made by Saadry Dunkel

Answering the Questions that Matter

Author: Saadry Dunkel
Date: 26.11.2008
Title: GSK Annual Report 2007 .
Harvard Referencing Source System:
Saadry DUNKEL. 2008.GSK Annual Report 2007. [ONLINE] Available at: [Accessed 07 April 15].

Answering the Questions that Matters – GSK Annual Report 2007



GlaxoSmithKline plc is pharmaceutical company stated in the United Kingdom, but it has a very important impact internationally because it says to be the second biggest pharmaceutical company in the world. With the creation of new products every year, GSK is holding on to a very competitive market, with the emergence of the financial crisis and competition from generic products, GSK has to show more than ever that they are one of the best pharmaceutical company.

Primarily, I think the Business Review in GSK’s Annual Report provides essential information as it shows the main aspects of the strategy company and economic key factors also with the financial figures ended December 31st, 2007. I believe that this annual report would certainly be of great interest to the shareholders; however, it could certainly interest investors, financial analyst, employee competitors, health agencies and government entity.

While reading the Business Review, I was able to distinct four keys aspects of the business performance.

  1. Optimising the performance of marketed products[1] and succeed to register
  2. Research for the best employees with high integrity to attract and retain the best
  3. Maximising total shareholder return”.[2]
  4. Responding to the demand of healthcare all around the world including in developing

Furthermore, one can use the segmental analysis to understand more of the strategic management of the company. The segmental analysis provided by the annual report of GSK is presented by business sectors and after by geographical sectors.

Primarily, the business sector:

Divide in two parts, the Pharmaceuticals and the Consumer Healthcare. On the table [3] below we can see that for the year 2007, the contribution of the pharmaceuticals shows (£m) 19,233 and for that of the consumer healthcare we have (£m) 3,483.

We can clearly see that the main activity is pharmaceutical business; I believe that the presentation of the turnover by therapeutic area is best illustrated by the table [4] below. However, if one wishes to look for more specific details; I recommend a look at the presentation of the turnover of the pharmaceutical business by products illustrated on page 37 of the annual report 2007. With that table it is easy to see the contribution of each product to the turnover and thus, have a better understanding upon the potential or the risk of GSK.

Secondly, the geographical sector

The turnover is cut into geographical markets, describing the proportion of each market towards the total turnover. We notice three emerging figures, USA, Europe and another group named International. From this table, we can have a good perspective of GSK’s markets. I found interesting to see how UK only counts for only 4.3% of the entire turnover; knowing that GSK is actually an English company.

One indirect competitor is Covidien Ltp, it’s a British company that compete with GSK on the pharmaceutical market. The annual report of Covidien Ltp for the year ended 31st December 2007, present a format that is less focus on the design than that of GSK’s. In the end, they both are complete reports that present detailed information related to Business activities. Since they both follow the British Regulation, I believe that one is not more informative than the other.

GlaxoSmithKline plc has been audit by PricewaterhouseCoopers LLP, regarding the year ended 31st December 2007. The company will probably be auditing GSK next year because “Resolutions will be proposed to re-appoint PricewaterhouseCoopers LLP as auditors[5] Furthermore, I don’t read any words stating that PricewaterhouseCoopers present his resignation, consequently I assume that they have been elected at the annual general meeting 2008, on 21st May 2008.

PricewaterhouseCoopers did an audit of GSK’s figures, according to UK regulation and presentation format, for the year ended 2007. By mean, they consider the annual report of GSK to be in concordance with the legal and regulatory requirements of the “United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31st December 2007.”[6]

In general, the external auditing company should evaluate with objectivity the company audited; by law, they are required to emphasises and declare any parties, data or figures, which they believe, are hindering the veracity of the financial statement. Furthermore, they should point out if the format or presentation of the annual report has not been prepared in accordance with legal accounting rules.

In this report, PricewaterhouseCoopers do not make any assessment stating above mentioned remarks. I found rather frustrating that in their report, they don’t take more responsibilities stating positively that the financial reports are in conformity with UK’s regulation.

The pharmaceutical business is a very competitive market; the development and the approval of new products are long and expensive procedures, for a result that is most of the time uncertain. Additionally, the completion arose with the creation of generic products. Moreover, we have also the problem of some government intervention on the price of sale of GSK products (i.e. “the Australian business was adversely impacted by government pricing and lower government orders for Relenza.”)[7] Unfortunately, as we have seen with Avandia in 2007, the risk of publicity that discriminate a product of GSK is always there.

Sales of the Avandia product group declined 29% following the publication of an article in the New England Journal of Medicine in May, which suggested there may be a cardiovascular risk associated with Avandia. Following clarification from the FDA in October, there is now a new approved label for Avandia.[8]

As for the risk from the global financial crisis, I don’t believe it to be so much of a threat; most of GSK’s sells are pharmaceutical products for healthcare. Thus, the demand for healthcare will not vary a lot since healthcare is a primary need. Furthermore, I think it’s reassuring to trust a company that has a big structure such as GSK. This financial crisis might be of great opportunity to buy or take participation at lower cost on competitors.

Research and development (R&D) is the most important department of pharmaceutical company, they are the main organ of GSK wealth (“16.7% of pharmaceutical turnover[9]). We can see that the cost of this department has declined from £m 3,457 in 2006 to £m 3,327 in 2007. In fact, we have notice that GSK has reduced cost on research and development (R&D) expenditure by 4%. As we known, R&D department is one of the key factors to the success of future profitability of GSK; without new products GSK won’t make any profit.

Although, GSK start an Operational Excellence program (OE) aimed to improve the profitability of GSK products. The company assure us that they will keep on investing “in key areas of future growth, such as biopharmaceuticals, oncology, vaccines, neuroscience and emerging markets[10]

Moreover, GSK explain that the decrease (3%[11]) in R&D expenditure is mainly due to the restructuration of previous years activities. Furthermore, it seems like GSK is spending more on advertising we have notice an increase of (2%[12]) in the advertising and promotion department in 2007.

I would have prefers to analyse an increase of cost in R&D, which might be consider as a long term investment in order to secure future profitability (depending of the developing of new products) rather than to invest on advertising and new restructuration. Which will cost around £ 1.5 billion [13] between the year 2007 till 2010 for a pre-tax saving of only £m 700 [14].

I think it’s very valuable for them to try to facilitate the access of medicine and healthcare for everyone, even those with limited financial resources, especially for developed world. I believe that GSK ethics is demonstrated throw several point:

  • GSK shows involvement on the fight against Global Warming, coming up with plans and strategy in order to reduce
    • (i.e. the fact that, they publish their annual report with material: “using sawmill residues and forest thinning […] chlorine-free[15].)
  • GSK need animal for their research, they try to reassure consumer by allowing them to access to information regarding their policy:
    • GSK say that they will “only uses animal where there is no alternative and only in the number required for each [16]
  • When recruiting new employee GSK is very concern towards ethical and integrities
    • The GLS state that 91% of GSK employee believed that they respect every ethical regulation; and 82% were willing to “report any unethical practice”[17].



GSK’s Annual Report provides a series of useful information on the form of ratios. Those ratios are key factors when it comes to analyse the business performance of one company. I denoted three main ratios, the profitability, the financial gearing and the earning per share. The table above provide the three ratios, a summarized version can be found on the graph on page 10. I believe that they would be very useful for an investor. From the information found on page 10, we can have a clear view of the decrease of turnover and the constant increase of earning per share while we can relate to the total shareholder return that isn’t quite following the FSTE 100.

Furthermore, those ratios are very useful when we want to compare the financial performance of GSK with a competitive company. In fact, it is not possible to compare two financial statements from two different companies; mainly because they don’t have the same capital, same amount of resource and sometimes they only compete for one product. Besides, there are not many companies as big as GSK. Thus, the use of this ratio is a key for comparison.

From the Cash Flow Statement [18], the generate cash decrease from operations stand at £m 8,080 in 2007, and where at £m 8,203, in 2006. While, the net cash inflow from operating activities is increasing each year. The most significant uses of cash where consequently towards, investing activities (£m 3,009) and the purchases of Treasury shares (£m 3,538). I understand that they are mainly investing in research and development program.

The Cash Flow as the ability to provide information’s that describes the decision and strategy of the company; such as the investment, the management, the capital and the financial activities. The Cash Flow is a very specific tool; it contains all the purchases and sells of products, they also give a detailed analysis upon the dividends and the overdrafts situation. As opposed to, the income statement that is a more of a summarized version of every activity regarding cost and income; the income statement is more concern towards the profit, the taxation, the total turnover, and the dividends.

I believe that GSK should have mentioned that they were about to buy one of their main competitor, Pfizer plc (see annexe). Besides that, I think GSK annual report for the year ended 2007, is really complete. Considering GSK’s figures, I believe it to be a safe investment; they are reassuring because of their awareness regarding primary need for today’s needs but also for our future needs. They response very positively to ethical standard and their policy towards shareholders information or request, is well managed.


Annexe: “URCH Publishing: GlaxoSmithKline Will Overtake Pfizer to Become World’s Largest Pharmaceutical Company by 2012

News source: Business Wire

There will be major changes in the global pharmaceutical market and key changes in the top ten company list by 2012, says a new report from URCH Publishing, a leading provider of pharmaceutical industry business information.

The report, Pharmaceutical Market Trends, 2008 – 2012 – Key market forecasts and growth opportunities, which is published today, forecasts that Pfizer will fall from first to third place in the coveted list. The list in 2012 will be headed by GlaxoSmithKline (GSK) followed by Roche. Pfizer was the leading company in 2007 with a market share of 6.2%. GSK was in second position with a 5.4% market share and Roche held a share of 4.3%.

The top ten companies, ranked by pharmaceutical sales, generated total sales of $284 billion in 2007. “Total pharmaceutical sales from these companies accounted for more than 40% of the total market,” said Steve Seget the report’s author. “However, only two of the top ten pharmaceutical corporations in 2007 are forecast to grow at a rate above the overall pharmaceutical market over the next five years; Roche with a CAGR of 6.2% and Novartis with a CAGR of 6.1%,” he added.

The report also concludes that Johnson & Johnson and Merck will suffer stagnant growth in the four year period.

The global pharmaceutical market is forecast to grow to $929 billion in 2012, an equivalent CAGR of 5.5% over the next four years. The 142 page study says future sales growth will remain limited by high prescription drug co-pays for insured consumers, the growing availability of generic drugs and a lack of new blockbuster drugs to replace the leading products scheduled to lose patent protection.

“Pharmaceutical Market Trends, 2008- 2012 – Key market forecasts and growth opportunities (3rd Edition)” is available from URCH Publishing. Find more details at:

About URCH Publishing Ltd (


URCH Publishing Ltd is an independent business information publisher dedicated to delivering quality information products to the global pharmaceuticals industry. For more information contact URCH Publishing on +44-(0)-20-7060-1099 or email service(@)
Press review copies may be available on request.


URCH Publishing Ltd, 54 Maltings Place, 169 Tower Bridge Road, London, SE1 3LJ, U” [19]




Online Annual Reports [PDF]

GlaxoSmithKline Plc, Annual Report 2007 [online] Available at: [Accessed 12 November 2008]

Covidient Ltp, Annual Report 2007 [online] Available at : lReport.pdf [Accessed 17st November 2008]


URCH Publishing Ltd, 2007. URCH Publishing: GlaxoSmithKline Will Overtake Pfizer to Become World’s Largest Pharmaceutical Company by 2012. [Online article](Published: 7th November 2008) Available at: http://www.genengn [Accessed on 12th November 2007]



[1] GlaxoSmithKline Plc, Annual Report 2007 (2007, p10)
[2] GlaxoSmithKline Plc, Annual Report 2007 (2007, p10)
[3] GlaxoSmithKline Plc, Annual Report 2007 (2007, p12)
[4] GlaxoSmithKline Plc, Annual Report 2007 (2007, p32)
[5] GlaxoSmithKline Plc, Annual Report 2007 (2007, p68)
[6] GlaxoSmithKline Plc, Annual Report 2007 (2007, p160)
[7] GlaxoSmithKline Plc, Annual Report 2007 (2007, p106)
[8] GlaxoSmithKline Plc, Annual Report 2007 (2007, p39)
[9] GlaxoSmithKline Plc, Annual Report 2007 (2007, p40)
[10] GlaxoSmithKline Plc, Annual Report 2007 (2007, p104)
[11]GlaxoSmithKline Plc, Annual Report 2007 (2007, p41)
[12]GlaxoSmithKline Plc, Annual Report 2007 (2007, p41)
[13]GlaxoSmithKline Plc, Annual Report 2007 (2007, p41)
[14]GlaxoSmithKline Plc, Annual Report 2007 (2007, p41)
[15]GlaxoSmithKline Plc, Annual Report 2007 (2007, p184)
[16]GlaxoSmithKline Plc, Annual Report 2007 (2007, p16)
[17]GlaxoSmithKline Plc, Annual Report 2007 (2007, p22)
[18]GlaxoSmithKline Plc, Annual Report 2007 (2007, p92)
[19] URCH Publishing Ltd, 2007. URCH Publishing: GlaxoSmithKline Will Overtake Pfizer to Become World’s Largest Pharmaceutical Company by 2012. [Online article](Published: 7th November 2008) Available at: htt p://www. gen engnews. com/n ews/bnitem. asp x?n ame= 4 499 2 38 7 & chid =0 &taxid= 1 [Accessed on 12th November 2007]