Annual Financial Report

GlaxoSmithKline Capital plc

(Registered number: 2258699)

Registered office address:

980 Great West Road

Brentford

Middlesex

TW8 9GS

GlaxoSmithKline Capital plc

(Registered number: 2258699)

Contents

Pages

Strategic report

1-2

Directors' report

3-6

Independent auditors' report

7-12

Income statement

13

Statement of comprehensive income

14

Balance sheet

15

Statement of changes in equity

16

Cash flow statement

17

Notes to the financial statements

18-27

GlaxoSmithKline Capital plc

(Registered number: 2258699)

• $1,500 million (£1.1 billion) 2.875% US Medium Term Note 2022;

• $1,000 million (£763 million) 3.000% US Medium Term Note 2024; and

• $1,000 million (£763 million) 3.375% US Medium Term Note 2029.

On 23 September 2019, three new bonds totalling €2 billion were issued under the Group's European Medium Term Note programme as follows:

•

€1,500 million (1.3 billion) 3M EURIBOR + 60bps European Medium Term Note 2021

•

€500 million (0.4 billion) 0.00% European Medium Term Note 2021

•

€500 million (0.4 billion) 0.00% European Medium Term Note 2023

The Company made a profit for the financial year of £14,583,000 (2018: £24,520,000), 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.

GlaxoSmithKline Capital plc

(Registered number: 2258699)

Strategic report for the year ended 31 December 2019

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 2019 Annual Report which does not

form part of this report.

Approach to Brexit

In preparing for the UK's exit from the EU (Brexit), our overriding priority has been to maintain continuity of supply of our medicines to people in the UK and EU. As a result, we have taken a risk-based approach to planning and mitigation, in conjunction and complete alignment with GSK, while the future relationship between the UK and EU is negotiated. Our activity has included: arranging the retesting and certifying of our medicines in Europe; submitting marketing authorisation holder transfers; updating packaging; securing additional warehousing; adjusting stock levels in both the UK and EU, and supporting employees in obtaining settled status or equivalent in both the UK and Europe.

Our Brexit plans prepare us for elements that are within our control. Uncertainty remains about the new operating environment, and as a result we support efforts to secure a status quo operating period post-Brexit.

Risks associated with the coronavirus outbreak

The potential impact of the coronavirus outbreak on the Company's access to capital and ability to lend remains uncertain.

Up to the date these financial statements are signed, the outbreak has not had a material impact on the trading results of the Company. However, we continue to monitor the situation closely, including the potential impacts on trading results, our supply continuity and our employees.

The situation could change at any time and there can be no assurance that the coronavirus outbreak will not have a material adverse impact on the future results of the Company.

Post balance sheet events

Section 172 Companies Act 2006 statement

Matters identified that may affect the Company's performance in the long term are set out in the principal risks disclosed both above and in the Group's 2019 Annual Report.

Mr A Walker

For and on behalf of Glaxo Group Limited

Corporate Director

27 April 2020

GlaxoSmithKline Capital plc

(Registered number: 2258699)

Mr I Mackay

(appointed 01 May 2019)

Edinburgh Pharmaceutical Industries Limited

(appointed 28 February 2001)

Glaxo Group Limited

(appointed 28 February 2001)

Mr S Dingemans

(appointed 01 April 2011, resigned 01 May 2019)

GlaxoSmithKline Capital plc

(Registered number: 2258699)

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

Ordinary Shares

At 31 Dec 2018

Acquired

Disposed

At 31 Dec 2019 or date of leaving

Shares

Mr I Mackay

-

-

-

-

Mr S Dingemans

261,649

159,460

(121,802)

299,307

At 31 Dec 2018

Granted

Exercised / Lapsed

At 31 Dec 2019 or date of leaving

Unvested shares not subject to performance

Mr I Mackay

-

-

-

-

Mr S Dingemans

161,231

157,774

-

319,005

At 31 Dec 2018

Granted

Exercised / Lapsed

At 31 Dec 2019 or date of leaving

Share Save

Mr I Mackay

-

-

-

-

Mr S Dingemans

722

-

(722)

-

At 31 Dec 2018

Granted

Exercised / Lapsed

At 31 Dec 2019 or date of leaving

Performance Share Plans

Mr I Mackay

-

233,791

-

233,791

Mr S Dingemans

711,292

15,613

(256,202)

470,703

At 31 Dec 2018

Granted

Exercised / Lapsed

At 31 Dec 2019 or date of leaving

Deferred Annual Bonus Plan

Mr I Mackay

-

-

-

-

Mr S Dingemans

192,150

48,822

(86,088)

154,884

GlaxoSmithKline Capital plc

(Registered number: 2258699)

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.

•

select suitable accounting policies and then apply them consistently;

•

make judgements and accounting estimates that are reasonable and prudent;

•

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

•

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.

•

principal activities and future developments;

•

review of business;

•

principal risks and uncertainties;

•

key performance indicators;

•

approach to brexit;

•

risks associated with the coronavirus outbreak;

•

post balance sheet events; and

•

section 172 Companies Act 2006 Statement.

GlaxoSmithKline Capital plc

(Registered number: 2258699)

Directors' report for the year ended 31 December 2019

Stakeholder Engagement

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.

Going concern basis

Mr A Walker

For and on behalf of Glaxo Group Limited

Corporate Director

27 April 2020

In our opinion the financial statements of GlaxoSmithKline Capital plc (the "Company"):

•

give a true and fair view of the state of the Company's affairs as at 31 December 2019 and of its profit for the year

•

then ended;

•

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including

•

Financial Reporting Standard 101 "Reduced Disclosure Framework"; and

•

have been prepared in accordance with the requirements of the Companies Act 2006.

•

income statement;

•

the statement of comprehensive income;

•

balance sheet as at 31 December 2019;

•

the statement of changes in equity;

•

the cash flow statement;

•

the statement of accounting policies; and

•

the related notes 1 to 25 in the financial statements.

Key audit matters

The key audit matters that we identified in the current year were:

•

Valuation of borrowings; and

•

Valuation of intercompany loan receivables.

Materiality

The materiality that we used in the current year was £175 million, which was determined on the basis of a blended measure

considering total assets and external debt.

Scoping

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.

Significant Changes in our approach

There have been no significant changes in approach since the prior year.

Independent auditors' report to the members of GlaxoSmithKline Capital plc

Conclusions relating to going concern

We have reviewed the directors' statement of responsibilities in relation to the financial statements about whether they consider it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.

We considered as part of our risk assessment the nature of the Company and its subsidiaries, its business model and related risks including where relevant the impact of COVID-19, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the directors' assessment of the Company's ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the directors' plans for future actions in relation to their going concern assessment.

We are required by ISAs (UK) to report in respect of the following matters where:

the directors' use of the going concern basis of accounting in preparation of the financial statements is not appropriate; or

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.

Valuation and 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:

• Short-term borrowings: £1.7 billion (2018: £1.3 billion); and

• Long-term borrowings: £15.8 billion (2018: £13.1 billion).

In the current year, the external borrowings increased by £3.1 billion due to the issuance of six new bonds. 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.

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.

How the scope of our audit responded to the key audit matter

We performed the following audit procedures:

• Agreed bond proceeds, bond costs, coupon rate and redemption amounts

to underlying agreements and term sheets;

• Recalculated the effective interest rate and the carrying value of each bond

using the key inputs outlined above per the underlying agreements;

• Assessed the appropriateness of the accounting treatment applied for

borrowings including the recognition at amortised cost in line with

IFRS 9 requirements;

• Validated the inputs used for the fair value disclosures in the notes to the

financial statements to an independent source; and

• Evaluated the disclosures in respect to these liabilities included in the notes

to the financial statements.

Independent auditors' report to the members of GlaxoSmithKline Capital plc

Key audit matters (continued)

Keyobservations

We are satisfied that the calculation of the effective interest rate and carrying value of the external borrowings balance has been correctly calculated and appropriately recorded in accordance with IFRS 9.

Valuation of intercompany loan receivables

Key audit matter description

• Short-term intercompany loan receivables: £1.8 billion (2018: £1.5 billion);

• Long-term intercompany loan receivables: £15.7 billion (2018: £13.1 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.

How the scope of our audit responded to the key audit matter

We performed the following audit procedures:

• Agreed loan amounts, coupon rate and redemption amounts to underlying

agreements;

• Recalculated the effective interest rate and the carrying value of each

intercompany loan using the key inputs outlined above per the underlying

agreements;

• Reviewed board minutes for the completeness of all loans entered into in

the period;

• Assessed the appropriateness of the accounting treatment applied for

intercompany loans including the recognition at amortised cost in line with

IFRS 9 requirements; and

• Evaluated the disclosures in respect to these assets included in the notes

to the financial statements.

Key observations

We are satisfied that the calculation of the effective interest rate and carrying value of the intercompany loan receivables has been correctly calculated and appropriately recorded in accordance with IFRS 9.

Materiality

£175 million (2018: £145 million)

Basis for determining materiality

We have determined materiality to be £175 million. In determining materiality,

we applied a blended approach, using 1% of total assets and 1% of total external debt*.

The increase in materiality from the previous year is due to the increase in external borrowings of £3.1 billion and associated increase in intercompany receivables from the lending of the proceeds to other entities within the group.

*External debt is defined as short-term and long-term borrowings.

Rationale for the benchmark applied

The Company is the main UK debt issuer 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.

Independent auditors' report to the members of GlaxoSmithKline Capital plc

6. Our application of materiality (continued)

Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at 70% of materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered the following factors:

- our risk assessment, including our assessment of the entity's overall control environment; and

- our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods.

Error reporting threshold

We agreed with the Board of Directors that we would report to them all audit differences in excess of £8.75m (2018: £7.25m), as well as differences below that threshold that, in our view, 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.

7. An overview of the scope of our audit

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.

10. Auditor's responsibilities for the audit of the financial statements

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:

•

the nature of the industry and sector, control environment and business performance including the design of the company's

remuneration policies, key drivers for directors' remuneration, bonus levels and performance targets;·

•

results of our enquiries of management and the Board of Directors about their own identification and assessment of the

of irregularities;

•

any matters we identified having obtained and reviewed the company's documentation of their policies and procedures

relating to:

o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances

of non-compliance;

o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or

alleged fraud; and

o the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.

•

the matters discussed among the engagement team and involving relevant internal specialists, including tax, regarding

where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in management override of controls. In common with all audits under ISAs (UK), we are required to perform specific procedures to respond to the risk of management override.

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.

•

reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant

•

laws and regulations discussed above;

•

enquiring of management, the Board of Directors and in-house and external legal counsel concerning actual and

•

potential litigation and claims;

•

performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material

•

misstatement due to fraud;

•

reading minutes of meetings of those charged with governance and reviewing internal audit reports; and

•

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.

•

the information given in the Strategic report and the Directors' report for the financial year for which the financial

•

statements are prepared is consistent with the financial statements; and

•

the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

•

we have not received all the information and explanations we require for our audit; or

•

adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches

•

not visited by us; or

•

the financial statements are not in agreement with the accounting records and returns.

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.

Auditor tenure

Following the recommendation of the Board of Directors, we were appointed by the Company 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 total uninterrupted engagement including previous renewals and reappointments of the firm is two years, covering the years

ending 2018 to 2019.

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).

Deloitte LLP

Statutory Auditors

London, United Kingdom

27 April 2020

Income statement

for the year ended 31 December 2019

2019

2018

Note

£'000

£'000

Other operating income / (loss)

6

(2,351)

1,094

Finance income

8

473,371

377,474

Finance expense

9

(453,016)

(348,296)

Operating profit

18,004

30,272

Profit before taxation

18,004

30,272

Tax on profit

10

(3,421)

(5,752)

Profit for the financial year

14,583

24,520

Statement of comprehensive income

for the year ended 31 December 2019

2019

2018

Note

£'000

£'000

Profit for the financial year

14,583

24,520

Items that may be subsequently reclassified to the income statement:

Fair value movements on cash flow hedges

(11,704)

1,288

Reclassification of cash flow hedges to the income statement

3,239

1,472

Deferred tax on fair value movements on cash flow hedges

10

1,439

(469)

Other comprehensive income / (loss) for the financial year

(7,026)

2,291

Total comprehensive income for the financial year

7,557

26,811

Balance sheet

as at 31 December 2019

2019

2018

Note

£'000

£'000

Non-current assets

Deferred tax assets

10

3,343

1,904

Trade and other receivables

11

15,725,293

13,087,653

Total non-current assets

15,728,636

13,089,557

Current assets

Trade and other receivables

11

1,804,015

1,471,451

Prepayments and accrued income

12

134,752

131,225

Cash and cash equivalents

4

-

Total current assets

1,938,771

1,602,676

Total assets

17,667,407

14,692,233

Current liabilities

Other payables

13

(5,811)

(2,040)

Corporation tax

13

(3,421)

(5,752)

Short-term borrowings

14

(1,657,233)

(1,349,459)

Accruals and deferred income

15

(128,073)

(124,929)

Total current liabilities

(1,794,538)

(1,482,180)

Net current assets

144,233

120,496

Total assets less current liabilities

15,872,869

13,210,053

Non-current liabilities

Long-term borrowings

14

(15,800,866)

(13,145,607)

Total non-current liabilities

(15,800,866)

(13,145,607)

Total liabilities

(17,595,404)

(14,627,787)

Net assets

72,003

64,446

Equity

Called up share capital

20

100

100

Other reserves

21

(16,323)

(9,297)

Retained earnings

88,226

73,643

Total equity

72,003

64,446

Mr A Walker

For and on behalf of Glaxo Group Limited

Corporate Director

Statement of changes in equity

for the year ended 31 December 2019

Called up share capital

Other reserves

Retained earnings

Total equity

£'000

£'000

£'000

£'000

At 1 January 2018

100

(11,588)

49,123

37,635

Profit for the year

-

-

24,520

24,520

Other comprehensive loss for the financial year

-

2,291

-

2,291

At 31 December 2018

100

(9,297)

73,643

64,446

Profit for the year

-

-

14,583

14,583

Other comprehensive income for the financial year

-

(7,026)

(7,026)

At 31 December 2019

100

(16,323)

88,226

72,003

Cash flow statement

for the year ended 31 December 2019

2019

2018

Note

£'000

£'000

Cash flows from operating activities

Operating profit

18,004

30,272

Adjustments reconciling operating profit to operating cash flows

3,838

(6,270)

Net cash inflow from operating activities

18

21,842

24,002

Cash flows from financing activities

Proceeds from borrowings

4,845,302

3,650,522

Repayment of borrowings

(1,277,670)

-

Loans provided to Group undertakings

(4,833,620)

(3,648,326)

Loan repayments received from Group undertakings

1,268,099

-

(Increase) / decrease in other receivables with Group undertakings

(23,949)

(26,199)

Net cash outflow from financing activities

(21,838)

(24,003)

Net movement in cash in the year

4

(1)

Cash at beginning of year

-

1

Movement in cash

4

(1)

Cash at end of year

4

-

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.

Going concern

Having assessed the principal risks and other matters, including the potential impact of the COVID- 19 pandemic, the Directors are of the opinion that the current level of activity remains sustainable. In relation to the challenges that arise from the COVID- 19 pandemic, the considerations have included the accessibility of additional capital and the potential risk to liquidity. The Directors have taken into account that as part of the GSK Group of companies, the Company has the ability to request support from the Group where necessary and can take actions to ensure business continuity through operational channels, as well as the ability to manage variable costs. On the basis of those considerations, the Directors believe that it remains appropriate to adopt the going concern basis of accounting in preparing the financial statements.

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:

• Paragraph 38 of IAS 1 "Presentation of financial statements" comparative information requirements in respect of:

- paragraph 79(a) (iv) of IAS 1;

• The following paragraphs of IAS 1 "Presentation of financial statements":

- 16 (statement of compliance with all IFRS); and

- 38B-D (additional comparative information);

• 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);

• Paragraph 17 of IAS 24 "Related party disclosures" (key management compensation); and

• The requirements in IAS 24 "Related party disclosures" to disclose related party transactions entered into between two or more wholly

members of a group.

4

Financial Risk Management (continued)

2019

2018

Increasein income

Increasein income

£'000

£'000

1% (100 basis points) increase in Euro interest rates (2018: 1%)

398

533

1% (100 basis points) increase in Sterling interest rates (2018: 1%)

723

516

1% (100 basis points) increase in US dollar interest rates (2018: 1%)

397

233

Fixed rate

At 31 December 2019

Weightedaverage interest rate

Average years for which rate is fixed

Fixed rate

Floating rate

Total

Currency

%

£'000

£'000

£'000

US dollars

3.6

3

(5,083,553)

(567,101)

(5,650,654)

Sterling

5.0

18

(4,045,872)

-

(4,045,872)

Euro

1.2

6

(5,842,913)

(1,918,660)

(7,761,573)

Total borrowings

3.2

9

(14,972,338)

(2,485,761)

(17,458,099)

Fixed rate

At 31 December 2018

Weightedaverage interest rate

Average years for which rate is fixed

Fixed rate

Floating rate

Total

Currency

%

£'000

£'000

£'000

US dollars

3.9

3

(2,548,202)

(589,385)

(3,137,587)

Sterling

5.0

19

(4,043,711)

-

(4,043,711)

Euro

1.9

7

(6,636,522)

(677,246)

(7,313,768)

Total borrowings

3.6

10

(13,228,435)

(1,266,631)

(14,495,066)

At 31 December 2019

Fixed rate

Floating rate

Total

Currency

£'000

£'000

£'000

US dollars

5,053,811

602,096

5,655,907

Sterling

4,024,022

72,268

4,096,290

Euro

5,816,305

1,960,446

7,776,751

Total loans and receivables

14,894,138

2,634,810

17,528,948

At 31 December 2018

Fixed rate

Floating rate

Total

Currency

£'000

£'000

£'000

US dollars

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

(ii)

Interest rate risk (continued)

2019

2018

Net currency exposure

£'000

£'000

US dollars

5,253

11,294

Euro

15,177

20,786

20,430

32,080

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 2019 (2018: £nil).

6

Operating profit

2019

2018

£'000

£'000

The following items have been credited / (charged) in operating profit:

Exchange gains / (losses) on foreign currency transactions

(2,285)

1,151

Management fee

(66)

(57)

2019

2018

£'000

£'000

Interest income arising from financial assets at amortised cost

473,371

377,474

2019

2018

£'000

£'000

Interest expense arising on financial liabilities at amortised cost

(449,777)

(346,824)

Reclassification of cash flow hedge from other comprehensive income

(3,239)

(1,472)

Total finance expense

(453,016)

(348,296)

10

Taxation

2019

2018

Income tax charge on profit

£'000

£'000

Current tax:

UK corporation tax at 19.00% (2018: 19.00%)

(3,421)

(5,752)

Total current tax

(3,421)

(5,752)

2019

2018

Reconciliation of total tax charge

£'000

£'000

Profit on ordinary activities before taxation

18,004

30,272

Profit on ordinary activities at the UK statutory rate 19.00% (2018: 19.00%)

(3,421)

(5,752)

Effects of:

Permanent disallowables - interest treated as paid by ultimate parent

85,739

65,884

Permanent deductions - Group relief received for no payment

(85,739)

(65,884)

Total tax charge for the year

(3,421)

(5,752)

2019

2018

Total tax (expense) / credit included in other comprehensive income

£'000

£'000

Deferred tax:

Fair value movements on cash flow hedges

1,439

(469)

Total tax (expense) / credit included in other comprehensive income

1,439

(469)

10

Taxation (continued)

Other net temporary differences

Total

Movement in deferred tax assets and liabilities

£'000

£'000

At 1 January 2019

1,904

1,904

Credit to comprehensive income

1,439

1,439

At 31 December 2019

3,343

3,343

2019

2018

£'000

£'000

Deferred tax assets classified as non-current assets

3,343

1,904

3,343

1,904

11

Trade and other receivables

2019

2018

£'000

£'000

Amounts due within one year

Amounts owed by Group undertakings

1,804,015

1,471,451

Amounts due after more than one year

Long term deposits

360

-

Amounts owed by Group undertakings

15,724,933

13,087,653

17,529,308

14,559,104

Amounts due within one year include call accounts with Group undertakings of £72,268,000 (2018: £51,647,000) 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 include deposits with Group undertakings of £77,063,000 (2018: £78,574,000) 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 £1,654,684,000 (2018: £1,341,230,000) which is unsecured with interest charged at 0.21% per annum.

2019

2018

£'000

£'000

Amounts due within one year

134,752

131,225

2019

2018

£'000

£'000

Amounts falling due within one year

Amounts owed to Group undertakings

(5,811)

(2,040)

Corporation tax

(3,421)

(5,752)

(9,232)

(7,792)

2019

2018

£'000

£'000

Amounts falling due within one year

Loans payable:

€ European Medium Term Notes

(1,657,233)

(1,349,459)

(1,657,233)

(1,349,459)

Amounts falling due after more than one year

Loans payable:

€ European Medium Term Notes

(6,104,340)

(5,964,309)

£ European Medium Term Notes

(4,045,872)

(4,043,711)

US$ US Medium Term Notes

(5,650,654)

(3,137,587)

(15,800,866)

(13,145,607)

Total borrowings

(17,458,099)

(14,495,066)