, the Board is fully focused on how the company operates, through a clear agenda for ESG (environmental, social, governance) leadership. GSK has a strong tradition to build on in these areas including maximising access to medicines across the world and ensuring further progress on these matters will be a priority.

remuneration and Governance

statements Financial

information Investor

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