Annual Report 20162016 saw good sales momentumacross Pharmaceuticals, Vaccinesand Consumer Healthcareand further pipeline progress

We are a global science-ledhealthcare company.Our three world-leading businessesresearch and deliver innovativemedicines, vaccines and consumerhealthcare products.Front cover case studyAt GSK, innovation underpins each of our three businessesArthur works at our Upper Providence R&D labWe are using next generation technologyto develop new approaches to diseasemanagement and control. In addition toour own research and development,we gain insights through our network ofcollaborations with biotechs, othercompanies and academic institutions.This enables more efficient trial designand greater use of software, analytics andnew technology, all of which is helping toincrease our productivity, maximise ourreturn on R&D investment and acceleratethe development of new products that canimprove patients’ lives.We have an active pipeline of innovativeproducts across six core areas: respiratory,HIV and infectious diseases, vaccines,immuno-inflammation, oncology andrare diseases.Cautionary statement regarding forward-looking statementsThe Group’s reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statementsmade, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group’s current expectations orforecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’,‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financialperformance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current andanticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. Other than in accordance with its legal or regulatoryobligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority), the Group undertakes no obligation to updateany forward-looking statements, whether as a result of new information, future events or otherwise.The reader should, however, consult any additional disclosures that the Group may make in any documents which it publishes and/or files with the SEC. All readers, whereverlocated, should take note of these disclosures. Accordingly, no assurance can be given that any particular expectation will be met and shareholders and investors are cautionednot to place undue reliance on the forward-looking statements.Forward-looking statements are subject to assumptions, inherent risks and uncertainties, many of which relate to factors that are beyond the Group’s control or preciseestimate. The Group cautions investors that a number of important factors, including those in this document, could cause actual results to differ materially from those expressedor implied in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Principal risks and uncertainties’ on pages 253-262 of thisAnnual Report. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge of andinformation available to the Directors on the date of this Annual Report.All expectations and targets regarding future performance should also be read together with ‘Assumptions related to 2016-2020 outlook’ on the inside back cover of thisdocument.A number of adjusted measures are used to report the performance of our business. These measures are defined on page 57 and a reconciliation of core results to total resultsis set out on page 66.

01 GSK Annual Report 2016Strategic reportGovernance and remunerationFinancial statementsInvestor informationStrategic report2016 performance summary 27.9bn 4.5bn 2.6bn 7.8bnGroup turnover(up 17% AER; 6% CER;5% pro-forma CER)aTotal operating profit(down 75% AER; 86% CER)a,cNew Pharmaceuticaland Vaccine salesb(up 100% AER; 100% CER)aCore operating profit(up 36% AER; 14% CER;17% pro-forma CER)a18.8p102.4p 6.5bn 3.1bnTotal earnings per share(down 89% AER; 99% CER)a,cNet cash inflow fromoperating activities 3.9bnDividends declaredfor 2016Core earnings per share(up 35% AER; 12% CER )aFree cash flowa20-30Assets with data expectedby end of 2018Delivering sustainable performance 1st in the Accessto Medicine Indexsince launch in 20083rd in thepharmaceutical sectorfor Dow Jones Sustainability IndexFootnotesa AER growth rates represent growth at actual exchange rates. We use a number of adjusted, non-IFRS,measures to report the performance of our business, as described on page 57, including core results,free cash flow and CER and pro-forma growth rates. These measures are used by management forplanning and reporting purposes and may not be directly comparable with similarly described measuresused by other companies. Core results exclude a number of items and are presented as managementbelieves that core results allow the key trends and factors driving that performance to be more easilyand clearly identified by shareholders. Non-IFRS measures may be considered in addition to, but notas a substitute for or superior to, information presented in accordance with IFRS. A reconciliationof total results to core results is set out on page 66.b New products defined as:Pharmaceuticals: Relvar/Breo Ellipta, Incruse Ellipta, Anoro Ellipta, Arnuity Ellipta, Eperzan/Tanzeum,Nucala, Tivicay, Triumeq.Vaccines: Menveo, Bexsero, Shingrix (not yet approved).c Primarily reflecting impact of 9.2 billion profit in 2015 from disposal of Oncology business.About usChairman’s statementCEO’s statementOur integrated approachThe market in which we operateOur business modelA clear strategy for growthHow we measure successHow we manage risksPharmaceuticalsVaccinesConsumer HealthcareResponsible businessGroup financial review0204050608121416182028344052Governance and remunerationChairman's Governance statementOur BoardOur Corporate Executive TeamLeadership and effectivenessNominations Committee reportAccountabilityAudit & Risk Committee reportRelations with shareholdersCorporate ResponsibilityCommittee report80828688949797107108Remuneration reportChairman’s annual statementAnnual report on remunerationRemuneration policy summaryRemuneration policy report112115137138Financial statementsDirectors’ statement of responsibilities 148Independent Auditors' report149Financial statements158Notes to the financial statements162Financial statements of GlaxoSmithKlineplc prepared under UK GAAP232Investor informationQuarterly trendFive year recordProduct development pipelineProduct, competition andintellectual propertyPrincipal risks and uncertaintiesShare capital and share priceDividendsFinancial calendarAnnual General Meeting 2017Tax information for shareholdersShareholder services and contactsUS law and regulationGroup companiesGlossary of terms240244247250253263265265266266268270272283

02 GSK Annual Report 2016About usAt GSK, our missionis to improve thequality of human lifeby enabling peopleto do more, feel betterand live longer.Three world-leading businessesOur Pharmaceuticals, Vaccines and Consumer Healthcarebusinesses generated combined turnover of 27.9 billion in 2016.Each business benefits from our global commercial infrastructure,integrated supply networks and innovative R&D.99,300150 87Number of employeesNumber of marketsManufacturing sitesR&D innovation underpins each of our businessesIn 2016, we invested 3.6 billion in R&D across our threebusinesses. External partnerships and collaborationsenable us to develop and access knowledge, and increaseour understanding in new areas of science.We focus our research across six core areas and are usingnext generation technology to develop new approachesto disease management and control.Respiratory diseasesImmuno-inflammationHIV/infectious diseasesOncologyVaccinesRare diseasesEfficient global operating modelWe are focused on optimising our operations through restructuring,investment and modernisation to improve profitability and efficiency.Footnotea We use a number of adjusted, non-IFRS, measures toreport the performance of our business, as described onpage 57, including core results, free cash flow and CERand pro-forma growth rates. Non-IFRS measures may beconsidered in addition to, but not as a substitute for orsuperior to, information presented in accordance with IFRS. 1.4bnIncremental annualsavings delivered in 2016(including 0.2 billioncurrency benefit)9.3%Total operating profitmargin in 201627.9%Core operating profitmargin in 2016a

03 GSK Annual Report 2016Strategic reportGovernance and remunerationFinancial statementsInvestor reOur Pharmaceuticals businessdiscovers, develops andcommercialises medicines totreat a range of acute and chronicdiseases. We have a broad portfolioof innovative and establishedmedicines in respiratory and HIV,in which we are global leaders.We focus our research acrossrespiratory, HIV and infectiousdiseases, immuno-inflammation,oncology and rare diseases.Our Vaccines business has thebroadest portfolio of any company,with vaccines for people of allages – from babies and adolescentsto adults and older people. Wedeliver over two million vaccinedoses per day to people livingin over 160 countries.Our Consumer Healthcare businessdevelops and markets productsin Wellness, Oral health, Nutritionand Skin health categories. Ourseven global power brands – Otrivin,Panadol, parodontax, Poligrip,Sensodyne, Theraflu and Voltaren,include some of the most trustedand best-selling brands in the world.Read more on pages 28 to 33Read more on pages 34 to 39Read more on pages 20 to 27Top three categories by salesRespiratoryHIVEstablished products m6,5103,5562,541Top three categories by sales mSales by 592WellnessOral healthNutritionSkin health m3,7262,223674570 16.1bn 4.6bn 7.2bn% of Group turnover% of Group turnover% of Group turnover58%16%26%2bn833m5bnpacks of medicinesproduced in 2016vaccines deliveredin 2016Consumer Healthcare productsproduced in 2016TurnoverTurnoverTurnover

04 GSK Annual Report 2016Chairman’s statementI am pleased to report that GSK madefurther good progress during 2016.Operating performance significantlyimproved in our three businesses and therewas continued progress in the late and earlystage R&D pipeline. In every important area,it has been a year of solid achievement.GSK made furtherprogress during 2016.Operating performancesignificantly improvedand there was continuedprogress in the R&Dpipeline.Read moreGovernance reportSee page 80Our Corporate Governance report sets out ourcorporate governance practices and includes thereports of our Board Committees.RemunerationSee page 112Our Remuneration report sets out ourremuneration arrangements for Executive andNon-Executive Directors and includes our newRemuneration policy for 2017.Diversity statementSee page 96Our Board’s Diversity policy, including gender,sets out measurable objectives which ourNominations Committee monitors and reportsprogress towards their achievement.Viability statementSee page 56Our Viability statement sets out our assessment ofthe prospects of the Group over the nextthree years.2016 performanceManagement continues to make strongprogress in driving the sales and costbenefits from the integration of the Novartisbusinesses in Vaccines and ConsumerHealthcare. These businesses have beentransformed through the transaction and arenow true global leaders in their respectivemarkets, well positioned strategically andimproving financially.In Pharmaceuticals, new product saleshave shown very good momentum,particularly in HIV and Respiratory. Newproducts now make up around a quarter oftotal pharmaceutical sales. This is importantgiven the pricing pressure faced generally bypharmaceutical companies and the potentialintroduction of generic competition to Advair– for many years the Group’s biggest singlesource of profits – in the US during 2017.The Group’s improved operationalperformance also contributed to markedlyincreased cash generation. Operationalcash flow also benefited strongly fromthe devaluation of Sterling following theBrexit vote in June, although the valueof non-sterling liabilities for debt fundingand contingent consideration, has alsoincreased.Ordinary dividends of 80p per share havebeen declared for 2016, the same level as2015. The company expects to maintain thesame payment in 2017, in accordance withthe statements made in 2015. This level ofdistribution still exceeds the free cash flowgenerated by the business despite thematerial improvement in cash generatedin 2016 referred to above. Given that 2017is the last year of the three year dividendcommitment made in 2015, the Board willbe considering the appropriate dividendpolicy for 2018 and beyond during thecourse of the year.CEO successionA key area of focus for the Board through2016 has been to manage the CEOsuccession as Sir Andrew steps downafter 33 years with the company and intoa tenth year as CEO. The Board conducteda thorough, global search for a successor,which included internal and externalcandidates.The Board was unanimous in its decision toappoint Emma Walmsley, previously Headof GSK’s Consumer Healthcare business,as the new CEO. Emma has very strongleadership skills and a clear track record ofdelivery on performance. The Board believeEmma will bring new thinking to how theGroup operates in today’s healthcareenvironment, whilst at the same timeharnessing the momentum evident incurrent performance.I want to