Glaxosmithkline Regulatory News (GSK)

Issued: Wednesday, 9 February 2022, London U.K.

GSK delivers FY 2021 reported sales of £34 billion, stable at AER, +5% CER;

Total EPS 87.6p -24% AER, -13% CER and Adjusted EPS of 113.2p -2% AER, +9% CER

Highlights

Strong commercial execution drives growth across Pharmaceuticals, Vaccines and Consumer Healthcare (excluding brands divested/under review)

·

Pharmaceuticals £17.7 billion +4% AER, +10% CER; New and Specialty medicines £10 billion +20% AER, +26% CER; Respiratory +21% AER, +28% CER; Immuno-inflammation +22% AER, +29% CER; Oncology +31% AER, +37% CER; total HIV -2% AER, +3% CER

·

Vaccines £6.8 billion -3% AER, +2% CER; Shingrix £1.7 billion -13% AER, -9% CER

·

COVID-19 solutions sales £1.4 billion; Xevudy £958 million; pandemic adjuvant £447 million

·

Consumer Healthcare £9.6 billion -4% AER, stable CER (+4% excluding brands divested/under review)

Continued momentum in R&D delivery and strengthening of pipeline

·

3 major product approvals during 2021; Apretude HIV long-acting medicine for prevention (Dec); Xevudy for COVID-19 (Dec); and Jemperli for endometrial cancer (April)

·

Strong pipeline of 21 vaccines and 43 medicines, many offering potential best or first-in-class opportunities for patients, and of which 22 are in pivotal trials

·

Positive Phase III data on daprodustat in anaemia due to chronic kidney disease presented at American Society of Nephrology. On track to file in EU and US in H1 2022

·

20+ deals executed securing access to 5 novel clinical assets, including with iTeos in immuno-oncology, Alector in immuno-neurology and Vir Biotechnology in flu, plus technologies that expand our capabilities in human genetics and AI

·

Expect to report milestones in 2022 on up to 7 of the 11 potential new vaccines and medicines identified as key future growth drivers including Older Adults RSV vaccine (H1 2022)

Cost discipline supports delivery of Adjusted EPS of 113.2p

·

Total Group operating margin 18.2%. Total EPS 87.6p -24% AER, -13% CER

·

Adjusted Group operating margin 25.8%. Adjusted EPS 113.2p -2% AER, +9% CER. This included a contribution to growth from COVID-19 solutions of approximately +8% AER, +9% CER (+17% AER, +20% CER for Q4 2021)

·

Full year 2021 net cash flow from operations £8.0 billion. Full year free cash flow £4.4 billion

On track to demerge a new world-leading Consumer Healthcare business mid-2022

·

Progress to create new Board with appointment of Chair Designate

·

Capital Markets Day on 28 February to highlight overall strategy, capabilities and operations, including detailed financial information and superior growth ambitions

2022 guidance for new GSK

·

New GSK, the biopharma business, expected to deliver growth in 2022 sales of between 5% to 7% at CER and growth in 2022 Adjusted operating profit of between 12% to 14% at CER including the anticipated benefit in royalty income from Gilead settlement

·

This 2022 guidance excludes any contribution from COVID-19 solutions

·

Dividend of 23p declared for Q4 2021; 80p FY 2021

Emma Walmsley, Chief Executive Officer, GSK: "We have ended the year strongly, with another quarter of excellent performance driven by first-class commercial execution, and we enter 2022 with good momentum. This is going to be a landmark year for GSK, with a step-change in growth expected and multiple R&D catalysts, including milestones on up to 7 key late-stage pipeline assets. 2022 is also the year when we demerge our world-leading Consumer Healthcare business. At our capital markets event later this month, we will set out the future growth ambitions and highly attractive financial profile of this business, and the outstanding opportunity it provides for shareholders."

The Total results are presented in summary on page 2 and under 'Financial performance' on pages 13 and 28 and Adjusted results reconciliations are presented on pages 23, 24, 38 and 39. Adjusted results are a non-IFRS measure that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 10 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 61. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 10. All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Guidance, assumptions and cautionary statements' on pages 62 and 63.

2021 results

2021

Growth

Q4 2021

Growth

£m

£%

CER%

£m

£%

CER%

Turnover

34,114 

- 

5 

9,527 

9 

13

Total operating profit

6,201 

(20)

(9)

895 

(16)

1

Total earnings per share

87.6p

(24)

(13)

15.0p

10 

31

Adjusted operating profit

8,806 

(1)

9 

1,893 

4 

15

Adjusted earnings per share

113.2p

(2)

9 

25.6p

9 

22

Net cash from operating activities

7,952 

(6)

3,767 

(2)

Free cash flow

4,437 

(18)

2,901 

(7)

2022 guidance

We set out below our guidance for new GSK in 2022. This guidance is provided at CER and excludes the commercial impact of COVID-19 solutions.

In 2022 we expect to continue to deliver on our strategic priorities. We plan to increase targeted investment in R&D, to build on and invest behind our top line momentum for key growth drivers and to deliver the demerger of our Consumer Healthcare business in mid-year. Assuming global economies and healthcare systems approach normality as the year progresses, we expect sales of Specialty Medicines to grow approximately 10% at CER and sales of General Medicines to show a slight decrease, primarily reflecting increased genericisation of established Respiratory products. Vaccines sales are expected to grow at a low teens percentage at CER for the year as a whole. However, governments' prioritisation of COVID-19 vaccination programmes and ongoing measures to contain the pandemic are expected to result in some continued disruption to adult immunisations, with the impact weighted to the first half. For Shingrix, despite the potential for short-term pandemic disruption, we continue to expect strong double-digit growth and record annual sales based on strong demand in existing markets and geographical expansion.

Reflecting these factors, in 2022 for new GSK we expect sales to grow between 5% to 7% at CER and Adjusted operating profit to grow between 12% to 14% at CER as compared with 2021. This includes the future benefit in royalty income from the settlement and license agreement with Gilead Sciences, Inc. (Gilead) announced on 1 February 2022.

Medium term outlooks will be provided for Consumer Healthcare at a Capital Markets Day scheduled for 28 February 2022. Until such time as the formal criteria for treating Consumer Healthcare as a 'Discontinued operation' have been satisfied (currently expected in Q2 2022), GSK will continue to present the Consumer Healthcare business within 'Continuing operations' and will consolidate the business for reporting purposes until the demerger has completed.

Dividend policies and expected pay-out ratios are unchanged for new GSK and new Consumer Healthcare (subject to new Consumer Healthcare board approval). The expected distribution per share for the new Consumer Healthcare Company for the second half of 2022 has been adjusted from that highlighted at the GSK Investor Update in June 2021 to reflect the total number of shares in the new Consumer Healthcare company that are expected to be in issue upon demerger. The future dividend policies and guidance in relation to the expected dividend pay-out in 2022 across both new GSK and new Consumer Healthcare are provided on page 43.

2022 COVID-19 solutions expectations

In 2022, based on known binding agreements from governments we expect that COVID-19 solutions will contribute a similar sales level to 2021, but a substantially reduced profit contribution due to the increased proportion of lower margin Xevudy sales. We expect this to reduce new GSK Adjusted Operating profit growth (including COVID-19 solutions in both years) by between 5% to 7%. We continue to discuss further opportunities with governments.

All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Guidance, assumptions and cautionary statements' on pages 62 and 63. If exchange rates were to hold at the closing rates on 31 January 2022 ($1.34/£1, €1.20/£1 and Yen 155/£1) for the rest of 2022, the estimated impact on 2022 Sterling turnover growth for new GSK would be stable and if exchange gains or losses were recognised at the same level as in 2021, the estimated impact on 2021 Sterling Adjusted Operating Profit growth for new GSK would also be stable.

Results presentation

A webcast of the quarterly results presentation hosted by Emma Walmsley, GSK CEO, will be held at 2pm GMT on 9 February 2022. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.

Information available on GSK's website does not form part of, and is not incorporated by reference into, this Results Announcement.

Operating performance - 2021

Turnover

£m

Growth

£%

Growth

CER%

Pharmaceuticals

17,729

4 

10

Vaccines

6,778

(3)

2

Consumer Healthcare

9,607

(4)

-

Group turnover

34,114

- 

5

Group turnover was £34,114 million in the year, stable at AER but up 5% CER. Sales of COVID-19 solutions contributed approximately 4 percentage points to growth in the year.

Pharmaceutical turnover in the year was £17,729 million, up 4% AER and 10% CER. Sales of Xevudy, the monoclonal antibody treatment for COVID-19 of £958 million contributed approximately 6 percentage points to total Pharmaceuticals growth.

Vaccines turnover was £6,778 million in the year, down 3% AER but up 2% CER, primarily driven by pandemic adjuvant sales, partially offset by lower demand for routine adult vaccination due to COVID-19 vaccination programme deployment and disease circulation across regions. Vaccines turnover excluding pandemic vaccines decreased 9% AER, 5% CER to £6,331 million.

Consumer Healthcare turnover was £9,607 million, down 4% AER but remained stable at CER reflecting dilution from divestments given the completion of the portfolio rationalisation at the end of Q1 2021. Sales excluding brands divested/under review decreased 1% AER but increased 4% CER reflecting the underlying strength of brands across the portfolio and categories and continuing growth in e-commerce.

Operating profit

Total operating profit was £6,201 million compared with £7,783 million in 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of Horlicks and other Consumer brands and resultant sale of shares in Hindustan Unilever. This was partly offset by lower major restructuring costs, lower re-measurement charges on the contingent consideration liabilities and the unwind in 2020 of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer.

Adjusted operating profit was £8,806 million, 1% lower than 2020 at AER, but 9% higher at CER on a turnover increase of 5% CER. The Adjusted operating margin of 25.8% was 0.3 percentage points lower at AER, 0.9 percentage points higher on a CER basis than in 2020. The increase in Adjusted operating profit primarily reflected the benefit from incremental pandemic sales, sales growth in Pharmaceuticals and tight control of ongoing costs, favourable legal settlements and benefits from continued restructuring across the business. This was offset by lower sales in Vaccines, higher supply chain costs in Vaccines and Consumer Healthcare, divestments in Consumer Healthcare and increased investment in R&D across Vaccines and Pharmaceuticals.

Earnings per share

Total EPS was 87.6p, compared with 115.5p in 2020. This primarily reflected an unfavourable comparison as 2020 benefited from the net profit on disposal of Horlicks and related transactions, partly offset by a credit of £397 million to Taxation in 2021 resulting from the revaluation of deferred tax assets, lower major restructuring costs and lower re-measurement charges on the contingent consideration liabilities. Adjusted EPS was 113.2p compared with 115.9p in 2020, down 2% AER but up 9% CER, on a 9% CER increase in Adjusted operating profit primarily reflecting incremental pandemic sales, sales increases in Pharmaceuticals, tight cost control and favourable legal settlements and lower interest costs, partly offset by lower sales in Vaccines, higher supply chain costs in Vaccines, increased R&D investment and a higher effective tax rate.

Cash flow

The net cash inflow from operating activities for the year was £7,952 million (2020: £8,441 million). The decrease primarily reflected adverse exchange impacts, increased trade receivables, adverse timing of returns and rebates (RAR) and increased separation costs, partly offset by improved adjusted operating profit at CER and reduced tax payments including tax on disposals.

Operating performance - Q4 2021

Turnover

Q4 2021

£m

Growth

£%

Growth

CER%

Pharmaceuticals

5,221

20 

25 

Vaccines

1,809

(10)

(7)

Consumer Healthcare

2,497

6 

10 

Group turnover

9,527

9 

13 

Group turnover was £9,527 million in the quarter, up 9% AER, 13% CER. Sales of COVID-19 solutions contributed approximately 11 percentage points to total growth in the quarter.

Pharmaceutical turnover in the quarter was £5,221 million, up 20% AER, 25% CER. The increase was driven by strong growth in New and Specialty products, partly offset by a decrease in the Established Products portfolio. Sales of Xevudy of £828 million contributed approximately 20 percentage points to Pharmaceuticals growth in the quarter.

Vaccines turnover decreased 10% AER, 7% CER to £1,809 million. This was primarily driven by lower Meningitis vaccines sales associated with the return to a normal US back-to-school season, lower DTPa-containing vaccines sales due to unfavourable CDC purchasing patterns in the US and lower Shingrix sales resulting from the negative impact of COVID-19 vaccination programme deployment and disease circulation, partly offset by pandemic adjuvant sales.

Consumer Healthcare turnover in the quarter was £2,497 million, up 6% AER, 10% CER. Sales excluding brands divested/under review increased 7% AER, 11% CER with strong growth across the whole portfolio but particularly Respiratory health which rebounded from the historically low cold and flu season in both Q4 2020 and Q1 2021.

Operating profit

Total operating profit was £895 million in Q4 2021 compared with £1,061 million in Q4 2020. This reflected higher re-measurement charges on the contingent consideration liabilities including the impact of the Gilead settlement partly offset by lower restructuring and higher profit on disposal of assets.

Adjusted operating profit was £1,893 million, 4% higher than Q4 2020 at AER, 15% higher at CER on a turnover increase of 13% CER. The Adjusted operating margin of 19.9% was 0.9 percentage points lower at AER, and 0.2 percentage points higher on a CER basis than in Q4 2020. The increase in Adjusted operating profit primarily reflected leverage from £920 million of pandemic sales as well as strong growth in New and Specialty Products and a favourable prior period RAR adjustment in Pharmaceuticals, continued tight control of ongoing costs and benefits from continued restructuring across the business. This was partly offset by increased investment in R&D, increased investment behind launches and higher supply chain costs resulting from lower demand and higher inventory adjustments in Vaccines.

Earnings per share

Total EPS was 15.0p, compared with 13.6p in Q4 2020. This primarily reflected lower restructuring and higher disposal income partly offset by higher re-measurement charges. Adjusted EPS was 25.6p compared with 23.3p in Q4 2020, up 9% AER and 22% CER, on a 15% CER increase in Adjusted operating profit reflecting positive leverage from Xevudy sales in the quarter and lower interest costs partly offset by a higher non-controlling interest allocation of Consumer Healthcare profits.

Cash flow

The net cash inflow from operating activities for the quarter was £3,767 million (Q4 2020: £3,855 million). The reduction primarily reflected adverse exchange impacts and a lower seasonal reduction in trade receivables in the quarter and phasing of tax payments partly offset by improved adjusted operating profit at CER and favourable timing of RAR.

R&D pipeline

We focus on the science of the immune system, human genetics and advanced technologies to develop Vaccines and Specialty Medicines in four core therapeutic areas - Infectious Diseases, HIV, Oncology and Immunology/Respiratory. We also remain open to opportunities outside these core therapy areas where there are scale opportunities consistent with the science of the immune system and human genetic validation.

As disclosed at the Investor Update on 23 June 2021, the company has a robust late-stage R&D pipeline with many assets having the potential to be first-in-class or best-in-class, as well as offering significant strategic lifecycle opportunities. The late-stage pipeline will help deliver the sales ambition set by the company for 2021-2026 and beyond.

Our R&D pipeline currently comprises 64 Vaccines and Specialty Medicines.

Pipeline news flow highlights since Q3 2021 are listed below in chronological order.

Infectious diseases

Rotarix

·

Submitted a supplemental Biologics License Application for Rotarix Liquid (PCV free) in the US

Shingrix

·

Received approval in Canada for the prevention of shingles in adults aged 18 years and older who are or who will be at increased risk of shingles due to immunodeficiency or immunosuppression caused by known disease or therapy

Varicella new strain candidate vaccine

·

Started a Phase II trial of a varicella candidate vaccine for use in the US for children aged 12 to 15 months

Cervarix

·

Withdrew an application to the EMA for the prevention of head and neck cancers related to human papillomavirus (HPV)

HIV

Apretude (cabotegravir extended-release injectable suspension)

·

Received approval from the FDA for Apretude, the first and only long-acting injectable pre-exposure prophylaxis (PrEP) option to reduce the risk of sexually acquired HIV-1

Cabenuva/Vocabria (cabotegravir) and Rekambys (rilpivirine)

·

Received approval from the FDA for every-two-month dosing for virologically suppressed adults living with HIV without prior treatment failure or resistance to cabotegravir or rilpivirine

·

Announced a decision from the European Commission to update the Summary of Product Characteristics for Vocabria and Janssen's Rekambys injections to be initiated with or without an oral lead-in period for the long-acting treatment of HIV

·

Presented positive interim data from the CARISEL Phase IIIb trial showing Vocabria and Janssen's Rekambys can be implemented successfully in a variety of European healthcare settings at the 2021 European AIDS Conference

VH4004280 (capsid protein inhibitor)

·

Dosed the first patient in a Phase I trial investigating our capsid protein inhibitor for HIV

Oncology

Blenrep (belantamab mafodotin)

·

Presented new data from the DREAMM-9 Phase I trial and two collaborative studies at the 2021 American Society of Haematology annual meeting. Collectively, these data suggest that with an optimised dose, schedule and combination treatment, corneal events associated with Blenrep may be reduced in patients receiving earlier lines of therapy

·

Expanded our collaboration with SpringWorks Therapeutics to include two new sub-studies evaluating the combination of Blenrep plus nirogacestat with standard-of-care multiple myeloma therapies in the DREAMM-5 trial

Jemperli (dostarlimab)

·

Received approval in Canada for the treatment of adult patients with mismatch repair deficient (dMMR) or microsatellite instability-high (MSI-H) recurrent or advanced endometrial cancer, that has progressed on or following prior treatment with a platinum containing regimen

Immuno-oncology combinations

·

Dosed the first patient in a Phase I trial of GSK4428859 (EOS-448; TIGIT antagonist) in combination with Jemperli (dostarlimab)

GSK3326595 and GSK3368715 (PRMT5 inhibitor and Type I PRMT inhibitor)

·

Removed from the Phase I pipeline due to prioritisation within the synthetic lethal portfolio (termination of in-license agreement with Epizyme will be effective on 16 March 2022)

Next-generation cell therapy

·

Lyell announced FDA clearance of an Investigational New Drug application to initiate a Phase I trial, in collaboration with GSK, for LYL132 - an investigational T-cell receptor therapy that incorporates next-generation enhancements for patients with solid tumours expressing NY-ESO-1

Immunology/Respiratory

Nucala (mepolizumab)

·

Received approval from the FDA for a 40 mg prefilled syringe for appropriate patients aged 6 to 11 years old who have severe eosinophilic asthma, administered at home or by a child's health care provider

·

Received approval from the European Commission for Nucala in three additional eosinophil-driven diseases; hypereosinophilic syndrome, eosinophilic granulomatosis with polyangiitis, and chronic rhinosinusitis with nasal polyps, making it the only treatment in Europe approved for use in four eosinophil-driven diseases

·

Received approval in Canada as an add-on maintenance treatment with intranasal corticosteroids in adult patients with severe chronic rhinosinusitis with nasal polyps inadequately controlled by intranasal corticosteroids alone

GSK4527223 (AL001; progranulin-elevating monoclonal antibody)

·

Alector presented positive data from the INFRONT-2 Phase II open-label trial of AL001 for the treatment of symptomatic frontotemporal dementia patients with a progranulin mutation at the 2021 Clinical Trials on Alzheimer's Disease conference

GSK4532990 (ARO-HSD; RNA interference)

·

Announced a worldwide license agreement with Arrowhead Pharmaceuticals for GSK4532990 (ARO-HSD), a genetically validated investigational RNA interference therapeutic currently in Phase I/II trials for patients with non-alcoholic steatohepatitis (NASH). The agreement covers the medicine's development and commercialisation outside of greater China. The deal closed on 24 January 2022

Benlysta (belimumab)

·

Received coverage in China's 2021 National Reimbursement Drug List for paediatric systemic lupus erythematosus in children aged five years and older

·

Recommended by the UK National Institute for Health and Care Excellence (NICE) as an add-on treatment option for active autoantibody-positive systemic lupus erythematosus in eligible people with high disease activity despite standard treatment

GSK3888130 (IL-7 monoclonal antibody)

·

Dosed the first patient in a Phase I trial investigating our monoclonal antibody against IL-7, a genetically validated target for multiple sclerosis

Opportunity driven

Daprodustat (oral hypoxia-inducible factor prolyl hydroxylase inhibitor)

·

Presented new data from five trials in the ASCEND Phase III programme at the American Society of Nephrology's Kidney Week 2021. Presentations from the pivotal ASCEND-ND and ASCEND-D trials confirm the potential for a new oral treatment for patients with anaemia due to chronic kidney disease in both non-dialysis and dialysis settings. These data were simultaneously published in the New England Journal of Medicine

Linerixibat (IBAT inhibitor)

·

Dosed the first patient in the GLISTEN Phase III trial for cholestatic pruritus in primary biliary cholangitis

·

Received Orphan Drug Designation from the European Commission

GSK3884464

·

Dosed the first patient in a Phase I trial investigating GSK3884464 for heart failure

COVID-19

Xevudy (sotrovimab, VIR-7831/GSK4182136)

·

Submitted an application to the FDA requesting an amendment to the Emergency Use Authorisation to include intramuscular administration

·

Received binding agreements for the sale of approximately 1.7 million doses worldwide, including a portion of those procured by the US Government

·

Oxford University included sotrovimab in the RECOVERY trial, the world's largest COVID-19 study, as a possible treatment for hospitalised patients

·

Granted marketing authorisation from the European Commission for the early treatment of COVID-19 in adults and adolescents (aged 12 years and over and weighing at least 40 kg) who do not require supplemental oxygen and who are at increased risk of progressing to severe infection

·

Announced that preclinical studies demonstrated sotrovimab retains activity against the full combination of mutations in the spike protein of the Omicron variant

·

Granted conditional marketing authorisation from the UK's Medicines and Healthcare products Regulatory Agency (MHRA) and a supply agreement with the UK Government for the treatment of symptomatic adults and adolescents (aged 12 years and over and weighing at least 40 kg) with acute COVID-19 infection who do not require oxygen supplementation and who are at increased risk of progressing to severe infection

·

Announced data from the COMET-TAIL Phase III trial demonstrating that intramuscular administration of sotrovimab was non-inferior and offered similar efficacy to intravenous administration for high-risk populations

Vaccine collaborations

·

Medicago submitted Emergency Use Authorisation for a jointly developed plant-based COVID-19 vaccine candidate in Canada

·

Announced with Medicago data from the Phase III trial of their plant-based COVID-19 vaccine candidate, in combination with GSK's pandemic adjuvant, that demonstrated 71% efficacy against the main variants of SARS-COV-2 circulating at the time of the trial

·

Announced with Sanofi that a single booster dose of the recombinant adjuvanted COVID-19 vaccine candidate was well tolerated and delivered consistently strong immune responses regardless of the primary vaccine received

Contents

Page

Total and Adjusted results

10

Financial performance - 2021

13

Financial performance - three months ended 31 December 2021

28

Cash generation

42

Returns to shareholders

43

Income statements

45

Statement of comprehensive income

46

Pharmaceuticals turnover - year ended 31 December 2021

47

Pharmaceuticals turnover - three months ended 31 December 2021

48

Vaccines turnover - year ended 31 December 2021

49

Vaccines turnover - three months ended 31 December 2021

50

Balance sheet

51

Statement of changes in equity

52

Cash flow statement - year ended 31 December 2021

53

Segment information

54

Legal matters

56

Additional information

57

Reconciliation of cash flow to movements in net debt

60

Net debt analysis

60

Free cash flow reconciliation

60

Reporting definitions

61

Guidance, assumptions and cautionary statements

62

Contacts

GSK is a science-led global healthcare company. For further information please visit www.gsk.com/aboutus

GSK enquiries:

Media enquiries:

Tim Foley

+44 (0) 20 8047 5502

(London)

Kathleen Quinn

+1 202 603 5003

(Washington)

Analyst/Investor enquiries:

Nick Stone

+44 (0) 7717 618834

(London)

James Dodwell

+44 (0) 7881 269066

(London)

Mick Readey

+44 (0) 7990 339653

(London)

Joshua Williams

+44 (0) 7385 415719

(London)

Jeff McLaughlin

+1 215 589 3774

(Philadelphia)

Frances De Franco

+1 570 236 4850

(Philadelphia)

Sonya Ghobrial

+44 (0) 7392 784784

(Consumer)

Registered in England & Wales:

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TW8 9GS

Total and Adjusted results

Total reported results represent the Group's overall performance.

GSK also uses a number of adjusted, non-IFRS, measures to report the performance of its business. Adjusted results and other non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS. Adjusted results are defined below and other non-IFRS measures are defined on page 61.

GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group's performance to be more easily compared against the majority of its peer companies. These measures are also used by management for planning and reporting purposes. They may not be directly comparable with similarly described measures used by other companies.

GSK encourages investors and analysts not to rely on any single financial measure but to review GSK's quarterly results announcements, including the financial statements and notes, in their entirety.

GSK is committed to continuously improving its financial reporting, in line with evolving regulatory requirements and best practice. In line with this practice, GSK expects to continue to review and refine its reporting framework.

Adjusted results exclude the following items from Total results, together with the tax effects of all of these items:

·

amortisation of intangible assets (excluding computer software)

·

impairment of intangible assets (excluding computer software) and goodwill

·

Major restructuring costs, which include impairments of tangible assets and computer software, (under specific Board approved programmes that are structural, of a significant scale and where the costs of individual or related projects exceed £25 million), including integration costs following material acquisitions

·

transaction-related accounting or other adjustments related to significant acquisitions

·

proceeds and costs of disposal of associates, products and businesses; significant settlement income; significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; other operating income other than royalty income, and other items including the one-off impact of the revaluation of deferred tax assets and liabilities following enactment of the increase in the headline rate of UK corporation tax from 19% to 25% (effective 2023)

·

separation costs include costs to establish Consumer Healthcare as an independent business, as well as admission listing and demerger costs

Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.

As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as significant legal, major restructuring and transaction items) they should not be regarded as a complete picture of the Group's financial performance, which is presented in Total results. The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings. In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.

GSK has undertaken a number of Major restructuring programmes in response to significant changes in the Group's trading environment or overall strategy, or following material acquisitions. Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria. As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.

Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and materially larger than more regularly occurring individual matters. They also include certain major legacy matters.

The enactment of the increase in the headline rate of UK corporation tax from 19% to 25% (effective 2023) resulted in a credit to the income statement of £325 million in Q2 2021 revised upwards to £397 million in Q4 2021. Due to the magnitude, GSK has reported this credit as an Adjusting item in the year so that it does not obscure the key trends in the Group's performance for the period.

Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items, are set out on pages 23, 24, 38 and 39.

GSK provides earnings guidance to the investor community on the basis of Adjusted results. This is in line with peer companies and expectations of the investor community, supporting easier comparison of the Group's performance with its peers. GSK is not able to give guidance for Total results as it cannot reliably forecast certain material elements of the Total results, particularly the future fair value movements on contingent consideration and put options that can and have given rise to significant adjustments driven by external factors such as currency and other movements in capital markets.

ViiV Healthcare

ViiV Healthcare is a subsidiary of the Group and 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement.

Earnings are allocated to the three shareholders of ViiV Healthcare on the basis of their respective equity shareholdings (GSK 78.3%, Pfizer 11.7% and Shionogi 10%) and their entitlement to preferential dividends, which are determined by the performance of certain products that each shareholder contributed. As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes. In particular, the increasing proportion of sales of dolutegravir and cabotegravir-containing products has a favourable impact on the proportion of the preferential dividends that is allocated to GSK. Adjusting items are allocated to shareholders based on their equity interests. GSK was entitled to approximately 86% of the Total earnings and 83% of the Adjusted earnings of ViiV Healthcare for 2021.

As consideration for the acquisition of Shionogi's interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, dolutegravir and cabotegravir. Under IFRS 3 'Business combinations', GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end. The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million. Subsequent re-measurements are reflected within other operating income/(expense) and within Adjusting items in the income statement in each period.

On 1 February 2022, ViiV Healthcare reached agreement with Gilead to settle the global patent infringement litigation relating to the commercialisation of Gilead's Biktarvy. Under the terms of the global settlement and licensing agreement, Gilead will make an upfront payment of $1.25 billion to ViiV Healthcare which is expected in the first quarter of 2022. In addition, Gilead will also pay a 3% royalty on all future US sales of Biktarvy and in respect of the bictegravir component of any other future bictegravir-containing products sold in the US. These royalties will be payable by Gilead to ViiV Healthcare from 1 February 2022 until the expiry of ViiV Healthcare's US Patent No. 8,129,385 on 5 October 2027. Gilead's obligation to pay royalties does not extend into any period of regulatory paediatric exclusivity, if awarded. The settlement resulted in a re-measurement of the existing liabilities for contingent consideration and the Pfizer put option at the 2021 year end. The upfront payment is a contingent asset at the balance sheet date.

The impact on the contingent consideration liability (CCL) is to increase it by £288 million, on a post-tax basis in Q4 2021 due to the obligation ViiV Healthcare has to pay future cash consideration to Shionogi for its share of the upfront and of the future US sales performance of Biktarvy and products containing bictegravir. Including the impact of the settlement at 31 December 2021, the liability which is discounted at 8% stood at £5,559 million, on a post-tax basis.

Pfizer has the right to require GSK to acquire its shareholding in ViiV Healthcare in certain circumstances* at any time. A put option liability is therefore recorded on the Group's balance sheet as a current liability. It is measured on the gross redemption basis derived from an internal valuation of the ViiV Healthcare business.

The impact of the settlement on the Pfizer put option liability is an increase of £114 million and is included in the re-measurement at 31 December 2021.

See page 59 for an explanation of the post balance sheet event impact.

Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance and other income of the relevant products in the previous quarter. These payments reduce the balance sheet liability and hence are not recorded in the income statement. The cash payments made to Shionogi by ViiV Healthcare in 2021 were £826 million.

As the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.

Further explanation of the acquisition-related arrangements with ViiV Healthcare are set out on pages 52 and 53 of the Annual Report 2020.

*

See page 53 of GSK's Annual Report 2020.

Financial performance - 2021

Total results

The Total results for the Group are set out below.

2021

£m

2020

£m

Growth

£%

Growth

CER%

Turnover

34,114 

34,099 

- 

5 

Cost of sales

(11,603)

(11,704)

(1)

2 

Gross profit

22,511 

22,395 

1 

7 

Selling, general and administration

(10,975)

(11,456)

(4)

- 

Research and development

(5,278)

(5,098)

4 

7 

Royalty income

419 

318 

32 

32 

Other operating (expense)/income

(476)

1,624 

Operating profit

6,201 

7,783 

(20)

(9)

Finance income

28 

44 

Finance expense

(784)

(892)

Share of after tax profits of associates

and joint ventures

33 

33 

Loss on disposal of interest in associates

(36)

- 

Profit before taxation

5,442 

6,968 

(22)

(10)

Taxation

(346)

(580)

Tax rate %

6.4%

8.3%

Profit after taxation

5,096 

6,388 

(20)

(9)

Profit attributable to non-controlling

interests

711 

639 

Profit attributable to shareholders

4,385 

5,749 

5,096 

6,388 

(20)

(9)

Earnings per share

87.6p

115.5p

(24)

(13)

Adjusted results

The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for 2021 and 2020 are set out on pages 23 and 24.

2021

£m

% of

turnover

Growth

£%

Reported

growth

CER%

Turnover

34,114 

100

- 

5 

Cost of sales

(10,726)

31.4

5 

8 

Selling, general and administration

(10,225)

30.0

(5)

(1)

Research and development

(4,776)

14.0

4 

8 

Royalty income

419 

1.2

32 

32 

Adjusted operating profit

8,806 

25.8

(1)

9 

Adjusted profit before tax

8,086 

- 

11 

Adjusted profit after tax

6,671 

(2)

9 

Adjusted profit attributable to shareholders

5,665 

(2)

9 

Adjusted earnings per share

113.2p

(2)

9 

Operating profit by business

2021

£m

% of

turnover

Growth

£%

Reported

growth

CER%

Pharmaceuticals

8,170 

46.1

6 

15 

Pharmaceuticals R&D*

(3,489)

(1)

3 

Total Pharmaceuticals

4,681 

26.4

12 

24 

Vaccines

2,256 

33.3

(17)

(11)

Consumer Healthcare

2,239 

23.3

1 

9 

9,176 

26.9

1 

10 

Corporate & other unallocated costs

(370)

Adjusted operating profit

8,806 

25.8

(1)

9 

*

Operating profit of Pharmaceuticals R&D segment, which is the responsibility of the Chief Scientific Officer and President, R&D. It excludes ViiV Healthcare R&D expenditure, which is reported within the Pharmaceuticals segment.

Turnover

Pharmaceuticals turnover

2021

£m

Growth

£%

Growth

CER%

Respiratory

2,863

21 

28 

HIV

4,777

(2)

3 

Immuno-inflammation

885

22 

29 

Oncology

489

31 

37 

Pandemic

958

- 

- 

New and Speciality

9,972

20 

26 

Established Pharmaceuticals

7,757

(11)

(6)

17,729

4 

10 

US

8,442

13 

21 

Europe

3,934

(4)

(2)

International

5,353

(3)

4 

17,729

4 

10 

Pharmaceuticals turnover in the year was £17,729 million, up 4% AER, 10% CER. Sales of Xevudy, the monoclonal antibody treatment for COVID-19 of £958 million contributed approximately 6 percentage points to Pharmaceuticals growth.

HIV sales were down 2% AER but up 3% CER, to £4,777 million, with growth in Dovato and Juluca partly offset by Tivicay and Triumeq. Respiratory sales were up 21% AER, 28% CER, to £2,863 million, on growth of Trelegy and Nucala. Oncology and Immuno-Inflammation therapy areas each continued to show strong double-digit sales growth. Sales of Established Pharmaceuticals decreased 11% AER, 6% CER to £7,757 million.

In the US, sales grew 13% AER, 21% CER including sales of Xevudy, which contributed approximately 9 percentage points to total growth. Continued strong performance of Trelegy, Nucala, Benlysta and Dovato also drove growth of New and Specialty products in the Region. Established Products were stable at AER but grew 6% CER, reflecting strong demand for Established Respiratory products in the COVID-19 environment and certain supply challenges faced by generic competitor products, plus the benefit of favourable prior period RAR adjustments.

In Europe, sales decreased 4% AER, 2% CER, with decreases in the Established Pharmaceuticals portfolio, impacted by generic competition including Seretide, Duodart and Volibris, lower antibiotic demand, and the divestment of cephalosporin products at the start of the fourth quarter. The decrease was partly offset by strong growth of Trelegy, Benlysta and Oncology products, and of Dovato which more than doubled in the year. Sales of Xevudy totalling £69 million also contributed approximately 2 percentage points to total growth.

International sales decreased 3% AER but grew 4% CER. Decreases in Established Pharmaceuticals reflected the impact of COVID-19 suppressed antibiotics markets and increased generic competition in the first half of the year. This was offset by strong growth in Respiratory, Dovato, Tivicay tenders, and sales of Xevudy, which added approximately 6 percentage points to International total growth.

Respiratory

Total Respiratory sales were up 21% AER, 28% CER, with sales of Trelegy and Nucala each exceeding £1 billion per year for the first time. International Respiratory sales grew 33% AER, 42% CER including Nucala up 23% AER, 34% CER, and Trelegy up 81% AER, 92% CER including the impact of the Trelegy asthma launch in Japan in Q4 2020. In Europe, Respiratory grew 11% AER, 13% CER with double digit CER growth of Trelegy and Nucala. In the US, Respiratory grew 23% AER, 30% CER, driven by continued strong performance of Trelegy and Nucala.

Sales of Nucala were £1,142 million in the year and grew 15% AER, 22% CER, with consistent, strong growth across all three regions. US sales were up 15% AER, 23% CER to £690 million and International sales of £195 million grew 23% AER, 34% CER. Europe sales of £257 million grew 8% AER, 11% CER.

Trelegy sales were up 49% AER, 57% CER to £1,217 million driven by growth in all regions. In the US, sales continue to grow strongly including benefit of the asthma indication approved and launched in Q3 2020, with sales up 52% AER, 62% CER. In Europe, sales grew 19% AER, 21% CER and in International, where Trelegy asthma was approved in Japan in Q4 2020, sales grew 81% AER, 92% CER to £163 million.

HIV

HIV sales were £4,777 million a decrease of 2% AER but growth of 3% CER for the year. Triumeq sales were £1,882 million, down 18% AER, 14% CER and Tivicay sales were £1,381 million, down 10% AER, 4% CER. The mature portfolio resulted in less than 1 percentage point of CER sales decrease.

New HIV products Juluca, Dovato, Rukobia and Cabenuva delivered sales of £1,387 million representing 29% of the total HIV portfolio (18% in 2020). Sales of the two drug regimens Juluca and Dovato were £517 million and £787 million, respectively, with combined growth of 50% AER, 58% CER. Rukobia sales were £45 million. Cabenuva, the first long acting injectable, recorded £38 million of sales for the full year.

In the US, total sales were £2,898 million with a decrease of 4% AER, but growth of 3% CER. New HIV products delivered sales of £896 million, including: Dovato £428 million with growth of 87% AER, 99% CER, Juluca £393 million with growth of 2% AER, 8% CER, Rukobia £43 million and Cabenuva £32 million. Combined Tivicay and Triumeq sales were £1,953 million declining 16% AER, 11% CER. In Europe, total sales were £1,194 million with a decrease of 2% AER, but growth of 1% CER. New HIV products delivered sales of £420 million, including: Dovato sales of £302 million, which more than doubled at AER and CER, and Juluca £111 million with growth of 14% AER, 18% CER. Combined Tivicay and Triumeq sales were £738 million declining 21% AER, 19% CER. International continued to grow strongly with total sales of £685 million, with growth of 4% AER, 11% CER, driven by the Tivicay tender business and new HIV products.

Immuno-inflammation

Immuno-inflammation sales of £885 million grew 22% AER, 29% CER with Benlysta sales up 22% AER, 29% CER to £874 million, benefitting from lupus nephritis launches in US and Japan in H2 2020.

Oncology

Sales of Zejula, the PARP inhibitor treatment for ovarian cancer were £395 million, up 17% AER, 22% CER, impacted by ongoing lower diagnosis rates due to the COVID-19 pandemic, particularly in the US. Sales included £212 million in the US and £163 million in Europe.

Blenrep for the treatment of patients with relapsed or refractory multiple myeloma was approved and launched in the US and Europe in Q3 2020, with ongoing launches throughout Europe in 2021. Blenrep sales globally totalled £89 million.

Pandemic Sales

Sales of Xevudy were £958 million in the year, reflecting the ongoing fulfilment of contracts across the world and most significantly in the US, which reported sales of £602 million. International recorded sales of £287 million and Europe £69 million.

Established Pharmaceuticals

Sales of Established Pharmaceuticals in the year were £7,757 million, down 11% AER, 6% CER.

Established Respiratory products decreased 7% AER, 2% CER to £4,327 million. This includes the impact of generic competition to Xyzal in Japan, and to Advair/Seretide globally. The decrease was partially offset by approximately 6 percentage points impact on growth of favourable prior period RAR adjustments.

The remainder of the Established Pharmaceuticals portfolio decreased by 16% AER, 11% CER to £3,430 million on lower demand for antibiotics during the COVID-19 pandemic period, the divestment of GSK's cephalosporin products at the start of the fourth quarter, and the impact of government mandated changes increasing use of generics in markets including France, Japan and China.

Vaccines turnover

2021

£m

Growth

£%

Growth

CER%

Meningitis

961

(7)

(2)

Influenza

679

(7)

(2)

Shingles

1,721

(13)

(9)

Established Vaccines

2,970

(8)

(4)

6,331

(9)

(5)

Pandemic Vaccines

447

- 

- 

Total Vaccines

6,778

(3)

2 

US

3,472

(6)

- 

Europe

1,436

- 

2 

International

1,870

1 

5 

6,778

(3)

2 

Vaccines turnover in the year decreased 3% at AER, but grew 2% CER to £6,778 million, primarily driven by pandemic adjuvant sales, partially offset by lower demand for routine adult vaccination due to COVID-19 vaccination programme deployment and disease circulation across regions, resulting in lower Shingrix and Hepatitis vaccines sales. Unfavourable US prior period RAR adjustments reduced overall Vaccines growth by approximately 2 percentage points, particularly in Fluarix/Flulaval and Shingrix where the impact on product growth was a decrease of 7% and a decrease of 2% respectively.

Vaccines turnover excluding pandemic vaccines decreased 9% AER, 5% CER to £6,331 million.

Meningitis

Meningitis sales decreased 7% AER, 2% CER to £961 million driven primarily by unrepeated International tender volumes for other Meningitis vaccines. Bexsero sales were stable at AER, but grew 5% CER to £650 million, reflecting increased market share in the US.

Menveo sales were up 3% AER, 9% CER to £272 million, primarily driven by 2020 cohort catch-up vaccinations and 2021 higher demand, as well as increased market share in the US.

Influenza

Fluarix/FluLaval sales decreased 7% AER, 2% CER, to £679 million as a result of unfavourable prior period RAR movements in the US, partially offset by higher volume in the US and strong southern hemisphere demand in International.

Shingles

Shingrix decreased 13% AER, 9% CER to £1,721 million, primarily driven by lower demand in the US and International for routine adult vaccination due to COVID-19 vaccination programme deployment and disease circulation. In Europe, sales growth was driven by Germany and launches in the UK, Spain and Italy. Shingrix was sold in 17 countries, including 9 markets launched during 2021.

Established Vaccines

Hepatitis vaccines sales were down 20% AER, 16% CER to £460 million, adversely impacted by de-prioritisation of routine US adult vaccination, increased Hepatitis B vaccine competition and unfavourable CDC stockpile movements in the US, and by COVID-19 related travel restrictions in Europe and International.

Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) decreased 4% AER but grew 1% CER. Infanrix/Pediarix sales decreased 14% AER, 9% CER to £543 million, reflecting lower tender volume in Europe and International as well as a change in recommendation for the dosing schedule in Germany, partly offset by increased demand in the US. Boostrix sales grew 9% AER, 14% CER to £521 million, largely driven by demand recovery and tender volumes in International, as well as higher demand and share in the US.

Rotarix sales were down 3% AER but up 1% CER to £541 million, reflecting demand recovery in International.

Synflorix sales decreased by 11% AER, 8% CER to £357 million, primarily due to lower tender demand in Emerging markets.

MMRV vaccines sales were stable at AER but grew 4% CER to £260 million, largely driven by higher demand in International.

Pandemic Vaccines

Pandemic vaccines sales of £447 million included £444 million of pandemic adjuvant sales to the US and Canadian governments.

Consumer Healthcare turnover

2021

£m

Growth

£%

Growth

CER%

Oral health

2,732

(1)

5 

Pain relief

2,276

3 

7 

Vitamins, minerals and supplements

1,512

- 

4 

Respiratory health

1,133

(6)

(1)

Digestive health and other

1,803

(1)

4 

9,456

(1)

4 

Brands divested/under review

151

(71)

(69)

9,607

(4)

- 

US

3,179

(7)

(1)

Europe

2,468

(6)

(3)

International

3,960

(1)

4 

9,607

(4)

- 

Consumer Healthcare turnover in the year of £9,607 million decreased 4% AER and was stable at CER reflecting dilution from divestments given the completion of the portfolio rationalisation at the end of Q1 2021. On a two-year CAGR sales excluding brands divested under review grew 4% overall despite the adverse impact of the COVID-19 pandemic.

Sales excluding brands divested/under review decreased 1% AER but increased 4% CER reflecting the underlying strength of brands across the portfolio and categories and continuing growth in e-commerce. Overall, sales benefited from strong growth across all categories excluding Respiratory health which was negatively impacted in Q1 2021 by the historically low cold and flu season. The decrease in cold and flu sales resulted in an approximately 1% drag on full year growth.

International sales excluding brands divested/under review grew high single digit on a CER basis with double digit growth in emerging markets including India, China, the Middle East and Africa. Excluding brands divested/under review, US sales grew low single digits but European sales were stable on a CER basis. Both regions were particularly negatively impacted by the historically low cold and flu season during Q1 2021.

Oral health

Oral health sales decreased 1% AER, but grew 5% CER to £2,732 million. Sensodyne delivered high single digit growth reflecting underlying brand strength, continued innovation and strong growth across key markets including the US, China, India and Japan. Gum health also delivered broad based high single digit growth across key markets. Denture care grew low single digits driven partly by a return to growth in Q4 2021.

Pain relief

Pain relief sales increased 3% AER, 7% CER to £2,276 million. Panadol, which benefitted from seasonal demand in the last quarter, grew double digits. Voltaren grew mid-single digits, offsetting the expected short-term decrease in the second half of the year in the US after the introduction of private label competition earlier in 2021. Excedrin delivered growth of over 40% versus a prior year decrease reflecting supply improvements.

Vitamins, minerals and supplements

Vitamins, minerals and supplements sales were stable at AER but grew 4% CER to £1,512 million building on the significant (19% CER) growth in 2020. Centrum grew mid-teens percent driven by successful innovation, improved supply capacity in the US and continued consumer focus on health and wellness. Caltrate grew mid-single digits and Emergen-C decreased high-single digits reflecting a particularly challenging 2020 comparator due to unprecedented demand during the early stages of the pandemic.

Respiratory health

Respiratory health sales decreased 6% AER, 1% CER to £1,133 million. In Q4 2021, cold and flu sales rebounded strongly and were above 2019 levels in Europe and slightly below 2019 levels in the US. For the full year, cold and flu products were down mid-single digits as the H2 2021 rebound was insufficient to offset the considerable decrease in the first quarter of 2021 which resulted from historically low demand for cold and flu products, effectively halving the global market in the period. Allergy products grew mid-single digits.

Digestive health and other

Digestive health and other brands sales decreased 1% AER but grew 4% CER to £1,803 million. Digestive health brands were up high-single digits with particularly strong growth in Tums and Eno. Skin health and Smoker's health brands were up mid-single digits, offset partly by a decrease in small, non-strategic brands.

Operating performance

Cost of sales

Total cost of sales as a percentage of turnover was 34.0%, 0.3 percentage points lower at AER and 1.1 percentage points lower in CER terms compared with 2020. This primarily reflected lower write-downs in a number of manufacturing sites and the unwind in 2020 of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer.

Excluding these and other Adjusting items, Adjusted cost of sales as a percentage of turnover was 31.4%, 1.6 percentage points higher at AER and 0.8 percentage points higher at CER compared with 2020. This primarily reflected higher pandemic sales (Xevudy) as well as higher supply chain costs in Vaccines resulting from lower demand and higher inventory adjustments and higher commodity and freight costs in Consumer Healthcare, partly offset by price benefits in Pharmaceuticals, including the benefit from prior period RAR adjustments, a further contribution from restructuring savings across all three businesses and favourable mix in Vaccines.

Selling, general and administration

Total SG&A costs as a percentage of turnover were 32.2%, 1.4 percentage points lower at AER and 1.8 percentage points lower at CER compared with 2020. This included increased separation costs partly offset by lower restructuring charges.

Excluding Adjusting items, Adjusted SG&A costs as a percentage of turnover were 30.0%, 1.5 percentage points lower at AER than in 2020 and 1.8 percentage points lower on a CER basis. Adjusted SG&A costs decreased 5% AER, 1% CER which reflected the tight control of ongoing costs and reduced variable spending across all three businesses as a result of the COVID-19 lockdowns, and the continuing benefit of restructuring in Pharmaceuticals, Consumer Healthcare and support functions. The decrease also reflected a favourable legal settlement in 2021 compared to increased legal costs in 2020 as well as one-off benefits in pensions and insurance which were partly offset by the one-off benefit from restructuring of post-retirement benefits in 2020. This was partly offset by increased investment behind launches in HIV and Vaccines.

Research and development

Total R&D expenditure was £5,278 million (15.5% of turnover), up 4% AER, 7% CER, including an increase in impairments partly offset by a decrease in major restructuring charges. Adjusted R&D expenditure was £4,776 million (14.0% of turnover), 4% higher at AER, 8% higher at CER than in 2020.

Pharmaceuticals R&D expenditure was £3,578 million (20.2% of turnover), stable at AER, up 4% CER, primarily driven by increased investment in our Specialty portfolios, including the early stage research projects. Efficiency savings continued from the implementation of the One R&D programme for Pharmaceuticals and Vaccines as part of the Separation preparation restructuring programme.

The growth of the Specialty portfolio in 2021 was primarily driven by our two programmes for COVID-19 treatment (Xevudy and otilimab) along with the other otilimab programme for rheumatoid arthritis, bepirovirsen, our HBV antisense oligonucleotide and depemokimab, our anti-IL5 for asthma. This has been partly offset by reduced spend on daprodustat due to the completion of programmes. In Oncology, there is continued investment reflecting our commitment to synthetic lethality and in Blenrep, together with bintrafusp alfa, where we have accelerated close-out costs for the programme but this has been largely offset by a reduction in spend on feladilimab following the decision to terminate the programme in April.

R&D expenditure in Vaccines was £887 million (13.1% of turnover), up 29% AER, 34% CER, reflecting increased investment in clinical programmes for meningitis and RSV and investment in our mRNA platform, partly offset by efficiency savings from the implementation of the One Development programme and variable spending as a result of COVID-19 lockdowns. R&D expenditure in Consumer Healthcare was £249 million.

Royalty income

Royalty income was £419 million (2020: £318 million), up 32% AER, 32% CER, primarily driven by higher sales of Gardasil.

Other operating income/(expense)

Net other operating expenses of £476 million (2020: £1,624 million income) primarily reflected accounting charges of £1,101 million (2020: £1,234 million) arising from the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare. This included a re-measurement charge of £1,026 million (2020: £1,114 million) for the contingent consideration liability due to Shionogi, as a result of the unwinding of the discount for £380 million and a charge for £646 million primarily from adjustments to sales forecasts and the settlement with Gilead (see page 11). This was partly offset by a number of asset disposals including the disposal of royalty rights on cabozantinib, the disposal of the cephalosporin business and disposal of a number of Consumer Healthcare brands and fair value uplifts on investments. 2020 included the net profit on disposal of Horlicks and other Consumer Healthcare brands of £2,815 million, partly offset by the related loss on sale of the shares in Hindustan Unilever of £476 million.

Operating profit

Total operating profit was £6,201 million compared with £7,783 million in 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of Horlicks and other Consumer brands and resultant sale of shares in Hindustan Unilever. This was partly offset by lower major restructuring costs, lower re-measurement charges on the contingent consideration liabilities and the unwind in 2020 of the fair market value uplift on inventory arising on completion of the Consumer Healthcare Joint Venture with Pfizer.

Excluding these and other Adjusting items, Adjusted operating profit was £8,806 million, 1% lower than 2020 at AER, but 9% higher at CER on a turnover increase of 5% CER. The Adjusted operating margin of 25.8% was 0.3 percentage points lower at AER, 0.9 percentage points higher on a CER basis than in 2020.

The increase in Adjusted operating profit primarily reflected the benefit from incremental pandemic sales (Xevudy and adjuvant) contributing approximately 6% AER, 7% CER to Adjusted Operating profit growth. Adjusted Operating profit also benefited from sales growth in Pharmaceuticals including the benefit from prior period RAR adjustments and tight control of ongoing costs including reduced promotional and variable spending across all three businesses as a result of the COVID-19 lockdowns, favourable legal settlements compared to increased legal costs in 2020 and benefits from continued restructuring across the business. This was partly offset by lower sales in Vaccines, primarily Shingrix, higher supply chain costs in Vaccines and Consumer Healthcare, divestments in Consumer Healthcare and increased investment in R&D across Vaccines and Pharmaceuticals.

Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in 2021 amounted to £856 million (2020: £885 million). This included cash payments made to Shionogi of £826 million (2020: £858 million).

Adjusted operating profit by business

Pharmaceuticals operating profit was £4,681 million, up 12% AER, 24% CER on a turnover increase of 10% CER. The operating margin of 26.4% was 1.9 percentage points higher at AER than in 2020 and 3.3 percentage points higher on a CER basis. This primarily reflected price benefits in Pharmaceuticals, including the benefit from a prior period RAR adjustment, reduced supply chain costs, the tight control of ongoing costs, short term benefits to changes in ways of working, a favourable legal settlement in 2021 compared to increased legal costs in 2020 and the continuing benefit of restructuring. This was partly offset by support to launches in HIV and increased investment in R&D.

Vaccines operating profit was £2,256 million, down 17% AER, 11% CER on 2% turnover increase at CER. The operating margin of 33.3% was 5.6 percentage points lower at AER than in 2020 and 4.8 percentage points lower on a CER basis. This was primarily driven by higher supply chain costs resulting from higher inventory adjustments and lower demand, along with higher R&D spend to support key strategic priorities and increased SG&A investment to support business growth, partly offset by higher royalty income and pandemic adjuvant beneficial mix.

Consumer Healthcare operating profit was £2,239 million, up 1% AER, 9% CER on stable turnover at CER. The operating margin of 23.3% was 1.2 percentage points higher at AER and 2.0 percentage points higher on a CER basis than in 2020. This primarily reflected sales growth of continuing brands, price increases and favourable mix, synergy delivery from the Pfizer Joint Venture Integration and tight cost control, partially offset by the impact of divestments (1.2 percentage points), increased advertising and promotion investment, increased commodity and freight costs and investment in manufacturing sites.

Net finance costs

Total net finance costs were £756 million compared with £848 million in 2020. Adjusted net finance costs were £753 million compared with £844 million in 2020. The decrease is primarily as a result of reduced interest expense from lower debt levels, favourable movements in foreign exchange rates, a premium paid on the early repayment and refinancing of bond debt in 2020 and reduced interest on tax partly offset by lower interest income on overseas cash post-closing of the divestment of Horlicks and other Consumer Healthcare nutrition products in India and a number of other countries.

Share of after tax profits of associates and joint ventures

The share of after tax profits of associates and joint ventures was £33 million (2020: £33 million).

Loss on disposal of interests in associates

The net loss on disposal of interests in associates was £36 million, primarily driven by a loss on disposal of our interest in the associate Innoviva Inc.

Taxation

The charge of £346 million represented an effective tax rate on Total results of 6.4% (2020: 8.3%) and reflected the different tax effects of the various Adjusting items, including a credit of £397 million resulting from the revaluation of deferred tax assets following enactment of an increase in the headline rate of UK corporation tax (effective 1 April 2023). 2020 reflected the disposal of Horlicks and other Consumer brands and the subsequent disposal of shares received in Hindustan Unilever. Tax on Adjusted profit amounted to £1,415 million and represented an effective Adjusted tax rate of 17.5% (2020: 16.0%).

Issues related to taxation are described in Note 14, 'Taxation' in the Annual Report 2020. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.

Non-controlling interests

The allocation of Total earnings to non-controlling interests amounted to £711 million (2020: £639 million). The increase was primarily due to an increased allocation of Consumer Healthcare Joint Venture profits of £461 million (2020: £374 million) and an increased allocation of ViiV Healthcare profits of £197 million (2020: £223 million), including reduced credits for re-measurement of contingent consideration liabilities.

The allocation of Adjusted earnings to non-controlling interests amounted to £1,006 million (2020: £1,031 million). The reduction in allocation primarily reflected a reduced allocation of ViiV Healthcare profits of £438 million (2020: £474 million), partly offset by higher net profits in some of the Group's other entities with non-controlling interests. The allocation of Consumer Healthcare Joint Venture profits was £515 million (2020: £515 million).

Earnings per share

Total EPS was 87.6p compared with 115.5p in 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of Horlicks and other Consumer brands partly offset by the related loss on sale of the shares in Hindustan Unilever, partly offset by a credit of £397 million to Taxation in 2021 resulting from the revaluation of deferred tax assets following enactment of an increase in the headline rate of UK corporation tax (effective 1 April 2023), lower major restructuring costs and lower re-measurement charges on the contingent consideration liabilities.

Adjusted EPS was 113.2p compared with 115.9p in 2020, down 2% AER but up 9% CER, on a 9% CER increase in Adjusted operating profit primarily reflecting incremental pandemic sales, sales increases in Pharmaceuticals, tight cost control and favourable legal settlements and lower interest costs, partly offset by lower sales in Vaccines, primarily Shingrix, higher supply chain costs in Vaccines, increased R&D investment and a higher effective tax rate. The contribution to growth from COVID-19 solutions was approximately 8% AER, 9% CER.

Currency impact on 2021 results

The results for 2021 are based on average exchange rates, principally £1/$1.38, £1/€1.16 and £1/Yen 151. Comparative exchange rates are given on page 57. The period-end exchange rates were £1/$1.35, £1/€1.19 and £1/Yen 155.

In 2021, turnover remained stable at AER, but was up 5% CER. Total EPS was 87.6p compared with 115.5p in 2020. Adjusted EPS was 113.2p compared with 115.9p in 2020, down 2% AER but up 9% CER. The adverse currency impact primarily reflected the strengthening in Sterling, particularly against the US Dollar as well as the Japanese Yen and Euro. Exchange gains or losses on the settlement of intercompany transactions had a negligible impact on the negative currency impact of eleven percentage points on Adjusted EPS.

Adjusting items

The reconciliations between Total results and Adjusted results for 2021 and 2020 are set out below.

Year ended 31 December 2021

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Trans-

action-

related

£m

Divest-

ments,

significant

legal and

other items

£m

Separation

costs

£m

Adjusted

results

£m

------------

------------

------------

------------

------------

------------

------------

------------

Turnover

34,114 

34,114 

Cost of sales

(11,603)

701 

(33)

154 

28 

27 

(10,726)

------------

------------

------------

------------

------------

------------

------------

------------

Gross profit

22,511 

701 

(33)

154 

28 

27 

23,388 

Selling, general and

administration

(10,975)

426 

25 

17 

282 

(10,225)

Research and

development

(5,278)

101 

355 

46 

(4,776)

Royalty income

419 

419 

Other operating

income/(expense)

(476)

1,106 

(662)

32 

- 

------------

------------

------------

------------

------------

------------

------------

------------

Operating profit

6,201 

802 

322 

626 

1,159 

(618)

314 

8,806 

Net finance costs

(756)

2 

1 

(753)

Loss on disposal of interest in associates

(36)

36 

- 

Share of after tax profits

of associates and joint

ventures

33 

33 

------------

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

5,442 

802 

322 

628 

1,159 

(581)

314 

8,086 

Taxation

(346)

(159)

(81)

(114)

(196)

(470)

(49)

(1,415)

Tax rate %

6.4%

17.5%

------------

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

5,096 

643 

241 

514 

963 

(1,051)

265 

6,671 

------------

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

non-controlling interests

711 

295 

1,006 

Profit attributable to

shareholders

4,385 

643 

241 

514 

668 

(1,051)

265 

5,665 

------------

------------

------------

------------

------------

------------

------------

------------

Earnings per share

87.6p

12.9p

4.8p

10.3p

13.3p

(21.0)p

5.3p

113.2p

------------

------------

------------

------------

------------

------------

------------

------------

Weighted average

number of shares

(millions)

5,003 

5,003 

------------

------------

Year ended 31 December 2020

Total

results

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Trans-

action-

related

£m

Divest-

ments,

significant

legal and

other items

£m

Separation

costs

£m

Adjusted

results

£m

------------

------------

------------

------------

------------

------------

------------

------------

Turnover

34,099 

34,099 

Cost of sales

(11,704)

699 

31 

667 

116 

(10,191)

------------

------------

------------

------------

------------

------------

------------

------------

Gross profit

22,395 

699 

31 

667 

116 

23,908 

Selling, general and

administration

(11,456)

1 

18 

659 

(23)

16 

68 

(10,717)

Research and

development

(5,098)

75 

214 

206 

(4,603)

Royalty income

318 

318 

Other operating

income/(expense)

1,624 

1,215 

(2,839)

- 

------------

------------

------------

------------

------------

------------

------------

------------

Operating profit

7,783 

775 

263 

1,532 

1,308 

(2,823)

68 

8,906 

Net finance costs

(848)

2 

2 

(844)

Share of after tax profits

of associates and joint

ventures

33 

33 

------------

------------

------------

------------

------------

------------

------------

------------

Profit before taxation

6,968 

775 

263 

1,534 

1,308 

(2,821)

68 

8,095 

Taxation

(580)

(150)

(47)

(292)

(229)

17 

(14)

(1,295)

Tax rate %

8.3%

16.0%

------------

------------

------------

------------

------------

------------

------------

------------

Profit after taxation

6,388 

625 

216 

1,242 

1,079 

(2,804)

54 

6,800 

------------

------------

------------

------------

------------

------------

------------

------------

Profit attributable to

non-controlling interests

639 

392 

1,031 

Profit attributable to

shareholders

5,749 

625 

216 

1,242 

687 

(2,804)

54 

5,769 

------------

------------

------------

------------

------------

------------

------------

------------

Earnings per share

115.5p

12.6p

4.4p

25.0p

13.8p

(56.5)p

1.1p

115.9p

------------

------------

------------

------------

------------

------------

------------

------------

Weighted average

number of shares

(millions)

4,976 

4,976 

------------

------------

Major restructuring and integration

Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long lifecycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.

Total Major restructuring charges incurred in 2021 were £626 million (2020: £1,532 million), analysed as follows:

2021

2020

Cash

£m

Non-cash

£m

Total

£m

Cash

£m

Non-cash

£m

Total

£m

2018 major restructuring

programme (incl. Tesaro)

18

9 

27 

105

210

315

Consumer Healthcare Joint

Venture integration

programme

173

11 

184 

298

28

326

Separation Preparation

restructuring programme

371

59 

430 

625

216

841

Combined restructuring and

integration programme

8

(23)

(15)

39

11

50

570

56 

626 

1,067

465

1,532

Cash charges of £371 million under the Separation Preparation programme primarily arose from restructuring of some administrative and central manufacturing functions as well as commercial pharmaceuticals and R&D functions. The non-cash charges of £59 million primarily reflected write-down of assets in administrative locations and R&D sites.

Cash charges of £173 million on the Consumer Healthcare Joint Venture programme primarily related to severance and integration costs. The non-cash credit in the Combined restructuring and integration programme primarily reflected a write back on disposal of a site.

Total cash payments made in 2021 were £753 million (2020: £737 million), £434 million (2020: £152 million) relating to the Separation Preparation restructuring programme, a further £176 million (2020: £291 million) relating to the Consumer Healthcare Joint Venture integration programme, £95 million (2020: £179 million) under the 2018 major restructuring programme including the settlement of certain charges accrued in previous quarters and £48 million (2020: £115 million) for the existing Combined restructuring and integration programme.

2021

£m

2020

£m

Pharmaceuticals

233 

671

Vaccines

(40)

214

Consumer Healthcare

196 

374

389 

1,259

Corporate & central functions

237 

273

Total Major restructuring costs

626 

1,532

The analysis of Major restructuring charges by Income statement line was as follows:

2021

£m

2020

£m

Cost of sales

154

667

Selling, general and administration

426

659

Research and development

46

206

Other operating income/(expense)

-

-

Total Major restructuring costs

626

1,532

The benefit in the year from restructuring programmes was £0.7 billion, the benefit from the Separation Preparation restructuring programme was £0.3 billion, the benefit from the Consumer Healthcare Joint Venture integration was £0.2 billion and the benefit from the 2018 Restructuring programme was £0.2 billion.

The 2018 major restructuring programme, including Tesaro, has cost £1.5 billion to the end of 2021, with cash costs of £0.6 billion and non-cash costs of £0.9 billion, and has delivered annual savings of around £0.5 billion by the end of 2021 (at 2019 rates). These savings were fully re-invested to help fund targeted increases in R&D and commercial support of new products. The programme is substantially complete and therefore GSK will cease external reporting of total costs and benefits of the 2018 major restructuring programme from 2022 onwards.

The completion of the Consumer Healthcare Joint Venture with Pfizer has realised substantial cost synergies and has largely delivered the expected total annual cost savings of £0.5 billion by 2021. The cash costs are expected to be £0.7 billion and non-cash charges expected to be £0.1 billion, plus additional capital expenditure of £0.2 billion. Up to 25% of the cost savings are intended to be reinvested in the business to support innovation and other growth opportunities.

The Group initiated in Q1 2020 a two-year Separation Preparation programme to prepare for the separation of GSK into two companies: new GSK, a biopharma company with an R&D approach focused on science related to the immune system, the use of genetics and new technologies, and a new leader in Consumer Healthcare. The programme aims to:

·

Drive a common approach to R&D with improved capital allocation

·

Align and improve the capabilities and efficiency of global support functions to support new GSK

·

Further optimise the supply chain and product portfolio, including the divestment of non-core assets. A strategic review of prescription dermatology is underway

·

Prepare Consumer Healthcare to operate as a standalone company

The programme continues to target delivery of £0.8 billion of annual savings by 2022 and £1.0 billion by 2023, with total costs estimated at £2.4 billion, of which £1.6 billion is expected to be cash costs. The proceeds of divestments have largely covered the cash costs of the programme.

Transaction-related adjustments

Transaction-related adjustments resulted in a net charge of £1,159 million (2020: £1,308 million). This included a net £1,101 million accounting charge for the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.

Charge/(credit)

2021

£m

2020

£m

Contingent consideration on former Shionogi-ViiV Healthcare joint venture

(including Shionogi preferential dividends)

1,026 

1,114 

ViiV Healthcare put options and Pfizer preferential dividends

48 

(52)

Contingent consideration on former Novartis Vaccines business

27 

172 

Release of fair value uplift on acquired Pfizer inventory

- 

91 

Other adjustments

58 

(17)

Total transaction-related charges

1,159 

1,308 

The £1,026 million charge relating to the contingent consideration for the former Shionogi-ViiV Healthcare joint venture represented an increase in the valuation of the contingent consideration due to Shionogi, as a result of the unwind of the discount for £380 million and a charge of £646 million primarily from adjustments to sales forecasts and the settlement with Gilead as well as updated exchange rate assumptions. The £48 million charge relating to the ViiV Healthcare put option and Pfizer preferential dividends represented an increase in the valuation of the put option as a result of the settlement with Gilead, offset by lower cash and updated exchange rate assumptions.

The ViiV Healthcare contingent consideration liability is fair valued under IFRS. The potential impact of the COVID-19 pandemic remains uncertain and at 31 December 2021, it has been assumed that there will be no significant impact on the long-term value of the liability. This position remains under review and the amount of the liability will be updated in future quarters as further information on the impact of the pandemic becomes available. An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 11.

Divestments, significant legal charges and other items

Divestments and other items also included gains from a number of asset disposals, including the disposal of royalty rights on cabozantinib, disposal of the cephalosporins business and disposal of a number of Consumer Healthcare brands, fair value gains on investments and certain other Adjusting items, including the impact of the enactment of the increase in the headline rate of UK Corporate tax as discussed on page 11. The Consumer Healthcare brands disposal programme is complete and has delivered net proceeds of £1.1 billion. In 2021 the net loss on disposal of interests in associates was £36 million, primarily driven by a loss on disposal of the interest in the associate Innoviva Inc. A charge of £26 million (2020: £7 million) was recorded for significant legal matters arising in the period. Significant legal cash payments were £5 million (2020: £9 million). Included within Divestments, significant legal and other items, is a deferred tax credit of £157 million arising on the transfer of intellectual property within the group during the quarter. This deferred tax credit arises due to differences between group value and the market value of the assets transferred.

Separation costs

From Q2 2020, the Group started to report additional costs to prepare for establishment of the Consumer Healthcare business as an independent entity ("Separation costs"). Total Separation costs incurred in 2021 were £314 million (2020: £68 million). This includes £38 million relating to transaction costs including preparatory admission costs (costs relating to achieve a listing).

Total separation costs are estimated to be £600-700 million, excluding transaction costs.

Financial performance - Q4 2021

Total results

The Total results for the Group are set out below.

Q4 2021

£m

Q4 2020

£m

Growth

£%

Growth

CER%

Turnover

9,527 

8,739 

9 

13

Cost of sales

(3,680)

(3,171)

16 

19

Gross profit

5,847 

5,568 

5 

10

Selling, general and administration

(3,260)

(3,162)

3 

6

Research and development

(1,448)

(1,470)

(2)

1

Royalty income

135 

91 

48 

46

Other operating (expenses)/income

(379)

34 

Operating profit

895 

1,061 

(16)

1

Finance income

4 

5 

Finance expense

(191)

(239)

Share of after tax losses of

associates and joint ventures

(2)

(6)

Profit before taxation

706 

821 

(14)