As filed with the Securities and Exchange Commission on March 18, 201617, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

OR

For the fiscal year ended December 31, 20152016

OR

OR

Commission file number1-15170

GlaxoSmithKline plc

(Exact name of Registrant as specified in its charter)

England

(Jurisdiction of incorporation or organization)

980 Great West Road, Brentford, Middlesex TW8 9GS England

(Address of principal executive offices)

Victoria Whyte

Company Secretary

GlaxoSmithKline plc

980 Great West Road

Brentford, TW8 9GS

England

+44 20 8047 5000

company.secretary@gsk.com

(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x☐  Yes    ¨☒  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨☐  Yes    x☒  No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x☒  Yes    ¨☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨☐  Yes    ¨☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒                Acceleratedxfiler  ☐                Non-accelerated Accelerated filer  ¨                Non-accelerated filer  ¨☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨☐    Item 18  ¨☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨☐  Yes    x☒  No

TABLE OF CONTENTS

EX-1.1

EX-4.7

EX-4.8

EX-12.1

EX-12.2

EX-13.1

EX-15.1

EX-15.2

Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as amended, the information for the 20152016. Form 20-F of GlaxoSmithKline plc set out below is being incorporated by reference from the “GSK Annual Report 2015”2016” included as exhibit 15.2 to this Form20-F dated and submitted on March 18, 201617, 2017 (the “GSK Annual Report 2015”2016”).

All references in this Form20-F to “GlaxoSmithKline,” the “Group,” “GSK,” “we” or “our” mean GlaxoSmithKline plc and its subsidiaries; the “company” means GlaxoSmithKline plc.

References below to major headings include all information under such major headings, including subheadings, unless such reference is a reference to a subheading, in which case such reference includes only the information contained under such subheading.

In addition to the information set out below, the information set forth under the headings “Cautionary statement” on page 1the inside front cover and the inside back cover, “Directors’ Report” on page 101,110, “Directors’ statement of responsibilities” on page 130,148, “Directors’ statement of responsibilities in relation to the company’s financial statements” on page 211,232, “Share capital and control” on pages 241263 to 242,264, “Financial calendar”, “Results announcements”; and “Financial reports” andon page 265, “Annual General Meeting 2016”2017” on page 243,266, “Registrar” on page 246,268, “ADR Depositary”, “Glaxo Wellcome and SmithKline Beecham Corporate PEPs”, “Donating shares to Save the Children”, “Contacts”, “Share scam alert” and “Responsible Business Supplement” on page 247,269, “Section 13(r) of the US Securities Exchange Act” on page 249271 and “Glossary of terms” on page 259283 in each case of the GSK Annual Report 20152016 is incorporated by reference.

Notice regarding limitations on Director Liability under English Law

Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from certain portions of the GSK Annual Report 20152016 incorporated by reference herein, namely the “Directors’ Report” (for which see page 101110 thereof), the “Strategic Report” (pages 21 to 7278 thereof, portions of which are incorporated by reference as described below) and the “Remuneration Report” (pages 102111 to 126,146, portions of which are incorporated by reference as described below). These reports have been drawn up and presented in accordance with, and in reliance upon, English company law. Under English law, the Directors would be liable to the company, but not to any third party, if these sections of the GSK Annual Report 20152016 contain errors as a result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable.

Portions of the GSK Annual Report 20152016 incorporated by reference herein contain references to our website. Information on our website or any other website referenced in the GSK Annual Report 20152016 is not incorporated into this Form20-F and should not be considered to be part of this Form 20-F. We have included any website as an inactive textual reference only.

PART I

Not applicable.

Not applicable.

The information set forth under the heading:

of the GSK Annual Report 20152016 is incorporated herein by reference.

Not applicable.

3.C	Reasons for the offer and use of proceeds

Not applicable.

Principal risks and uncertainties

The principal risks discussed below are the risks and uncertainties relevant to our business, financial condition and results of operations that may affect our performance and ability to achieve our objectives. The factorsrisks below are those that we believe could cause our actual results to differ materially from expected and historical results.

We must adapt to and comply with a broad range of laws and regulations. These requirements apply to research and development, manufacturing, testing, approval, distribution, sales and marketing of Pharmaceutical, Vaccine and Consumer Healthcare products and affect not only the cost of product development but also the time required to reach the market and the likelihood of doing so successfully.

Moreover, as rules and regulations change, and governmental interpretation of those rules and regulations evolves, the nature of a particular risk may change. Changes to certain regulatory regimes may be substantial. Any change in, and any failure to comply with, applicable law and regulationregulations could materially and adversely affect our financial results.

Similarly, our business exposes us to litigation and government investigations, including but not limited to product liability litigation, patent and antitrust litigation and sales and marketing litigation. Litigation and government investigations, including related provisions we may make for unfavourable outcomes and increases in related costs such as insurance premiums, could materially and adversely affect our financial results.

More detail on the status and various uncertainties involved in our significant unresolved disputes and potential litigation is set out in Note 45, “Legal proceedings”,46, ‘Legal proceedings,’ on pages 206226 to 210231 of the GSK Annual Report 2015.2016.

UK regulations require a discussion of the mitigating activities a company takes to address principal risks and uncertainties. A summary of the activities that the Group takes to manage each of our principal risks accompanies the description of each principal risk below. The principal risks and uncertainties are not listed in order of significance.

Patient safety

Risk definition

Failure to appropriately collect, review, follow up, or report adverse events from all potential sources, and to act on any relevant findings in a timely manner.

Risk impact

The impact of this risk is potentially to compromise our ability to conduct robust safety signal detection and interpretation and to ensure that appropriate decisions are taken with respect to the risk/benefit profile of our products, including the completeness and accuracy of product labels and the pursuit of additional studies/analyses, as appropriate. This could lead to potential harm to patients, reputational damage, product liability claims or other litigation, governmental investigation, regulatory action such as fines, penalties or loss of product authorisation.

Context

Pre-clinical and clinical trials are conducted during the development of investigational Pharmaceutical, Vaccine and Consumer Healthcare Products to determine the safety and efficacy of the products for use by humans. Notwithstanding the efforts we make to determine the safety of our products through appropriatepre-clinical and clinical trials, unanticipated side effects may become evident only when products are widely introduced into the marketplace. Questions about the safety of our products may be raised not only by our ongoing safety surveillance and post-marketing studies but also by governmental agencies and third-parties that may analyse publicly available clinical trial results.

The Group is currently a defendant in a number of product liability lawsuits, including class actions, that involve significant claims for damages related to our products. Litigation, particularly in the US, is inherently unpredictable. Class actions that seek to sweep together all persons who were prescribedtake our products increase the potential liability. Claims for pain and suffering and punitive damages are frequently asserted in product liability actions and, if allowed, can represent potentially open-ended exposure and thus, could materially and adversely affect the Group’s financial results.

Intellectual property

Risk definition

Failure to appropriately secure, maintain and protectenforce intellectual property rights.

Risk impact

Any failure to obtain or subsequent loss of patent protection in a market, including reducing the availability or scope of patent rights or compulsory licensing (in which a government forces a manufacturer to license its patents for specific products to a competitor), could materially and adversely affect our financial results in those markets.that market. Absence of adequate patent or data exclusivity protection in a market could limit the opportunity to rely on such marketsthat market for future sales growth for our products, which could also materially and adversely affect our financial results.results in that market.

Context

As an innovative Pharmaceutical, Vaccine and Consumer Healthcare Products company, we seek to obtain appropriate intellectual property protection for our products. Our ability to obtain and enforce patents and other proprietary rights with regard to our products is critical to our business strategy and success. Pharmaceutical and Vaccine products are usually only protected from being copied by generic manufacturers during the period of exclusivity provided by an issued patent or related intellectual property rights such as Regulatory Data Protectionregulatory data protection or Orphan Drugorphan drug status. Following expiration of certain intellectual property rights, a generic manufacturer may lawfully produce a generic version of the product.

We operate in markets where intellectual property laws and patent offices are still developing and where governments may be unwilling to grant or enforce intellectual property rights in a fashion similar to more developed regions such as the EU, Japan and the US. Some developing countries have limited, or threatened to limit, effective patent protection for pharmaceutical products in order to facilitate early competition within their markets from generic manufacturers.

We face competition from manufacturers of proprietary and generic pharmaceutical products in all of our major markets. Introduction of generic products, particularly in the US where we have our highest turnover and margins, typically leads to a rapid and dramatic loss of sales and reduces our revenues and margins for our proprietary products. Since there is no abbreviated pathway that leads to substitutable generic vaccines, competition in that market arises from branded products or generic branded products and erosion of sales, revenues and margins is less dramatic. In addition, the proprietary technology used in manufacture and the capital investment in facilities create barriers to entry into the vaccine markets.

We depend on certain key products for a significant portion of our sales. One such product is our respiratory pharmaceutical productSeretide/Advairwhich accounts for significant Group sales worldwide. The timing and impact of entry in the US for a generic product containing the same combination of active substances asSeretide/Advairis uncertain. The US patent for compositions containing the combination of active substances inSeretide/Advairexpired during 2010 although the US patent on a component of theAdvair Diskus device continues until August 2016. has expired. Generic products containing the same combination of active substances asSeretide/Advair(in (in both metered dosedry powder inhalers and dry powdermetered dose inhalers) have been launched by several manufacturers in a number of European markets. The timing and impact of entryNew drugs applications (ANDAs) have been filed in the US and major markets in Europeby generic competitors for a ‘follow-on’ product toSeretide/Advair Diskus. The date of such approvals is uncertain at this time but could come as early as March 2017. The timing of an ANDA forAdvair HFA in the US is uncertain. We have patents on the formulation and device used in the metered dose inhaler, although the protection afforded by these patents is uncertain at present. Similar patents exist forVentolin HFA andFlovent HFA.

The expiration dates for patents for our major products which may affect the dates on which generic versions of our products may be introduced are set out on pages 250 to 251. The listed annual expiration dates are not meant to indicate the certainty of exclusivity for the listed products, as patents may be designed around or invalidated prior to their expiration, resulting in earlier entry of a generic product. Legal proceedings involving patent challenges are set out in Note 46 to the financial statements, ‘Legal proceedings’ on pages 226 to 231 of the GSK Annual Report 2016.

Generic drug manufacturers have also exhibited a readiness to market generic versions of many of our most important products prior to the expiration of our patents. Their efforts may involve challenges to the validity or enforceability of a patent or assertions that their generic product does not infringe our patents. As a result, we are and may continue to be involved in legal proceedings involving patent challenges, which may materially and adversely affect our financial results. Moreover, in the US, it has become increasingly common for patent infringement actions to prompt claims that anti-trust laws have been violated during the prosecution of the patent or during litigation involving the defence of that patent. Such claims by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages and restitution claims. Similarly, anti-trust claims may be brought by government entities or private parties following settlement of patent litigation, alleging that such settlements are anti-competitive and in violation of anti-trust laws. A successful anti-trust claim by a private party or government entity could materially and adversely affect our financial results.

The expiration dates for patents for our major products which may affect the dates on which generic versions of our products may be introduced are set out on pages 228 to 229 of the GSK Annual Report 2015. Legal proceedings involving patent challenges are set out in Note 45 to the financial statements, “Legal proceedings” on pages 206 to 210 of the GSK Annual Report 2015.

Product quality

Risk definition

Failure to comply with current Good Manufacturing Practices (cGMP) or inadequate controls and governance of quality in the supply chain covering supplier standards, manufacturing and distribution of products.

Risk impact

A failure to ensure product quality could have far reaching implications in terms of patient and consumer safety resulting in product launch delays, supply interruptions and product recalls which would have the potential to do damage to ourGSK’s reputation. Associated regulatory, legal, and financial consequences could materially and adversely affect ourcompany reputation and financial results.

Context

Patients, consumers and healthcare professionals trust the quality of our products. A failure to ensure product quality is an enterprise risk which is applicable across all of our business activities. Product quality may be influenced by many factors including product and process understanding, consistency of manufacturing components, compliance with GMP, accuracy of labelling, reliability of the external supply chain, and the embodiment of an overarching quality culture. The internal and external environment continues to evolve as new products, new markets and new legislation are introduced, with increasing scrutiny of data integrity, supply continuity a focus on improved distribution practice and the introduction of novel cell and gene based therapies.drug shortages. Review of inspections conducted across the industry by national regulatory authorities during 20152016 highlighted an ongoing focus on data integrity, contamination prevention and the rigour of quality investigations including the robustness of decision makingthird party oversight and the timely escalation of pertinent issues to regulatory authorities.

Financial controlcontrols and reporting

Risk definition

Failure to comply with current tax law or incurring significant losses due to treasury activities; failure to report accurate financial information in compliance with accounting standards and applicable legislation; failure to maintain adequate governance and oversight over third-party relationships.

Risk impact

Non-compliance with existing or new financial reporting and disclosure requirements, or changes to the recognition of income and expenses, could expose us to litigation and regulatory action and could materially and adversely affect our financial results. Changes in tax laws or in their application with respect to matters such as transfer pricing, foreign dividends, controlled companies, R&D tax credits, taxation of intellectual property or a restriction in tax relief allowed on the interest on intra-group debt, could impact our effective tax rate. Significant losses may arise from inconsistent application of treasury policies, transactional or settlement errors, or counterparty defaults. Any changes in the substance or application of the governing tax laws, failure to comply with such tax laws or significant losses due to treasury activities could materially and adversely affect our financial results.

Failure to adequately manage third-partythird party relationships could result in business interruptiondisruption and exposure to risk ranging fromsub-optimal contractual terms and conditions, to severe business sanctions and/or significant reputational damage. Any of these consequences could materially and adversely affect our business operations and financial results.

Context

The Group is required by the laws of various jurisdictions to disclose publicly its financial results and events that could materially affect the financial results of the Group. Regulators routinely review the financial statements of listed companies for compliance with new, revised or existing accounting and regulatory requirements. The Group believes that it complies with the appropriate regulatory requirements concerning our financial statements and disclosure of material information including any transactions relating to business restructuring such as acquisitions and divestitures. However, should we be subject to an investigation into potentialnon-compliance with accounting and disclosure requirements, this may lead to restatements of previously reported results and significant penalties.

Our Treasury group deals in high value transactions, mostly foreign exchange and cash management transactions, on a daily basis.

These transactions involve market volatility and counterparty risk. The Group’s effective tax rate reflects rates of tax in the jurisdictions in which the Group operates that are both higher and lower than the UK rate and taketakes into account regimes that encourage innovation and investment in science by providing tax incentives which, if changed, could affect the Group’s tax rate.

In addition, the worldwide nature of our operations and cross-border supply routes can result in conflicting claims from tax authorities as to the profits to be taxed in individual countries. The tax charge included in our financial statements is our best estimate of the Group’s tax liability pending audits by tax authorities. The worldwide nature of our operations and cross-border supply routes can be complex and can lead to questions on tax audit.

There continues to be a significant international focus on tax reform, including the OECD’s ‘BEPS’Base Erosion and Profit Shifting (BEPS) project and European Commission initiatives such as the proposed ‘anti-BEPS’ Directive and the increased use of fiscal state aid investigations. Together with domestic initiatives around the world, these may result in significant changes to established tax principalsprinciples and an increase in tax authority disputes. These, regardless of their merit or outcomes, can be costly, divert management attention and may adversely impact our reputation.

Third parties are critical to our business delivery and are an integral part of the solution to improve our productivity, quality, service and innovation. We rely on third-parties,third parties, including suppliers, distributors, individual contractors, licensees, and other pharmaceutical and biotechnology collaboration partners for discovery, manufacture, and marketing of our products and important business processes.

Third party business relationships present a material risk. For example, we share critical and sensitive information such as marketing plans, clinical data, and employee data with specific third parties who are conducting the relevant outsourced business operations. Inadequate protection or misuse of this information by third parties could have significant business impact. Similarly, we use distributors and agents in a range of activities such as promotion and tendering which have inherent risks such as inappropriate promotion or corruption.unethical business practices. Insufficient internal compliance and controls by the distributors could affect our reputation. These risks are further increased by the complexities of working with large numbers of third parties.

Anti-Bribery and Corruption (“ABAC”)

Risk definition

Failure to preventof GSK employees, consultants and third parties not complyingto comply with our ABACAnti-bribery and corruption (ABAC) principles and standards, as well as with all applicable legislation.

Risk impact

Failure to mitigate this risk could expose the Group and associated persons to governmental investigation, regulatory action and civil and criminal liability, as well as damageliability.

In addition to legal penalties, a failure to prevent bribery through complying with ABAC legislation and regulations could have substantial implications for the Group’s reputation shareholder value,of the company, the credibility of senior leaders, and an erosion of investor confidence in our licence to operate in particular jurisdictions, all of which could materiallygovernance and adversely affect our financial results.risk management.

Context

We are exposed to bribery and corruption risk through our global business operations. In some markets, the government structure and the rule of law are less developed, and this has a bearing on our bribery and corruption risk exposure. In addition to the global nature of our business, the healthcare sector is highly competitive and subject to regulation. This increases the instances where we are exposed to activities and interactions with bribery and corruption risk.

The Group has been subject to a number of ABAC inquiries. We have reached a resolution with US andauthorities in 2016 regarding their ABAC inquiry, whilst the inquiry of the UK authorities are leading extra-territorial ABAC enquiries into certain of the Group’s operations.is ongoing. These investigations are discussed further in Note 4546 ‘Legal proceedings’ on pages 206226 to 210231 of the GSK Annual Report 2015.2016 .

Commercialisation

Risk definition

Failure to execute business strategies, or effectively manage competitive opportunities orand threats effectively and in accordance with the letter and spirit of legal, industry, or companythe Group’s requirements.

Risk impact

Failure to manage risks related to commercialisation could materially and adversely affect our ability to grow a diversified global business and deliver more products of value.

value for patients and consumers. Failure to comply with applicable laws, rules and regulations may result in governmental investigation, regulatory action and legal proceedings brought against the Group by governmental and private plaintiffs. Failure to provide accurate and complete information related to our products may result in incomplete awareness of the benefit:riskrisk/benefit profile of our products and possibly suboptimal treatment of patients and consumers. Any of these consequences could materially and adversely affect the Group.

Any practices that are found to be misaligned with our values could also result in reputational damage and dilute trust established with keyexternal stakeholders.

Context

We operate on a global basis in an industry that is both highly competitive and highly regulated. Our competitors may make significant product innovations and technical advances and may intensify price competition. In light of this competitive environment, continued development of commercially viable new products and the development of additional uses for existing products are critical to achieve our strategic objectives.

Developing new As do other pharmaceutical, vaccine and consumer healthcarecompanies, the Group faces downward price pressure in major markets, declining emerging market growth, and negative foreign exchange impact.

Developing new Pharmaceutical, Vaccine and Consumer Healthcare products is a costly, lengthy and an uncertain process, however, and aprocess. A product candidate may fail at any stage, including after significant Group economic and human resources have been invested. Our competitors’ products or pricing strategies or any failure on our part to develop commercially successful products, or to develop additional uses for existing products, could materially and adversely affect our ability to achieve our strategic objectives.

We are committed to the ethical and responsible commercialisation of our products to support our mission to improve the quality of human life by enabling people to do more, feel better, and live longer. To accomplish this mission, we engage the healthcare community in various ways to provide important information about our medicines.

Promotion of approved products seeks to ensure that Healthcare Professionals (“HCPs”)healthcare professionals (HCPs) globally have access to information they need, that patients and consumers have access to the information and products they need and that products are prescribed, recommended or used in a manner that provides the maximum healthcare benefit to patients and consumers. We are committed to communicating information related to our approved products in a responsible, legal, and ethical manner.

At times, researchers, HCPs, healthcare organisations (HCOs) and other external experts that we engage may be compensated for services and expertise provided. However, payments must not be excessive and must never be or be perceived to be an inducement or reward for prescribing or recommending our products. Consistent with our ABAC policies, they also must comply with a market’s ABAC laws ifWhile business units within the recipientGroup are confronted by common types of any payment is a government official.

In 2012, we paid $3 billion (£1.9 billion) to resolve government investigationscommercialisation risks, differences do exist in the US focusedtypes of risks that present themselves, the degree of risk presented in large part on promotional practicesthat business unit and, in 2014 we paid RMB 3 billion (£301 million), to resolve a government investigation in China focused on offering money or property to non-government personnel in order to obtain improper commercial gains.consequently, how those risks are managed. This reflects the different nature and profile of the business units across the Group.

Research practices

Risk definition

Failure to adequately to conduct ethical and sound preclinical and clinical research. In addition, failure to engage in scientific activities that are consistent with the letter and spirit of the law, industry, or the Group’s requirements.

Risk impact

The impacts of the risk include harm to patients,human subjects, reputational damage, failure to obtain the necessary regulatory approvals for our products, governmental investigation, legal proceedings brought against the Group by governmental and private plaintiffs (product liability suits and claims for damages), and regulatory action such as fines, penalties, or loss of product authorisation. Any of these consequences could materially and adversely affect our financial results.

Context

Research relating to animals can raise ethical concerns. While we attempt to proactively address this proactively, animal studies remain a vital part of our research. In many cases, they are the only method that can be used to investigate the effects of a potential new medicine in a living body before it is tested in humans, and they are generally mandated by regulators and ethically imperative. Animal research can provide critical information about the causes of diseases and how they develop. Some countries require additional animal testing even when medicines have been approved forNonetheless, we are continually seeking ways in which we can minimise our use elsewhere.of animals in research, whilst complying with regulatory requirements.

Clinical trials in healthy volunteers and patients are used to assess and demonstrate an investigational product’s efficacy and safety or further evaluate the product once it has been approved for marketing. We also work with human biological samples. These samples are fundamental to the discovery, development and safety monitoring of our products.

The integrity of our data is essential to success in all stages of the research data lifecycle: design, generation, recording and management, analysis, reporting and storage and retrieval. Our research data is governed by legislation and regulatory requirements.

Research data and supporting documents are core components at various stages of pipeline progression decision-making and also form the content of regulatory submissions. Poor data integrity can compromise our research efforts.

There are innate complexities and interdependencies required for regulatory filings, particularly given our global research and development footprint. Rapid changes in submission requirements in developing countries continue to increase the complexity of worldwide product registration.

Scientific Engagementengagement (SE) is an essential part of scientific discourse, defined as the interaction and exchange of information between GSK and external communities in order to advance scientific and medical understanding, including the appropriate development and use of our products.products, is an essential part of scientific discourse. Suchnon-promotional engagement with external stakeholder groups is vital to GSK’s mission and necessary for scientific and medical advance.

The scope of SE activities includes: advisory boards; scientific consultancies;pre-planned informal discussions with HCPs;healthcare professionals (HCP); sharing medical information; publications (including abstracts to congresses); scientific interactions with payers, patients, governments and the media; and support for Independent Medical Education. Non-independent educational activities are covered by Commercial Practices (CP).

independent medical education. SE activities are essential but present legal, regulatory, and reputational risk if the sharing of data, invited media coverage or payments for service providers has, or is perceived to have, inappropriate promotional intent. The risks are particularly high where HCP engagement and associated Financialfinancial and/or Transfertransfer of Valuevalue disclosures are required by GSK.

Environment, health and safety and sustainability (“EHSS”)

Risk definition

Failure to manage EHSSenvironment, health and safety and substainability (EHS&S) risks in line with our objectives and policies and with relevant laws and regulations.

Risk impact

Failure to manage EHSSEHS&S risks could lead to significant harm to people, the environment and communities in which we operate, fines, failure to meet stakeholder expectations and regulatory requirements, litigation or regulatory action, and damage to the Group’s reputation and could materially and adversely affect our financial results.

Context

The Group is subject to health, safety and environmental laws of various jurisdictions. These laws impose duties to protect people, the environment, and the communities in which we operate, as well as potential obligations to remediate contaminated sites. We have also been identified as a potentially responsible party under the US Comprehensive Environmental Response Compensation and Liability Act at a number of sites for remediation costs relating to our use or ownership of such sites.sites in the US. Failure to manage these environmental risks properly could result in litigation, regulatory action and additional remedial costs that may materially and adversely affect our financial results. See Note 4546 to the financial statements, “Legal proceedings”‘Legal proceedings’ on pages 206226 to 210231 of the GSK Annual report 2015,Report 2016, for a discussion of the environmental related proceedings in which we are involved.

We routinely accrue amounts related to our liabilities for such matters.

Information protection

Risk definition

FailureThe risk to protect and maintain accessGSK business activities if information becomes disclosed to criticalthose not authorised to see it, or sensitive computerif information or systems fail to be available or information.are corrupted.

Risk impact

Failure to adequately protect critical and sensitive systems and information may result in loss of commercial or strategic advantage, damage to our reputation, litigation, or other business disruption including regulatory sanction, which could materially and adversely affect our financial results.

Context

We rely on critical and sensitive systems and data, such as corporate strategic plans, sensitive personally identifiable information (PII), intellectual property, manufacturing systems and trade secrets. There is the potential that malicious or careless actions expose our computer systems or information may be exposed to misuse or unauthorised disclosure. We are also subject to various laws that govern the processing of PlI.

Several GSK employees were indicted for theft of GSK research information. While the charges against the individuals are concerning, based on what we know, we do not believe this breach has had any material impact on the company’s R&D activity or ongoing business. GSK is conducting a full internal review into what occurred,

Supply continuity and planning to continue to enhance the multiple layers of data protection that we already have in place.

Crisis and continuitycrisis management

Risk definition

Failure to deliver a continuous supply of compliant finished product; inability to respond effectively to a crisis incident in a timely manner to recover and sustain critical operations, including key supply chains, following a disruption, or to respond to a crisis incident, in a timely manner.chains. This risk was previously called Crisis and continuity management.

Risk impact

We recognise that failure to supply of our products can adversely impact consumers and patients who rely on them. A material interruption of supply or exclusion from healthcare programmes could expose us to litigation or regulatory action incurring of fines or disgorgement and materially andfinancial penalties that could adversely affect the Group’s financial results.

The Group’s international operations, and those of its partners, maintain a vast global footprint also expose our workforce, facilities, operations and information technology to potential disruption resulting from a natural eventevents (e.g. storm or earthquake), a man-made event events (e.g. civil unrest, terrorism), or aand global emergencyemergencies (e.g. Ebola outbreak, Flu pandemic). It is important forthat GSK to havehas robust crisis management and recovery plans in place to manage such events.

Context

Our supply chain operations are subject to review and approval by various regulatory agencies that effectively provide our licence to operate. Failure by our manufacturing and distribution facilities or by suppliers of key services and materials could lead to litigation or regulatory action such as product recalls and seizures, interruption of supply, delays in the approval of new products, and suspension of manufacturing operations pending resolution of manufacturing or logistics issues.

MaterialsWe rely on materials and services provided by third-partythird party suppliers are necessary for the commercial production ofto make our products, including active pharmaceutical ingredients (API), antigens, intermediates, commodities, and components necessary for the manufacture and packaging of many of our Pharmaceutical, Vaccine and Consumer Healthcare products. Some of the third-partythird party services procured, such as services provided by contract manufacturing organisations and clinical research organisations to support development of key products, are important to ensure continuous operation

of our businesses.

Although we undertake business continuity planning, single sourcing of certain components, bulk API, finished products, and services creates a supply risk of failure of supply in the event of regulatorynon-compliance or physical disruption at the manufacturing sites or logistics system.

The failure If any of athe small number of single-source, third-partythird party suppliers orand service providers we use fail to fulfil their contractual obligations in a timely manner or as a result ofexperience regulatorynon-compliance or physical disruption of their logistics and manufacturing sites, maythis could also result in delays or service interruptions.

ThroughWe use effective crisis management and business continuity planning we are committed to providingprovide for the health and safety of our people minimising damage and to minimise impact to the Group, andby maintaining functional operations following a natural orman-made disaster, or a public health emergency.

The information set forth under the heading:

of the GSK Annual Report 20152016 is incorporated herein by reference.

In addition, the information set forth under the headings:

of the GSK Annual Report 20152016 is incorporated herein by reference.

The information set forth under the heading:

of the GSK Annual Report 20152016 is incorporated herein by reference.

4.D	Property, plant and equipment

The information set forth under the headings:

of the GSK Annual Report 20152016 is incorporated herein by reference.

Not applicable.

The information set forth under the headings:

of the GSK Annual Report 20152016 is incorporated herein by reference.

The following tables reconcile total results to core results. References in the GSK Annual Report 20152016 to the reconciliations on page 6266 of that report should be read to refer to the information in these tables.

Financial Review 2015

Group financial review

2015 highlights2016

In 2015,2016, we made significantcontinued to make progress in delivering against our strategy including closingas well as the Novartis transaction and acceleratingfinancial goals we have set out in our financial architecture. All three of our businesses contributed to the delivery of our restructuring and integration programmes. This allowed us to release £1 billionmore broadly-based revenue growth. Our continued focus on the execution of incremental savings across the Group, ahead of our original targets by some £200 million. Importantly, we also created additional flexibility to invest behind both the R&D pipeline and new product launches, helping to build momentum in each of our three businesses.

The Group is now better positioned to drive sustainable growth and, given the significant restructuring and reshaping of our cost base, is better placed to deliver against our Financial architecture and drive growth in earnings per share ahead of sales, while improving cash generation to support the dividend over the longer term.

The current level of dividend exceeds the cash flows generated by the business. Our strategy is designed to rebuild that capacity through the transition of the Group’s business away from its previous reliance onSeretide/Advair to more broadly based and growing cash flows, driven by new products in Pharmaceuticals, the expansion of our Vaccines and Consumer Healthcare businesses, operating cost savings arising from our integration and restructuring programme and a reduction inprogrammes accelerated the level of restructuring spending as the programme comes to an end.

During this period of transition, we have said that we intend to prioritise available cash, whether from operational cash flows or disposals, for the return of ordinary dividends to shareholders and to accelerate investment behind our restructuring and integration programmes to support more rapid delivery of the synergytargeted benefits, allowing us to improve margins and otheroperating leverage, while still making substantial investments behind new products, and supply chain improvements, as well as progressing the R&D pipeline.

We have also maintained our focus on financial efficiency and in the allocation of our capital, allowing us to deliver core EPS growth opportunities we have identified acrossahead of sales growth and at the Group.

In line with this prioritisation, the Board has declared an ordinarytop end of our financial guidance, as well as a significant improvement in our cash generation and a dividend of 80 pence per share for 2015 and has also said that it expects to pay an ordinary dividend of 80 pence per share for 2016 and 2017 as we transition the Group’s businesses.

To deliver on this expectation and ensure sufficient financial flexibility to continue to invest behind the synergy benefits and other growth opportunities as well as respond to the potential exercise of put options by our partners in ViiV Healthcare and the Consumer Healthcare Joint Venture, we have retained all but £1 billion of the net proceeds received from Novartis and a number of other non-strategic asset disposals. £1 billion is being returned to shareholders in the form of a special dividend of 20 pence per share to be paid in April 2016.

Retention of disposal proceeds and our continued focus on cash flow management and the protection of our credit profile has meant that during the year we were able to fund the restructuring and integration programmes, declare an ordinary dividend of 80 pence per share and reduce net debt by £3.7 billion, securing the flexibility we need to complete the transition of our business and deliver on our strategic objectives.share.

Financial architecture

Our financial architecture is designed to support the consistent execution of our strategy and to enhance the returns we deliver to shareholders.

It is focused on delivering more sustainable sales growth across the company, improving operating leverage, or profitability, and enhancing our financial efficiency. This is in order to drivewith the objective of driving growth in EPS ahead of our sales performance and then convertconverting more of those earnings into cash that can be used to invest in the business or returnreturned to shareholders, wherever we see the most attractive returns.

This clear set of priorities ensures consistency in how capital is allocated across and between the different businesses within GSK, with relative returns from each business benchmarked to relevant external comparatives using a Cash Flow Return on Investment (CFROI) based framework of metrics. Specific capital investments are also benchmarked in a similar way.

TurnoverReporting framework

In addition to total or reported results, prepared under IFRS, the Annual Report makes reference to a number of core performance measures which are used by management for planning and reporting purposes. These arenon-IFRS measures adjusted for a number of items management believe it is useful to separate so that the key trends driving the performance of the business can be more clearly identified by shareholders. Core results may, however, vary significantly from total results as some of the adjustments may be material, as was the case in 2016.

The items adjusted for between total and core results are consistent each year but those that were most significant in 2016 includere-measurement charges related to the liabilities for future contingent consideration, most significantly the consideration due to Shionogi related to its former interest in dolutegravir, and the value of future put options as well as major restructuring charges.

IFRS requires us to provide for contingent consideration liabilities related to previous business acquisitions on the basis of the estimated present value of any potential future payments. These estimates could have a broad range of outcomes. The effect of the IFRS accounting treatment is that GSK recognises these fair value liabilities in the balance sheet, with any charges forre-measurement of them reflected immediately in other operating income. GSK will make cash payments in the future to discharge these liabilities but as the liabilities were established on acquisition or through subsequentre-measurement charges to the income statement, the payments will not be charged to future earnings.

Sales growth

The Group’s turnoverAll three of our businesses delivered growth in line with or above the medium-term growth expectations we laid out for them at our Capital Markets Day in 2015. Pharmaceuticals sales were up 14% at actual rates and 3% CER with growth from new products more than offsetting the decline inSeretide/Advair sales. In addition to strong growth in HIV, the respiratory portfolio returned to growth in 2016, up 13% at actual rates and 2% CER.

Vaccines sales were up 26% at actual rates and 14% CER, driven by strong execution across the business, particularly around the flu and meningitis franchises, andBexsero in particular, together with the benefit of the comparison with 2015 which only included 10 months of the Novartis Vaccines business that was acquired on 2 March 2015.

Consumer Healthcare delivered a strong performance in 2015 reflected further progress in delivery against our strategic objectivethe first full year of building a more balanced set ofthe joint venture with sales up 19% at actual rates and 9% CER as growth drivers across our business. We continued to launch new products in our Pharmaceuticals business and we expanded our Vaccines and Consumer Healthcare businesses throughfrom the Novartis transaction. These new sources of growthseven power brands more than offset some tough comparators and headwinds in international markets. This performance also benefited from the declinecomparison with 2015 which only included 10 months ofSeretide/Advair and some of our other older products and we delivered overall turnover growth of 6% CER in the year.

Sales of New Pharmaceutical and Vaccines products of £2 billion in the year were a key driver butNovartis Consumer Healthcare also made a significant contribution, with new products, including the recentFlonase OTC switch, driving growth.business that was acquired on 2 March 2015.

Operating leverage

Our abilityThe total operating margin was 9.3% of sales compared with 43.1% in 2015, the movement primarily reflecting the combination of higher remeasurement charges for the Consumer Healthcare put option and the ViiV Healthcare contingent consideration liability in 2016, and the benefit to deliver improved profitability is heavily impacted by the overall trend in our sales, but it can also be affected by changes in the mix of business, regional and product contributions to growth in operating profit. 2015 saw a significant change in the mix of the Group followingprofit on the Novartis transaction, which helped create industry-leading Vaccines and Consumer Healthcare businesses alongside the divestmentdisposal of our marketed Oncology products.

At the time of divestment, the Oncology business had a much higherin that year.

While our total operating margin than the acquired Vaccines and Consumer Healthcare businesses, particularly given the heavy investment and cost structure inherited from Novartis. While the integration plans are addressing that cost structure directly and we have set targets for significant margin improvement in bothreduced significantly, primarily because of the acquired businesses,above factors, our core operating margin improved, driven by increased leverage in all three businesses. This was driven by a combination of leverage from stronger growth in the short-term has been affected materially bytop line, and £1.4 billion (including £200 million of currency benefits) of additional integration and restructuring benefits, as well as continued tight cost control that allowed us to deliver the transaction, and this represented the majority of the declinemargin improvements while continuing to make important investments in the core operating margin of 4.1 percentage points to 23.9%. In addition the decline reflected the impact of the benefit in 2014 to the operating margin of a structural credit in SG&A of £219 million which was not repeated in 2015.all three businesses.

This reflectedAccelerating the delivery of around £1 billionthe targeted benefits of incremental cost savings from our integration and restructuring programmes. The savings contributed to offset price pressures in older parts of the portfolio and also added to the cost flexibility we have been building in recent years.

This provided greater opportunities to reallocate resources across the Group, including reinvestment to support new launches and our R&D pipeline, but also improvements to our manufacturing capabilities and capacity.

Our integration and restructuring programme is ahead of schedule.has been a key objective and we are pleased with the progress made this year through a sustained focus across the Group on executing this programme. By the end of 2015,2016 we had delivered annual benefits of £2.8 billion, (excluding £200 million of currency benefits), almost the full target of the programme had delivered approximately £1.6 billiona year earlier than originally planned. We are confident in delivering the remaining £200 million of annual savings and it remains on track to deliver £3 billion of annual savings in total by the end ofbenefits during 2017.

Financial efficiency

We continue to focus on improving our financial efficiency and overall funding costs while protecting our credit profile and, in particular, our short-term target credit ratings. Net finance costs were up slightly, mainly due to currency.

Earnings per share (EPS)

Total EPS in 2015 saw a significant increase to 174.3p,was 18.8p (2015 – 174.3p). The decline primarily driven byreflected the comparison with the £9.2 billion profit onfrom the disposalsale of our marketed Oncology business. Core EPS declined 15%, mainly reflecting the short-term dilution of theassets to Novartis transactionin 2015, but also the impact in 2016 of charges arising from increases in the valuations of the continuing transitionliabilities for contingent consideration and the put options associated with increases in the sterling value of our Pharmaceuticals business, particularlythe Group’s HIV and Consumer Healthcare businesses.

The impact on the decline in Respiratory.total EPS was partly offset by the benefit of the improved operating performance and reduced restructuring charges in the year.

Core EPS of 102.4p was up 35% at actual exchange rates and up 12% at constant exchange rates.

Contingent consideration

At the end of 2016, GSK had liabilities for contingent consideration payments of £5.9 billion, of which £5.3 billion related to the estimated present value of future payments to Shionogi by ViiV Healthcare. The payments to Shionogi are calculated each quarter based on a high-teens percentage of the revenues of the relevant products, principally dolutegravir, with the discounted fair value of the total future payments reflecting the current expectations of total future sales of those products.

Free cash flow

FreeNet cash inflow from operating activities was £6.5 billion and free cash flow generationfor the Group was £3.1 billion, significantly improved on the small outflow we saw in 2015 has been impacted2015. This was driven by our improved operating performance, including continued tight control of capital expenditure and restructuring expenditure, as well as the ongoing transitionbenefit of currency tail winds. We continue to make progress towards our pharmaceutical portfolio, particularlyobjective of rebuilding the decline inSeretide/Advair but alsocash generating capacity of the short-termGroup post the completion of the restructuring and integration programme.

Net debt

Net debt at the end of 2016 was £13.8 billion, £3.1 billion higher than the net debt at the end of 2015. Currency was a significant factor with adverse translation effects driving £2.2 billion of the increase. The remaining increase of £0.9 billion reflected the impact of the Novartis transaction and, in particular, the inherited levels of cost and investment that are being addressed as part of our synergy and integration plans.

The restructuring costs of these plans and other costs of the Novartis transaction are being funded from the proceeds of the disposal of the Oncology business and other non-strategic assets, consistent with our general approach to funding the costs of restructuring.

Excluding the cash restructuring charges incurreddividends paid during the year of £1.1£4.9 billion, andincluding the initial tax payments due on the Oncologyspecial dividend of £1.0 billion declared in 2015, being only partly offset by disposal as well as legal payments,proceeds of approximately £1.0 billion and free cash flow generatedof £3.1 billion.

2017 guidance

We expect continued progress in 2015 was £2.5 billion compared2017, with £3.9 billion in 2014, when adjustedall three businesses expected to continue to benefit from recent new product launches and from the investments we made during 2016.

The expectation for 2017 core EPS growth is dependent on a comparable basis.number of factors including, in particular, uncertainties relating to the timing and extent of potential generic competition toAdvair in the US.

In additionthe event that no generic version ofAdvair is introduced to rebuilding our cash generation capacity, we continue to focus on improving the efficiencyUS market in 2017, the Group expects 2017 core EPS growth of capital investment and our use of working capital to reduce internal cash requirements.5-7% at CER. This is based on an expected to allow us to build operating cash flows more quickly while maintainingdecline in 2017 in USAdvair sales of15-20%.

In the dividend, returningevent of amid-year introduction of a substitutable generic competitor toAdvair in the US, the Group expects full-year 2017 USAdvair sales of around £1 billion at CER (US$1.36/£1), with core EPS flat to growtha slight decline in percentage terms at CER.

We are not able to give guidance for total results as we cannot reliably forecast certain material elements of our total results such as impairments of intangible assets and protecting our credit profile.the future fair value movements on contingent consideration and put options arising from changes in foreign exchange rates, and therefore a reconciliation of the guidance for core results to equivalent guidance for total results is not available without unreasonable effort.

Returns to shareholders

The Board approved anIn 2016, we maintained our ordinary dividend of 80 pence forat 80p per share, the same level as we paid in 2015. This is in line with the commitment we made to shareholders at the time we closed the Novartis transaction in early 2015 together with a special 20 penceto maintain the dividend to be paid fromas we completed the net proceedsintegration and reshaping of the Oncology business and other asset disposals. This will be distributedGroup, despite the short-term pressures in April 2016 alongsidefree cash flow that the regular fourth quarter dividend for 2015. We also expect to pay annual dividends of 80 pence for 2016 and 2017.restructuring costs would create.

A fuller review of the financial results is set out below.

Simon Dingemans

Chief Financial Officer

Financial review 2015Reporting framework

Results reportingPresentation of Group results

Our Group financial review discusses the operating and financial performance of the Group, cash flows and our financial position and resources. We compare the results for each year primarily with the results of the preceding year.

Total results

Total reported results represent the Group’s overall performance. However, these results can contain material unusual ornon-operational items that may obscure the key trends and factors determining the Group’s operational performance. As a result, we also report core results, which is anon-IFRS measure.

Core results

Core results exclude the following items from total results: amortisation and impairment of intangible assets (excluding computer software) and goodwill; major restructuring costs, including those costs following material acquisitions; legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; transaction-related accounting adjustments for significant acquisitions, and other items, including disposals of associates, products and businesses, and other operating income other than royalty income, together with the tax effects of all of these items.

These items are excluded from core results either because their impact can be significant or because their exclusion improves comparabilities and consistency of reporting with the majority of our peer companies. This review discussesdefinition of core results aligns the Group’s results better with the majority of our peer companies and how they report earnings.

Core results reporting is utilised as one of the bases for internal performance reporting alongside total results, cash flow generation and a number of other metrics. Core results are presented and discussed in this Group financial review as we believe that core results are more representative of the Groupperformance of the Group’s operations and alsoallow the key trends and factors driving that performance to be more easily and clearly identified by shareholders. For the same reasons, the results of our four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines and Consumer Healthcare are reported and measured on the same basis.

Reconciliations between total and core results.results, including detailed breakdowns of the keynon-core items, are set out on pages 14 to 16, and are provided to shareholders to ensure full visibility and transparency as they assess the Group’s performance.

We also use a number of other adjusted,non-IFRS, measures to report the performance of our business. These measures are used by management for planning and reporting purposes and in discussions with and presentations to investment analysts and rating agencies and are defined below. These measures are not defined in IFRS and may not be directly comparable with similarly described measures used by other companies.Non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS.

Contingent consideration

GSK has recognised a significant liability for contingent consideration (£5,896 million at 31 December 2016 on a fair value discounted basis) of which £5,304 million represented the estimated present value of future amounts payable to Shionogi relating to ViiV Healthcare, discounted at 8.5%. The payments to Shionogi are calculated based on the sales performance over the life of the relevant products, principally dolutegravir, as described on page 58 of the GSK Annual Report 2016, which page is incorporated herein by reference. The effect of the IFRS accounting treatment is that GSK recognises these fair value liabilities in the balance sheet, with remeasurement charges reflected immediately in other operating income. These charges are adjusted from total results to present core results. GSK will make cash payments in the future to discharge this liability which will not be recorded in the profit and loss account and future earnings.

Changes to segment reporting

The completion of the Novartis transaction on 2 March 2015 changed the balance of the Group and GSK has changed its segment reporting to reflect this. With effect from 1 January 2016, GSK has reported results under four segments: Pharmaceuticals, which includes HIV, Pharmaceuticals R&D, Vaccines and Consumer Healthcare. In addition, a number of minor product reclassifications between the segments have been made. Comparative information has been restated accordingly.

Free cash flow

Free cash flow, which is anon-IFRS measure, is the net cash inflow from operating activities less capital expenditure, interest and dividends paid tonon-controlling interests plus proceeds from the sale of property, plant and equipment and dividends received from joint ventures, associated undertakings and equity investments. It is used by management for planning and reporting purposes and in discussions with and presentations to investment analysts and rating agencies. Free cash flow growth is calculated on a reported basis. A reconciliation of net cash inflow from operations to free cash flow is presented on page 71 of the GSK Annual Report 2016, which page is incorporated herein by reference.

Adjusted free cash flow

Adjusted free cash flow, which is anon-IFRS measure, excludes payments made to settle legal disputes. Such payments could fluctuate significantly between reporting periods and removing them allows the trends in free cash flow to be more easily identified by shareholders. A reconciliation of net cash inflow from operations to adjusted free cash flow is presented on page 71 of the GSK Annual Report 2016, which page is incorporated herein by reference.

Working capital conversion cycle

The working capital conversion cycle is calculated as the number of days sales outstanding plus days inventory outstanding, less days purchases outstanding.

CER growth

In order to illustrate underlying performance, it is our practice to discuss the results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in Sterling had remained unchanged from those used in the previous year. CER% represents growth at constant exchange rates. £% or AER% represents growth at actual exchange rates.

All

Group turnover

Group turnover for the year increased 17% AER and 6% CER to £27,889 million, with Pharmaceuticals up 14% AER 3% CER, Vaccines up 26% AER14% CER and Consumer Healthcare up 19% AER 9%CER, the growth ratesin all three businesses still reflecting the impact of the Novartis transaction which completed on 2 March 2015. Sales of New Pharmaceutical and Vaccine products were £4,453 million, a Sterling increase of £2,465 million.

Group turnover by geographic region

Sales of New Pharmaceutical and Vaccine products were £4,453 million and represented approximately 22% of Pharmaceuticals and Vaccines turnover.

Pharmaceuticals

Pharmaceuticals turnover was £16,104 million, up 14% AER and 3% CER. HIV sales grew 53% AER 37% CER. The Respiratory portfolio returned to growth with sales up 13% AER 2% CER, continuing the transition globally to newer products. Respiratory sales grew 20% AER 7% CER in the US and 16% AER 3% CER in International, but declined 2% AER 10% CER in Europe. Sales of New Pharmaceutical products were £3,861 million, a Sterling increase of £2,148 million, which more than offset the Sterling decline inSeretide/Advair sales of £196 million. Sales of Established products increased 1% AER but declined 8% CER, with declines in all regions, but particularly International, reflecting the loss of exclusivity forValtrex in Canada, the impact of market reforms and the continued reshaping of the business in China and the impact of biennial price revisions in Japan. The overall impact of pricing to net sales of Pharmaceuticals was around-1%.

US Pharmaceuticals turnover of £4,705 million grew 11% AER but declined 1% CER in 2016. This reflected a 20% AER 7% CER growth in the Respiratory portfolio, partly offset by the impact of generic competition toAvodart, down 58% AER 63% CER to £70 million, andLovaza, down 54% AER 59% CER to £43 million.Relenza sales were also down 90% AER 91% CER to £7 million following a reallocation of government funding. Sales of new Respiratory products totalled £654 million and the growth of these products exceeded the decline inAdvair.Advair sales fell 2% AER13% CER to £1,829 million, representing a 7% volume decline and a 6% negative impact of price.Ventolin sales were up 38% AER 23% CER to £421 million, benefiting from competitor supply constraints early in the year, whileFlovent sales were flat AER but declined 11% CER to £378 million, reflecting pricing pressures in the ICS market.

Benlysta sales increased 33% AER 18% CER to £277 million with ongoing demand growth.

In Europe, Pharmaceuticals turnover increased 1% AER but declined 8% CER to £2,867 million. Respiratory sales declined 2% AER 10% CER to £1,383 million reflecting the ongoing transition to the new Respiratory portfolio and generic competition toSeretide which declined 18% AER 24% CER (16% volume decline and an 8% negative impact of price) to £835 million. This was partly offset by growth in the new Respiratory products, which recorded sales of £225 million. Established products sales were up 4% AER but down 4% CER to £513 million.

International Pharmaceuticals sales of £4,976 million were up 4% AER but down 5% CER. Sales in Emerging Markets grew 1% AER but declined 4% CER, impacted by the decline in the China business (down 4% AER 12% CER primarily as a result of the ongoing reshaping programme and broader Healthcare reforms including price reductions) but also by recent divestments in the International region, and the limitation of trading in Venezuela. In Japan, Pharmaceutical sales were up 17% AER but down 5% CER to £1,425 million, impacted by biennial price revisions on older products as well as supply interruptions toAvodart early in the year. Respiratory sales in Japan grew 27% AER 3% CER with strong growth of the new Respiratory products, up 100% AER 57% CER to £118 million, more than offsetting the decline inAdoair sales.

Respiratory

Respiratory sales in 2016 increased 13% AER 2% CER to £6,510 million, reflecting the continuing transition of the Respiratory portfolio to newer products. Growth in the new Respiratory products, which recorded combined sales of £1,052 million, includingRelvar/BreoEllipta sales of £620 million, more than offset the decline inSeretide/Advair.Flixotide/Flovent sales grew 2% AER but decreased 8% CER to £637 million andVentolin sales grew 27% AER 15% CER to £785 million.

In the US, Respiratory sales increased 20% AER 7% CER to £3,306 million (14% volume growth and a 7% negative impact of price). The growth of new Respiratory products more than offset the 2% AER 13% CER decline inAdvair (7% volume decline and a 6% negative impact of price). The newEllipta products recorded combined sales of £583 million, includingBreo Ellipta sales of £344 million, withNucala, the treatment for severe asthma, reporting sales of £71 million. Established Respiratory assets includedVentolin, with sales up 38% AER 23% CER to £421 million, andFlovent, which was flat AER but declined 11% CER to £378 million.Ventolin sales benefited from competitor supply constraints early in the year, whileFlovent continued to be impacted by ongoing pricing pressures in the ICS market.

European Respiratory sales were down 2% AER 10% CER to £1,383 million, withSeretide sales down 18% AER 24% CER to £835 million (16% volume decline and an 8% negative impact of price), reflecting continued competition from generics and the transition of the Respiratory portfolio to newer products. The new Respiratory products recorded combined sales of £225 million in 2016, includingRelvar Ellipta sales of £140 million.

Respiratory sales in the International region increased 16% AER 3% CER to £1,821 million with Emerging Markets up 13% AER 7% CER and Japan up 27% AER 3% CER. In Emerging Markets, sales ofSeretide were up 3% AER but down 3% CER at £476 million, whileVentolin grew 20% AER 13% CER to £219 million. In Japan,Adoair grew 9% AER but declined 12% CER.

Cardiovascular, metabolic and urology

Sales in the category were flat AER down 11% CER to £860 million. TheAvodart franchise was down 3% AER 14% CER to £635 million, primarily due to a 58% AER 63% CER decline in the US following the launch of generic competition in Q4 2015. Sales ofEperzan/Tanzeum were £121 million, primarily in the US.Prolia was divested at the end of 2015 and therefore no sales were recorded in 2016, compared with £43 million in 2015.

Immuno-inflammation

Immuno-inflammation sales grew 29% AER 15% CER to £340 million. Sales ofBenlysta were £306 million, up 33% AER 19% CER, with sales in the US of £277 million, up 33% CER 18% AER.

Other pharmaceuticals

Sales in other therapy areas decreased 6% AER 14% CER to £2,297 million. Dermatology sales declined 5% AER 12% CER to £393 million, adversely affected by supply constraints, whileAugmentin sales grew 7% AER but were flat CER at £563 million. Sales of products for Rare diseases were up 14% AER but flat CER at £423 million, and included sales ofVolibris, which were up 13% AER 1% CER to £172 million.

Established products

Established products turnover grew 1% AER but fell 8% CER to £2,541 million, withValtrex sales down 28% AER 37% CER to £118 million driven by a decline in Canada, down 91% AER 91% CER to £5 million, following the loss of exclusivity.Zeffix sales were down 17% AER 24% CER to £111 million andLovaza sales in the US fell 54% AER 59% CER to £43 million.

HIV

HIV sales increased 53% AER 37% CER to £3,556 million, with the US up 64% AER 46% CER, Europe up 42% AER 29% CER and International up 34% AER 21% CER. The growth in all three regions was driven byTriumeq andTivicay.

Triumeq andTivicay sales were £1,735 million and £953 million, respectively.Epzicom/Kivexa sales declined 19% AER 27% CER to £568 million, andSelzentry sales grew 1% AER but declined 9% CER to £125 million. There were also continued declines in the mature portfolio, mainly driven by generic competition to bothCombivir, down 32% AER 38% CER to £23 million, andLexiva, down 22% AER 26% CER to £51 million.

Vaccines

Vaccines sales grew 26% AER and 14% CER to £4,592 million. Growth benefited from the strong performance ofBexsero across all regions, higher demand forFluarix/FluLaval in the US and International and a tender award forMenveo in International. Further growth was driven bySynflorix due to market expansion in International and a tender award in Europe.Boostrix sales benefited from higher demand in Europe and International. Growth was partly offset byInfanrix/Pediarix due to supply constraints in International, as well as unfavourable CDC stockpile movements for a number of products across the portfolio.

In the US, sales grew by 27% AER 13% CER to £1,599 million. Growth was driven by market and share growth forBexsero,Menveo andBoostrix, improved supply and higher demand forFluarix/FluLaval and competitor supply issues that benefitedInfanrix/Pediarix. This growth was partly offset by adverse stockpile movements onMenveo and an unfavourable comparison with the benefit to 2015 from CDC stockpile movements onInfanrix/Pediarix,Boostrix andRotarix.

In Europe, sales grew 30% AER 18% CER to £1,423 million. Growth was driven primarily byBexsero sales in private market channels in several countries including Spain and Italy, and in the UK following its inclusion in the NHS immunisation programme.Boostrix sales benefited from higher demand and competitor supply issues. Sales increased in Germany driven by improved supply of Hepatitis vaccines and higher demand forEncepur andRabipur. Sales growth was also helped by a tender award forSynflorix in Poland butInfanrix/Pediarix sales were adversely impacted, mainly in Germany, France and Italy, by a competitor’s return to the market during the year. Growth was also partly offset by the unfavourable comparison with 2015 whenMenveo sales in the UK benefited from acatch-up tender win.

In International, sales grew 21% AER 10% CER to £1,570 million. Growth was driven primarily bySynflorix, due to market expansion in Nigeria, higher demand in Africa and private market demand in Asia. The growth inMenveo sales was driven by a tender award in Argentina andRotarix sales benefited from higher demand in Brazil and Japan. Further growth in the region was driven by Brazil due to strong demand forBexsero,Menjugate, andBoostrix.Fluarix/FluLaval sales grew due to higher uptake in Australia. Growth in the region was partly offset by lower sales ofInfanrix/Pediarix, due to supply constraints, and lower Hepatitis vaccines sales, due to wholesaler destocking in China following the introduction of new private market distribution regulations.

Consumer Healthcare

The Consumer Healthcare business represents the Consumer Healthcare Joint Venture with Novartis together with the GSK Consumer Healthcare listed businesses in India and Nigeria, which are excluded from the Joint Venture. Results do not include the trading performance of the Nigeria beverages business in Q4 2016 following its sale on 30 September 2016.

Sales grew 19% AER and 9% CER to £7,193 million, benefiting significantly from the inclusion of sales of the former Novartis products for the first time for the first two months of the period. Strong performances were delivered by the power brands within the Oral health and Wellness categories and across all regions. Sales from innovation within the last three years represented approximately 13% of sales, with a particular contribution forFlonase, which was switched to OTC in Q1 2015. Other notable launches in 2016 includedSensodyne True White andExcedrinGel-tabs in the US.

US sales grew 23% AER 9% CER to £1,761 million.Sensodyne delivered double-digit growth, benefiting from the launch in 2015 ofRepair and Protect and the launch ofTrue White in the first quarter of 2016, together with distribution gains forPronamel and the newly launchedPronamel Strong & Bright variant.Flonase OTC delivered high single-digit growth, with a strong performance in the first half of 2016, driven by new formats, but impacted in the second half by increasing private label competition.Excedrin grew in double-digits, driven by theGel-tab launch and new digital campaigns, andTums also delivered double-digit growth, benefiting from supply improvements. This was partly offset by a decline inAquafresh sales due to increased competitive pressures and are-alignment of investment behind power brands.

Sales in Europe grew 22% AER 12% CER to £2,191 million, driven primarily by performances within the Wellness and Oral health categories.Voltaren continued to deliver double-digit growth at both AER and CER, driven largely by the12-hour variant and with strong performances across all key markets. Oral health sales grew in double digits AER and mid single-digits CER, with strong growth inSensodyne and the Gum health portfolio, as well as 10% AER growth but a flat CER performance inAquafresh, due to increased competitive pressures. At a market level, sales grew well in Italy, Scandinavia, the UK and Germany, partly offset by a decline in sales in CIS due to the impact on consumer spending of the weaker economic environment.

International sales of £3,241 million grew 15% AER 8% CER. Growth was delivered in many priority markets, primarily through the power brands across the Oral health and Wellness categories. This was partly offset by the impact of the sale of the Nigeria beverages business at the end of Q3 2016 as well as the effect of the restructuring of activity in Venezuela at the end of 2015. Growth of the International region was also affected by the combined impact on the Indian business of the demonetisation implemented in November and a more general slowing of the health food drink category which impacted the performance of the Nutrition category andHorlicks in particular. Elsewhere, strong growth was delivered in the Middle East, Latin America and China. The growth in the Middle East was driven by strong momentum across the power brands, particularlyOtrivin,Panadol andSensodyne. Double-digit performances were delivered in Brazil and Argentina as a result of better pricing and new product launches within Oral health. China delivered double-digit sales growth at AER and high single-digit growth at CER with contributions across the portfolio and withSensodyne andVoltaren in particular benefiting frome-commerce and retail distribution expansion.

Total results

Cost of sales

Cost of sales as a percentage of turnover was 33.3%, down 3.7 percentage points in Sterling terms and 2.4 percentage points in CER terms compared with 2015. This reflected improved product mix, particularly the impact of higher HIV sales in Pharmaceuticals, but also in Vaccines and Consumer Healthcare and lower restructuring costs as well as an increased contribution from integration and restructuring savings in all three businesses.

These benefits were partly offset by continued adverse pricing pressure in Pharmaceuticals, primarily Respiratory, as well as continued investments in the supply chain.

Selling, general and administration

SG&A costs were 33.6% of turnover, 5.0 percentage points AER lower than in 2015 and 4.3 percentage points lower on a CER basis. This primarily reflected lower restructuring costs as well as the benefits from the Pharmaceuticals restructuring programme and integration benefits in Vaccines and Consumer Healthcare, partly offset by investment in promotional product support, particularly for new launches in Respiratory, HIV, Vaccines and Consumer Healthcare.

Research and development

R&D expenditure was £3,628 million (13% of turnover), 1.9% AER higher than in 2015 and 5.6% lower on a CER basis. This reflected the benefit from cost reduction programmes in Pharmaceuticals, Consumer Healthcare and Vaccines R&D and lower restructuring costs, partly offset by increased investment, particularly in Pharmaceuticals, reflecting investments in a number of new programmes and the costs of the acquired BMS HIV programme.

The operations of Pharmaceuticals R&D are broadly split into Discovery activities (up to the completion of phase IIa trials) and Development work (from phase IIb onwards) each supported by specific and common infrastructure and other shared services where appropriate. Phase IV costs and other administrative expenses are reported in SG&A and are not included in the table below.

		2016  £m				2015 £m				Growth  £%				Growth  CER%
Discovery			848				744				14			6
Development			1,275				1,136				12			4
Facilities and central support functions			505				433				17			9
Total Pharmaceuticals			2,628				2,313				14			5
Vaccines R&D			597				525				14			2
Consumer Healthcare R&D			243				258				(6)			(12)
Research and development			3,468				3,096				12			3
Items reconciling total R&D to core R&D			160				464
Research and development			3,628				3,560				2			(6)

The most significant factor driving Total Pharmaceuticals R&D growth was progression of the ViiV Healthcare HIV portfolio, including programmes acquired from BMS earlier in the year. The increase in Discovery was also driven by progression of the early stage Oncology portfolio and early investment in Bioelectronics. Development growth was primarily due to the start of new Phase III programmes, including HIV, respiratory and anaemia, partly offset by the benefit from R&D cost reduction programmes. The increase in facilities and central support functions costs partly reflected investment in new data warehousing and analytics to transform the way data is harnessed across R&D together with are-allocation of central support costs.

Other operating income/(expense)

Net other operating expense of £3,405 million (2015 - £7,715 million income) primarily reflected further accounting charges related to remeasurement of the contingent consideration liability related to the former Shionogi-ViiV Healthcare joint venture, along with remeasurement of the value attributable to the Consumer Healthcare Joint Venture put option and the liabilities first recognised in Q1 2016 for the Pfizer and Shionogi put options and preferential dividends in ViiV Healthcare. These remeasurements were driven by the unwinding of the discount applied to these future liabilities as well as updated trading forecasts and changes in the exchange rate assumptions used, updating them toperiod-end rates, which have increased the estimated total sterling values of GSK’s Consumer Healthcare and ViiV Healthcare businesses.

These charges were partly offset by milestone income of £152 million in relation to the disposal of ofatumumab that was completed in 2015 and gains on a number of other divestments made during the year, including the remaining shares held by the Group in Aspen Pharmacare. The net other operating income of £7,715 million in 2015 included the profit on the disposal of the Oncology business to Novartis of £9,228 million.

Operating profit

Total operating profit was £2,598 million in 2016 compared with £10,322 million in 2015 which benefited from the net disposal gains recorded following the disposal of the Oncology business as part of the Novartis transaction.

Operating profit benefited from improved operating leverage driven by sales growth and a more favourable mix across all three businesses, together with lower levels of restructuring costs compared with 2015. However, there were further accounting charges related to remeasurement of the contingent consideration liability related to the former Shionogi-ViiV Healthcare joint venture, along with remeasurement of the value attributable to the Consumer Healthcare Joint Venture put option and the liabilities first recognised in Q1 2016 for the Pfizer and Shionogi put options and preferential dividends in ViiV Healthcare.

Contingent consideration cash payments are made to Shionogi and other companies, which reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in 2016 amounted to £431 million (2015 – £459 million). This included cash payments made by ViiV Healthcare to Shionogi in relation to its contingent consideration liability (including preferential dividends) which amounted to £417 million (2015 – £159 million). In 2015 a milestone payment of £300 million was made to Novartis in relation to the Vaccines acquisition.

Net finance costs

Share of after tax profits of associates and joint ventures

The share of profits of associates and joint ventures was £5 million (2015 – £14 million).

Profit before taxation

Taking account of net finance costs and the share of profit of associates, profit before taxation was £1,939 million compared with £10,526 million in 2015.

Taxation

A tax charge of £877 million on total profit represented an effective tax rate of 45.2% (2015 – 20.5%) and reflected thenon-deductibility of certain items included within the transaction-related adjustments, particularly the remeasurements of the put options related to ViiV Healthcare and the Consumer Healthcare Joint Venture.

Non-controlling interests

The allocation of earnings tonon-controlling interests amounted to £150 million (2015 – (£50) million), including thenon-controlling interest allocations of Consumer Healthcare profits of £203 million (2015 – £14 million) and the allocation of ViiV Healthcare losses of £83 million (2015 – £143 million) including the impact of changes in the proportions of preferential dividends due to each shareholder based on the relative performance of different products in the year. The allocation also reflected the impact on the contribution of some of the Group’s other entities withnon-controlling interests primarily as a result of net losses in those entities arising from exchange.

Earnings per share

The total earnings per share was 18.8p, compared with 174.3p in 2015. The decrease primarily reflected the benefit in 2015 from the disposal of the Oncology business to Novartis that closed in March 2015, together with the impact in 2016 of charges arising from increases in the valuations of the liabilities for contingent consideration and the put options associated with increases in the Sterling value of the Group’s HIV and Consumer Healthcare businesses, partly offset by improved performance and reduced restructuring costs.

Dividends

The Board declared four interim dividends resulting in a total dividend for the year of 80 pence, in line with the dividend declared in 2015.

Items adjusted from total results to present core results

Total results are adjusted for a number of items in order to present core results, as explained above. The items are discussed below.

Intangible asset amortisation and impairment

Intangible asset amortisation was £588 million, compared with £563 million in 2015. Intangible asset impairments of £20 million (2015 – £206 million) included impairments of R&D and commercial assets. Both of these charges werenon-cash items.

Major restructuring and integration

Major restructuring and integration charges of £970 million have been incurred (2015 – £1,891 million), reflecting the phasing of planned restructuring projects following the completion of the Novartis transaction in 2015, as well as reduced charges for Pharmaceuticals restructuring projects as this Reportprogramme enters its later stages. Cash payments made were £1,077 million (2015 – £1,131 million) including the settlement of certain charges accrued in previous quarters.

Charges for the combined restructuring and integration programme to date are £3.7 billion, with cash charges of £2.9 billion and cash payments to date of £2.7 billion. The anticipated total cash charges of the combined programme were expected to be up to £3.65 billion and thenon-cash charges up to £1.35 billion. The programme delivered incremental cost savings of £1.4 billion in 2016, including a currency benefit of £0.2 billion, and has now delivered approximately £3.0 billion of annual savings (including the currency benefit). The programme remains on track to deliver the originally targeted total annual savings during 2017. An estimated £300 million of additional cash charges are expected in 2017 along with some residualnon-cash charges.

Legal charges

Legal charges of £162 million (2015 – £221 million) included the benefit of the settlement of existing matters as well as provisions for ongoing litigation. Cash payments were £233 million compared with £420 million in 2015.

Transaction-related adjustments

Transaction-related adjustments resulted in a net charge of £3,919 million (2015 – £2,238 million). This primarily reflected accounting charges for the remeasurement of the liability and the unwinding of the discounting effects on the value attributable to the Consumer Healthcare Joint Venture put option held by Novartis, the remeasurement and the unwinding of the discounting effects on the contingent consideration relating to the acquisition of the former Shionogi-ViiV Healthcare Joint Venture and the value attributable to the put options and preferential dividends payable to Pfizer and Shionogi.

Charge/(credit)			2016 £m				2015 £m
Consumer Healthcare Joint Venture put option			1,133				83
Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture (including Shionogi preferential dividends)			2,162				1,874
ViiV Healthcare put options and Pfizer preferential dividends			577				–
Other adjustments			47				281
Total transaction-related charges			3,919				2,238

The aggregate impact of unwinding the discount on these future and potential liabilities was £905 million (2015 – £757 million), including £464 million on the Consumer Healthcare Joint Venture put option, £334 million on contingent consideration on the former Shionogi-ViiV Healthcare Joint Venture, and £58 million on the ViiV Healthcare put options and preference dividends. The remaining charge of £3,014 million was driven primarily by changes in exchange rate assumptions as well as updates to trading forecasts.

During 2016, GSK and Shionogi made several amendments to the Shareholders’ Agreement for ViiV Healthcare regarding the Shionogi put option and the GSK call option. The estimated liability for Shionogi’s put option was initially recognised on GSK’s balance sheet at the end of Q1 2016 andde-recognised in December 2016, directly to equity, when it stood at £1,244 million.

Divestments and other items

Divestments and other items included equity investment disposals, including the disposal of the remaining Aspen Pharmacare investment, dividends and impairments, milestone income on ofatumumab, a number of other asset disposals, and certain other adjusting items. Divestments and other items in 2015 included the profit on the disposal of the Oncology business to Novartis.

Core results

We use core results, which is anon-IFRS measure, among other metrics including total results and cash flow generation, to manage the performance of the Group.Non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS. The definition of core results is set out above and reconciliations of total results to core results are presented on pages 14 to 16.

Cost of sales

Cost of sales as a percentage of turnover was 29.9%, down 1.5 percentage points in Sterling terms and 0.3 percentage points in CER unless otherwise stated.terms compared with 2015. This reflected improved product mix, particularly the impact of higher HIV sales in Pharmaceuticals, but also in Vaccines and Consumer Healthcare, as well as an increased contribution from integration and restructuring savings in all three businesses, partly offset by continued adverse pricing pressure in Pharmaceuticals, primarily Respiratory, as well as continued investments in the supply chain.

Selling, general and administration

SG&A costs were 31.2% of turnover, 1.9 percentage points lower in Sterling terms than in 2015 and 1.2 percentage points lower on a CER basis. This primarily reflected tight control of ongoing costs as well as the benefits from the Pharmaceuticals restructuring programme and integration benefits in Vaccines and Consumer Healthcare, partly offset by investment in promotional product support, particularly for new launches in Respiratory, HIV, Vaccines and Consumer Healthcare.

Research and development

R&D expenditure was £3,468 million (12.4% of turnover), 12% AER higher than in 2015 and 3% higher on a CER basis, reflecting increased investment, particularly in Total Pharmaceuticals. The operations of Pharmaceuticals R&D are broadly split into Discovery activities (up to the completion of phase IIa trials) and Development work (from phase IIb onwards) each supported by specific and common infrastructure and other shared services where appropriate. Phase IV costs and other administrative expenses are reported in SG&A and are not included in the table below.

The most significant factor driving Total Pharmaceuticals R&D growth was progression of the ViiV Healthcare HIV portfolio, including programmes acquired from BMS earlier in the year. The increase in Discovery was also driven by progression of the early stage Oncology portfolio and early investment in Bioelectronics. Development growth was primarily due to the start of new Phase III programmes, including HIV, respiratory and anaemia, partly offset by the benefit from R&D cost reduction programmes. The increase in facilities and central support functions costs partly reflected investment in new data warehousing and analytics to transform the way data is harnessed across R&D together with are-allocation of central support costs.

Royalty income

Royalty income was £398 million (2015 – £329 million) primarily reflecting increased royalty income from Gardasil sales as well as the benefit of acatch-up adjustment to prior-year estimates.

Core operating profit

Core operating profit was £7,771 million, up 36% at actual rates and 14% higher in CER terms than in 2015 on a turnover increase of 17% AER 6% CER. The core operating margin of 27.9% was 3.9 percentage points higher in Sterling terms than in 2015 and 1.9 percentage points higher on a CER basis.

This reflected improved operating leverage driven by sales growth and a more favourable mix across all three businesses as well as delivery of restructuring and integration benefits and tight control of ongoing costs, partly offset by continued price pressure, particularly in Respiratory, and supply chain and R&D investments.

Contingent consideration cash payments are made to Shionogi and other companies, which reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in 2016 amounted to £431 million (2015 – £459 million). This included cash payments made by ViiV Healthcare to Shionogi in relation to its contingent consideration liability (including preferential dividends) which amounted to £417 million (2015 – £159 million). In 2015 a milestone payment of £300 million was made to Novartis.

Core operating profit by business