As filed with the Securities and Exchange Commission on February 28, 2014March 17, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

OR

For the fiscal year ended December 31, 2016

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-4.8

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 20132016. Form 20-F of GlaxoSmithKline plc set out below is being incorporated by reference from the “GSK Annual Report 2013”2016” included as exhibit 15.2 to this Form20-F dated and submitted on February 28, 2014March 17, 2017 (the “GSK Annual Report 2013”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 the inside front cover and the inside back cover, “Directors’ Report” on page 95,110, “Directors’ statement of responsibilities” on pages128 and 211, “Share buy-back programme” on page242, “Annual General Meeting 2014”page 148, “Directors’ statement of responsibilities in relation to the company’s financial statements” on page 245,232, “Share capital and control” on pages 263 to 264, “Financial reporting calendar”, “Results announcements”; and “Financial reports” on page246, “Section 13(r) of the US Securities Exchange Act”page 265, “Annual General Meeting 2017” on page 248,266, “Registrar” on page249,page 268, “ADR Depositary”, “Glaxo Wellcome and SmithKline Beecham Corporate PEPs”, “Donating shares to Save the Children”, “Contacts”, “Share scam alert”, “Corporate Responsibility Report” and “Contacts”“Responsible Business Supplement” on page250page 269, “Section 13(r) of the US Securities Exchange Act” on page 271 and “Glossary of terms” on page251page 283 in each case of the GSK Annual Report 20132016 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 20132016 incorporated by reference herein, namely the Directors’ Report“Directors’ Report” (for which see page 95110 thereof), the Strategic Report“Strategic Report” (pages 21 to 7478 thereof, portions of which are incorporated by reference as described below) and the Remuneration Report“Remuneration Report” (pages 96111 to 126 thereof)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 20132016 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 20132016 incorporated by reference herein contain references to our website. Information on our website or any other website referenced in the GSK Annual Report 20132016 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 2013

2016 is incorporated herein by reference.

3.B	Capitalization and indebtedness

Not applicable.

Not applicable.

Principal risk factorsrisks 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 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 our ability to maintain or increase overall sales.

Developing new pharmaceutical and vaccine products is a costly, lengthy and uncertain process, however, and 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 financial results.

We must also 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,products and affect not only the cost of product development but also the time required to reach the market and the uncertaintylikelihood of successfully doing so.so successfully.

Moreover, as rules and regulations change, and governmental interpretation of those rules and regulations evolves, the nature of a particular risk may alter.change. Changes to certain regulatory requires, such as the US healthcare system,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 theour significant unresolved disputes and potential litigation is set out in Note 44,46, ‘Legal proceedings,’ on pages 204226 to 210231 of the GSK Annual Report 2013.2016.

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 risk factorsrisks 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. This couldsources, 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.

Risk impact

The impacts of the risk include 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 whothat 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 but may face technological or regulatory barriers to marketing.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 USA.US. Some developing countries have reduced,limited, or threatened to reduce,limit, effective patent protection for Pharmaceuticalpharmaceutical products generally, or in particular therapeutic areas,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 USAUS 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. In 2013, we had10 Pharmaceutical and Vaccine products with over £500 million in annual global sales. For certain of these 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 USAproprietary technology used in manufacture and some marketsthe capital investment in Europe. We may also experience an impact on sales of one of our products duefacilities create barriers to entry into the expiry or loss of patent protection for a product marketed by a competitor in a similar product class or for treatment of a similar disease condition.vaccine markets.

We depend on certain key products for a significant portion of our sales. The timing and impact of entry in the USA and major markets in Europe for a ‘follow-on’One such product tois our respiratory pharmaceutical productSeretide/Advair is uncertain.which accounts for significant Group sales worldwide. The US patent for compositions containing the combination of active substances inSeretide/Advair expired during 2010,has expired. Generic products containing the same combination of active substances asSeretide/Advair (in both dry powder inhalers and metered dose inhalers) have been launched by several manufacturers in a number of European markets. New drugs applications (ANDAs) have been filed in the US by generic competitors forSeretide/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 US patentprotection 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 a componentwhich generic versions of theAdvair Diskus device continues until August 2016. Weour products may be introduced are set out on pages 250 to 251. The listed annual expiration dates are not ablemeant to predict whenindicate 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 competitorproduct. Legal proceedings involving patent challenges are set out in Note 46 toSeretide / Advairmay enter the US market.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 USA,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 229 to 231. Legal proceedings involving patent challenges are set out in Note 44 to the financial statements, ‘Legal proceedings’, on pages 204 to 206 of the GSK Annual Report 2013.

Product quality

Risk definition

Failure to ensure productcomply with current Good Manufacturing Practices (cGMP) or inadequate controls and governance of quality throughoutin the supply chain covering supplier standards, manufacturing and distribution processes resulting in non-compliance with good manufacturing practice (GMP) and regulations.of products.

Risk impact

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

Context

Patients, consumers and healthcare professionals trust the quality of our products at the point of use. A failure to ensure product quality is an enterprise risk which is applicable across all of our business activities.products. Product quality may be influenced by many factors including product and process understanding, consistency of manufacturing components, compliance with GMP, accuracy of labelling, reliability and security 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 and drug shortages. Review of inspections conducted across the industry by national regulatory authorities during 2016 highlighted an ongoing focus on data integrity, third party oversight and the timely escalation of pertinent issues to regulatory authorities.

Financial controls 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 party relationships could result in business disruption 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 takes 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.

There continues to be a significant international focus on tax reform, including the OECD’s Base Erosion and Profit Shifting (BEPS) project and European Commission initiatives such as the increased use of fiscal state aid investigations. Together with domestic initiatives around the world, these may result in significant changes to established tax principles 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, 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 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

Risk definition

Failure of GSK employees, consultants and third parties to comply with our Anti-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.

In addition to legal penalties, a failure to prevent bribery through complying with ABAC legislation and regulations could have substantial implications for the reputation of the company, the credibility of senior leaders, and an erosion of investor confidence in our governance and 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 authorities in 2016 regarding their ABAC inquiry, whilst the inquiry of the UK authorities is ongoing. These investigations are discussed further in Note 46 ‘Legal proceedings’ on pages 226 to 231 of the GSK Annual Report 2016 .

Commercialisation

Risk definition

Failure to execute business strategies, or effectively manage competitive opportunities and threats in accordance with the letter and spirit of legal, industry, or the 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 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 risk/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 external 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. As do other pharmaceutical, vaccine and consumer companies, 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. 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) 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.

While business units within the Group are confronted by common types of commercialisation risks, differences do exist in the types of risks that present themselves, the degree of risk presented in that business unit and, 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 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 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 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. Nonetheless, we are continually seeking ways in which we can minimise our use 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 around securitygiven our global research and development footprint. Rapid changes in submission requirements in developing countries continue to increase the complexity of supply, good distribution practiceworldwide product registration. Scientific engagement (SE), defined as the interaction and product standards.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, 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 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. 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, promotional intent. The risks are particularly high where HCP engagement and associated financial and/or transfer of value disclosures are required by GSK.

Environment, health and safety and sustainability

Risk definition

Failure to manage environment, 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 EHS&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 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 46 to the financial statements, ‘Legal proceedings’ on pages 226 to 231 of the GSK Annual 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

The risk to GSK business activities if information becomes disclosed to those not authorised to see it, or if information or systems fail to be available or 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 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.

Supply continuity and crisis management

Risk definition

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

Risk impact

AnyWe recognise that failure to supply our products can adversely impact consumers and patients who rely on them. A material interruption of supply or exclusion from healthcare programmes could impact patient access to our products, expose us to litigation or regulatory action and materially and adversely affect our financial results. In particular, the incurring of fines or disgorgement as a result of noncompliance with manufacturing practice regulationspenalties that could also materially and adversely affect the Group’s financial resultsresults.

The Group’s international operations, and resultthose of its partners, expose our workforce, facilities, operations and information technology to potential disruption from natural events (e.g. storm or earthquake),man-made events (e.g. civil unrest, terrorism), and global emergencies (e.g. Ebola outbreak, Flu pandemic). It is important that GSK has robust crisis management and recovery plans in reputational damage.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 revocationsuspension of our licence to operatemanufacturing 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.products. Some of the third-partythird party services procured, such as services provided by contract manufacturing and clinical research organisations to support development of key products, are important to theensure 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 and to logistics.

The failureor logistics system. 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.

FailureWe use effective crisis management and business continuity planning to report accurate financial information in compliance with accounting standardsprovide for the health and applicable legislation.

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.

Context

New or revised accounting standards, rules and interpretations issued from time to time by the International Accounting Standards Board could result in changes to the recognition of income and expense that may materially and adversely affect our financial results.

The Group is also required by the laws of various jurisdictions to publicly disclose its financial results, and regulators routinely review the financial statements of listed companies for compliance with accounting and regulatory requirements. The Group believes that it complies with the appropriate regulatory requirements concerning our financial statements and disclosures. However, should we be subject to an investigation into potential non-compliance with accounting and disclosure requirements there is potential for restatements of previously reported results and we could be subject to significant penalties.

Failure to comply with tax law or significant losses due to treasury activities.

Risk impact

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 Treasury activities through inconsistent application of Treasury policies, dealing or settlement errors, or counterparty defaults. Any such changes in tax laws or their application, failure to comply with tax law or significant losses due to treasury activities could materially and adversely affect our financial results.

Context

The Group’s Treasury group deals in high value transactions, mostly foreign exchange and cash management transactions, on a daily basis.

The Group’s effective tax rate is driven by rates of tax in jurisdictions that are both higher and lower than the UK. In addition, many jurisdictions currently offer regimes that encourage innovation and investment in science by providing tax incentives, such as R&D tax credits and lower tax rates on income derived from patents. Furthermore, as an international business, we face risks associated with intra-group transfer pricing.

The tax charge included in our financial statements is our best estimate of tax liability pending audits by tax authorities. We submit tax returns according to statutory time limits and engage tax authorities to help ensure our tax affairs are current. In exceptional cases where matters cannot be settled by agreement with tax authorities, we may have to resolve disputes through formal appeals or other proceedings. As an international business, we are also subject to a range of other duties and taxes carrying similar types of risk.

There is an increased focus on the tax position of multinational businesses, as a consequence of the challenging economic environment and the priority placed by the G20 on addressing allegations of tax avoidance. We have seen some increase in audits as governments seek to raise revenues, both from corporate taxes and above the line taxes such as customs duties.

Failure to foster a culture within the Group in which bribery and corruption are unacceptable; adopt measures and embed procedures to prevent bribery and corruption by employees, complementary workers and through third party interactions; investigate allegations of bribery and corruption and remediate issues identified; and comply with applicable anti-bribery and corruption (ABAC) legislation.

Risk impact

Failure to comply with applicable local and international ABAC legislation could expose the Group and associated persons to governmental investigation, regulatory action and civil and criminal liability, as well as damage the Group’s reputation, shareholder value, and our licence to operate, all of which could materially and adversely affect our financial results.

Context

Like other large organisations, the Group faces the risk of fraud by members of staff. The nature, scale and geographysafety of our international business activities increase the possibility of this briberypeople and corruption risk. Additionally, the healthcare industry is highly regulated, and some of our overseas markets, such as our operations in emerging markets, are more susceptible to bribery and corruption risks.

Failureminimise impact to engage in commercial and/or scientific activities that are consistent with the letter and spirit of legal, industry, or the Group’s requirements relating to marketing and communications about our medicines and associated therapeutic areas; appropriate interactions with healthcare professionals (HCPs) and patients; and legitimate and transparent transfer of value.

Risk impact

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: risk profile of our medicines and possibly suboptimal treatment of patients. Any of these consequences could materially and adversely affect our financial results. Any practices that are found to be misaligned with our values could also result in reputational damage and dilute trust established with key stakeholders.

Context

The Group disseminates information about its products through both promotion and non-promotional Scientific Engagement. The latter is the interaction and exchange of information between the Group and partners and external communities in order to advance scientific and medical understanding including the appropriate development and use of our products; the management of disease; and patient care. It is distinct from promotional activities which may take place only after authorisation of a new product or indication, and must be conducted strictly in accordance with promotional laws, codes and the Group’s Policy.

There are legal, regulatory, financial and reputational risks for the Group if these activities are, or are perceived to be, exceeding their proper boundaries or inappropriately influencing HCPs. In 2012, we paid $3 billion to resolve government investigations in the USA focused in large part on promotional practices.

Failure to protect and inform patients involved in human clinical trial research; conduct objective, ethical preclinical and clinical trials using sound scientific principles; guarantee the integrity of discovery, preclinical, and clinical development data; manage human biological samples according to established ethical standards and regulatory expectations; treat animals ethically and practice good animal welfare; appropriately disclose human subject research for medicinal products; and ensure the integrity of our regulatory filings and of the data that we publish.

Risk impact

The impacts of the risk include harm to patients, reputational damage, failure to obtain the necessary regulatory approvals for our products, governmental investigation, legal proceedings (product liability suits and claims for damages), and regulatory action such as fines, penalties or loss of product authorisation, which could materially and adversely affect our financial results.

Context

Research relating to animals and humans can raise ethical concerns. While we attempt to proactively address this, 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, which is generally mandated by regulators and ethically imperative. Animal research can also provide critical information about the causes of diseases and how they develop. Some countries require additional animal testing even when medicines have been approved for use elsewhere.

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. Currently, rapid changes in submission requirements in developing countries are increasing the complexity of meeting regulatory requirements.

Failure to ethically manage environment, health and safety and sustainability (EHSS) consistent with the Group’s objectives, policies and relevant laws and regulations.

Risk impact

Failure to manage EHSS 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 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 actual and 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.

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 44 to the financial statements, ‘Legal proceedings’, on pages 204 to 210 of the GSK Annual Report 2013, for a discussion of the environmental related proceedings in which we are involved. We routinely accrue amounts related to our liabilities for such matters.

Risk to the Group’s business activity if critical or sensitive computer systems or information are not available when needed, are accessed by those not authorised, or are deliberately changed or corrupted.

Risk impact

Failure to adequately protect critical and sensitive systems and information may result in our inability to maintain patent rights, loss of commercial or strategic advantage, damage to our reputation or business disruption including litigation or regulatory sanction and fines, 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, intellectual property, manufacturing systems and trade secrets. There is the potential that malicious or careless actions expose our computer systems or information to misuse or unauthorised disclosure.

Inability to recover and sustain criticalmaintaining functional operations following a disruptionnatural or to respond to a crisis incident in a timely manner regardless of cause.

Risk impact

Failure to manage crisis and continuity management (CCM) effectively can lead to prolonged business disruption, greater damage to the Group’s assets, and risk of a medicine’s supply disruption to patients and could materially and adversely affect our financial results. Delays to R&D activities and delivery of our products to consumers and patients who rely on them could also expose us to litigation or regulatory action, materially and adversely affect our financial results and lead to reputational damage.

Context

Patients, consumers and healthcare professionals rely on our products being readily available when needed even in the event of a crisis. Our international operations, and those of our partners, maintain a vast global footprint exposing our people, facilities, operations and information technology to potential disruption resulting from a natural event (eg storm or earthquake), a man-made event (eg civil unrest, terrorism), disaster, or a global emergency (eg global public health emergency).emergency.

Item 4.

Information on the Company

The information set forth under the heading:

of the GSK Annual Report 20132016 is incorporated herein by reference.

In addition, the information set forth under the headings:

of the GSK Annual Report 20132016 is incorporated herein by reference.

The information set forth under the heading:

of the GSK Annual Report 20132016 is incorporated herein by reference.

The information set forth under the headings:

of the GSK Annual Report 20132016 is incorporated herein by reference.

Not applicable.

The information set forth under the headings:

of the GSK Annual Report 20132016 is incorporated herein by reference.

The following tables reconcile total results to core results. References in the GSK Annual Report 20132016 to the reconciliations on page65page 66 of that report should be read to refer to the information in these tables.

Core results reconciliation – 31 December 2015
		Total results £m				Intangible asset amortisation £m				Intangible asset impairment £m				Major restructuring £m				Legal charges £m				Transaction -related £m				Divestments and other £m				Core results £m
Gross profit			15,070				522				147				563								89				12				16,403
Operating profit			10,322				563				206				1,891				221				2,238				(9,712	)			5,729
Profit before taxation			10,526				563				206				1,896				221				2,238				(10,559	)			5,091
Profit after taxation			8,372				402				156				1,455				200				1,886				(8,373	)			4,098
Earnings per share			174.3p				8.3p				3.2p				30.1p				4.1p				28.8p				(173.1	)p			75.7p
Weighted average number of shares (millions)			4,831																												4,831
The following adjustments are made in arriving at core gross profit
Cost of sales			(8,853	)			522				147				563								89				12				(7,520	)
The following adjustments are made in arriving at core operating profit
Selling, general and administration			(9,232	)							7				1,009				221				88								(7,907	)
Research and development			(3,560	)			41				52				319												52				(3,096	)
Other operating income			7,715																				2,061				(9,776	)			—
The following adjustments are made in arriving at core profit before tax
Net finance costs			(653	)											5												12				(636	)
Profit on disposal of associates			843																								(843	)			—
Share of after tax profits/(losses) of associates and joint ventures			14																								(16	)			(2	)
The following adjustments are made in arriving at core profit after tax
Taxation			(2,154	)			(161	)			(50	)			(441	)			(21	)			(352	)			2,186				(993	)

Financial Review – 20122016

GroupIn 2016, we continued to make progress in delivering against our strategy as well as the financial goals we have set out in our financial architecture. All three of our businesses contributed to the delivery of more broadly-based revenue growth. Our continued focus on the execution of our integration and restructuring programmes accelerated the delivery of the targeted benefits, allowing us to improve margins and operating 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 ahead of sales growth and at the top end of our financial guidance, as well as a significant improvement in our cash generation and a dividend of 80 pence per 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 with the objective of driving growth in EPS ahead of our sales performance and then converting more of those earnings into cash that can be used to invest in the business or returned 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.

Reporting 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 following discussion comparesitems 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

All 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 the first full year of the joint venture with sales up 19% at actual rates and 9% CER as growth from the seven power brands more than offset some tough comparators and headwinds in international markets. This performance also benefited from the comparison with 2015 which only included 10 months of the Novartis Consumer Healthcare business that was acquired on 2 March 2015.

Operating leverage

The 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 2015 of the profit on the disposal of the Oncology business in that year.

While our total operating margin reduced significantly, primarily because of the 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 top 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 margin improvements while continuing to make important investments in all three businesses.

Accelerating the delivery of the targeted benefits of the integration and restructuring programme 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 2016 we had delivered annual benefits of £2.8 billion, (excluding £200 million of currency benefits), almost the full target of the programme a year earlier than originally planned. We are confident in delivering the remaining £200 million of benefits 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

Total EPS was 18.8p (2015 – 174.3p). The decline primarily reflected the comparison with the £9.2 billion profit from the sale of our marketed Oncology assets to Novartis in 2015, but also 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.

The impact on the decline in 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

Net cash inflow from operating activities was £6.5 billion and free cash flow for the Group was £3.1 billion, significantly improved on the small outflow we saw in 2015. This was driven by our improved operating performance, including continued tight control of capital expenditure and restructuring expenditure, as well as the benefit of currency tail winds. We continue to make progress towards our objective of rebuilding the cash generating capacity of the Group 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 dividends paid during the year of £4.9 billion, including the special dividend of £1.0 billion declared in 2015, being only partly offset by disposal proceeds of approximately £1.0 billion and free cash flow of £3.1 billion.

2017 guidance

We expect continued progress in 2017, with all 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 number of factors including, in particular, uncertainties relating to the timing and extent of potential generic competition toAdvair in the US.

In the event that no generic version ofAdvair is introduced to the US market in 2017, the Group expects 2017 core EPS growth of5-7% at CER. This is based on an expected decline in 2017 in USAdvair sales of15-20%.

In the event 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 a 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 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

In 2016, we maintained our ordinary dividend at 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 to maintain the dividend as we completed the integration and reshaping of the Group, despite the short-term pressures in free cash flow that the restructuring costs would create.

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

Simon Dingemans

Chief Financial Officer

Reporting framework

Presentation 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 theeach year to 31 December 2012primarily 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 yeartax 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 definition 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 performance of the Group’s operations and allow 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, 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 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 2011.

All growth rates included in2016 on a fair value discounted basis) of which £5,304 million represented the financial reviewestimated present value of future amounts payable to Shionogi relating to ViiV Healthcare, discounted at 8.5%. The payments to Shionogi are at constant exchange rates (CER) unless otherwise stated. CER growth is discussedcalculated based on the sales performance over the life of the relevant products, principally dolutegravir, as described on page 58 of the GSK Annual Report 2013 under the heading “CER growth”. The information set forth under this heading2016, which page is incorporated herein by reference herein.

IAS 19 (Revised) has been implemented by GSK from 1 January 2013. The main effect is that the expected returns on pension scheme assets are no longer recognised in the income statement. Expected returns are replaced by income calculated using the same discount rate as that used to measure the pension obligations. This discount rate is based on market rates for high quality corporate bonds. As a consequence, pension scheme costs are higher under IAS 19 (Revised).reference. The effect of the change, on 2012IFRS 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 is to reducepresent core operatingresults. GSK will make cash payments in the future to discharge this liability which will not be recorded in the profit for the year by £92 million and core EPS by 1.3ploss account and future earnings.

Changes to 111.4p. segment reporting

The effectcompletion of the change,Novartis transaction on 20112 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 is to reduce core operating profit for the year by £73 millionunder four segments: Pharmaceuticals, which includes HIV, Pharmaceuticals R&D, Vaccines and core EPS by 1.0p to 114.5p. The results for 2012 and 2011 have been restated accordingly.

SeveralConsumer 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.

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 segments have been made with effect from 1 January 2013. The results for 2012 and 2011 have been restated accordingly.

Group turnover by business

Total Group turnover for 2012 was broadly in line with 2011 (down 1% to £26,431 million), with a 2% decline in Pharmaceuticals and Vaccines turnover partly offset by flat reported turnover in Consumer Healthcare. Pharmaceuticals turnover was down 2%, primarily as a result of the increased pressure from austerity measures in Europe. Vaccines turnover declined 2%,all three businesses still reflecting the impact of lower salesthe Novartis transaction which completed on 2 March 2015. Sales ofCervarix in Japan (2012 – £132 million; 2011 – £344 million) following the completion New Pharmaceutical and Vaccine products were £4,453 million, a Sterling increase of the 2011 HPV vaccination catch-up programme. ExcludingCervarix, Vaccines turnover increased 4%. Reported Consumer Healthcare turnover was flat at £5,170 million, but excluding the non-core OTC brands divested in early 2012, Consumer Healthcare turnover grew 6%.£2,465 million.

Group turnover by geographic region

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

Pharmaceuticals

Pharmaceuticals turnover

Respiratory

Respiratory sales increased 1%, with growth in the USA, EMAP and Japan offset by a decline in Europe. Total sales ofSeretide/Advair grew 1% to £5,046 million,Ventolin sales increased 6% to £631 million whileFlixotide/Flovent sales fell 4% to £779 million.Xyzal sales, almost exclusively made in Japan, doubled to £129 million.

In the USA, sales ofAdvair were £2,533 was £16,104 million, up 1% compared14% AER and 3% CER. HIV sales grew 53% AER 37% CER. The Respiratory portfolio returned to growth with sales up 13% AER 2% estimated underlying growth forCER, continuing the year (5% volume decline more than offset by a 7% positive impact of price and mix).Flovent sales declined 1%transition globally to £448 million, compared with estimated underlying growth of 3% (4% volume increase partly offset by a 1% negative impact of price and mix).Ventolin grew 14% to £277 million, while estimated underlying growth was 11%, driven mostly by volume.

European Respiratory sales were down 5% reflecting the impact of ongoing austerity measures.Seretide sales were down 4% to £1,447 million, as price cuts more than offset volume growth of approximately 2%.

In EMAP,newer products. Respiratory sales grew 13%, with growth across most products20% AER 7% CER in the portfolio.Seretide grew 12% to £417US and 16% AER 3% CER in International, but declined 2% AER 10% CER in Europe. Sales of New Pharmaceutical products were £3,861 million, with strong growth in China and Latin America offsetting the impacta Sterling increase of some price reductions, principally in Turkey.Ventolin sales increased 10% to £171 million.

Anti-virals

The 11% decline in Anti-virals sales largely resulted from generic competition toValtrex,£2,148 million, which was down 25% to £252 million.

Central nervous system (CNS)

Declines inSeroxat/Paxil sales of 14% to £374 million andRequip sales of 22% to £164 million, primarily as a result of generic competition, were only partially offset by the 14% growth ofLamictal to £610 million.

In the USA, theLamictal franchise increased 18% to £332 million as strong growth ofLamictal XR, approximately 45% of the US franchise, 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 generic competitionmarket 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 the immediate release (twicenet 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 day) formulation. Generic competition toLamictal XR began during the first quarter of 2013. In Japan, sales ofLamictal IR grew 88% to £78 million, in part due to sales for the recently launched bipolar indication.

Cardiovascular and urogenital

Sales20% AER 7% CER growth in the category were flat as the net benefit of the conclusion of theVesicare co-promotion agreement combined with growth in sales ofAvodart andLovaza wereRespiratory portfolio, partly offset by the impact of generic competition toArixtraAvodart, down 58% AER 63% CER to £70 million, andLovaza, down 54% AER 59% CER to £43 million.Relenza andCoreg.

TheAvodart franchise grew 7%sales were also down 90% AER 91% CER to £790£7 million withfollowing a reallocation of government funding. Sales of new Respiratory products totalled £654 million and the growth driven by strong contributions from the recent launches of the combination productDuodart/Jalyn in Europe and ofAvodart in Japan. In the USA,these products exceeded the decline inAvodartAdvair.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 part duethe 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 labelling changes implemented in 2011 and the availability of a generic competitor in the same class,price) to £835 million. This was partiallypartly offset by growth inJalyn, and combined the new Respiratory products, which recorded sales fellof £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%.

Lovaza CER. Sales in Emerging Markets grew 5% to £607 million primarily reflecting1% AER but declined 4% CER, impacted by the benefit of improved pricing.Lovaza continued to hold broadly flat market share in a market which has declined approximately 7% compared with 2011, as economic pressures resulted in fewer doctor visits and reduced testing for asymptomatic conditions such as very high triglycerides.

Metabolic

The decline in Metabolic product sales continued to reflect the loss of sales ofAvandia, and the impact of declining sales ofBonviva in Europe following the change in the deal structure.

Anti-bacterials

Anti-bacterials sales grew 5% in EMAP, primarily fromAugmentin, but this was more than offset by the impact of austerity measures in Europe, which encouraged pharmacy-level generic substitution, and generic competition in both Europe and the USA.

Oncology and emesis

Three new products,Votrient (up 88% to £183 million),Promacta (up 76% to £130 million) andArzerra (up 36% to £60 million) all continued to grow strongly in the USA, Europe and EMAP.Tykerb/Tyverb also grew (up 6% to £239 million), with growth in the USA, EMAP and Japan offsetting a small decline in Europe. BothHycamtin in Europe and argatroban in the USA were adversely affected by generic competition.

In the USA,Votrient (up 59% to £91 million) benefited from the launch of a new indication for use in advanced soft-tissue sarcoma. Sales ofPromacta grew 66% to £54 million, reflecting the continued effect of longer-term use data that was added to the label in 2011.

Dermatology

Sales declined 2% to £850 million,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 USA (down 14% to £228 million) which suffered fromUS following the impactlaunch 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 ofEvoclinBenlysta 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, withExtinaValtrex 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 andDuacTivicay. European

Triumeq andTivicay sales (up 5%were £1,735 million and £953 million, respectively.Epzicom/Kivexa sales declined 19% AER 27% CER to £156 million)£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 acquisitionstrong performance ofToctinoBexsero 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 of the year. EMAP sales grew 7% to £388 million, reflecting strong growth in the promoted brands ofby increasing private label competition.Dermovate andBactroban.

Rare diseases

VolibrisExcedrin grew 35% to £127 million, ledin double-digits, driven by a strong performance in Japan.theMepronGel-tab sales increased 26% to £93 million primarily as a result of a favourable adjustment to US accruals for returnslaunch and rebates recorded in the fourth quarter.new digital campaigns, andFlolanTums sales fell 25% to £135 million, largely as a result of the biennial price reduction in Japan and generic competition in Europe.

Immuno-inflammation

In August 2012, we acquired Human Genome Sciences, Inc. (‘HGS’) andalso delivered double-digit growth, benefiting from that time recorded all sales ofBenlysta. Prior to acquisition, in the USA we recorded as turnover our share of gross profit under the co-promotion agreement with HGS. ReportedBenlysta turnoversupply improvements. This was £70 million, of which £65 million arose in the USA. Total in-market sales ofBenlysta in the USA for the year were £96 million.

ViiV Healthcare (HIV)

ViiV Healthcare sales declined by 10%, with the USA down 22%, Europe down 3%, and EMAP up 3%. Sales growth inEpzicom/Kivexa (up 10% to £665 million) andSelzentry (up 20% to £128 million) were more thanpartly offset by a 30% decline in the mature portfolio, primarily as a result of generic competition in the USA toCombivir andEpivir.

Vaccines turnover

Performance of the Vaccines business improved towards the end of the year, with a significant increase in tender sales in the fourth quarter. The 2% overall decline in sales was primarily attributable to the adverse comparison with strongCervarix sales in 2011, which benefited from the HPV vaccination catch-up programme in Japan, now complete.Cervarix sales declined 46% to £270 million. ExcludingCervarix, Vaccines sales increased by 4%.

The previously announced Japanese Vaccines joint venture between GSK and Daiichi Sankyo Co., Ltd started operations on 2 July. The JV holds the development and commercial rights for existing preventative vaccines from both parent companies. We sell vaccines into the JV at an agreed upon price, and this is reflected in turnover in the second half of 2012, which was reduced by approximately £12 million by the change in structure. Both companies have an equal stake in the joint venture and share the profits equally.

Consumer Healthcare turnover

Consumer Healthcare turnover was flat for the year. Excluding the non-core OTC brands that were divested in early 2012, turnover increased by 6%, reflecting strong growth in Rest of World markets (47% of 2012 sales) of 12%, while the USA, excluding the non-core OTC brands, grew 2% for the year and Europe was flat.

Total wellness

Total wellness sales were down 9% to £2,057 million, but excluding the non-core OTC brands that were divested in early 2012, the category delivered 3% growth despite a number of supply interruptions. Gastro-intestinal health, includingTums andEno, led category growth at 11%. Pain Management, includingPanadol, also registered strong growth of 8% driven by growth in emerging markets. The Smoking reduction and cessation and Respiratory health categories both delivered 4% growth. Sales ofalli declined by 72% as a result of the supply interruption that was not resolved until late in the third quarter of 2012.

Oral care

Oral care sales grew 8% to £1,806 million. TheSensodyne Sensitivity & Acid Erosion was the strongest performing brand, with sales up 15% to £706 million. Strong results from Denture care products also helped to offset a 2% decline inAquafresh sales.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.NutritionVoltaren

Nutrition 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 8%. Family nutrition (in double digits AER and mid single-digits CER, with strong growth inHorlicksSensodyne) grew 14% and the Gum health portfolio, as well as 10% AER growth but a flat CER performance inAquafresh, due to strong growthincreased competitive pressures. At a market level, sales grew well in India. TheMaxinutrition adult nutrition business delivered 21% sales growth forItaly, Scandinavia, the year. Strong emerging market growth ofLucozade offset declines in Europe.

Skin health

Skin health sales were flat at £257 million. StrongBactroban growth in ChinaUK and solid results in Lip care (includingAbreva) wereGermany, partly offset by a decline in sales ofHindsin Mexico.

Core results

We useInternational sales of £3,241 million grew 15% AER 8% CER. Growth was delivered in many priority markets, primarily through the core reporting basis to managepower 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 GroupNutrition category andHorlicks in particular. Elsewhere, strong growth was delivered in the definitionMiddle 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 corebetter 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 is set out on page 58 of the GSK Annual Report 2013 under the heading “Core results reporting”. The information set forth under this heading is incorporated by reference herein. A review of the Group’s total results is set out on pages 22 to 25. The reconciliation of total results to core results is presented on page 14.

Cost of sales

Core costCost of sales increased to 26.9% of turnover (2011 – 26.6%). This primarily reflected the impact of lower sales, lower volumes and adverse regional and product mix partially offset by ongoing cost management and one-off royalty and pension adjustments.

Selling, general and administration

Core SG&A costs as a percentage of sales were 29.9%turnover was 33.3%, down 3.7 percentage points in Sterling terms and 2.4 percentage points in CER terms compared with 29.2%2015. This reflected improved product mix, particularly the impact of higher HIV sales in 2011 reflecting flatPharmaceuticals, but also in Vaccines and Consumer Healthcare and lower restructuring costs on a turnover decline of 1%. Investments in growth businesses and new product launches as well as additional HGSan 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 funded by ongoing cost management33.6% of turnover, 5.0 percentage points AER lower than in 2015 and one-off benefits.