TIDMAG99
RNS Number : 2575X
GlaxoSmithKline Capital PLC
26 April 2019
Publication of GlaxoSmithKline Capital plc's
Annual Report 2018
Today, 26 April 2019, GlaxoSmithKline Capital plc published on
the GlaxoSmithKline Group website, www.gsk.com, its Annual Report
in respect of the year ended 31 December 2018.
In compliance with Listing Rule 9.6.1 of the UK Financial Conduct
Authority ("FCA"), copies of GlaxoSmithKline Capital plc's 2018
Annual Report, have been submitted to the UK Listing Authority's
National Storage Mechanism and will shortly be available for inspection
at http:/www.morningstar.co.uk/UK/NSM.
In accordance with the FCA's Disclosure and Transparency Rules
4.1 and 6.3.5, Appendix A to this announcement contains GlaxoSmithKline
Capital plc's 2018 Annual Report, which includes a description
of the principal risks and uncertainties affecting it together
with a responsibility statement.
V A Whyte
Company Secretary
26 April 2019
Cautionary statement regarding forward-looking statements
Under the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995, GlaxoSmithKline plc (GSK) and the
company caution investors that any forward-looking statements
or projections made by GSK and the company, including those made
in this announcement, are subject to risks and uncertainties that
may cause actual results to differ materially from those projected.
Such factors include, but are not limited to, those described
under Item 3.D "Principal risks and uncertainties" in GSK's Annual
Report on Form 20-F for 2018.
GlaxoSmithKline Capital plc
(Registered number: 2258699)
Annual Report
for the year ended 31 December 2018
Registered office address:
980 Great West Road
Brentford
Middlesex
TW8 9GS
GlaxoSmithKline Capital plc
(Registered number: 2258699)
Annual Report
for the year ended 31 December 2018
Contents
Pages
Strategic report 1-2
Directors' report 3-6
Independent auditors' report 7-13
Income statement 14
Statement of other comprehensive income 15
Balance sheet 16
Statement of changes in equity 17
Cash flow statement 18
Notes to the financial statements 19-32
GlaxoSmithKline Capital plc 1
(Registered number: 2258699)
Strategic report for the year ended 31 December 2018
The Directors present their Strategic report on GlaxoSmithKline Capital
plc (the "Company") for the year ended 31 December 2018.
Principal activities and future developments
The Company is a member of the GlaxoSmithKline Group (the "Group").
The principal activities of the Company during the financial year
were the issuance of notes under the Group's European Medium Term
Note programme and US shelf registration and the provision of financial
services to other companies within the Group.
The Directors do not envisage any change to the nature of the business
in the foreseeable future.
Review of business
At 31 December 2018, the Company had in issue GBP11,357,478,000 European
Medium Term Notes and GBP3,137,588,000 US Medium Term Notes (2017:
GBP9,026,788,000 and GBP1,473,973,000 respectively) which mature
at dates between 2019 and 2045. All notes currently in issue pay
interest on a fixed rate basis, with the exception of the EUR750
million (GBP676 million) 2020 European Medium Term Note and $750
million (GBP591 million) 2021 US Medium Term Note which are on a
floating rate basis.
During May 2018, five new bonds totalling EUR2.5 billion and $2 billion
were issued under the Group's European Medium Term Note programme
and US shelf registration as follows:
EUR750 million (GBP676 million) LIBOR + 0.200% European
Medium
-- Term Note 2020;
EUR750 million (GBP676 million) 1.250% European Medium
Term
-- Note 2026;
EUR1,000 million (GBP901 million) 1.750% European Medium
Term
-- Note 2030;
$750 million (GBP591 million) LIBOR + 0.350% US Medium
Term
-- Note 2021; and
$1,250 million (GBP984 million) 3.125% US Medium Term
-- Note 2021.
The Company made a profit for the financial year of GBP24,520,000
(2017: GBP8,318,000), which will be transferred to reserves. The
Directors are of the opinion that the current level of activity and
the year end financial position are satisfactory and will remain
so in the foreseeable future.
Principal risks and uncertainties
The Directors of GlaxoSmithKline plc manage the risks of the Group
at a group level, rather than at an individual statutory entity level.
For this reason, the Company's Directors believe that a discussion
of the Group's risks would not be appropriate for an understanding
of the development, performance or position of the Company's business.
The principal risks and uncertainties of the Group, which include
those of the Company, are discussed in the Group's 2018 Annual Report
which does not form part of this report. There are no additional
risks which have not already been addressed by the Group's assessment.
Key Performance Indicators (KPIs)
The Directors of the Group manage the Group's operations on an operating
segment basis. For this reason, the Company's Directors believe that
analysis using key performance indicators for the Company is not
necessary or appropriate for an understanding of the development,
performance or position of the Company's business. The development,
performance and position of the Group are discussed in the Group's
2018 Annual Report which does not form part of this report.
GlaxoSmithKline Capital plc 2
Registered number: (2258699)
Strategic report for the year ended 31 December 2018
Approach to Brexit
In preparing for the UK's exit from the EU (Brexit), the Directors
of the Group have taken a risk-based approach to maintain continuity
of supply of our medicines, vaccines and consumer healthcare products
to the people in the UK and EU at the Group level, rather than at
an individual statutory entity level. For this reason, the Company's
Directors believe that a discussion of the Group's approach to Brexit
would not be appropriate for an understanding of the impact of Brexit
to the position of the Company's business. The Group's approach to
Brexit, which include those of the Company, are discussed in the
Group's 2018 annual report which does not form part of this report.
By order of the Board
Mr A Walker
For and on behalf of Glaxo Group Limited
Corporate Director
11 April 2019
GlaxoSmithKline Capital plc 3
(Registered number: 2258699)
Directors' report for the year ended 31 December 2018
The Directors present their report and the audited financial statements
of GlaxoSmithKline Capital plc (the "Company") for the year ended
31 December 2018.
Results and dividends
The Company's profit for the financial year is shown in the income
statement on page 14.
No dividend is proposed to the holders of ordinary shares in respect
of the year ended 31 December 2018 (2017: GBPnil).
Internal control framework
The GlaxoSmithKline 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 the Group. The Internal Control Framework is the means
by which the Group ensures the reliability of financial reporting
and compliance with laws and regulations.
To ensure effective governance and promote an ethical culture, the
Group has in place the Risk Oversight and Compliance Council. This
team of senior leaders is mandated by the Board to assist the Audit
and Risk Committee in overseeing risk management and internal control
activities. It also provides the business units with a framework
for risk management and upward escalation of significant risks, of
which the Company operates within. Further information on the Group's
Internal Control Framework is discussed in the Group's 2018 Annual
Report which does not form part of this report.
Financial risk management
The Company issues notes under the Group's European Medium Term Note
programme and US shelf registration in order to meet anticipated
funding requirements for the Group. The strategy is to diversify
liquidity sources using a range of facilities and to maintain broad
access to funding markets. Details of derivative financial instruments
and hedging, and further information on risk management policies,
exposures to market, credit and liquidity risk are disclosed in Note
2(m) and Note 4 respectively.
The Company manages its cash flow interest rate risk on its forecasted
Euro and US Dollar denominated notes issued under the Group's European
Medium Term Note programme and US shelf registration using treasury
gilt locks and interest rate swaps. In addition, the Company carries
a balance in reserves that arose from pre-hedging fluctuations in
long-term interest rates when pricing bonds issued in prior years.
The balance is reclassified to finance costs over the life of these
bonds.
Directors and their interests
The Directors of the Company who were in office during the year and
up to the date of signing the financial statements were as follows:
Mr S Dingemans
Edinburgh Pharmaceutical Industries Limited
Glaxo Group Limited
No Director had, during the year or at the end of the year, any material
interest in any contract of significance to the Company's business
with the exception of the Corporate Directors, where such an interest
may arise in the ordinary course of business. A corporate director
is a legal entity of the Group as opposed to a natural person (an
individual) director.
GlaxoSmithKline Capital
plc 4
(Registered number: 2258699)
Directors' report for the year ended 31 December 2018
Directors' indemnity
Each of the Directors benefits from an indemnity given by the
Company under its articles of association. This indemnity is in
respect of liabilities incurred by the Director in the execution
and discharge of their duties.
In addition, each of the Directors who is an individual benefits
from an indemnity given by another Group company, GlaxoSmithKline
Services Unlimited. This indemnity is in respect of liabilities
arising out of third party proceedings to which the Director is
a party by virtue of his or her engagement in the business of
the Company.
Directors' interests
The following interests of the Director in office in the shares
of the ultimate parent undertaking, GlaxoSmithKline plc, at the
year end have been notified to the Company.
Ordinary Shares
At 31 Dec At 31 Dec
2017 Acquired Disposed 2018
Shares
----------------------- ---------- ---------------------- ---------------------- ----------------------
Mr S Dingemans 241,723 103,367 (83,441) 261,649
----------------------- ---------- ---------------------- ---------------------- ----------------------
At 31 Dec Exercised/ At 31 Dec
2017 Granted lapsed 2018
Options
------------------------ ---------- ---------------------- ---------------------- ----------------------
Mr S Dingemans - 161,231 - 161,231
------------------------ ---------- ---------------------- ---------------------- ----------------------
At 31 Dec Exercised/ At 31 Dec
2017 Granted lapsed 2018
Share Save
----------------------- ---------- ---------------------- ---------------------- ----------------------
Mr S Dingemans 722 - - 722
----------------------- ---------- ---------------------- ---------------------- ----------------------
At 31 Dec Exercised/ At 31 Dec
2017 Granted lapsed 2018
Performance Share Plans
------------------------ ---------- ---------------------- ---------------------- ----------------------
Mr S Dingemans 658,209 277,377 (224,294) 711,292
----------------------- ---------- ---------------------- ---------------------- ----------------------
At 31 Dec Exercised/ At 31 Dec
2017 Granted lapsed 2018
Deferred Annual Bonus
Plan
------------------------ ---------- ---------------------- ---------------------- ----------------------
Mr S Dingemans 175,150 51,869 (34,868) 192,151
----------------------- ---------- ---------------------- ---------------------- ----------------------
All share awards are over ordinary shares of GlaxoSmithKline plc.
Further details of the above-mentioned Plans are disclosed in
the 2018 Annual Report of GlaxoSmithKline plc.
GlaxoSmithKline Capital
plc 5
(Registered number: 2258699)
Directors' report for the year ended 31 December 2018
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 "Reduced Disclosure Framework", and applicable
law). 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 Company and of the profit
or loss of the Company for that period.
In preparing the financial statements, the directors are required
to:
l select suitable accounting policies and then apply them consistently;
l make judgements and accounting estimates that are reasonable
and prudent;
l state whether applicable United Kingdom Accounting Standards,
comprising FRS 101, have been followed, subject to any material
departures disclosed and explained in the financial statements,
and
l prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the 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 Company and enable them to ensure
that the financial statements comply with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The following items have been included in the Strategic report
on page 1:
l principal activities and future developments;
l review of business;
l principal risks and uncertainties; and
l key performance indicators.
Governance
The Company's approach to the Modern Slavery Act 2015 is set by
the Group. Each year, as part of their governance arrangements,
the Group formally reviews and approves its approach to the Modern
Slavery Act 2015 and has confirmed that the approach is still
valid for 2018.
Disclosure of information to auditors
As far as each of the Directors are aware, there is no relevant
audit information of which the Company's auditors are unaware,
and the Directors have taken all the steps that ought to have
been taken as a director to make themselves aware of any relevant
audit information and to establish that the Company's auditors
are aware of that information.
GlaxoSmithKline Capital plc 6
(Registered number: 2258699)
Directors' report for the year ended 31 December 2018
Going concern
The Directors believe that preparing the financial statements
on the going concern basis is appropriate due to the continued
financial support of the intermediate parent, GlaxoSmithKline
Finance plc. The Directors have received confirmation that GlaxoSmithKline
Finance plc intends to support the Company for at least one year
after these financial statements are signed. For this reason,
they continue to adopt the going concern basis in preparing the
financial statements.
Independent auditors
PricewaterhouseCoopers LLP resigned on 30 May 2018 as the Company's
auditors. Deloitte LLP have been appointed to act as the Company's
auditors by a resolution of the Board of Directors in accordance
with s489(3) Companies Act 2006. A resolution of the members to
appoint Deloitte LLP as auditors was passed at the Annual General
Meeting of the Company in accordance with s489(4) Companies Act
2006.
By order of the Board
Mr A Walker
For and on behalf of Glaxo Group Limited
Corporate Director
11 April 2019
GlaxoSmithKline Capital plc 7
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of GlaxoSmithKline Capital
plc (the "Company"):
l give a true and fair view of the state of the Company's
affairs
at 31 December 2018 and of its profit and cash flows
for the
year then ended;
l have been properly prepared in accordance with United
Kingdom
Generally Accepted Accounting Practice, including
Financial
Reporting Standard 101 "Reduced Disclosure Framework";
and
l have been prepared in accordance with the requirements
of the
Companies Act 2006.
We have audited the financial statements which comprise:
l income statement for the year ended 31 December 2018;
l the statement of comprehensive income;
l balance sheet as at 31 December 2018;
l the statement of changes in equity;
l the cash flow statement;
l the statement of accounting policies; and
l the related notes 1 to 25 in the financial statements.
The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom Accounting Standards,
including Financial Reporting Standard 101 "Reduced Disclosure
Framework" (United Kingdom Generally Accepted Accounting Practice).
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 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
company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
l Valuation of borrowings; and
l Valuation of intercompany loan receivables.
Key audit matters considered by the Company's auditor in the prior
year were consistent with the items identified above.
Materiality
The materiality that we used in the current year was GBP145 million,
which was determined on the basis of a blended measure considering
total assets and external debt.
GlaxoSmithKline Capital plc 8
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
First year audit transition
This is the first year we have been appointed as auditors to the
Company.
Conclusions regarding to going concern
We are required by ISAs (UK) to report in respect of the following
matters where:
l the directors' use of the going concern basis of accounting
in preparation of the financial statements is not appropriate;
or
l the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Company's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised
for issue.
We have nothing to report in respect of these matters.
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.
Valuation of borrowings
Key audit matter description The Company issues external borrowings
under its European Medium Term Note
(EMTN) and US Shelf Programme on behalf
of other GSK Group entities. This has
resulted in the recognition of material
borrowing amounts including:
l Short-term borrowings: GBP1.3
billion
(2017: GBPnil); and
l Long-term borrowings; GBP13.1
billion
(2017: GBP10.5 billion).
These are recognised as financial liabilities
measured at amortised cost at the original
effective interest rate, computed based
on the bond proceeds, costs of issuance,
coupon payments and redemption value.
There were new bond issuances in the
year to fund the Consumer Healthcare
transaction; the acquisition of Novartis'
36.5% stake in the Consumer Healthcare
Joint Venture.
Due to the magnitude of the external
debt held the Company, we have identified
a key audit matter with respect to
the calculation of the carrying value
of the borrowings.
Borrowings are disclosed in Note 14
of the financial statements with fair
value disclosure in Note 16. The accounting
policy for borrowings is disclosed
in Note 2.
GlaxoSmithKline Capital plc 9
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
How the scope of our audit We performed the following audit procedures:
responded to the key audit
matter
l Agreed bond proceeds, bond costs,
coupon rate and redemption amounts
to underlying agreements and term
sheets;
l Recalculated the effective interest
rate and the carrying value of each
bond using the key inputs outlined
above per the underlying agreements;
l Assessed the appropriateness of the
accounting treatment applied for
borrowings including the recognition
at amortised cost in line with IFRS
9 requirements;
l Validated the inputs used for the
fair value disclosures in the notes
to the financial statements to an
independent source; and
l Evaluated the disclosures in respect
to these liabilities included in
the notes to the financial statements.
Key observations We are satisfied that the short-term
and long-term borrowings balances have
been accounted for appropriately, in
accordance with IFRS 9
Valuation of intercompany
loan receivables
Key audit matter description The bonds issued by the Company are
subsequently loaned to GlaxoSmithKline
Group companies. This is divided as
follows:
l Short-term intercompany loans and
receivables: GBP1.5 billion (2017:
GBPnil); and
l Long-term intercompany loans and
receivables: GBP13.1 billion (2017:
GBP10.4 billion).
These are recognised as financial assets
measured at amortised cost at the original
effective interest rate, computed based
on the loan issued, coupon payments
and redemption value. As such, we identified
a key audit matter relating to the
calculation of the carrying value of
the intercompany loan receivables balance.
Intercompany loan receivables are disclosed
in Note 11 of the financial statements
with the accounting policies disclosed
in Note 2.
How the scope of our audit We performed the following audit procedures:
responded to the key observations.
l Agreed loan amounts, coupon rate
and redemption amounts to underlying
agreements;
l Recalculated the effective interest
rate and the carrying value of each
intercompany loan using the key inputs
outlined above per the underlying
agreements;
l Reviewed board minutes for the completeness
of all loans entered into in the
period;
l Assessed the appropriateness of the
accounting treatment applied for
intercompany loans including the
recognition at amoritised cost in
line with IFRS 9 requirements; and
GlaxoSmithKline Capital plc 10
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
l Evaluated the disclosures in respect
to these assets included in the notes
to the financial statements.
Key observations We are satisfied that the intercompany
loan receivable balances have been
accounted for appropriately, in accordance
with IFRS 9.
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:
Materiality GBP145 million
Basis for determining materiality In determining our benchmark for materiality
we considered the metrics used by the
shareholders and other users of the financial
statements. Given that the Company is
a debt-financed entity, we considered
total assets and external debt* as the
most relevant benchmarks in our determination
of materiality. Given the importance of
these metrics, we concluded that a blended
approach was most appropriate using 1%
of total assets and 1% of total external
debt.
Using professional judgement, we have
therefore determined materiality to be
GBP145 million with reference to these
benchmarks.
External debt is defined as short-term
* and long-term borrowings.
The materiality used by the predecessor
auditor in the audit of the Company's
financial statements was GBP52.5 million
on the basis of 0.5% of external debt.
Rationale for the benchmark The Company is the main UK debt issuer
applied of the GlaxoSmithKline Group. As such,
total assets and external debt were determined
to be the most appropriate benchmarks
to apply as they relate to the primary
focus of management, shareholders and
lenders in assessing the performance on
the entity.
We agreed with the Board of Directors that we would report all
audit differences in excess of GBP7.25 million (2017: GBP2.6 million
used by the predecessor auditor), as well as differences below
the threshold, in our view, that warranted reporting on qualitative
grounds. We also report to the Board of Directors on disclosure
matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our audit of the Company was scoped by obtaining an understanding
of the entity and its environment, including relevant controls,
and assessing the risk of material misstatement at the entity level.
The Company was subject to a full scope audit. There were no component
audit teams involved in the audit of this entity, with the entire
audit being conducted at GlaxoSmithKline's London Head Office by
a central audit team.
GlaxoSmithKline Capital plc 11
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
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.
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 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 Company or to cease operations,
or have no realistic alternative but to do so.
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.
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.
GlaxoSmithKline Capital plc 12
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
l enquiring of management, internal audit and the Board of Directors,
including obtaining and reviewing supporting documentation,
concerning the Company'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.
l discussing among the engagement team and involving relevant
internal specialists, including tax regarding, how and where
fraud might occur in the financial statements and any potential
indicators of fraud; and
l obtaining an understanding of the legal and regulatory framework
that the Company operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that
had a fundamental effect on the operations of the Company. The
key laws and regulations that we considered in this context
included the UK Companies Act, Listing Rules and tax legislation.
Audit response to risks identified
As a result of performing the above, we did not identify any key
audit matters related to the potential risk of fraud or non- compliance
with laws and regulations.
In addition to the above, our procedures to respond to risks identified
included the following;
l reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with relevant
laws and regulations discussed above;
l enquiring of management, the Board of Directors and in-house
and external legal counsel concerning actual and potential litigation
and claims;
l performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
l reading minutes of meetings of those charged with governance
and reviewing internal audit reports; and
l in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries
and other adjustments; and evaluating the business rationale
of any significant transactions that are unusual or outside
the normal course of business.
We also communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members 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
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
l 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
l 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 company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic report
or the Directors' report.
GlaxoSmithKline Capital plc 13
Independent auditors' report to the members of GlaxoSmithKline
Capital plc
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:
l we have not received all the information and explanations we
require for our audit; or
l adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited
by us; or
l the 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.
We have nothing to report in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit and Risk Committee, we
were appointed by the Board of Directors on 30 May 2018 to audit
the financial statements of the Company for the year ending 31
December 2018 and subsequent financial periods. The period of uninterrupted
engagement including previous renewals and reappointments of the
firm is accordingly one year.
Consistency of the audit report with the additional report to the
Board of Directors
Our audit opinion is consistent with the additional report to the
Board of Directors we are required to provide in accordance with
ISAs (UK).
Use of our report
This report is made solely to the 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
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 Company and the Company's members as a
body, for our audit work, for this report, or for the opinions
we have formed.
The 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 Auditors
London, United Kingdom
11 April 2019
GlaxoSmithKline Capital plc 14
Income statement
for the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
========================================== ===== =========== ===========
Other operating income/(loss) 1,094 (824)
Finance income 8 377,474 387,262
Finance expense 9 (348,296) (376,137)
========================================== ===== =========== ===========
Operating profit 6 30,272 10,301
Profit before taxation 30,272 10,301
Tax on profit 10 (5,752) (1,983)
========================================== ===== =========== ===========
Profit for the financial year 24,520 8,318
------------------------------------------ ----- ----------- -----------
The results disclosed above for both the current year and prior
year relate entirely to continuing operations.
The notes on pages 19 to 32 are an integral part of these financial
statements.
GlaxoSmithKline Capital plc 15
Statement of comprehensive income
for the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
Profit for the financial year 24,520 8,318
Items that may be subsequently reclassified
to the income statement:
Fair value movements on cash flow hedges 1,288 (3,943)
Reclassification of cash flow hedges
to the income statement 1,472 1,118
Deferred tax on fair value movements
on cash flow hedges 10 (469) 480
================================================ ===== ======== ========
Other comprehensive income/(loss) for
the financial year 2,291 (2,345)
================================================ ===== ======== ========
Total comprehensive income for the financial
year 26,811 5,973
------------------------------------------------ ----- -------- --------
The notes on pages 19 to 32 are an integral part of these financial
statements.
GlaxoSmithKline Capital plc 16
Balance Sheet
as at 31 December 2018
2018 2017
Note GBP'000 GBP'000
------------------------------------------ ----- ------------- -------------
Non-current assets
Deferred tax assets 10 1,904 2,373
Trade and other receivables 11 13,087,653 10,434,878
------------------------------------------ ----- ------------- -------------
Total non-current assets 13,089,557 10,437,251
------------------------------------------ ----- ------------- -------------
Current assets
Trade and other receivables 11 1,471,451 101,855
Prepayment and accrued income 12 131,225 107,833
Cash and cash equivalents - 1
========================================== ===== ============= =============
Total current assets 1,602,676 209,689
========================================== ===== ============= =============
Total assets 14,692,233 10,646,940
------------------------------------------ ----- ------------- -------------
Current liabilities
Other payables 13 (7,792) (4,864)
Short-term borrowings 14 (1,349,459) -
Accruals and deferred income 15 (124,929) (103,680)
------------------------------------------ ----- ------------- -------------
Total current liabilities (1,482,180) (108,544)
------------------------------------------ ----- ------------- -------------
Net current assets 120,496 101,145
------------------------------------------ ----- ------------- -------------
Total assets less current liabilities 13,210,053 10,538,396
------------------------------------------ ----- ------------- -------------
Non-current liabilities
Long-term borrowings 14 (13,145,607) (10,500,761)
------------------------------------------ ----- ------------- -------------
Total non-current liabilities (13,145,607) (10,500,761)
------------------------------------------ ----- ------------- -------------
Total liabilities (14,627,787) (10,609,305)
------------------------------------------ ----- ------------- -------------
Net assets 64,446 37,635
------------------------------------------ ----- ------------- -------------
Equity
Called up share capital 20 100 100
Other reserves 21 (9,297) (11,588)
Retained earnings 73,643 49,123
------------------------------------------ ----- ------------- -------------
Total equity 64,446 37,635
------------------------------------------ ----- ------------- -------------
The notes on pages 19 to 32 are an integral part of these financial
statements.
The financial statements on pages 14 to 32 were approved by the
Board of Directors on 11 April 2019 and signed on its behalf by:
Mr A Walker
For and on behalf of Glaxo Group Limited
Corporate Director
GlaxoSmithKline Capital plc 17
Statement of changes in equity
for the year ended 31 December 2018
Called
up share Other Retained Total
capital reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------
At 1 January 2017 100 (9,243) 40,805 31,662
Profit for the year - - 8,318 8,318
Other comprehensive loss for the
financial year - (2,345) - (2,345)
----------------------------------- ---------- ---------- ---------- --------
At 31 December 2017 100 (11,588) 49,123 37,635
----------------------------------- ---------- ---------- ---------- --------
Profit for the year - - 24,520 24,520
Other comprehensive income for
the financial year - 2,291 - 2,291
=================================== ========== ========== ========== ========
At 31 December 2018 100 (9,297) 73,643 64,446
----------------------------------- ---------- ---------- ---------- --------
The notes on pages 19 to 32 are an integral part of these financial
statements.
GlaxoSmithKline Capital plc 18
Cash flow statement
for the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
-------------------------------------------- ----- ------------ ------------
Cash flow from operating activities
Operating profit 30,272 10,301
Adjustments reconciling operating profit
to operating
cash flows (6,270) 5,775
-------------------------------------------- ----- ------------ ------------
Net cash inflow from operating activities 18 24,002 16,076
-------------------------------------------- ----- ------------ ------------
Cash flow from financing activities
Proceeds from borrowings 3,650,522 2,183,800
Repayment of borrowings - (2,639,347)
Loans provided to Group undertakings (3,648,326) (2,183,800)
Loan repayments received from Group
undertakings - 2,619,680
(Increase)/decrease in other receivables
with Group
undertakings (26,199) 3,590
-------------------------------------------- ----- ------------ ------------
Net cash outflow from financing activities (24,003) (16,077)
-------------------------------------------- ----- ------------ ------------
Net movement in cash in the year (1) (1)
-------------------------------------------- ----- ------------ ------------
Cash at beginning of year 1 2
Movement in cash (1) (1)
-------------------------------------------- ----- ------------ ------------
Cash at end of year - 1
-------------------------------------------- ----- ------------ ------------
The notes on pages 19 to 32 are an integral part of these financial
statements.
GlaxoSmithKline Capital plc 19
Notes to the financial statements for the year ended 31 December 2018
1 Presentation of the financial statements
General information
GlaxoSmithKline Capital plc (the "Company") is a public company limited
by shares and is incorporated and domiciled in the UK (England and
Wales). The address of the registered office is 980 Great West Road,
Brentford, Middlesex TW8 9GS.
The Company is a member of the GlaxoSmithKline Group (the "Group").
The Company's principal activity is the issuance of notes under the
Group's European Medium Term Note programme and US shelf registration
and the provision of financial services to other companies within
the Group.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been consistently
applied, unless otherwise stated.
(a) Basis of preparation
The financial statements have been prepared in accordance with Financial
Reporting Standard 101 "Reduced Disclosure Framework" ("FRS 101").
Going concern
These financial statements have been prepared on the going concern
basis under the historical cost convention and in accordance with
the Companies Act 2006 as applicable to companies using FRS101.
Disclosure exemptions adopted
In preparing these financial statements, the Company has taken advantage
of all disclosure exemptions conferred by FRS 101. Therefore these
financial statements do not include:
l Paragraph 38 of IAS 1 "Presentation of financial statements" comparative
information requirements in respect of:
- paragraph 79(a) (iv) of IAS 1;
l The following paragraphs of IAS 1 "Presentation of financial statements":
- 16 (statement of compliance with all IFRS); and
- 38B-D (additional comparative information);
l Paragraph 30 and 31 of IAS 8 "Accounting policies, changes in accounting
estimates and errors" (requirement for the disclosure of information
when an entity has not applied a new IFRS that has been issued
but is not yet effective);
l Paragraph 17 of IAS 24 "Related party disclosures" (key management
compensation); and
l The requirements in IAS 24 "Related party disclosures" to disclose
related party transactions entered into between two or more wholly
owned members of a group.
The financial statements of GlaxoSmithKline plc can be obtained as
described in Note 2(b).
The preparation of financial statements in conformity with FRS 101
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying
the Company's accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note
3.
GlaxoSmithKline Capital plc 20
Notes to the financial statements for the year ended 31 December 2018
2 Summary of significant accounting policies (continued)
(b) Ultimate and immediate parent undertaking
The Company is a wholly owned subsidiary of the ultimate parent company.
GlaxoSmithKline plc, a company registered in England and Wales, is
the Company's ultimate parent undertaking and controlling party. The
largest and smallest group of undertakings for which group financial
statements are prepared and which include the results of the Company
are the consolidated financial statements of GlaxoSmithKline plc.
Copies of the consolidated financial statements can be obtained from
the Company Secretary, GlaxoSmithKline plc, 980 Great West Road, Brentford,
Middlesex TW8 9GS. The immediate parent undertaking is SmithKline
Beecham Limited. These financial statements are separate financial
statements.
(c) Implementation of IFRS 9 "Financial instruments"
The Company has applied IFRS 9 "Financial instruments" with effect
from 1 January 2018. IFRS 9 introduces new requirements for the classification
and measurement of financial assets and financial liabilities, impairments
for financial assets and general hedge accounting. Details of these
new requirements as well as their impact on the Company's financial
statements are described below. The Company has adopted IFRS 9 retrospectively
but with certain permitted exceptions as detailed below.
Classification and measurement of financial assets
The date of initial application was 1 January 2018. The Company has
not applied the requirements of IFRS 9 to instruments that were derecognised
prior to 1 January 2018 and has not restated prior years.
All financial assets that are within the scope of IFRS 9 are required
to be measured at amortised cost or fair value with movements through
other comprehensive income or the income statement on the basis of
the Company's business model for managing the financial assets and
the contractual cash flow characteristics of the financial assets.
The Company's trade and other receivables were all previously classified
as financial assets measured at amortised cost. Under IFRS 9, as the
contractual cash flows are solely payments of principal and interest
on the principal amount outstanding, the amounts receivable are measured
at amortised cost.
There were no material changes in the carrying value of the financial
assets as a result of these changes in measurement basis.
Impairment of financial assets
IFRS 9 requires an expected credit loss ("ECL") model to be applied
to financial assets rather than the incurred credit loss model. The
expected credit loss model requires the Company to account for expected
losses as a result of credit risk on initial recognition of financial
assets and to recognise changes in those expected credit losses at
each reporting date.
12-month ECLs are applied to all financial assets not measured at
fair value through profit or loss. There were no other transition
adjustments arising from the change in impairment basis.
(d) Foreign currency transactions
Foreign currency transactions are booked in the functional currency
of the Company at the exchange rate ruling on the date of the transaction.
Foreign currency monetary assets and liabilities are translated into
the functional currency at rates of exchange ruling at the balance
sheet date. Exchange differences are included in the income statement.
The functional and presentation currency of the Company is Pounds
Sterling.
(e) Other operating income
Management service fees are recognised in other operating income on
an accruals basis.
(f) Finance income and expense
Finance income and expenses are recognised on an accruals basis using
the effective interest method.
GlaxoSmithKline Capital plc 21
Notes to the financial statements for the year ended 31 December 2018
2 Summary of significant accounting policies (continued)
(g) Financial assets
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater
than 12 months after the end of the reporting period. These are classified
as non-current assets. The Company's loans and receivables represent
intercompany balances with other Group undertakings, which are carried
at amortised cost using the effective interest method.
(h) Impairment of financial assets
Expected credit losses are recognised in the income statement on financial
assets measured at amortised cost.
For financial assets a 12-month expected credit loss ("ECL") allowance
is recorded on initial recognition. If there is 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.
(i) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current balances
with banks and similar institutions. They are readily convertible
into known amounts of cash and have an insignificant risk of changes
in value.
(j) Other payables
Other payables are initially recognised at fair value and then held
at amortised cost using the effective interest method. Long-term payables
are discounted where the effect is material.
(k) Borrowings
All borrowings, which comprise notes issued under the Group's European
Medium Term Note programme and US shelf registration, 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.
(l) Taxation
Current tax is provided at the amounts expected to be paid or refunded
applying the 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 differences 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.
(m) Derivative financial instruments and hedging
Derivative financial instruments can be used by the Company to manage
exposure to market risks. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes and does
not currently hold any derivative financial instruments.
Derivative financial assets and liabilities 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.
The Company carries a balance in other comprehensive income that arose
from using treasury gilt locks and forward starting interest rate
swaps for pre-hedging fluctuations in long-term interest rates when
pricing bonds issued in prior and current years.
GlaxoSmithKline Capital plc 22
Notes to the financial statements for the year ended 31 December 2018
3 Key accounting judgements and estimates
In preparing the financial statements, management is 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. There are no
required estimates or assumptions made in the valuation of intercompany
loans and borrowings.
4 Financial risk management
Risk management is carried out by the Group's Corporate Treasury under
policies and procedures approved annually by the Group's Board of
Directors, most recently on 18 October 2018. The role of Corporate
Treasury is to monitor and manage the Group's external and internal
funding requirements and financial risks, covering foreign exchange,
interest rate, liquidity, and credit risks in support of the Group's
strategic objectives. A Treasury Management Group meeting, chaired
by the Group's Chief Financial Officer, also takes place on a monthly
basis to review treasury activities.
As part of the Group's risk assessment, the potential effects of Brexit
have been considered and are not expected to be material.
(a) Market risk
(i) Foreign exchange risk
The Company is exposed to foreign exchange risk arising from foreign
currency transactions, primarily with respect to the US dollar and
Euro, in respect of bonds issued under the Group's European Medium
Term Note programme and US shelf registration.
The net proceeds of bond issuances received are subsequently advanced
as loans to other Group undertakings in the same currency which minimises
the foreign translation exposure within the Company. On this basis,
foreign exchange risk is not considered material and the Company has
not prepared a sensitivity analysis.
(ii) Interest rate risk
The Group'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 GlaxoSmithKline Board.
The Company's interest rate risk arises mainly from deposits with
Group undertakings and cash held at floating rates which expose the
Company to interest rate risk. The Company has unsecured borrowings,
comprised of notes issued under the Group's European Medium Term Note
programme and US shelf registration, the majority of which are at
fixed rates, and expose the Company to fair value interest rate risk.
The table below hypothetically shows the Company's sensitivity to
changes in interest rates in relation to Euro, Sterling and US dollar
floating rate financial assets. If interest rates applicable to floating
rate financial assets were to have increased by 1% (100 basis points),
and assuming all other variables had remained constant, it is estimated
that the Company's finance income for 2018 would have increased by
approximately GBP1,282,000 (2017: GBP1,018,000 increase in finance
income).
2018 2017
Increase in Increase
income in income
GBP'000 GBP'000
----------------------------------------------------------------------------- ----------------- ---------------
1% (100 basis points) increase in Euro interest
rates (2017: 1%) 533 398
1% (100 basis points) increase in Sterling
interest rates (2017: 1%) 516 450
1% (100 basis points) increase in US dollar
interest rates (2017: 1%) 233 170
----------------------------------------------------------------------------- ----------------- ---------------
GlaxoSmithKline Capital plc 23
Notes to the financial statements for the year ended 31 December 2018
4 Financial risk management (continued)
(a) Market risk (continued)
The tables below illustrate the currency and interest rate profiles
arising from the Company's borrowings, loans and receivable balances.
Currency and interest rate risk profile
of borrowings
Fixed rate
-----------------------------
Weighted Average years
average for which
interest rate
At 31 December 2018 rate is fixed Total
Currency % GBP'000
------------------------------ --------------------------------- ------------ --------------- --------------
US dollar 3.9 3 (3,137,587)
Sterling 5.0 19 (4,043,711)
Euro 1.9 7 (7,313,768)
------------------------------------------------------------------ ------------ --------------- --------------
Total borrowings 3.6 10 (14,495,066)
Fixed rate
-----------------------------
Weighted Average years
average for which
interest rate
At 31 December 2017 rate is fixed Total
Currency % GBP'000
------------------------------ --------------------------------- ------------ --------------- --------------
US dollar 3.0 2 (1,473,973)
Sterling 5.0 20 (4,053,006)
Euro 1.5 7 (4,973,782)
------------------------------------------------------------------ ------------ --------------- --------------
Total borrowings 3.2 10 (10,500,761)
------------------------------ --------------------------------- ------------ --------------- --------------
Currency and interest rate risk profile of loans and receivables
At 31 December 2018 Fixed rate Floating rate Total
Currency GBP'000 GBP'000 GBP'000
------------------------------ --------------------------------- ------------ --------------- --------------
US dollar 2,536,151 612,730 3,148,881
Sterling 4,024,022 51,647 4,075,669
Euro 6,603,959 730,595 7,334,554
------------------------------------------------------------------ ------------ --------------- --------------
Total loans and receivables 13,164,132 1,394,972 14,559,104
------------------------------------------------------------------ ------------ --------------- --------------
At 31 December 2017 Fixed rate Floating rate Total
Currency GBP'000 GBP'000 GBP'000
------------------------------ --------------------------------- ------------ --------------- --------------
US dollar 1,464,741 17,003 1,481,744
Sterling 4,024,022 45,025 4,069,047
Euro 4,946,115 39,827 4,985,942
------------------------------------------------------------------ ------------ --------------- --------------
Total loans and receivables 10,434,878 101,855 10,536,733
------------------------------------------------------------------ ------------ --------------- --------------
GlaxoSmithKline Capital plc 24
Notes to the financial statements for the year ended 31 December 2018
4 Financial risk management (continued)
(a) Market Risk (continued)
Net currency exposure
2018 2017
GBP'000 GBP'000
---------------------------------------------------------------------------- -------------- -------------
US dollar 11,294 7,771
Euro 20,786 12,160
------------------------------------------------------------------------------ -------------- -------------
32,080 19,931
(b) 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 from
cash and cash equivalents, favourable derivative financial instruments
and deposits held with banks and financial institutions, and outstanding
loans and receivables. The Group sets global counterparty limits for
each of its banking and investment counterparties based on long-term
credit ratings from Standard and Poor's and Moody's Investor Services
("Moody's"). Usage of these limits is monitored daily and Corporate
Treasury actively manages its exposure to credit risk, reducing surplus
cash balances wherever possible.
There are no financial assets that are past due or impaired as at
31 December 2018 (2017: GBPnil).
The Company did not hold any collateral as security or obtained other
credit enhancements as at 31 December 2018 (2017: GBPnil).
The Company considers its maximum exposure to credit risk at 31 December
2018, without taking into account any collateral held or other credit
enhancements, to be GBP14,690,329,000 (2017: GBP10,644,567,000) being
the total of the Company's financial assets of which the balances
are all held within the GlaxoSmithKline Group.
(c) Liquidity risk
Liquidity is managed centrally by the Group by borrowing in order
to meet anticipated funding requirements. The Group's cash flow forecast
and funding requirements are monitored on a monthly basis by the Treasury
Management Group and the strategy is to have diversified liquidity
sources using a range of facilities and to maintain broad access to
funding markets.
5 Capital management
The Group's financial strategy supports its strategic priorities and
is regularly reviewed by the Board. The capital structure of the Group
is managed through an appropriate mix of debt and equity in order
to optimise returns to shareholders whilst maintaining the Group's
credit ratings that provide the Company with flexibility to access
debt capital markets on attractive terms under the Group's European
Medium Term Note programme and US shelf registration.
The capital structure of the Company consists of net debt of GBP14,495,066,000
(2017: GBP10,500,761,000) and shareholders' funds of GBP64,446,000
(2017: GBP37,635,000) (see Statement of changes in equity).
6 Operating profit
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------ -------------- -------------
The following items have been credited/(charged)
in operating profit:
Exchange gains/(losses) on foreign currency
transactions 1,151 (768)
Management fee (57) (56)
-------------------------------------- -------------------------------------- -------------- -------------
GlaxoSmithKline Capital plc 25
Notes to the financial statements for the year ended 31 December 2018
6 Operating profit (continued)
GlaxoSmithKline Services Unlimited provides various services and facilities
to the Company including finance and administrative services for which
a management fee was charged. Included in the management fee is a
charge for auditors' remuneration of GBP36,100 (2017: GBP35,575).
The disclosure of fees payable to the auditor and its associates for
other (non-audit) services has not been made and has been disclosed
in the Group's 2018 Annual Report which does not form part of this
report.
7 Employees
All of the Group's UK employees are remunerated by GlaxoSmithKline
Services Unlimited and receive no remuneration from the Company. A
management fee is charged by GlaxoSmithKline Services Unlimited for
services provided to the Company (see Note 6). The Company has no
employees.
8 Finance income
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------- --------------- ---------------
Interest income arising from loans and receivables 377,474 387,262
9 Finance expense
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------- --------------- ---------------
Interest expense arising on financial liabilities
at amortised cost (346,824) (375,019)
Reclassification of cash flow hedge from other
comprehensive income (1,472) (1,118)
--------------------------------------------------------------------------- --------------- ---------------
Total finance expense (348,296) (376,137)
10 Taxation
2018 2017
Income tax expense on ordinary activities GBP'000 GBP'000
=========================================================================== =============== ===============
Current tax:
UK Corporation tax at 19.00% (2017: 19.25%) (5,752) (1,983)
=========================================================================== =============== ===============
Total current tax (5,752) (1,983)
-------------------------------------- --------------- ---------------
The tax assessed for the year is no different (2017: no different)
than the standard rate of corporation tax in the UK for the year ended
31 December 2018 of 19.00% (2017: 19.25%). The offsetting differences
are explained below:
2018 2017
Reconciliation of total tax charge GBP'000 GBP'000
--------------------------------------------------------------------------- --------------- ---------------
Profit on ordinary activities before taxation 30,272 10,301
Profit on ordinary activities at the UK statutory
rate of 19.00% (2017: 19.25%) (5,752) (1,983)
Effects of:
Permanent disallowables - interest treated as
paid by ultimate parent 65,884 72,134
Permanent deductions - Group relief received
for no payment (65,884) (72,134)
--------------------------------------------------------------------------- --------------- ---------------
Total tax charge for the year (5,752) (1,983)
--------------------------------------------------------------------------- --------------- ---------------
GlaxoSmithKline Capital plc 26
Notes to the financial statements for the year ended 31 December 2018
10 Taxation (continued)
Factors that may affect future tax charges:
A reduction in the UK corporation tax rate from 20% to 19% (effective
from 1 April 2017) was substantively enacted on 26 October 2015, and
a further reduction to 17% (effective 1 April 2020) was substantively
enacted on 6 September 2016. This will reduce the company's future
current tax charge accordingly. The deferred taxes at balance sheet
date have been calculated based on these rates and reflected in these
financial statements.
2018 2017
Total tax (expense)/credit included in other
comprehensive income GBP'000 GBP'000
============================================================================== ================== ===============
Deferred tax:
Fair value movements on cash flow hedges (469) 480
Total tax (expense)/credit included in other
comprehensive income (469) 480
------------------------------------------------------------------------------ ------------------ ---------------
Other net
temporary
Movement in deferred tax assets and liabilities differences Total
GBP'000 GBP'000
------------------------------------------------------------------------------ ------------------ ---------------
At 1 January 2018 2,373 2,373
Expense to comprehensive income (469) (469)
------------------------------------------------------------------------------ ------------------ ---------------
At 31 December 2018 1,904 1,904
After offsetting deferred tax assets and liabilities where appropriate,
the net deferred tax assets comprises:
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------ ------------------ ---------------
Deferred tax assets classified as non-current
assets 1,904 2,373
Deferred tax liabilities classified as non-current
liabilities - -
------------------------------------------------------------------------------ ------------------ ---------------
1,904 2,373
11 Trade and other receivables
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------ ------------------ ---------------
Amounts due within one year
Amounts owed by Group undertakings 1,471,451 101,855
Amounts due after more than one year
Amounts owed by Group undertakings 13,087,653 10,434,878
------------------------------------------------------------------------------ ------------------ ---------------
14,559,104 10,536,733
------------------------------------------------------------------------------ ------------------ ---------------
Amounts due within one year include call accounts with Group undertakings
of GBP51,647,000 (2017: GBP45,025,000) which are unsecured, repayable
on demand and earn a market rate of interest (based on 1 week LIBOR
minus 0.125%) that is consistent with the Group's policy, and also
includes deposits with Group undertakings of GBP78,574,000 (2017:
GBP56,830,000) which are unsecured, repayable on demand and earn a
market rate of interest (based on LIBOR minus 0.125%) that is consistent
with the Group's policy.
Amounts due within one year also include the net proceeds of bond
issuances that have been advanced as loans to Group undertakings of
GBP1,341,230,000 (2017: GBPnil) which is unsecured with interest charged
at 1.05% per annum.
GlaxoSmithKline Capital plc 27
Notes to the financial statements for the year ended 31 December 2018
11 Loans and receivables (continued)
Amounts due after more than one year include the net proceeds of bond
issuances that have been advanced as loans to Group undertakings totalling
GBP13,087,653,000 (2017: GBP10,434,878,000), which are unsecured with
interest charged at between 0.21% and 6.50% per annum and repayable
at maturity dates between 2020 and 2045.
12 Prepayments and accrued income
2018 2017
GBP'000 GBP'000
============================================================================= ================= =================
Amounts due within one year 131,225 107,833
----------------------------------------------------------------------------- ----------------- -----------------
Accrued income relates to interest on amounts owed by Group undertakings
(see Note 11).
13 Other payables
2018 2017
GBP'000 GBP'000
----------------------------------------------------------------------------- ----------------- -----------------
Amounts falling due within one year
Amounts owed to Group undertakings (2,040) (2,881)
Corporation tax (5,752) (1,983)
(7,792) (4,864)
----------------------------------------------------------------------------- ----------------- -----------------
Amounts owed to Group undertakings are unsecured and repayable on
demand.
The corporation tax creditor contains amounts which will be paid to
fellow Group companies.
14 Borrowings
2018 2017
GBP'000 GBP'000
----------------------------------------------------------------------------- ----------------- -----------------
Amounts falling due within one year
Loans payable:
EUR European Medium Term Notes (1,349,459) -
(1,349,459) -
----------------------------------------------------------------------------- ----------------- -----------------
Amounts falling due after more than one year
Loans payable:
EUR European Medium Term Notes (5,964,309) (4,973,782)
GBP European Medium Term Notes (4,043,711) (4,053,006)
US$ US Medium Term Notes (3,137,587) (1,473,973)
----------------------------------------------------------------------------- ----------------- -----------------
(13,145,607) (10,500,761)
----------------------------------------------------------------------------- ----------------- -----------------
Total borrowings (14,495,066) (10,500,761)
----------------------------------------------------------------------------- ----------------- -----------------
GlaxoSmithKline Capital plc 28
Notes to the financial statements for the year ended 31 December 2018
14 Borrowings (continued)
2018 2017
Maturity of borrowings GBP'000 GBP'000
--------------------------------------------------- -------------------------- --------------------------
In one year or less, or on demand
0.625% EUR European Medium Term Note 2019 (1,349,459) -
--------------------------------------------------- -------------------------- --------------------------
(1,349,459) -
--------------------------------------------------- -------------------------- --------------------------
In more than one year, but not more than two years
0.625% EUR European Medium Term Note 2019 - (1,323,623)
EURIBOR+0.20% EUR European Medium Term Note (677,246) -
2020
0.000% EUR European Medium Term Note 2020 (1,079,415) -
--------------------------------------------------- -------------------------- --------------------------
(1,756,661) (1,323,623)
---------------------------- -------------------- -------------------------- --------------------------
In more than two years, but not more than
five years
0.000% EUR European Medium Term Note 2020 - (1,059,379)
3.125% US$ US Medium Term Note 2021 (980,151) -
LIBOR+0.35% US$ US Medium Term Note 2021 (589,385) -
2.850% US$ US Medium Term Note 2022 (1,568,052) (1,473,973)
--------------------------------------------------- -------------------------- --------------------------
(3,137,588) (2,533,352)
--------------------------------------------------- -------------------------- --------------------------
In more than five years
1.375% EUR European Medium Term Note 2024 (892,962) (876,117)
4.000% EUR European Medium Term Note 2025 (669,903) (658,647)
1.000% EUR European Medium Term Note 2026 (628,546) (617,178)
1.250% EUR European Medium Term Note 2026 (896,568) -
3.375% GBP European Medium Term Note 2027 (593,351) (593,400)
1.375% EUR European Medium Term Note 2029 (447,022) (438,838)
1.750% EUR European Medium Term Note 2030 (672,647) -
5.250% GBP European Medium Term Note 2033 (981,711) (986,476)
6.375% GBP European Medium Term Note 2039 (693,984) (695,330)
5.250% GBP European Medium Term Note 2042 (986,216) (988,603)
4.250% GBP European Medium Term Note 2045 (788,448) (789,197)
--------------------------------------------------- -------------------------- --------------------------
(8,251,358) (6,643,786)
--------------------------------------------------- -------------------------- --------------------------
Total borrowings (14,495,066) (10,500,761)
--------------------------------------------------- -------------------------- --------------------------
15 Accruals and deferred income
2018 2017
GBP'000 GBP'000
--------------------------------------------------- -------------------------- --------------------------
Amounts falling due within one year (124,929) (103,680)
--------------------------------------------------- -------------------------- --------------------------
Accruals relates to interest payable on borrowings
(see Note 14).
Fair value of financial
16 assets and liabilities
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 were used to estimate the fair
values:
-- Cash and cash equivalents - approximates to the carrying amount;
GlaxoSmithKline Capital plc 29
Notes to the financial statements for the year ended 31 December 2018
16 Fair value of financial assets and liabilities (continued)
-- Borrowings (European and US Medium Term Notes) - based on quoted
market prices (a level 1 fair value measurement);
-- Intercompany loans - approximates to the fair value of borrowings
(European and US Medium Term Notes); and
-- Receivables and payables - approximates to the carrying amount.
The carrying amounts and the fair values of the Company's financial
assets and liabilities at 31 December 2018 and 31 December 2017 are
illustrated below.
2018 2017
Carrying Carrying
value Fair value value Fair value
GBP'000 GBP'000 GBP'000 GBP'000
------------------ ----------------- ------------- ---------------- ----------------- -----------------
Cash and cash
equivalents - - 1 1
Trade and other
receivables:
Other receivables 131,225 131,225 107,833 107,833
Amounts owed by
Group
undertakings 14,559,104 16,387,153 10,536,733 12,413,202
-------------------- ------------- ---------------- ----------------- -----------------
Total financial
assets 14,690,329 16,518,378 10,644,567 12,521,036
-------------------- ------------- ---------------- ----------------- -----------------
Financial liabilities measured at amortised
cost:
GBP European
Medium Term
Notes (4,043,711) (4,088,154) (4,053,006) (5,688,556)
EUR European
Medium Term
Notes (7,313,768) (8,627,556) (4,973,782) (5,221,979)
US$ US Medium
Term Notes (3,137,587) (3,671,443) (1,473,973) (1,502,667)
------------------- ----------------- ------------- ---------------- ----------------- -----------------
(14,495,066) (16,387,153) (10,500,761) (12,413,202)
Other payables (126,969) (126,969) (106,561) (106,561)
Total financial
liabilities (14,622,035) (16,514,122) (10,607,322) (12,519,763)
------------------- ----------------- ------------- ---------------- ----------------- -----------------
Net financial
assets and
liabilities 68,294 4,256 37,245 1,273
-------------------- ------------- ---------------- ----------------- -----------------
The Company has no financial assets or liabilities measured at fair
value through profit and loss.
Financial liabilities measured at amortised cost for which the fair
value of GBP16,387,153,000 (2017: GBP12,413,202,000) is disclosed
in the table above are categorised as Level 1, where quoted prices
in active markets are used. Similarly, amounts owed by Group undertakings,
which include the net proceeds of bond issuances advanced as loans,
also approximate to the fair value of these financial liabilities.
All other assets and liabilities approximate to the carrying amount.
17 Contractual cash flows for non-derivative financial liabilities
The following table provides an analysis of the anticipated contractual
cash flows including interest payable for the Company's non-derivative
financial liabilities on an undiscounted basis. Interest is calculated
based on debt held at 31 December without taking account of future
issuance.
GlaxoSmithKline Capital plc 30
Notes to the financial statements for the year ended 31 December 2018
17 Contractual cash flows for non-derivative financial liabilities (continued)
2018 2017
Interest Interest
Debt on debt Debt on debt
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ ------------- ------------- -------------- -------------
Due in less than one
year (1,327,434) (394,427) - (305,389)
Between one and two
years (1,725,664) (390,015) (1,327,434) (305,389)
Between two and three
years (1,481,481) (356,350) (1,061,947) (297,094)
Between three and four
years (1,481,481) (301,316) - (297,091)
Between four and five
years - (278,875) (1,481,481) (275,982)
Between five and ten
years (3,653,097) (1,208,359) (2,768,142) (1,178,556)
Greater than 10 years (4,606,195) (2,096,217) (3,942,478) (2,262,168)
------------------------- ------------- ------------- -------------- -------------
Gross contractual cash
flows (14,275,352) (5,025,559) (10,581,482) (4,921,669)
------------------------- ------------- ------------- -------------- -------------
18 Adjustments reconciling operating profit to operating cash flows
2018 2017
GBP'000 GBP'000
========================= ============= ============= ============== =============
Operating profit for the year 30,272 10,301
(Increase) / decrease in other receivables (23,392) 2,390
Increase / (decrease) in other payables 18,425 (4,896)
Exchange adjustments (1,088) 768
Amortisation of bond costs (2,975) 10,338
Fair value movements on cash flow hedges 1,288 (3,943)
Reclassification of cash flow hedges to
the income statement 1,472 1,118
----------------------------------------------------------------- ------------- -------------- -------------
Net cash inflow from
operating
activities 24,002 16,076
------------------------- ------------- ------------- -------------- -------------
19 Reconciliation of net cash flow to movement in net (debt)/surplus
Liabilities from financing
Other assets activities
Amounts Borrowings Borrowings
Cash and owed - -
cash by Group due within due after
equivalents undertakings 1 year 1 year Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ ============= ============== ============ ============= =========
Net surplus as at 1 January
2017 2 11,120,820 (2,679,716) (8,410,103) 31,003
Cash flows (1) (439,470) 2,639,347 (2,183,800) 16,076
Foreign exchange adjustments - (144,617) 41,918 101,931 (768)
Other non-cash adjustments:
Amortisation - - (1,549) (8,789) (10,338)
-------------------------------- ------------- -------------- ------------ ------------- ---------
Net surplus as at 31 December
2017 1 10,536,733 - (10,500,761) 35,973
-------------------------------- ------------- -------------- ------------ ------------- ---------
Net surplus as at 1 January
2018 1 10,536,733 - (10,500,761) 35,973
Cash flows (1) 3,674,525 - (3,650,522) 24,002
Foreign exchange adjustments - 347,846 (23,849) (322,909) 1,008
Other non-cash adjustments:
Re-classification (long-term
to short-term) - - (1,323,622) 1,323,622 -
Amortisation - - (1,988) 4,963 2,975
-------------------------------- ---- ----------- ------------ ------------- -------
Net surplus as at 31 December
2018 - 14,559,104 (1,349,459) (13,145,607) 64,038
================================ ==== =========== ============ ============= =======
GlaxoSmithKline Capital plc 31
Notes to the financial statements for the year ended 31 December 2018
20 Called up share capital
2017
2018 Number
Number of of 2018 2017
shares shares GBP'000 GBP'000
Authorised
Ordinary shares of GBP1 each
(2017: GBP1 each) 100,000 100,000 100 100
-------------------------------------------- ---------------- --------------- -------------- ------------------
Issued and fully paid
Ordinary shares of GBP1 each
(2017: GBP1 each) 100,000 100,000 100 100
-------------------------------------------- ---------------- --------------- -------------- ------------------
21 Other reserves
Retained Total
Other reserves earnings reserves
GBP'000 GBP'000 GBP'000
-------------------------------------------- ---------------- --------------- -------------- ------------------
At 1 January 2018 (11,588) 49,123 37,535
Transferred from income and expense in
the year - 24,520 24,520
Fair value movements on cash flow hedges 1,288 - 1,288
Reclassification of cash flow hedges to
the income statement 1,472 - 1,472
Deferred tax effect of cash flow hedges (469) - (469)
-------------------------------------------------------------- --------------- -------------- ------------------
At 31 December 2018 (9,297) 73,643 64,346
============================================================== =============== ============== ==================
The cash flow hedge reserve relates to the cumulative fair value changes
of derivatives that arose from pre-hedging fluctuations in long-term
interest rates when pricing bonds issued in prior and current years.
The balance is reclassified to finance costs over the life of the subsequently
issued bonds.
Amount reclassified to profit or loss
Hedged
future Line item
Hedging gains/ cash flows As hedged in which
(losses) no longer item affects reclassification
recognised expected profit or adjustment
in reserves to occur loss is included
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ---------------- --------------- -------------- ------------------
Finance
Pre-hedging of long-term interest income
rates (9,297) - 1,472 /(expense)
============================================ ================ =============== ============== ==================
22 Contingent liabilities/assets
Group bank arrangement
The Company, together with fellow Group undertakings, has entered into
a Group banking arrangement with the Company's principal bank. The
bank holds the right to pay and apply funds from any account of the
Company to settle any indebtedness to the bank of any other party to
this agreement. The Company's maximum potential liability as at 31
December 2018 is limited to the amount held on its accounts with the
bank. No loss is expected to accrue to the Company from the agreement.
23 Directors' remuneration
During the year, the Directors of the Company, with the exception of
the Corporate Directors, were remunerated as executives of the Group
and received no remuneration in respect of their services to the Company
(2017: GBPnil). Corporate Directors received no remuneration during
the year, either as executives of the Group or in respect of their
services to the Company (2017: GBPnil).
GlaxoSmithKline Capital plc 32
Notes to the financial statements for the year ended 31 December 2018
24 Related party transactions
As a wholly owned subsidiary of the ultimate parent company, GlaxoSmithKline
plc, advantage has been taken of the exemption afforded by FRS 101
"Reduced disclosure framework" not to disclose any related party transactions
with other wholly owned members of the Group, or information around
remuneration of key management personnel compensation.
Events after the end of the
reporting
25 year
On 25 March 2019, three new bonds totalling $3.5 billion were issued
under the Group's US shelf registration as follows:
-- $1,500 million (GBP1.1 billion) 2.875% US Medium Term Note 2022;
-- $1,000 million (GBP763 million) 3.000% US Medium Term Note 2024;and
-- $1,000 million (GBP763 million) 3.375% US Medium Term Note 2029.
Net proceeds of the bond issue were applied in full towards the repayment
of further outstanding amounts under the acquisition facility ($5bn
drawn under a bank facility, which was used to fund the acquisition
of Tesaro Inc. in January 2019).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKADPCBKKQQB
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