GSK plc (GSK) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the GSK Analyst and Investor Fourth Quarter For 2015. Your host for the GSK quarterly results call is, Sir Andrew Witty. [Operator Instructions]. I would like to advise all parties, this call is being recorded. I'd like to hand over to Sir Andrew. Please, go ahead.

Great. Thank you very much. Welcome everybody to this Q4 2015 full-year update. In just a second or two, I will just take you through some of the slides which are on the my GSK.com website, under the investor side. So I'll just give you a second to pull them up if you want to and then Simon will follow-up after me. So we've announced today our Q4 results. You will see that Group sales are up 6% at CER on a reported basis and 1% up CER on a pro forma basis, obviously the difference being the impact of the transaction with Novartis. What you'll also see is at the CER EPS level earnings per share were down 15%, obviously, that driven by the diluted effect of the transaction but importantly ahead of the guidance that we sent back in May of last year. If now, we go to the slide deck, maybe if I direct you to the first data slide, slide 3. Really during the year, we continued to make, I think, very substantial progress in executing our strategy. There is still a lot to do, but I'm delighted with the progress we've made in 2015 and really building our three growth businesses. You can see the balance that we've created as a Company. Importantly, significant progression of our next generation of pipeline assets that we talked about in the New York meeting and since then, I'd say broadly speaking everything has gone pretty well on the pipeline. Then importantly, as you can see in the middle probably most critically for the short to medium run of the Company, very significant continued strong performance of new product sales in the pharma and vaccine business. If I take you then to slide 4, the left-hand side of this slide, you can see in terms of the proportion of pharmaceuticals of our pharmaceutical business made up of new products. Those are the ones we've launched just in the last two or three years. You can see that from Q3 to Q4 we continue to increase the penetration of our overall business, 16.5% of pharma now made up of those new products. Certainly, when we look at our peer group, the companies that look like GSK - we don't see any other company with anything like that kind of new product sales performance in the pharma business. We think this as an important step forward. On the right-hand side of the slide you can see how the growth of the new products has progressed over the last three years. To some degree, you can see why in 2013 people were frustrated with GSK, because the new products weren't moving as quickly as we would have liked. I think as it's turned out and we look at other competitor companies, I think, we're seeing other companies struggle particularly in the primary care marketplace to get early traction on new products. But back in 2013, we were probably at the leading edge of discovering that new reality particularly in America. But as you look through 2014 and 2015, in particular, you see really very substantial progression of our new products. As you see, we're GBP682 million in the last quarter. We're GBP2 billion delivered for the full year. Obviously, if you annualize the Q4 rate, we're very - we're running up now an annualized rate of close to GBP3 billion. That's why we feel confident that we're going to be able to bring forward the time in which we hit our target, that we laid out in May of GBP6 billion. So rather than hitting that number in 2020, we think we now could hit that number up to two years earlier, maybe as early as 2018. Of course, in addition to the products which are in the run rate, we've also got Shingrix to come which we expect to file later this year 2016. So I'm very, very pleased with new product performance. A big piece of that of course is the building of access in key markets. The globalization of access but also the commercial energy we've put behind these businesses. Now, I also understand that over the last two years, as we've made leadership changes in the way in which we compete in the marketplace, where we've moved ahead of the industry on a number of dimensions - not everybody has believed that's been the right thing to do. I think the proof is in the pudding. I think the proof is evident in terms of our industry-leading penetration of new product sales and just the absolute quantum of new products now are being delivered across a broad base of assets. If we go to slide 5, I just want to pick out a few qualitative and quantitative dimensions of what we've changed. First of all, throughout the entire 2015 financial year, our global sales force was on the new incentive system. So all of the sales growth that you see on the previous slide for new products was driven by sales forces on our new incentive system, a completely new world. You can see that, if anything, we accelerated in that new world not decelerate. We have also stopped as of January 1 of 2016 all payments to healthcare practitioners to speak on our behalf. You should know that by the middle of 2015 about half of the world had already stopped. So again a lot of that behavior is in the run rate. Our development of new approach is to communicate, both through digital technologies and also through the hiring of medical professionals on to staff at GSK as being achieved a very industrial level. Actually the qualitative feedback from customers across the world including in the United States is that GSK speaker is just as likely to be impressive as a non-GSK speaker. We see no dilution and quality and in some cases enhancement of impact. So from that point of view, the new model is deployed. We don't see any deleterious effect in our biggest markets with the most employment, so for example, in the U.S., where we've had changes in field force compensation for the longest period of time. Our most recent survey of personnel demonstrates an extraordinary level of energy, commitment and understanding of the strategy of the business. I'd say the moral of our U.S. sales force has not been as high as we see it now for many, many years. Possibly even going as far back as before the creation of GSK. That's all great news. It's all supportive of the progress of our new products. The central part of side 5, gives you a few data points, you can see the very large numbers of interactions. I'll just draw your attention to two key themes. One is just the number of interactions. There's a small typo on the second part, it should say there between 4,000 and 7,000 HCPs, not 5,000 to 10,000. But nonetheless, very large numbers of interactions. Even more important is the dwell time that we're achieving. So typically in these interactions, we're achieving contact time with physicians, Q&A time with physicians, far in excess of what we would have historically seen in the old model. We're also seeing very high satisfaction scores from our customers. On the right-hand side, again, now just looking for example at the consumer business, we're seeing awards coming from very major customers such as CVS in terms of Healthcare Vendor of the Year. We know the Flonase launch was highly respected by our U.S. customer base. A very substantial number of new products launched. Importantly, we delivered 100% on-time launch for all of our new products in all markets across the world that we scheduled for the year. It's worth noting that we launched five times more market introductions in 2015 than we did in 2014. So a market introduction would be, for example, Breo in Brazil would count as one market introduction. We did that five times more frequently in 2015 that 2014. We hit every single one on time. As far as consumer, just to give you a sense, as you all know, in 2014, we had some supply disruptions in consumer, both on the Novartis legacy and the GSK legacy side of the business. As we left 2015, we were running at a 96% OTIF score. For those of you who are not familiar with OTIF, on-time in-full, what on-time in-full means is absolute perfection on delivery. So if we promised you 300 packs on February 3 and we delivered anything different than that - so for example, if we delivered you 301 packs on February 3 or 299, the score would be zero. So, we're achieving a 96% OTIF, so that's a very high score. We're very pleased with the progress there, all of which has helped very much in terms of the disciplined execution of the Company. Let's go to the next slide, it just gives you a little bit of an update on where we're with Breo in terms of NRx and TRx share. We've just received this morning the latest NBRx share, not on this slide, but I can tell you, we had another significant jump in NBRx this morning. Importantly, this market continues to grow robustly around 5% or 6% in 2015. We're seeing something around 5% as a kind of continuing growth rate. So we've got good market growth. We're taking good share. What we're seeing is a very good stabilization and even growth from where we were a year ago in terms of the Advair plus Breo share, obviously, that's crucial in terms of the business. In terms of absolute volumes, we're now up to more than 35,000 prescriptions a week. As you can see from the slide, we've got a good access position locked in for this year. If we go to slide 7, you will see the similar type of data for Anoro and Incruse, again, you see very strong TRx/NRx share. Good market growth continued in this market. I've included NBRx here. I know not everybody on the call is a fan of NBRx, but it is a very clear leading indicator of the respiratory market. You can see here extraordinary NBRx share. You can also start to see how the TRx and NRx are now beginning to track just behind the NBRx shares. As of this morning, we had another very significant jump on the Anoro/Incruse combined NBRx numbers. We're now basically just under 30% NBRx share. That would lead you to expect, all else equal, that the NRx/TRx shares would get there over the next few months. Again, good formulary access position; we feel like we've got very good strong momentum in this particular business. Nucala, on page 8, was introduced into the U.S. just in the final few days of last financial year and just begun to be rolled out this week in Europe. We've just launched in Germany this week, for example. Initial feedback on Nucala is extremely encouraging. It takes, like for all of these new biological products, is a period of maybe three to four weeks of time through which people have to go through the various qualifying blood test, for example and then insurance qualification. But most of those inquiries are coming through our hub - specialized hub which we've built on the back of what we learned with Benlysta. We're seeing very, very strong engagement from patients. We're seeing very strong engagement from customers. I think we're - we feel as if we're off to a very good start; albeit, of course, in 2015, very limited sales numbers given. It was literally just a stock loading before the end of the year. So, progress here looks good. The feedback from the marketplace, very resonant with the label of the product, very - it's very clear, the indication of the product is in the right place. So we look good for Nucala, on top of Anoro, Breo, Incruse. We continue to be extremely positive about our short, medium and long-run respiratory growth opportunities. If we move to slide 9, HIV, a very strong positive performance for the Company during the year. You see here the - right now, dolutegravir combinations is really vying for being one of the best ever HIV launches. Obviously, we've just seen Gilead introduce a new product. But as you have heard from Gilead and we certainly would agree with it, the absolutely overwhelming majority of any switching that's going on is within the Gilead portfolio. We're continuing to see very good volume growth from the dolutegravir-based regimens. If we go to slide 10, simply to remind you of the progress that we've made on the meningitis portfolio. I think, if ever there was a good example of who is the right owner of an asset, I think us acquiring a vaccine asset like meningitis B has been very powerful. We've very quickly been able to open up a national public health tender programs and also private markets. You can see the growth that we're delivering there. Of course, we'd expect to see that expand. Then on the right-hand side of the slide, just to remind you of the Shingrix data. Again, we feel very excited about this vaccine. We're assembling the registration dossiers for filing later in the year. We see this as a major opportunity. I would just take the point, that we've used the transaction with Novartis to make some very fundamental long-term investments in the business for vaccines, particularly around R&D. So instead of R&D being just located in Belgium as it has been historically, we're maintaining the bacterial vaccine research team in Siena in Italy which came from of course Novartis. We're commissioning a new research team in the U.S. in Rockville, Maryland, obviously very close to FDA and NIH and BARDA. This will focus on vaccines particularly for the U.S. marketplace and also for bio preparedness which is a proposal which right now has sat in front of a number of governments. We think that's going to be a very, very competitive long-term research network. We've been investing over the last couple of years and continuing this year and next year in proactive upgrades of our manufacturing network. That has allowed us to be able to respond much more quickly to the flu opportunity in 2014, but it also gives us confidence for long-term supply capability. Again, it's in what has always a tightening regulatory environment. If we go to slide 11, for consumer, as you've seen from the release, we delivered 6% net sales pro forma growth. 14% of that comes from new products. So again, we're keeping a very close eye on innovation, of course, Flonase is an important part of that. We've gained share in the majority of our categories in which we compete. We feel very good about the performance of this business. I'll give you a little more detail on that on the next slide. In terms of integration we're on or ahead of track. Actually in terms of integration, I would say that's true for all of the key businesses. So the transfer to Novartis of the ontology business is more or less done. The vaccine integration on track. The consumer business integration on track, if not a little bit ahead. A very substantial proportion of appointments done and finished; I'd say well into the 90% plus territory. Site consolidations behind us. We start to see some very good movement in the margin. Obviously, that's something we're very focused on. We've laid out a goal to really take our margin up to at least to 20% over the next five years. At CER, we made some good progress, 180 bps in 2015. Some of that knocked back by currency. But actually if you look in Q4, we were up, I think, 320 bps. So it's a very, very good real-world movement in terms of margin progression, well on the way to the goal that we set ourselves in 2020. Work to do, but definitely on the way. On the next slide, that's page 12, it gives you a little bit more detail on the consumer business. If you just look across the top, you'll see where the business is split by a major category. Obviously, there are a lot of consumer companies in the world which aren't as big as even just our wellness division. This is a very, very big business now. It's very substantial in all of its key divisions - sorry, categories. Then, across the bottom, I've listed out seven major brands. For your information, these seven brands account for about 40% of the consumer revenue of the Group. So these brands really are the majority. I've just listed out for you there, the in-market Nielsen consumption data. So this shows you what the growth rates are for these products in the marketplace. It's not our reported sales, but it gives you a sense of competitiveness. I'm sure those of you who are consumer watchers will be very familiar with this sort of data from consumer peers. Importantly, when you look across there, you see with all of the products significant growth. I'll just call out maybe, Sensodyne. In the middle - just over to - sort of slight of right of center. Sensodyne, 10% growth in consumption. Tracking now towards being a GBP1 billion brand globally. Interestingly enough, if you look at Japan, for example, it's the number one selling toothpaste of all toothpastes, including the more everyday commodity type toothpaste class. But we're now the number one toothpaste in Japan. Over the last 12 weeks, we have been the fastest-growing toothpaste in the world of all toothpastes. If you look then, just one further to the right on India, in a very challenging world, a very difficult world for emerging markets, I've just come back from India over the weekend. If there's one country you want to be in this year in the emerging markets, it's India. When you look at the size of our consumer business and our pharmaceutical business - consumer business really led by our Horlicks business. You can see great growth potential there as well. So the consumer business looks very good. We feel like we've got very strong traction around our key bands. We feel very good about the framework of expectations we've laid out, both for its ability to grow the top line and expand margin over the next few years. We've got more integration work to do and to really drive out the margin benefits over this year and next year in particular. But I think we're off to a very, very good start. Morale in that organization is excellent. We feel pretty good about it. If we move now to slide 13, it just recaps a little bit what you heard from the team, inclusive of course of Patrick and Moncef at R&D Day last November. These are our focus areas, so we've essentially got our R&D focused on the six areas we're making progress on the pipeline that we described to you. We think 80% of what we have coming is going to be first-in-class because we're focused on where we believe the science is innovative. We've just updated our rate of return calculation and believe that it is still at around the 13% level. If you want to get into more detail of that, we're more than happy to but we feel pretty confident about that. Next slide 14, really just again summarizes some of the statistics around our pipeline. As you know, over the last several years, we've had a very significant number of products approved by FDA, the highest level in the industry. I'm very proud of the fact that they've all been approved first-pass approval which a very strong signal of quality of research and regulatory dossier compilation. We have a very good now, strong sales contribution from that portfolio. We've got a very significant number of assets coming through behind. We talked to you about 40 of them or so at the R&D Day in November. 80% have the potential to be first-in-class. You can see on the right-hand side of slide 14, the kind of flow of milestones which we're expecting as we go through this year. Products like Shingrix, among that sirukumab in RA, the more advanced stages. The PI3K-delta program, I think, is a very interesting program. A bit further back, the RIP kinase program is an extraordinary program that moves into advanced development over the next year or two. We'll start to see real clinical data in psoriasis probably as early as the end of this year. So, whether you're in the more advanced phase, middle or earlier phases, I think we've got some very interesting assets coming through. If we go then to slide 15, this just really summarizes at a very high level, the framework that we're working toward. We've obviously given you a framework of expectations through 2020. I'm very happy that 2015 has delivered ahead of our expectations within that framework. I'm very happy that we're able to confirm to you that we expect to exceed our new product sales contribution. What we've built and what we will continue to develop is a three-growth business organization. We actually think in the world that we're now moving into, this is more right than it's ever been in terms of the appropriateness of the various challenges that exist in the world, particularly in areas like the U.S., where there is risk around pricing over the next three to five years. We've got a very balanced geographic exposure for the organization. We're focused 100% on finishing the execution of the transaction, driving our new product momentum and bringing more new products to market in all of our divisions, but of course, the pharma vaccine division in particular. We believe, despite much commentary, that we have really established some significant leadership positions in terms of our new commercial model. They are now beginning to clearly deliver differentiated position floors in the marketplace and helping to drive new products at an industry-leading rate. Of course, we want to continue to deliver the next wave of pipeline. With that, I will hand over to Simon to update you more fully on some of the numbers and to confirm for you our various guidance points which essentially haven't really changed from when we talk to you back in May as far as 2016 is concerned which is of course to deliver an EPS growth rate which we expect to reach double-digits at CER. Simon?

Thanks Andrew. I've got a few slides to help illustrate the points I'm going to make on some of the detail around the results which hopefully should come up directly behind Andrew's slides. But before we get into those, 2015 has clearly been a year of significant transformation for the Group. I'm very pleased with the progress we've made in implementing our strategy, as well as in the improved execution which has allowed us to report results today ahead of the financial guidance we gave you back in May. The most significant contributions to this performance included closing the Novartis transaction, keeping the extensive and complex integration program firmly on track and accelerating the restructuring program within our pharmaceutical business which has created additional flexibility for us to invest both behind our R&D pipeline and also our new products in HIV and respiratory. These investments are now building better momentum behind our new products, momentum that also sets us up well to return to core earnings growth in 2016. As we outlined in May, the Group in its new shape is in a much better position to drive sustainable growth. Given the significant restructuring and reshaping of our cost base, we're also now much better placed to deliver against our financial architecture and drive earnings ahead of sales while continuing to support the dividend expectations we've laid out. Our earnings release provides an extensive amount of detail about the results for both the fourth quarter and the year. So my comments today will primarily focus on the major points of those, as well as our expectations for 2016 and any comparative points you might want to take note of for your modeling. So if you turn to the first of my slides, headline results, you will see our headline results set out, group sales up 6% on a reported basis; 1% pro forma. The Group's core EPS declined 15% mainly reflecting the short-term dilution of the Novartis transaction but also the impact of the continued transition of our pharmaceuticals business particularly in respiratory. You can also see currency swings during the year resulted in a drag of 2% on sales and 6% on core EPS. Much of the difference relates to the particular volatility in pressure that we saw in the emerging markets last year. Total EPS saw a significant increase to 174.3p, primarily driven by the profits on the disposal of our oncology business. But I'll come back to these changes in a minute. The Board has approved an ordinary dividend of 80p for the year as expected. We've also now approved the special 20p dividend to be paid from the proceeds of the oncology disposal. This will be distributed in April alongside the regular fourth quarter dividend. Turning to the results reconciliations, the Group's total results are heavily impacted by a number of significant movements which relate primarily to the Novartis transaction, but also to the associated integration program and the ongoing restructuring of our pharmaceuticals business. The biggest impact is from the gain shown in the disposals column from the divestment of our oncology marketed products. A number of other disposal gains included ofatumumab and the Aspen shares we sold early in 2015 also appear here. The two other more particularly significant movements are the charges for major restructuring. Those related to the acquisition elements of the Novartis transaction and the ViiV transaction with Shionogi. Major restructuring captures the total charges booked in the year for pharma restructuring and the Novartis program. As we stated back in May, we've accelerated both of these programs in 2015, so charges of around GBP1.9 billion in total. Although the actual cash spend during the year was somewhat lower at GBP1.1 billion. In the acquisition-related column, we show the combined adjustments to the value of the consumer put from Novartis and to the various contingent consideration liabilities we carry related to the acquisition of the Novartis vaccines business and the acquisition back in 2012 of Shionogi's rights to a share of dolutegravir containing products. Given the strong performance of the HIV business this year, we put through a charge of GBP1.9 billion in this column to reflect our estimates of the increase in the total consideration that we would pay to Shionogi over the life of these products, out into the 2020s, assuming they deliver in line with our current estimates. You'll find additional detail on the ViiV arrangements in today's press release which hopefully will further clarify for you how these agreements work. Given the increasing importance to us of ViiV and our decision not to IPO the HIV business, we've also now decided that we want to bring the liability for the put writes that Shionogi and Pfizer have onto our balance sheet. For us to be able to do this under IFRS, we had to change the terms of the puts which we've now done. So you should expect to see a liability of around GBP2 billion booked in Q1. There is no charge to the P&L as it will be recognized directly in equity. Turning to our core results on the next slide, for sales growth the two bridges reconciled, 2014 reported and pro forma sales to our actual 2015 sales which were GBP23.9 billion. The bridge on the left shows the sources of the 6% CER growth. Obviously this is heavily-influenced by the change in the mix of the Group following the Novartis transaction. The bridge on the right shows the analysis that 1% pro forma growth. It's the better like-for-like comparison. On a pro forma basis, within pharmaceuticals, the main headwinds were Seretide/Advair, down 13% and our established products down 15%. We also began to encounter generic competition to Avodart in the U.S. at the beginning of the fourth quarter. Importantly though, 2015 saw these headwinds almost fully offset by the stronger growth of our new pharmaceutical products, especially from HIV products, Tivicay and Triumeq which have continued to increase market share during the year, as well as the improved uptake of our Ellipta respiratory portfolio. In the U.S., pharma sales excluding HIV were down 12% pro forma, driven by respiratory down 10%, the tale of Lovaza down 64% and Avodart down 41%. On the positive side, the new Ellipta portfolio more than doubled sales to GBP177 million for the year. Benlysta also continued to grow steadily with full-year sales just over GBP200 million, up 24%. U.S. Advair sales were up 2% in the fourth quarter, due to a number of favorable price adjustments related to payer discounts and rebates that benefited the quarter. The net impact of these adjustments in the quarter across the broader respiratory portfolio in the U.S. was neutral once you factor in similar but negative adjustments for Flovent and Ventolin. Going forward based on the underlying trends over the past year or so, I continue to believe that a 20% decline for Advair is a reasonable expectation for 2016 for your models factoring in continued price and competitive pressures in the marketplace. But also the impact of the transition in our new products. In Europe, pharmaceutical sales declined 7% pro forma. The main headwind was Seretide down 18% reflecting the impact of generic competition which intensified during the second half particularly in the UK. Based on current trends, I expect Seretide in Europe will continue to move down this year, 2016, at rates more in line with the second half of 2015, high again, around 20%. However, we also expected a growing contribution from the new products in 2016, including the benefit of several additional market roll-outs for Anoro and Incruse still to come. Within international sales and emerging markets, we're down 5% in large part due to the continued impact on our China business of the reshaping of that business and significantly greater pressure within the marketplace. Capacity constraints also impacted a number of products more broadly across the emerging market space. Economic conditions also remained challenging but we remain very focused on executing against these. In Japan, sales were down 1% pro forma, respiratory grew 5% as new product growth more than offset lower Adoair sales which were down 13%. Growth from respiratory was offset by some lower sales of Relenza, down 70%, due to weak flu season but particularly reduced stockpile orders. The biannual price cuts in Japan will occur this April and are expected to be in the 5% to 7% range. This will negatively impact the year but will particularly fall in Q1. Looking out for 2016 as a whole, we expect total pharmaceuticals to return to growth with contributions from new products more than offsetting the continued declines in Seretide/Advair, the established products and Avodart. You should watch out for a couple of additional drag factors in Europe. As part of the overall simplification of the business, we're in the process of divesting a distributor in Romania which had annual sales around GBP150 million. This will complete, we expect, by the end of Q2. Now remember as we've previously announced, we've disposed the remaining rights to Prolia which were mainly in the international region and had sales of GBP43 million in 2015. This was acquired by Amgem in December. Moving to vaccines, the business grew 19% on a reported basis, 3% pro forma, strong growth contributions across the portfolio including Rotarix, Boostrix and our U.S. flu vaccines which are helped by investments that we made previously, giving us the opportunity for earlier delivery of supply this year and a transition of that supply for the U.S. to 100% quadrivalent. We're very pleased also with the progress we're making in accelerating the meningitis portfolio. With reimbursement now in place in the U.S., as well as a number of material European markets including the UK where Bexsero has been included in the UK national immunization program. We're ramping up Bexsero capacity to meet this acceleration of demand and expect a progressive improvement in supply as we move through the year. But we will see some impact on Bexsero growth due to supply constraints in the first half especially in the first quarter. These overall growth contributions were partly offset in international by the impact of higher trade inventories from the brands we acquired, as well as previously identified supply constraints around the hepatitis portfolio and Infanrix sales. The economic slowdown that we've talked about was also felt in this portfolio with demand weaker with a number of governments cutting back funding for immunization programs. This is not expected to improve in the near term. For 2016 as a whole, we're growing contributions from the meningitis vaccines. We remain confident in achieving the mid-single-digit pro forma growth that we outlined back in May. In the medium term, we also continue to expect to move the growth of the vaccines from mid- single-digits to mid to high single-digits as we expand supply and deliver the Shingrix launch. On consumer, sales up 44%, 6% on a pro forma basis with the business benefiting from a very strong Flonase OTC launch in the U.S., a big factor in Q1 but provided strong momentum to the U.S. business throughout the year. Oral care sales were also strong with Sensodyne delivering another year of double-digit growth across all three regions and Horlicks in India had another good year up 8%. While the U.S. had a particularly good year, Europe and international both saw sales growth negatively impacted by the burn down of inherited inventories Together with a weaker flu season in Europe and a weakening economic environment in international. While this is not improved inventories are now aligned and integration is progressing as well setting us up for 2016. Overall for the current year, we continue to expect pro forma growth for the consumer business to be in the mid-single-digit range. Remember though that Q1 is likely to be impacted in growth terms because of the strong and difficult comparator with the Flonase performance in Q1 last year. Lastly, from a modeling point of view, remember that in the corporate line, we had some consumer and vaccines brands that we needed to dispose of as part of the clearances for the Novartis transaction. They delivered and reported sales of GBP72 million that were divested in Q3 2015. Moving to the next slide on core operating profit, excluding currency, the core operating margin on a reported and CER basis declined 410 basis points to 23.9%, 300 bps of this decline relates to the change mix of the Group from the Novartis transaction and the inherited higher cost structures in vaccines and consumer. Excluding the impact of the transaction and the GBP219 million structural credit we took in 2014, the pro forma core operating margin was broadly flat, with pro forma operating profit up 1% in-line with sales. Pro forma cost of goods increased 4 percentage points more than sales due primarily to the net impact of Advair's price movements on Advair and the established products portfolio, as well as the investments Andrew referred to improve vaccine supplies. The contribution to cost of goods from restructuring and integration benefits offsetting these pressures were relatively limited in 2015 given that this is the area where it takes longest to reshape the business given the complexity of some of the regulated supply chains. But the plans are well advanced, particularly in consumer where we saw the greatest cost of goods impact in the year. Pro forma SG&A, excluding the structural credit of GBP219 million from 2014, was up slightly with about GBP0.5 billion of saving from restructuring and integration contributing materially to offsetting pricing pressures in the older parts of the portfolio. But also adding to the cost flexibility we've been building in recent years. This has given us greater opportunities to reallocate resources behind the new products and launches across the Group. Pharmaceuticals delivered the largest savings in SG&A in 2015, but also saw the greatest price pressure in the short-term which is why we see the pro forma operating margin for total pharma down just over 1% and pro forma operating down 4%. Without the same price pressures, the savings in vaccines drove the pro forma operating margin up nearly 1% and operating profit up 7% on a sales increase of 3%. Consumers saw similar leverage with the operating margin up nearly 2% pro forma despite significant investments behind the Flonase an oral care launches. If you turn to the next slide which summarizes where we're on the integration and restructuring program. Cumulatively, we've delivered GBP1.6 billion of annual savings with GBP1 billion of incremental savings delivered in the year. The restructuring programs are ahead of schedule and this has enabled us to bring forward additional savings it's about 2015 and 2016. We expect another GBP1.4 billion of annual savings by the end of 2017 when the programs are expected to be completed with GBP800 million of that falling into 2016. Turning to the bottom half of the P&L, on the next slide, our core finance expenses of GBP636 million were GBP10 million lower than 2014. While we continue to focus on financial efficiency, I am expecting finance costs to be a little bit higher 2016 as net debt increases from using some of the cash we're holding from the transaction to fund the restructurings programs, continue to upgrade capacity but in particular to fund the return of the GBP1 billion special dividend from the transaction proceeds. The tax rate for 2015 came in at just under 20% in-line with last year. I'm expecting some upward pressure now given the Groups momentum and change in the mix in favor of the U.S.. So for 2016, you should plan on a tax rate in the 20% to 21% range. Lastly, 2016 will also likely see another step-up in the minority interest due to the continued growth in ViiV and the consumer joint venture which remember will be in 2016 for 12 months versus the 10 months in 2015. On slide 24, financial strategy, looking at our capital allocation priorities, we said back in May that while we went through the transformation program triggered by the Novartis transaction and the transition of our pharmaceuticals business, we would prioritize two uses of available cash, whether from operations or disposals. Firstly, accelerating the restructuring necessary. Second, supporting the dividend at 80p per share. This was designed to allow us to emerge from the transition and build stronger operating cash flows more quickly, while maintaining the dividend, returning the Group to growth and protecting our credit profile. To deliver on these priorities we retained proceeds from the Novartis transaction and have divested a number of other non-strategic assets including parts of our Aspen shareholding in ofatumumab. As a result despite accelerating the restructuring and integration spend in 2015 and incurring GBP1.1 billion of cash costs. We paid 80p per share of dividend and still reduced our net debt by GBP3.7 billion. Cash flow generated by the business was impacted by the transformation underway across the Group, with a significant further drag in 2015 from the decline in Advair and the inherited cost base of the Novartis businesses. We're addressing each of these elements as you've heard. The new businesses are now beginning to contribute more meaningfully, as you can see in the much reduced operating cash flow drag in Q4. We expect both CapEx and restructuring spend to peak in 2016, with a major step-down in the ladder of over GBP800 million as we go into 2017 which we'll contribute to rebuilding the cash flow support for future investments and dividend payments. So to conclude on the last slide, 2015, so very material progress in delivery of our strategy. Most importantly, established some key foundations to return us to growth this year. Our restructuring programs are progressing well and new product momentum is improving. Opportunities for growth across all three businesses are stronger and we remain very focused on execution. As a result, we're confirming - reconfirming our original outlook for 2016 and continue to expect that we will return to growth in core EPS in constant currency terms at a rate that reaches double-digits. The base for that growth in CER terms is 2015 court EPS of 75.7p. The currency impact for 2016 is clearly difficult to predict given recent volatility. But on the basis of January average rates, we're presently expecting currency will be a tailwind this year of approximately 2% to the top line and 5% to core EPS growth, due mostly to the impact of the stronger U.S. dollar. Given the Q1 comparator issues I've mentioned, but also the fact that oncology will still be in the base for the first two months of the year. The phasing of this earnings growth will be more weighted to the second half. With that, I conclude, we'll hand you back to Andrew.

Great. Thanks very much, Simon. Without further ado, let's open up the call to Q&A. Just for everybody's information, we've extended this call. So we've got plenty of time for Q&A if we need it. So please, operator, maybe you can just remind folks of the protocol.

[Operator Instructions]. Your first question is from Graham Parry from Bank of America Merrill Lynch. Please go ahead.

The first one is on international markets, particularly emerging markets down 5% pro forma in the year, China down 17% and it was actually worsening in the fourth quarter. Can you talk to the outlook and the trends for that part of the world through 2016 and maybe your midterm outlook. Second is two questions about the news that you've given up the right to withhold the consent to block the put options from Pfizer and Shionogi on ViiV. Firstly, the release in Pfizer, you did it in order that you can recognize some of the liability on the balance sheet which looks like slightly backwards logic. Are you giving up the rights because you want to book the liability or are you booking the liability because you want to signal you're basically a buyer of this asset, hence you have no need to block any put? Secondly, should we take from the GBP2 billion liability for 20% of the business that you are valuing ViiV at about GBP10 billion currently? And then a final question on consumer and potential spend there. There's been a lot of recent comments and speculation. I think Andrew, you said recently that perhaps one day this could have a life of its own. That seems somewhat at odds with GSK's previous comments that you think that pharma companies can run OTC better and there's lots of internal synergies there. To what extent is this really trying to recognize that there are some shareholders are saying you should do this versus a real shift in your own strategic thinking about that division? Thank you.

I'll ask Simon to go into more detail on the HIV piece valuation in particular. As far as international markets and then China specifically is concerned, so international markets generally have been affected through a number of macro things like everybody else, but then specifically for us in China and specifically because of some restructuring - as part of our pharmaceutical restructuring we took quite a big set of changes during the year to reduce investment in some territories and increase in other to really focus around about 10 to 12 key markets. There is quite a bit of disruption as a consequence of that. A bit of that is self-inflicted. During the year, I fully expect that to bounce back. China and one or two other areas affected by divestments. In China, we've been focusing our business as we look to rebuild it. But that has involved some divestments. That's what's really affecting the growth rate during the year plus some price cuts that we've taken during the year which certainly the leading indicators would tell us that, that is going to put us in a much better position to go forward to grow. I think nothing super dramatic on China but there is a combination of price reductions. Let's call them one-off price reductions and some one-off divestment impacts on that top line. Other than that I think the underlying signals we're getting are encouraging. I expect to come back growth. Overall for the emerging markets, excluding the impact of divestments and Simon mentioned, for example, the Prolia effect then I would expect us to be growing again this year in the international markets, at least at the level of our branded peer group. Obviously, that's not going to be at the level we saw three, four years ago but we would certainly expect to see a recovery this year as far. As HIV is concerned, the only thing I would say is that we're absolutely a buyer of that asset, full stop, no question about it. Absolutely love that asset and from that point of view, made loads. There's no way we would turn away that opportunity. Yes, we're total buyer. Simon can talk to the valuation and methodology. As far as the consumer business is concerned, I tried to be as clear and as honest as I can be around this whole scenario. So first of all, I think the strategy of the group is the right strategy to develop a business where we have three strong platforms which have good internal synergy and good distribution synergy and have allowed us to build sales and profit pool growth in a wide variety of geography with a wide variety of income affordabilities of different systems, whether that the government or individual. I think that is the right strategy for the Company. I think in certain periods when people believe the U.S. is an unstoppable train and will pay for anything. That's probably a bit less cold and imperious where you think the world is challenging. I think as we look forward, the world looks quite challenging, actually and I think this model looks good. You have to be able to prove that you are good owner of each component of the business. I think the 2015 numbers reflect that we're a good owner of these businesses and whether you look at who has got the best penetration of new products, who's getting the most new pharmaceutical products approved, whose performing vaccines and whose delivering good, strong performance in the consumer space. Is there work to do? Absolutely. Do we need to improve the margin construction of the consumer business? Absolutely. Clearly the Novartis margin was much lower the GSK and we brought it together. Gives us a great opportunity to build and enhance margin and we have committed to do that or well on the way to do it. All of that is the strategy of the Company. But it would also be disingenuous to say that taking a business which when I took over as CEO was about GBP2 billion, GBP2.5 billion and build it into a business which in the next few years could be, I don't know, GBP7 billion, GBP8 billion, GBP9 billion of sales, it would be disingenuous to say that, that doesn't change the optionality of the group in terms of what you might choose to do with this. And that's good. I think we've created a win-win scenario for the Company and the shareholders which is either to have a winning combined portfolio of businesses in the way I've just described which I think is potentially a very strong response to the environment that we anticipate coming forward or to create an option where you have a consumer business which is sufficiently big of its own right to fly on its own. If I had to make that call today, I'd stick to what we have, Graham. What I've said repeatedly is that call isn't one to be made today. Why? Because we still have two or three or more years to go in terms of really demonstrating and articulating the full value of the consumer business. Would be a little odd, I think, to make a substantial change today when we're on the track we're are and we're delivering the progress we're delivering. At CER, for us to give a 320 BPS bump in margin in Q4, why would you rock that boat? You want that boat to just keep going forward, building that margin expansion, building that growth. Simply put, I believe that the strategy we embarked on in 2008 remains an extremely viable strategy for the environment that we all anticipate over the next five or six years, particularly if you of any anxiety at all about U.S. pharmaceutical pricing. I think it really emphasizes the point. Secondly, I think the evidence post the disruption of the transaction and obviously the new realities of dealing with product launches, I think we can show very clearly the progress we're making in all three businesses and I wouldn't make that call. I wouldn't really ask that question for a while until we've really seen the delivery. Last thing I would say is I think sometimes we mix up what might be causing the question. The real issue of GSK over the last six or seven year hasn't really been whether we own consumer where we don't own consumer. It's been how do we deliver sales growth when you've got a very, very significant amount of old pharmaceutical portfolio to be rotated off through generalization. The reality is that we're well on the way to essentially rotating off almost 100% of what was the pharma business in 2008. That's the real story that's. The headwind of what holds back the growth of the business. What we're beginning to see and as we roll through the Advair story over the next three years or so, we're going to get through all of that. We're already starting to see the opportunity for the top line to grow again because of the changes we made to the group and we've essentially done all that in an organic or certainly cash positive way, for the shareholder in terms of deployment of resources for the Company. I think that's the right thing to do. That's really the story of what's been going on behind the - if you will, under the surface, as you well know but not always recognize. Simon, do you want to comment how you came up with the valuation of the puts?

I think, Graham, remember and it spells out in a bit more detail in the release, that the valuation that we will bring onto the balance sheet reflects the put value estimate which is after you've taken into account the adjustments to the equity positions that reflect the preference shares that we, Shionogi and Pfizer hold. You also see it as about GBP0.2 billion, GBP200 million of value that would also accrue to Pfizer and Shionogi and that would go on to the balance sheet in Q1. We have significantly more valuable preference shares that give us a priority right over some of the earnings of [indiscernible] based income stream. So that's how you come up with the GBP2 billion number. You have got to strip out the preference shares before you land on the number that will eventually go into the Q1 balance sheet.

Next question from Richard Parkes, Deutsche Bank.

Just got a few questions. Firstly, on the vaccines and consumer integrations, I know you talked about the pace of cost savings coming through a little bit faster than you'd expected. Could you update us on how your thoughts on the absolute [indiscernible] of potential synergy and cost savings has evolved since completion of that transaction? Secondly on established products, I think they were down 15% at CER, a little bit worse than consensus was looking for. Can you help us think about how that year-on-year decline might evolve going forward? Finally on Incruse, seems to had a good start. Just wondering whether that reflects any changes to the way you're going about contracting. Maybe you could talk about the difference between net price between Incruse and Anoro that you are retrieving. Just wondering, a bit of clarity on that?

I'll let Simon address, obviously, some of that. As far as Incruse is concerned, I think in reality what is very interesting in the marketplace is there are two types of country and there are at least two types of doctors prescribing. There are certain countries were essentially the LAMA market is much more tied up with triple products proscriber. UK is a very good example of that. The UK tends to drive towards a steroid-based combination then adding a LAMA. You're really talking about a triple. Trying to introduce Anoro into that mix is more difficult than introducing Incruse into that mix. There are other markets which are much more interested in straight out bronchodilation. Germany might be an interesting example of that. If you then look at the U.S., what you see is not so much a simplistic, it's one way or the other, but each physician has a preference, has a habit. By introducing Incruse alongside Anoro, we're essentially everybody ends up almost on the same thing, is just how they get there. And having Incruse has created a much - it's just simply made that a much easier choice for everybody, essentially. And I think we've got positioning of that well. We've got a good claim that we were able to introduce in September therefore essentially the add-on of Incruse. That has been what's really driven this. I have to say you've got a long way to see a market-share acquisition chart like the Incruse/Anoro's chart that we showed you today. To be heading towards that kind of 30% market share is really phenomenal and well, probably helped a little bit, because I think our competitors have destabilize their own market leader and it's given us a bit of an opportunity there as well. That's that. Simon will talk about established product trend. VSCX integration before Simon gives you more detail. I think the bottom line is going well. It's going very well. We've had no disruption through the integration. We haven't missed a delivery. We haven't missed a deadline. We haven't seen any disruption from it. We've been able to go more quickly on most things so we've been able to turn off, for example, transitional arrangements with Novartis on schedule or a bit ahead of schedule so far. We're well on with our market authorization switches. We're closing commercial sites. All of those good things are going forward well. We've made, as I said earlier, about 90%-plus of the appointment decisions in the consumer business. We're well on the way through vaccines. So a very, very good progress. I would say there's a lot still to do. We have the bulk of the market application still to go through. We've got the manufacturing shifts to go through over the next two years. We've got the massive surps on boarding of the Novartis business so all of the on boarding of Novartis activity from Novartis into our core ERP platforms, all has to happen. Still a lot to go. So far, so good but a lot still to do, particularly during this year. We're tracking it a little ahead of what we hoped in terms of benefits. It's coming in a bit quicker than we hoped and we're spending a bit less cash than we thought we would but I'll let Simon give you any more color on that. Generally speaking, on the margin all of it going in the right direction. Simon, do you want to say more on that plus established products?

Remember this is the second upgrade, if you like, on the synergy delivery plan across both the restructuring and the integration programs. You'll see from the chart that's in the slide deck I just walked through that a lot of the, the majority of the GBP1 billion this year of incremental savings has come out of the pharma restructuring and the smaller amounts out of vaccines and consumer. So still a lot to come from those integration programs, but I think as Andrew, said we're very pleased with the progress and the planning that we were able to do ahead of the transaction closing has stood us in very good stead. So far there's been relatively few surprises but a lot still to do in 2016 particularly. On established products, this year are kind of probably at the upper end of the range we would expect, with Lovaza particularly dropping out. A 10% to 15% decline range is probably the right sort of thing to put in your models. We're probably at the upper end of 2015, maybe a bit less than 2016, but these are older, older products with that inherent level of declined built into them. That's probably the right sort of assumption to make.

Your next question is from James Gordon, JPMorgan.

A couple of respiratory questions please. One was just you previously guided to respiratory growth in 2016 and I can see some of the new launches turning the quarter in respiratory. They're doing better. Do you have confidence in the trend continuing in 2017 and maintaining growth despite the recent announcement of generic Advair filing in the U.S. or is that growth this year and that potentially shelf for next year? The second respiratory question would be on slide 8, you've got the Nucala COPD filing listed. It looks like that's, from reading the slide, like that something you've got a very high confidence in achieving. Do you have very high confidence in that working? Is that already in the 2020 restructured guidance or is there still some uncertainty how well that works? Have you seen lots of data that gives you confidence there? And then following up on Incruse, I don't see the U.S. Incruse sales split out. Are you able to give us those? Thanks.

As far as respiratory is concerned, we certainly expect, as we've previously, to come back to growth this year. We've got some very, as you can see through all the data, some very good volume there. Price, the question mark really on the degree of growth is all about what happens to the price dynamics but certainly based on what we see today, all else equal, we expect. I'm not going to get into giving you forecast for 2017. Obviously that all really revolves whether or not if there is or isn't a generic in the U.S., as we've made clear. We read what everybody else reads. It's obviously possible there is one in 2017. It may comment 2017 it may not come in 2017. Our framework of what we've laid out over the next five years is regardless of whether it's 2017/ 2018 or not. In terms of Nucala, no new data to tell you about that. We have to wait and see when the data comes through from Phase 3 and we haven't got a particularly big COPD number locked in for 2020 in the framework we've laid out. Actually, I think the indication we already have and launched with will drive a very substantial product and I don't really - I think it would be premature to lean forward too hard in terms of confidence in COPD. We think it's a very viable indication to go after but we don't have new data to tell you to transform our view. As you also know, we're looking at the segment of products in a number of other indications. So, so far so good. Next question, please Andrew?

Your next question from Andrew Baum from Citi.

I have three questions, please. Firstly, on your business development. [Technical Difficulty] last year you'll reconfigure that unit. Do you have capacity and/or intent to take advantage of the lower market prices for [indiscernible] right now to augment your portfolio? Second with regard to Shingrix, there's a double-digit [indiscernible] patients having a 10 centimeter injection-site grade 3 adverse event together with pyrexia [indiscernible]. How problematic do you think that's going to be from a commercial point of view? Finally, for both Simon and Andrew, you've spoken about the optionality in two years from now for separation of the consumer business. Perhaps you could outline as of today what are the barriers, their potentially near-term attempt separation, acknowledging the fact that not your intent. Thinking from an IT, accounting, manufacturing are there any impediments if that was the course of action that the Company decided to do? Thanks.

Thanks very much Andrew. As far as the business development piece is concerned, I think the evidence of us buying the HIV portfolio from Bristol-Myers, the extension of the Adaptimmune transaction on NY-ESO yesterday, actions speak louder than words, right? So very clearly, we have got capacity and we have got a desire to look for sensible assets. What we're not going to do is we're not going to be sucker punched into buying an asset that's 20% cheaper than an extraordinarily overpriced price two months ago. We've all seen and plenty of people have talked about, even companies where perhaps we've found assets we thought have failed, they've gone to companies, that have massive valuations and six months later they have no valuations, so we're very wary of that kind of trap. We're very focused in the areas we want to go look and we will make sensible investment decisions accordingly. Against that backdrop, you got to remember we have 93 projects listed on our pipeline chart in the results we've issued today. 71% of them are new molecular entities. 63% of those 93 projects are in Phase 2 or Phase 3. So bluntly the hurdle for us to spend more capital to go after another asset is quite a high hurdle. It has to fit well within our current portfolio and it has to match well against what we see coming. We have off a lot of innovation in house coming through. We have an awful lot of collaboration assets coming through and so I'm not sat here hungry, starving or desperate, if I can put it that way, to go look for assets. But where we see things that fit really, really well, we're going to do that. As you would imagine the Bristol-Myers situation was a competitive situation. I don't think it would take a rocket scientist to guess who the competitors were and we were able to go in and win that. I think that shows you the kind of intent. I think this is the second or third time you asked us about the injection site question on Shingrix over the last few months. I'll give you the same answer. First of all, in the trial itself these were saline placebo-controlled trial so you can draw very much from the trial itself. Probably the - there probably is a higher injection site reaction probably because of a very high immune responses being generated which is partly probably driving the extraordinarily high clinical protected response that we've seen in the trials. We're doing ongoing trials to compare the injection site response to other active commonly used vaccines in older patients to give ourselves, if you will, a more solid comparator, a more active comparator type of conversation. But I think ultimately this is going to boil down to as [indiscernible], as a 51-year-old man, if you said to me can you tolerate a reaction for a day in my arm for a doubling of clinical protection against singles, I know what the answer would be. I think that ultimately will be the way it boils down. As far as optionality is concerned, I certainly don't want to go through again, nor probably do you want me to go through again, the strategic position. There are, of course, there's a whole series of challenges to doing anything in the short-term. There's a not insignificant matter of our partner in the joint venture and all of the various contractual commitments we have with Novartis and that is a significant issue. Secondly and even more importantly, there is the issue of how do you maintain the momentum and performance of the company? I think sometimes people think, oh, let's just put together these two massive companies with 10,000 marketing applications and 15,000 people and 120 countries on Monday and then on Tuesday let's do something completely differently. The reality is, there's a huge amount of day-to-day activity if we want to secure the sales growth and margin development that we've laid out and committed to for this business. We should be very thoughtful before doing anything which disrupts that, particularly when the strategic case is a strong case for what we're doing at the moment. My view is time is everybody's friend in this conversation. This is all about ensuring the we delivered the creation of a great company and then at the right moment there is a sensible discussion about whether or not it should continue to be part of this configuration or a different one, but it's not today. It's interesting when we look back at the HIV example, where when we essentially tested that question with our shareholders, actually the overwhelming majority of people at the end of that process came to the conclusion it should be retained in the Company. Perhaps at the beginning they didn't have that view, but by the end of the process they did. That's where we more or less come out on that whole situation. Next question?

The next question is from Alexandra Hauber from UBS. Please go ahead.

I've got three questions. Firstly on the ViiV [indiscernible] it looks like the minority interest is actually the share that you pay in minority interest is less than 21.7% minority shares because of the preferential dividend GSK gets dolutegravir. Can you give us some idea how sensitive the minority we see in the P&L is to that arrangement? So if dolutegravir goes from a high 50s where it is right now to something like 80%/10%, can minority share actually be something like 15%? Second question, given that you brought your guidance for the GBP6 billion pipeline sales forward to 2018, is it correct to assume that, that means better order 2020? I'm not going to ask you to update your 2020 outlook every six months. I just wanted to get directionally whether that would be the right way of looking at it rather than assuming something of it's got worse. Just one more question, when you're saying you're having your capacity bottleneck on Bexsero. Can you still ship second-half 2015 levels or have you exhausted your inventory and it's actually going to decline year on year or at least in the first half --first half this year versus second half this year?

Thanks very much. Simon, do you want to answer on the ViiV question?

Clearly, directionally you are right Alexandra. It will move in our favor. It's not quite as sensitive as you laid out. Certainly for the foreseeable future the 80% number that we got in the press release today is a good guide and we'll update it as a product shifts to give you a sense so we will comment on that going forward but clearly you would expect it to move a bit in our favor as dolutegravir grows. Bexsero, probably Q1 might be a little effect as we go through the inventory and into more supply but I think it won't be a huge issue, Alexandra, but there might be a bit of an effect in Q1 and I think it's just a simple situation of we're selling a lot more than Novartis were anticipating to sell. Obviously, we have to give the supply chain revved up accordingly. In terms of your question about the new products, your interpretation is absolutely 100% correct. Thank you for not asking us to restate our guidance for 2020. We were not going to do that. We've given you a framework back in May. Absolutely stand by the framework. What we're simply signaling to you is that the new products are performing much better. We will fully anticipate do hit that GBP6 billion early. Of course that would apply the new product number in 2020 would be higher than we had previously said. There is no offsetting negative to that. That therefore it's not unreasonable for you to start to think about how you lift your 2020 numbers potentially to reflect that and the way in which that might affect your assumptions on pharma margin and all of those good things. The only precise guidance we're giving you today is for 2016 where, as you know, we're reiterating the guidance we gave you back in May of last year. We feel very good about our potential to get to an EPS growth rate at constant exchange rates this year of around 10%. I think 10% this year is exactly the kind of number we're aiming for. Obviously then we've got the 5% tailwind behind that from FX if FX stays the way it is, but who knows whether that's the case or not. That's really the specific guidance point we're giving you. We’re giving you an update on one element of the framework. I would leave it to you to work through your 2019 and 2020 numbers accordingly in terms of how you think that plays through, but you are quite right, Alexandra, there is no offsetting negative for the positive of the up lift in your products.

Next question from Jo Walton, Credit Suisse. Please go ahead.

Just to clarify on the last question, to the extent that the new products coming forward are due to strong success of Anoro and Breo, that might be coming more at the expense of Advair, just a faster switch so it's just a question of are you still happy that your overall respiratory franchise is going to be stable? And to what extent are the new products or the extra sales coming from things outside of what could just be Advair switch? My second question is just on the R&D side. You talk about your very strong pipeline, 80% being first in class. You've given us some details on how you do your internal rate of return. I wonder if you could just tell us what sort of probabilities of success are you baking into your assumptions given that you have sales forecast out to 2036. Reflecting this very high first in class, are you looking at stronger than historic probabilities of success? And finally if I could ask, it's more a request than a question, but given the cash payments out to Shionogi appear in various bits and pieces of your P&L and your cash flow. I wonder if you could - I know it would not be IFRS but in future give us something whereby we can look at these cash payments out which would otherwise be ignored as being non-core in just one simple aggregated in line?

Simon, do you want to answer that last point?

Jo, just to help you and I will look at it again, in the cash flow section we do break out precisely where the cash payments related to contingent consideration fall in terms of how they are reported in the cash flow statement and there is the total number of what we paid in the quarter and what we paid in the year and I intend to give you that each quarter as we go along. If you need more than that, just let me know off-line and I can certainly have a look at it. Remember, that is contingent consideration effectively amortization and that doesn't flow through the P&L because the P&L refers only to the trading performance of the ViiV business.

As far as the rates of return calculations are concerned, Jo and thanks for the question, we use industry average attrition rates. We don't have a special GSK rose-tinted glasses attrition rate number. We use industry average. You might be interested to know when we look back over what we've been doing, some of the drivers of this, obviously the fact we get first pass approval is very important. The beginnings of the uplift of the sales is very important. The fact that we're able to crystallize absolutely with the entire value of the oncology R&D was worth is obviously important. I also thought you might be interested to know, when we look like things like the CMR database, GSK is now running clinical studies 20% faster, so our execution time to 20% faster than our major pharma competitors. Our enrollment time for studies is 20% faster than our major competitors and we have the lowest clinical trial dropout rate compared to major pharma. Over the period since 2010, we have reduced R&D headcount by one-third and we produced our R&D footprint down to two from five global centers, all of which has taken huge amounts of fixed cost out of the organization. At the same time, we've massively increase the number of programs in the clinic and in advanced clinical development. Those are really some of the things that are driving that rate of return calculation. As far as your first question on respiratory is concerned, I think a couple of things just to say. Almost all the Anoro, Incruse and Nucalla business is coming from new patients or competitor patients. So none of that business is coming from essentially Breo or any of the established products - sorry from Advair or any of the current products. That's almost all coming from current business and Breo is coming from a variety of different sources, of course inclusive of Advair but a variety of different sources. So actually a big chunk of respiratory is bringing new business into GSK and we're competing in categories we haven't previously competed in within the respiratory marketplace. If I answer the question perhaps in a slightly different way to the way you asked it but hopefully to make the same point, Jo, if I go back to 2008, Graham Parry asked me in our full-year results were I showed respiratory was going to go and I said that our goal was to develop a portfolio of respiratory assets which collectively, in addition to the residual post-generic Seretide/Advair number, would add up to more than - would essentially give us a new peak of respiratory, that I feel more confident about us delivering that promise than I'd ever felt. When I made that commitment in 2008 I think the probability of being sat here in four or five years being able to say that from a number of respiratory products together, we now have a respiratory business bigger than we've ever had in the past, is very, very high. Will we go through some volatility in the year that there is, if there ever is, a generic Advair? Of course we will. But I think what's happening now is Advair, Seretide/Advair now is the third down from its peak. As Simon's told you, it's going to, we think, another 20% off this year. Who knows whether generic comes in 2017, 2018 or 2019 but whenever it comes, the impact of that is going to be relatively limited in the overall scheme of the group. We fully anticipate being able to hold onto a reasonable proportion of Seretide globally, although we've signaled to you previously we don't have particularly rose-tinted glasses on we hold onto in America. When you add all - when you take that and you add back to it all the new products, much of which is bringing share from elsewhere, then we're very optimistic about where we land in terms of than the ongoing scale of the respiratory business going forward. I think the progress we've made and the signals of where our share is going in the various markets for particularly Anoro, Incruse and Breo is very obviously encouraging. I hope that answers your question. It is not quite the way you asked it, but I think it does answer the question. Next question?

Your next question from [indiscernible], Goldman Sachs. Please go ahead.

I've got three, please. First on the HIV portfolio, I've seen a significant increase in ramp-up on the SG&A cost across various businesses, but can you help us think about how comfortable you feel with the sales force as it stands today, especially given the January launch from Gilead and how do you feel about the need for further sales force on the ViiV side into 2016? Secondly, a clarification. I know that as you talk about getting rid of, our giving up, the put option there's a statement around the fact that you will now also recognize the balance sheet [indiscernible] for future preferential dividends. Can I just confirm if that has any implications for core earnings as you report it today, either on the minority part of it or on the preferential dividends part that may or may not quote your P&L? Thirdly Andrew, you mentioned a couple of times about this not being the right time to evaluate the potential differential structure for the business. I completely understand that, but as you think about what the right time might be, can you talk about is there a particular level of revenues that you think you might need, is there a particular level of margins? Obviously you laid out a margin guidance for 20% so when [indiscernible] reaches 20% is that the right time to think about those options? Help us think about conceptualizing the timeframe for that internal debate. Thank you.

As far as HIV is concerned, I think we feel pretty good about our current scale. As you know, it's a relatively small sales force proposition versus, for example, the respiratory marketplace. I think at the margin we may make some changes but I certainly don't think there's anything very materially going to happen there. I would say, we continue to generate further and new data, including comparative data with other key products in the marketplace. I think you will continue to see as we go through this year some very good new data to support the profile of the product and as I said earlier on, what we're seeing in the marketplace at the moment a lot of churn within our competitors' mix of we pick up a lot of volume alongside that. No, don't really anticipate huge change there. Simon, do you want to speak to the minority point?

The short answer is no. The preference dividends - sorry, the deference shares are carried on the balance sheet because of they put the equity to us, they're clearly going put the preference shares as well so it's a joint liability, but makes no difference to the core P&L.

And on your question on group structure, I don't have a particular time in mind. I think there's a window. We're just into the really heavy lifting of this transaction. We've got things off to a terrific start, very highly motivated organization. We need to execute and focus on delivery of that. I think it would be wrong to create unnecessary disruption and distraction during that period. Clearly, I think we're in the first year of what I would regard as three years of proper heavy lifting, where obviously if there are restrictions which are quite appropriate restrictions around when you create a transaction like this to try and prevent one party or the other from disrupting activities. I don't - I think that's a sensible thing. I would say though, Kia, I think we also have to slightly get which end is the nose in which end is the tale of this dog. These decisions should be made through what is an interesting transaction. These things should be done by what's right in the long run for the strategic positioning of the group and its assets in the face of the environment in which we operate. And those things change. Let's be honest, if we were sat a year and a half ago you might have a very different view of the environment than we have today. A year and a half ago, people who swearing black and blue to me that oil was worth $150 a barrel. Today they are gasping for $32. A year and a half ago, people thought U.S. pricing was an unstoppable machine. Today, I'm not sure anybody believes that. So I think the question isn't - I don't think it makes a lot of sense, Kia, to pre-dial in on a certain day, a certain question is going to be asked. Surely the right way to look at this is let's everybody should be thinking very thoughtfully about what the environment challenges are, what is it you believe the Company can achieve and can the Company demonstrate its execution at a high level versus its competitors. I think what we're beginning to show is that we can do that in pharma, vaccine and the consumer business. That's kind of the way I look at it. It's not everybody in the world is going to look at that. I'm sure a lot of perhaps people in banks and elsewhere above to the transaction point. Personally, I don't think it the way we should look at it. Next question?

Next question comes from the line of Florent Cespedes from Societe Generale. Please go ahead.

It's Florent Cespedes from Societe Generale. Three quick questions, the first regarding the new products. Could you tell us what has changed since last May regarding the ramp-up of these products or is the competitive environment? And maybe a follow up on ViiV regarding Nucala. How do you see the Nucala ramp-up going forward? You say U.S. pricing environments or U.S. pricing was an unstoppable machine last year or a couple of years ago. Now it's becoming more challenging so could we ask for your comments there? The last question is regarding international pharma developments. Could you come back on the comments regarding the capacity constraints there? How do you see this potentially impacting the 2016 [indiscernible] of the international pharma space? Thank you.

In terms of what's changed on new products, Shingrix. We have Shingrix in hand and looks very substantial opportunity for us. HIV has clearly, as you've seen through the reset of our contingent liability with Shionogi, that's clearly performed at the upper end of what we would have anticipated. The performance of Anoro Incruse has really picked up. I think the overall execution of the organization has stepped up a gear in terms of our execution. I think there's a number of new products which have come really through at the upper end of our expectation and we've seen share acquisition through the last several months really accelerate as we came out of the year. You know as well as I do, when you came to the May Capital Markets Day, none of you were coming with high expectations of new products and as we came out of the year in good shape and if you look at the slide I showed you earlier in the call today, slide number 4, 2014 we did GBP600 million of products, 2015 we did GBP2 billion. That is an extraordinary degree of acceleration and of course that's what striving and if you take GBP682 million of Q4, multiply it by four, were almost at GBP3 billion annualized and clearly that gives us the confidence we can get to that very significant level. As far as the international pharma business is concerned, just to give you a couple of examples, as you know, we've done very well in developing the business. For example, for Augmen - I'll pick one example, Augmentin which has, I've said to you before, we now sell something like I think three or four times the volume of Augmentin we sold when the product was at the peak of its patent-protected sales. As a consequence of that, we've had to expand our capacity and not shockingly new revelation, capacity doesn't always come on stream exactly when you need it. During 2015, we had some capacity constraints in products like Augmentin. Capacity has now opened up. We'd expect that capacity to be freed up this year. We'd expect Augmentin to move forward this year, similarly in one or two other lines. So it's really just a case of in some of these older products in particular getting the volume. As you know also in vaccines, vaccine volume tends to come in very discrete lumps. It's very hard to expand or stretch the capacity. Again, from time to time, hepatitis a good example where we're busy building new facilities, sometimes you have to period where there's a bit of a flatness. I would say as we go through 2016 you'll see, particularly on the pharma side, that pressure releases itself again. It's one of the reasons why we think international will improve this year. Then as we roll through into 2017 and beyond, a lot of the vaccine pressure starts to release itself. So that's kind of the pattern. I think we have time for one last question.

Excuse me, the question on Nucala, please?

I'm not sure what your question - Florent, your question is what? Do we have a price problem with Nucala?

No. Maybe a better question was how do you see the ramp up and the sales going forward because some of your competitors and of course very different markets are suffering from weak patient access. If you could give us your view on this product?

First of all, we've had an extraordinary reaction from physicians, really good resonance with what we're saying about the product, high interest. We've seen very significant number of patients come to us through our reimbursement advisory hub so we contract these patients. They're right now going through the process of getting insurance and although we don't have a J code assigned yet, we're seeing basically no rejections in terms of patients so I fully expect - listen it's early days, but this thing is going to move. I don't think we're going to be sat here having a conversation this having poor access. We've got good access. We've got very engaged physician base and we've got very engaged patient base. And so, so far, all green lights. We have time for one last question I think.

Your next question comes from Kerry Holford, Exane BNP Paribas,

I'm afraid I do have three questions. Very quickly, firstly on the tax rate, you talk about moderate pressure building over the next several years. I wonder if you can talk about what's changed here. I don't think the geographic mix shift with the U.S. is necessarily news, so is anything else behind the scenes here that we need to be aware of? Anything related to the UK patent box tax structure and so on? If you can quantify that moderate pressure, that would be very helpful. Secondly on Incruse, here I'm interested in your focus on the growth of that put out within the franchise because as I recall from the commentary back on the Investor Day last year, Incruse is not an asset. It's being actively detailed by your respiratory sales reps and as I recall at that stage, you were looking to simplify the message and focus on Breo. Anoro and Advair. Has that situation now changed? Is Incruse in active detail and if so, how was that now positioned relative to Anoro? And then lastly on the pipeline, a question on prioritization and investment. In the press release today you highlight approximately 40 assets that you say are under active clinical development and that you discussed at the R&D day. In your full pipeline list, was we see probably another 40 in development that don't get a mentioned today. How should we interpret this difference in disclosure? Are the 40 that didn't get a mention in the press release not in active development or are they just lower priority? Lower probability of success? If that's the case, you do look to alternative routes for those products considering out licensing and so on? Thank you.

We've given you specific guidance around 2016 in terms of the pickup and the tax rate and it is primarily driven by the change in the mix and the acceleration of U.S. sales Andrew's been talking about and those come at a near 40% tax rate as opposed to what we can generate here in the UK or and many other jurisdictions around the world. On the basis of the prospect we've outline we expect that pressure to continue. So exactly what we see in 2017, 2018, 2019, not ready to give you specifics on that but I think if you were factoring in over the two or three years thereafter another 1% or 2%, you would probably be in broadly the right territory. Hopefully that gives you a steer.

On the Incruse thing, actually if you go back to the May event, Kerry, you look at slide 42 you see that Incruse is one of the products which we listed there as the focus areas for respiratory. What has also changed is we were able to get a stronger claim for Incruse at the end of the summer and we're certainly promoting it, but as I explained in response to an earlier question, simplification is more around the segmentation of the doctor audience rather than necessarily the products. The point being that some physicians are more amenable to a pathway treatment beginning bluntly with an Incruse conversation versus Anoro and others are more amenable to it through an Anoro conversation. It's more the simplification through the segmentation plus improved claim. As I said, going back to May, we certainly laid that out. As far as pipeline is concerned, you ask a good question. It's very difficult to give you a simple answer. Of course each asset is different. I would say as a general rule, we have profiled the ones which have progressed beyond points of, let's say, substantial confidence building proof or substantial opportunity kind of proof. That list changes all the time. Obviously, all the time assets are moving forward or failing and part of the game is to try and get to that decision as quickly as possible. We tried to pull out for you the things that were more advanced a more interesting and had those proof points, but I'm absolutely sure that you'll see a lot more. If I had to pick one and we did talk about this one at R&D Day, but we talked about it reasonably minimally, I think the RIP kinase portfolio of assets that is coming is quite extraordinary. If we continue, if those programs continue to hit their green lights over the next 12 months, you're going to be hearing a lot, lot more about RIP kinase as we progress further. So I would say that. Having said all of that, as we go through this year, one of Patrick's jobs is absolutely to start to prioritize the development and the reason why we're delivering our clinical trials 20% quicker than our competitors, the reason why we get our drugs approved on first pass approval is because when we really know we've got something, we do swing behind it with our resources and we focus on it. What you are going to see us even from that 40 which had been described to you, as they get to real crystallization points, they will attract a certain degree of enhanced focus and as the other 40 start to progress through, they will attract a certain degree of enhanced focus. If there are assets there which start to fall outside of investment parameters but for which there is no negative associated with the product, then we would always look for alterna disposal mechanisms. I'm not going to predict how much of that we do but we certainly would be open minded to those sorts of things from time to time and we talked about that in the past. Kerry, thanks so much for your final question. I very much appreciate everybody's interest today. Obviously, the IR team are available for you to ask any further questions you might have. Hopefully with the guidance we've given you for 2016, achieving a double-digit EPS, something around 10% plus the signal around the new products, we've given you what you need to start to get your models in the right place going forward. And hopefully with the strong trajectory of the new products and the strong performance of the pharm, of vaccine and consumer business you can start to play out how you see the next few years for GSK. Thank you very much.

Thank you, ladies and gentlemen. That concludes the conference call for today. You may now disconnect. Thanks for joining and enjoy the rest of your day.