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5.A Operating results
The information set forth under the heading “Our external environment” on pages 12 to 14 of the GSK Annual Report 2022 is incorporated herein by reference.
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The following tables reconcile Total results to Adjusted results. References to the reconciliations on pages 81 to 83 and page 277 of the GSK Annual Report 2022 should be read to refer to the information in these tables.
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Adjusted results reconciliation – 31 December 2022
Total results Profit from discontinued operations Intangible asset amortisation Intangible asset impairment Major restructuring Tranaction related Divestments, significant legal and other items Adjusted results
£m £m £m £m £m £m £m £m
Gross profit from continuing operations 19,770 648 102 45 18 20,583
Operating profit from continuing operations 6,433 739 296 321 1,750 (1,388 ) 8,151
Profit before taxation from continuing operations 5,628 739 296 323 1,750 (1,378 ) 7,358
Profit after taxation from continuing operations 4,921 589 232 236 1,508 (1,266 ) 6,220
Profit after taxation from discontinued operations 10,700 (10,700 ) —
Total profit after taxation 15,621 (10,700 ) 589 232 236 1,508 (1,266 ) 6,220
Profit attributable to shareholders from continuing operations 4,461 589 232 236 1,373 (1,266 ) 5,625
Profit attributable to shareholders from discontinued operations 10,495 (10,495 ) —
Total profit attributable to shareholders 14,956 (10,495 ) 589 232 236 1,373 (1,266 ) 5,625
Basic earnings per share (pence) from continuing operations 110.8 p 14.6 p 5.8 p 5.9 p 34.1 p (31.5 )p 139.7 p
Basic earnings per share (pence) from discontinued operations 260.6 p (260.6 )p — — — — — —
Total Basic earnings per share (pence) 371.4 p (260.6 )p 14.6 p 5.8 p 5.9 p 34.1 p (31.5 )p 139.7 p
Weighted average number of shares (millions) 4,026 4,026
The following adjustments are made in arriving at Adjusted gross profit from continuing operations
Cost of sales (9,554 ) 648 102 45 18 (8,741 )
The following adjustments are made in arriving at Adjusted operating profit from continuing operations
Selling, general and administration (8,372 ) 180 13 51 (8,128 )
Research and development (5,488 ) 91 296 39 (5,062 )
Other operating (expense)/income 523 1,692 (1,457 ) 758
The following adjustments are made in arriving at Adjusted profit before tax from continuing operations
Net finance costs (803 ) 2 10 (791 )
Share of after tax losses of associates and joint ventures (2 ) (2 )
The following adjustments are made in arriving at Adjusted profit after tax from continuing operations
Taxation (707 ) (150 ) (64 ) (87 ) (242 ) 112 (1,138 )
The following adjustments are made in arriving at Adjusted profit attributable to shareholders
Profit attributable to non-controlling interests from continuing operations 460 135 595
Profit attributable to non-controlling interests from discontinued operations 205 (205 ) —
Total profit attributable to non-controlling interests 665 (205 ) — — — 135 — 595
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Adjusted results reconciliation – 31 December 2021
Total results Profit from discontinued operations Intangible asset amortisation Intangible asset impairment Major restructuring Tranaction related Divestments, significant legal and other items Adjusted results
£m £m £m £m £m £m £m £m
Gross profit from continuing operations 16,533 660 102 28 27 17,350
Operating profit from continuing operations 4,357 761 347 424 1,143 (539 ) 6,493
Profit before taxation from continuing operations 3,599 761 347 426 1,143 (502 ) 5,774
Profit after taxation from continuing operations 3,516 608 266 347 964 (845 ) 4,856
Profit after taxation from discontinued operations 1,580 (1,580 ) —
Total profit after taxation 5,096 (1,580 ) 608 266 347 964 (845 ) 4,856
Profit attributable to shareholders from continuing operations 3,316 608 266 347 723 (845 ) 4,415
Profit attributable to shareholders from discontinued operations 1,069 (1,069 ) — —
Total profit attributable to shareholders 4,385 (1,069 ) 608 266 347 723 (845 ) 4,415
Basic earnings per share (pence) from continuing operations 82.9 p 15.2 p 6.6 p 8.7 p 18.1 p (21.2 )p 110.3 p
Basic earnings per share (pence) from discontinued operations 26.7 p (26.7 )p — — — — — —
Total Basic earnings per share (pence) 109.6 p (26.7 )p 15.2 p 6.6 p 8.7 p 18.1 p (21.2 )p 110.3 p
Weighted average number of shares (millions) 4,003 4,003
The following adjustments are made in arriving at Adjusted gross profit from continuing operations
Cost of sales (8,163 ) 660 102 28 27 (7,346 )
The following adjustments are made in arriving at Adjusted operating profit from continuing operations
Selling, general and administration (7,070 ) 277 9 35 (6,749 )
Research and development (5,019 ) 101 347 45 1 (4,525 )
Other operating (expense)/income (87 ) 1,106 (602 ) 417
The following adjustments are made in arriving at Adjusted profit before tax from continuing operations
Net finance costs (755 ) 2 1 (752 )
Loss on disposal of interest in associates (36 ) 36 —
Share of after tax losses of associates and joint ventures 33 33
The following adjustments are made in arriving at Adjusted profit after tax from continuing operations
Taxation (83 ) (153 ) (81 ) (79 ) (179 ) (343 ) (918 )
The following adjustments are made in arriving at Adjusted profit attributable to shareholders
Profit attributable to non-controlling interests from continuing operations 200 241 441
Profit attributable to non-controlling interests from discontinued operations 511 (511 ) —
Total profit attributable to non-controlling interests 711 (511 ) — — — 241 — 441
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Adjusted results reconciliation – 31 December 2020
Total results Profit from discontinued operations Intangible asset amortisation Intangible asset impairment Major restructuring Tranaction related Divestments, significant legal and other items Adjusted results
£m £m £m £m £m £m £m £m
Gross profit from continuing operations 16,425 649 585 23 — 17,682
Operating profit from continuing operations 5,979 724 200 1,178 1,237 (2,662 ) 6,656
Profit before taxation from continuing operations 5,170 724 200 1,180 1,237 (2,660 ) 5,851
Profit after taxation from continuing operations 5,103 582 162 967 1,006 (2,785 ) 5,035
Profit after taxation from discontinued operations 1,285 (1,285 ) —
Total profit after taxation 6,388 (1,285 ) 582 162 967 1,006 (2,785 ) 5,035
Profit attributable to shareholders from continuing operations 4,873 582 162 967 755 (2,785 ) 4,554
Profit attributable to shareholders from discontinued operations 876 (876 ) —
Total profit attributable to shareholders 5,749 (876 ) 582 162 967 755 (2,785 ) 4,554
Basic earnings per share (pence) from continuing operations 122.4 p 14.6 p 4.1 p 24.3 p 19.0 p (70.0 )p 114.4 p
Basic earnings per share (pence) from discontinued operations 22.0 p (22.0 )p
Total Basic earnings per share (pence) 144.4 p (22.0 )p 14.6 p 4.1 p 24.3 p 19.0 p (70.0 )p 114.4 p
Weighted average number of shares (millions) 3,981 3,981
The following adjustments are made in arriving at Adjusted gross profit from continuing operations
Cost of sales (7,929 ) 649 585 23 — (6,672 )
The following adjustments are made in arriving at Adjusted operating profit from continuing operations
Selling, general and administration (7,437 ) 2 395 (1 ) 16 (7,025 )
Research and development (4,793 ) 75 198 198 (4,322 )
Other operating (expense)/income 1,784 1,215 (2,678 ) 321
The following adjustments are made in arriving at Adjusted profit before tax from continuing operations
Net finance costs (842 ) 2 2 (838 )
Share of after tax losses of associates and joint ventures 33 33
The following adjustments are made in arriving at Adjusted profit after tax from continuing operations
Taxation (67 ) (142 ) (38 ) (213 ) (231 ) (125 ) (816 )
The following adjustments are made in arriving at Adjusted profit attributable to shareholders
Profit attributable to non-controlling interests from continuing operations 230 251 481
Profit attributable to non-controlling interests from discontinued operations 409 (409 ) —
Total profit attributable to non-controlling interests 639 (409 ) — — — 251 — 481
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Group financial review 2022
Summary full year results
Full year 2022 £m Growth AER % Growth CER % Full year 2021(1) £m Full year 2020(1) £m
Turnover 29,324 19 13 24,696 24,354
Total continuing operating profit(1) 6,433 48 31 4,357 5,979
Total EPS(1) 371.4p >100 >100 109.6p 144.4p
Total continuing EPS(1) 110.8p 34 18 82.9p 122.4p
Total discontinued EPS(1) 260.6p >100 >100 26.7p 22.0p
Adjusted operating profit(1) 8,151 26 14 6,493 6,656
Adjusted EPS(1) 139.7p 27 15 110.3p 114.4p
Cash generated from operations attributable to continuing operations(1) 7,944 10 7,249 7,674
Free cash flow 3,348 1 3,301 3,683
(1) The amounts presented above for continuing operations and Adjusted results excludes the Consumer Healthcare business discontinued operation. The amounts presented for discontinued EPS are for the demerger of the Consumer Healthcare business. The presentation of continuing and discontinued operations under IFRS 5 are set out on page 192 of the GSK Annual Report 2022. The 2021 and 2020 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below) and the impact of the Share Consolidation implemented on 18 July 2022 (see “Note 37 – Share capital and share premium account” to the financial statements incorporated by reference in Item 18 below).
(2) Adjusted results are non-IFRS measures excluding discontinued operations and other adjustments that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results, AER growth, CER growth, free cash flow and other non-IFRS measures are defined below under “Reporting framework”. Adjusted results reconciliations are presented above on pages 11 to 13 above and free cash flow reconciliations are presented below on page 29 below.
Total Turnover
Total turnover in 2022 was £29,324 million, up 19% at AER, 13% at CER, reflecting strong performance in all three product groups. Sales of COVID-19 solutions contributed 3% growth at AER and CER to Commercial Operations turnover. Specialty Medicines included £2,309 million sales of Xevudy, and double-digit growth across all therapy areas. Vaccines growth reflected strong Shingrix and Meningitis performance, partially offset by pandemic adjuvant sales in 2021. General Medicines reflected the recovery of the antibiotics market and the strong performance of Trelegy in respiratory across all regions.
Specialty Medicines
Specialty Medicines sales were £11,269 million, up 37% at AER, 29% at CER, driven by consistent double-digit growth in all therapy areas. Sales of Xevudy of £2,309 million contributed growth of 14% at AER and CER. Specialty Medicines, were £8,960 million up 23% at AER, 15% at CER without Xevudy.
Vaccines
Vaccines turnover was £7,937 million, up 17% at AER, 11% at CER in total. Sales of pandemic adjuvant contributed 7% growth at AER and 6% CER to Commercial Operations turnover.
The performance reflected a favourable comparator, which was impacted by COVID-19 related disruptions in several markets primarily in H1 2021, and strong commercial execution of Shingrix, particularly in the US and Europe.
General Medicines
General Medicines sales in the year were £10,118 million, up 5% at AER, 1% at CER, with the impact of generic competition in US, Europe and Japan offset by Trelegy growth in respiratory and the post-pandemic rebound of the antibiotic market since H2 2021, in Other General Medicines.
Total Continuing Operating Profit
Total operating profit from continuing operations was £6,433 million compared with £4,357 million in 2021. This included the £0.9 billion upfront income received from the settlement with Gilead Sciences, Inc. (Gilead), increased profits on turnover growth of 13% at CER and fair value gains on investments, partly offset by higher remeasurement charges for contingent consideration liabilities.
Total continuing Adjusted operating profit
Adjusted operating profit was £8,151 million, 26% higher at AER and 14% at CER than 2021. The Adjusted operating margin of 27.8% was 1.5 percentage points higher at AER and 0.3 percentage points higher at CER compared to 2021. This primarily reflected the impact from low margin COVID-19 solutions sales (Xevudy). This was offset by operating leverage from strong sales growth, mix benefit, lower inventory adjustments and write-offs and higher royalty income.
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Total Earnings per Share
Total EPS was 371.4p compared with 109.6p in 2021. The increase primarily reflected the profit after taxation for discontinued operations recognised on the Consumer Healthcare business demerger, upfront income received from the settlement with Gilead, increased profits and fair value gains on investments, partly offset by higher remeasurement charges for contingent consideration liabilities and an unfavourable comparison due to a credit of £397 million to Taxation in 2021.
Total continuing Earnings per Share
Total EPS from continuing operations was 110.8p compared with 82.9p in 2021. This primarily reflected the upfront income received from the settlement with Gilead, increased profits from turnover growth and fair value gains on investments, partly offset by higher remeasurement charges for contingent consideration liabilities and an unfavourable comparison due to a credit of £430 million to Taxation in 2021.
Total discontinued Earnings per Share
EPS from discontinued operations was 260.6p, compared with 26.7p in 2021. The increase primarily reflected the gain arising on the demerger of Consumer Healthcare recognised in Profit after taxation for discontinued operations.
Adjusted Earnings per Share
Adjusted EPS was 139.7p compared with 110.3p in 2021. Operating leverage from strong sales growth, beneficial mix and lower inventory adjustments and write-offs, higher royalty income and a lower effective tax rate was partly offset by increased investment behind launches, higher supply chain, freight and distribution costs and higher non-controlling interests.
Cash generated from operations attributable to continuing operations
Cash generated from operations attributable to continuing operations for the year was £7,944 million (2021: £7,249 million). The increase primarily reflected a significant increase in operating profit, favourable exchange impact and favourable timing of collections, partly offset by unfavourable timing of profit share payments for Xevudy sales, increased cash contributions to the UK defined benefit pension schemes, increased contingent consideration payments and a higher increase in inventory.
Free cash flow
Free cash inflow from continuing operations was £3,348 million for 2022 (2021: £3,301 million). The increase primarily reflected a significant increase in operating profit, favourable exchange, reduced purchases of intangible assets and favourable timing of collections. This was partly offset by unfavourable timing of profit share payments for Xevudy sales, increased cash contributions to pensions, increased contingent consideration payments, higher tax payments, lower proceeds from disposals, higher capital expenditure and a higher increase in inventory.
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Financial performance
The Total results of the Group are set out below.
2022 2021(1) Growth
% of % of
£m turnover £m turnover £% CER%
Turnover 29,324 100 24,696 100 19 13
Cost of sales (9,554 ) (32.6 ) (8,163 ) (33.1 ) 17 16
Gross profit 19,770 67.4 16,533 66.9 20 12
Selling, general and administration (8,372 ) (28.6 ) (7,070 ) (28.6 ) 18 13
Research and development (5,488 ) (18.7 ) (5,019 ) (20.3 ) 9 4
Royalty income 758 2.6 417 1.7 82 81
Other operating (expenses)/income (235 ) (504 )
Operating profit 6,433 21.9 4,357 17.6 48 31
Net finance costs (803 ) (755 )
Loss on disposal of interest in associates — (36 )
Share of after-tax (losses)/profits of associates and joint ventures (2 ) 33
Profit before taxation 5,628 3,599 56 37
Taxation (707 ) (83 )
Profit after taxation from continuing operations for the year 4,921 3,516 40 23
Profit after taxation from discontinued operations and other gains from the demerger 3,049 1,580
Remeasurement of discontinued operations distributed to shareholders on demerger 7,651 —
Profit after taxation from discontinued operations 10,700 1,580 >100 >100
Total profit after taxation for the year 15,621 5,096 >100 >100
Profit attributable to non-controlling interests from continuing operations 460 200
Profit attributable to shareholders from continuing operations 4,461 3,316
Profit attributable to non-controlling interests from discontinued operations 205 511
Profit attributable to shareholders from discontinued operations 10,495 1,069
15,621 5,096 >100 >100
Total profit attributable to non-controlling interests 665 711
Total profit attributable to shareholders 14,956 4,385
15,621 5,096 >100 >100
Earnings per share from continuing operations (p) 110.8 p 82.9 p 34 18
Earnings per share from discontinued operations (p) 260.6 p 26.7 p >100 >100
Total earnings per share (p) 371.4 p 109.6 p >100 >100
Earnings per ADS from continuing operations (US$) 2.75 2.29
Earnings per ADS from discontinued operations (US$) 6.46 0.73
Total earnings per ADS (US$) 9.21 3.02
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
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The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for 2022, 2021 and 2020 are set out above on pages 11 to 13.
2022 2021(1) Growth
£m % of turnover £m % of turnover £% CER%
Turnover 29,324 100 24,696 100 19 13
Cost of sales (8,741 ) (29.8 ) (7,346 ) (29.7 ) 19 18
Selling, general and administration (8,128 ) (27.7 ) (6,749 ) (27.3 ) 20 15
Research and development (5,062 ) (17.3 ) (4,525 ) (18.3 ) 12 6
Royalty income 758 2.6 417 1.6 82 81
Adjusted(2) operating profit 8,151 27.8 6,493 26.3 26 14
Adjusted profit attributable to shareholders 5,625 4,415 27 15
Adjusted profit attributable to non-controlling interest 595 441
Adjusted profit after tax 6,220 4,856 28 16
Adjusted earnings per share (p) 139.7 p 110.3 p 27 15
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below) and the impact of the Share Consolidation implemented on 18 July 2022 (see “Note 37 – Share capital and share premium account” to the financial statements incorporated by reference in Item 18 below).
(2) Adjusted results are non-IFRS measures excluding discontinued operations and other adjustments that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results, AER growth, CER growth and other non-IFRS measures are defined below under “Reporting framework”.
Reporting framework
Total and Adjusted results
The Group financial review discusses the operating and financial performance of the Group, its cash flows and financial position and our resources. The results for each year are compared primarily with the results of the preceding year.
Total results
Total reported results represent the Group’s overall performance.
GSK also uses a number of adjusted, non-IFRS, measures to report the performance of its business. Adjusted results and other non-IFRS measures may be considered in addition to, but not as a substitute for or superior to, information presented in accordance with IFRS. Adjusted results are defined below and other non-IFRS measures are defined below.
GSK believes that Adjusted results, when considered together with Total results, provide investors, analysts and other stakeholders with helpful complementary information to understand better the financial performance and position of the Group from period to period, and allow the Group’s performance to be more easily compared against the majority of its peer companies. These measures are also used by management for planning and reporting purposes. They may not be directly comparable with similarly described measures used by other companies.
GSK encourages investors and analysts not to rely on any single financial measure but to review GSK’s Annual Reports, including the financial statements and notes, in their entirety.
Adjusted results
Adjusted results exclude the profits from discontinued operations from the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below) and the following items in relation to our continuing operations from Total results, together with the tax effects of all of these items:
– amortisation of intangible assets (excluding computer software and capitalised development costs)
– impairment of intangible assets (excluding computer software) and goodwill
– Major restructuring costs, which include impairments of tangible assets and computer software, (under specific Board approved programmes that are structural, of a significant scale and where the costs of individual or related projects exceed £25 million) including integration costs following material acquisitions
– transaction-related accounting or other adjustments related to significant acquisitions
– proceeds and costs of disposals of associates, products and businesses; significant settlement income; significant legal charges (net of insurance recoveries) and expenses on the settlement of litigation and government investigations; other operating income other than royalty income, and other items
Costs for all other ordinary course smaller scale restructuring and legal charges and expenses are retained within both Total and Adjusted results.
As Adjusted results include the benefits of Major restructuring programmes but exclude significant costs (such as amortisation of intangible assets except for computer software and capitalised development costs, significant legal, major restructuring and transaction items), they should not be regarded as a complete picture of the Group’s financial performance, which is presented in its Total results. The exclusion of other Adjusting items may result in Adjusted earnings being materially higher or lower than Total earnings. In particular, when significant impairments, restructuring charges and legal costs are excluded, Adjusted earnings will be higher than Total earnings.
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GSK is undertaking a number of Major restructuring programmes in response to significant changes in the Group’s trading environment or overall strategy, or following material acquisitions. Costs, both cash and non-cash, of these programmes are provided for as individual elements are approved and meet the accounting recognition criteria. As a result, charges may be incurred over a number of years following the initiation of a Major restructuring programme.
Significant legal charges and expenses are those arising from the settlement of litigation or government investigations that are not in the normal course and are materially larger than more regularly occurring individual matters. They also include certain major legacy matters.
Reconciliations between Total and Adjusted results, providing further information on the key Adjusting items for 2022, 2021 and 2020, are set out on pages 11 to 13.
GSK provides earnings guidance to the investor community on the basis of Adjusted results. This is in line with peer companies and expectations of the investor community, supporting easier comparison of the Group’s performance with its peers. GSK is not able to give guidance for Total results as it cannot reliably forecast certain material elements of the Total results, particularly the future fair value movements on contingent consideration and put options that can and have given rise to significant adjustments driven by external factors such as currency and other movements in capital markets, and therefore a reconciliation of the guidance for Adjusted results to equivalent guidance for Total results is not available without unreasonable effort.
Historical record of Adjusting items
The reconciliations between Total and Adjusted operating profit from continuing operations over the last three years(1) can be summarised as follows:
2022 £m 2021(2) £m 2020(2) £m
Total operating profit from continuing operations 6,433 4,357 5,979
Intangible amortisation 739 761 724
Intangible impairment 296 347 200
Major restructuring 321 424 1,178
Transaction-related items 1,750 1,143 1,237
Divestments, significant legal and other items (1,388 ) (539 ) (2,662 )
Adjusted results 8,151 6,493 6,656
The analysis of the impact of transaction-related items on operating profit for each of the last three years is as follows:
2022 £m 2021(2) £m 2020(2) £m
Contingent consideration on former Shionogi-ViiV Healthcare JV (including Shionogi preferential dividends) 1,431 1,026 1,114
ViiV Healthcare put options and Pfizer preferential dividends 85 48 (52 )
Contingent consideration on former Novartis Vaccines business 193 27 172
Contingent consideration on acquisition of Affinivax, Inc (Affinivax) 17 – –
Other adjustments 24 42 3
Transaction-related items 1,750 1,143 1,237
(1) Three year financial data is presented reflecting the restated results following the demerger of Consumer Healthcare business. The financial results of 2019 and 2018 are not restated and are not presented.
(2) The 2021 and 2020 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Full reconciliations between Total and Adjusted results for 2020–2022 including continuing and discontinued operations are set out above on pages 11 to 13 above. Further explanations on the Adjusting items for 2022 are reported on pages 27 to 29 below.
Other non-IFRS measures
Free cash flow
Free cash flow is defined as the net cash inflow/outflow from continuing operating activities less capital expenditure on property, plant and equipment and intangible assets, contingent consideration payments, net finance costs, and dividends paid to non-controlling interests plus proceeds from the sale of property, plant and equipment and intangible assets, and dividends received from joint ventures and associates. It is used by management for planning and reporting purposes and in discussions with and presentations to investment analysts and rating agencies. Free cash flow growth is calculated on a reported basis. A reconciliation of net cash inflow from continuing operating activities to free cash flow is set out on page 29 below.
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Working capital
Working capital represents inventory and trade receivables less trade payables.
CER and AER growth
In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in Sterling had remained unchanged from those used in the comparative period. CER% represents growth at constant exchange rates. £% or AER% represents growth at actual exchange rates.
Total net debt
Net debt is defined as total borrowings less cash, cash equivalents, liquid investments, and short-term loans to third parties that are subject to an insignificant risk of change in value. Please see “Note 30 – Net Debt” to the financial statements incorporated by reference in Item 18 below for the calculation of net debt.
Non-controlling interests in ViiV Healthcare
Trading profit allocations
As ViiV Healthcare is a subsidiary of the Group, 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement and then a portion of the earnings is allocated to the non-controlling interests owned by the other shareholders, in line with their respective equity shareholdings (Pfizer, Inc. (Pfizer) 11.7% and Shionogi & Co. Ltd (Shionogi) 10%). Each of the shareholders, including GSK, is also entitled to preferential dividends determined by the performance of certain products that each shareholder contributed. As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes. In particular, the increasing proportion of sales of dolutegravir and cabotegravir-containing products has a favourable impact on the proportion of the preferential dividends that is allocated to GSK. Adjusting items are allocated to shareholders based on their equity interests. GSK was entitled to approximately 83% of the Total earnings and 82% of the Adjusted earnings of ViiV Healthcare for 2022. Remeasurements of the liabilities for the preferential dividends allocated to Pfizer and Shionogi are included within other operating income/(expense).
Acquisition-related arrangements
As consideration for the acquisition of Shionogi’s interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, dolutegravir and cabotegravir. Under IFRS 3 `Business combinations’, GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end. The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million. Subsequent re-measurements are reflected within other operating income/(expense) and within Adjusting items in the income statement in each period.
Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance and other income of the relevant products in the previous quarter. These payments reduce the balance sheet liability and hence are not recorded in the income statement. The cash payments made to Shionogi by ViiV Healthcare in 2022 were £1,100 million.
As the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.
The cash payments are reflected in the cash flow statement partly in operating cash flows and partly within investing activities. The tax relief on these payments is reflected in the Group’s Adjusting items as part of the tax charge. The part of each payment relating to the original estimate of the fair value of the contingent consideration on the acquisition of the Shionogi-ViiV Healthcare joint venture in 2012 of £659 million is reported within investing activities in the cash flow statement and the part of each payment relating to the increase in the liability since the acquisition is reported within operating cash flows.
Movements in contingent consideration payable to Shionogi were as follows:
2022 £m 2021 £m
Contingent consideration at beginning of the year 5,559 5,359
Remeasurement through income statement and other movements 1,431 1,026
Cash payments: operating cash flows (1,031 ) (721 )
Cash payments: investing activities (69 ) (105 )
Contingent consideration at end of the year 5,890 5,559
Of the contingent consideration payable (on a post-tax basis) to Shionogi at 31 December 2022, £940 million (31 December 2021: £937 million) is expected to be paid within one year.
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Exit rights
Pfizer may request an IPO of ViiV Healthcare at any time and if either GSK does not consent to such IPO or an offering is not completed within nine months, Pfizer could require GSK to acquire its shareholding. Under the original agreements, GSK had the unconditional right, so long as it made no subsequent distribution to its shareholders, to withhold its consent to the exercise of the Pfizer put option and, as a result, in accordance with IFRS, GSK did not recognise a liability for the put option on its balance sheet. However, during Q1 2016, GSK notified Pfizer that it had irrevocably given up this right and accordingly recognised the liability for the put option on the Group’s balance sheet during Q1 2016 at an initial value of £1,070 million. Consistent with this revised treatment, at the end of Q1 2016 GSK also recognised liabilities for the future preferential dividends anticipated to become payable to Pfizer and Shionogi on the Group’s balance sheet.
Pfizer has the right to require GSK to acquire its shareholding in ViiV Healthcare in certain circumstances at any time. A put option liability is therefore recorded on the Group’s balance sheet as a current liability. It is measured on the gross redemption basis derived from an internal valuation of the ViiV Healthcare business.
The closing balances of the liabilities related to Pfizer’s shareholding are as follows:
2022 £m 2021 £m
Pfizer put option 1,093 1,008
Under the original agreements, Shionogi could also have requested GSK to acquire its shareholding in ViiV Healthcare in six-month windows commencing in 2017, 2020 and 2022. GSK had the unconditional right, so long as it made no subsequent distribution to its shareholders, to withhold its consent to the exercise of the Shionogi put option and, as a result, GSK did not recognise a liability for the put option on its balance sheet.
However, during Q1 2016, GSK notified Shionogi that it had irrevocably given up this right and accordingly recognised the liability for the put option on the Group’s balance sheet during Q1 2016 at an initial value of £926 million. In Q4 2016, Shionogi irrevocably agreed to waive its put option and as a result GSK de-recognised the liability for this put option on the Group’s balance sheet directly to equity. The value of the liability was £1,244 million when it was de-recognised.
GSK also has a call option over Shionogi’s shareholding in ViiV Healthcare, which under the original agreements was exercisable in six-month windows commencing in 2027, 2030 and 2032. GSK has now irrevocably agreed to waive the first two exercise windows, but the last six-month window in 2032 remains. As this call option is at fair value, it has no value for accounting purposes.
Settlement with Gilead
On 1 February 2022, ViiV Healthcare reached agreement with Gilead to settle the global patent infringement litigation relating to the commercialisation of Gilead’s Biktarvy. Under the terms of the global settlement and licensing agreement, Gilead made an upfront payment of $1.25 billion to ViiV Healthcare in February 2022. In addition, Gilead will also pay a 3% royalty on all future US sales of Biktarvy and in respect of the bictegravir component of any other future bictegravir- containing products sold in the US. These royalties will be payable by Gilead to ViiV Healthcare from 1 February 2022 until the expiry of ViiV Healthcare’s US Patent No. 8,129,385 on 5 October 2027. Gilead’s obligation to pay royalties does not extend into any period of regulatory paediatric exclusivity, if awarded.
The impact of the settlement with Gilead on the contingent consideration liability (CCL) was to increase it by £288 million, on a post-tax basis in Q4 2021 due to the obligation ViiV Healthcare has to pay future cash consideration to Shionogi for its share of the upfront and of the future US sales performance of Biktarvy and products containing bictegravir. The liability which is discounted at 8% is £5,890 million at 31 December 2022 on a post-tax basis. The impact of the settlement on the Pfizer put option liability was an increase of £114 million and was included in the re-measurement at 31 December 2021.
Reporting definitions
COVID-19 solutions
COVID-19 solutions include the sales of pandemic adjuvant and other COVID-19 solutions including vaccine manufacturing and Xevudy and the associated costs but does not include reinvestment in R&D. This categorisation is used by management and we believe is helpful to investors by providing clarity on the results of the Group by showing the contribution to growth from COVID-19 solutions.
General Medicines
General medicines are usually prescribed in the primary care or community settings by general healthcare practitioners. For GSK, this includes medicines in inhaled respiratory, dermatology, antibiotics and other diseases.
Specialty Medicines
Specialty medicines are typically prescription medicines used to treat complex or rare chronic conditions. For GSK, this comprises medicines in infectious diseases, HIV, oncology, immunology and respiratory.
Total Operating Margin
Total Operating margin is operating profit dividend by turnover.
Compound Annual Growth Rate (CAGR)
CAGR is defined as the compound annual growth rate and shows the annualised average rate of revenue growth between a number of given years, assuming growth takes place at an exponentially compounded rate.
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Share Consolidation
Shareholders received 4 new Ordinary shares with a nominal value of 311⁄4 pence each for every 5 existing Ordinary shares which had a nominal value of 25 pence each. Earnings per share, diluted earnings per share, adjusted earnings per share and dividends per share were retrospectively adjusted to reflect the Share Consolidation in all the periods presented.
Earnings per share
Earnings per share has been retrospectively adjusted for the Share Consolidation on 18 July 2022, applying a ratio of 4 new Ordinary shares for every 5 existing Ordinary shares.
Total Earnings per share
Unless otherwise stated, Total earnings per share refers to Total basic earnings per share. The same principle applies to continuing and discontinued earnings per share.
Financial performance
Group turnover
GSK has revised its operating segments during the year. Previously, GSK reported results under four segments: Pharmaceuticals; Pharmaceuticals R&D; Vaccines and Consumer Healthcare. GSK now reports results under two segments namely Commercial Operations and Total R&D. See “Note 6 – Turnover and segment information” to the financial statements incorporated by reference in Item 18 below for more details.
The Commercial Operations segment has three product groups of Specialty Medicines, Vaccines and General Medicines.
– Specialty Medicines products which includes GSK’s marketed products for HIV, oncology, immuno-inflammation, respiratory and other specialty medicines (including Nucala) and the COVID-19 solution, Xevudy;
– Vaccines products, including sales of GSK’s AS03 adjuvant as part of the pandemic solutions;
– General Medicines products, which include products previously reported as Established Pharmaceuticals and sales of Trelegy Ellipta and Anoro Ellipta (previously reported within the Respiratory category under Specialty products). These products are typically accessed by patients through primary care settings.
Group turnover was £29,324 million in the year, up 19% at AER, 13% at CER. In 2022 sales of COVID-19 solutions contributed 3% growth at AER and CER.
Commercial operations Innovation sales (sales of products launched in the last five years including lifecycle innovation) amounted to £12,690 million in 2022 largely driven by sales of Shingrix, Xevudy, Trelegy, Dovato, Nucala and Benlysta.
Specialty medicines turnover
2022 £m 2021 (revised) £m Growth £% Growth CER%
HIV 5,749 4,777 20 12
Oncology 602 489 23 17
Immuno-inflammation, respiratory and other 2,609 2,027 29 20
8,960 7,293 23 15
Pandemic 2,309 958 >100 >100
Specialty medicines 11,269 8,251 37 29
2021 has been revised to reflect changes to product groups previously reported as Established Pharmaceuticals.
HIV
HIV sales were £5,749 million with growth of 20% at AER, 12% at CER. The performance benefited from strong patient demand for the new HIV medicines (Dovato, Cabenuva, Juluca, Rukobia and Apretude), which contributed approximately three quarters of the growth. US pricing favourability and year-end inventory build together contributed one third of the growth which was partially offset by International tender decline.
New HIV products delivered sales of over two billion to £2,474 million, up 78% at AER, 67% at CER, representing 43% of the total HIV portfolio compared to 29% last year. Growth was primarily driven by sales of Dovato and Cabenuva. Dovato recorded sales of £1,375 million up 75% at AER and 65% at CER and Cabenuva, the first long acting injectable for the treatment of HIV-1 infection, recorded sales of £340 million. Apretude, the first long acting injectable for the prevention of HIV-1 delivered sales of £41 million.
Oncology
Oncology sales were £602 million, up 23% at AER, 17% at CER. Zejula sales of £463 million were up 17% at AER, 12% at CER driven by the first line indication, but with diagnosis and treatment rates continuing to be impacted by the pandemic especially in the US. Sales of Blenrep of £118 million grew 33% at AER, 25% at CER, and included the impact of withdrawal from US market in Q4 2022.
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Immuno-inflammation, respiratory and other
Immuno-inflammation, Respiratory and Other sales were £2,609 million up 29% at AER, 20% at CER on strong performance of Benlysta and Nucala. Benlysta sales were £1,146 million, up 31% at AER, 20% at CER, representing strong underlying demand in US and worldwide. Nucala sales were £1,423 million, up 25% at AER, 18% at CER, reflecting continued strong patient demand and the launch of additional indications.
Pandemic
Sales of Xevudy were £2,309 million, compared to £958 million sales in 2021. Sales were delivered in all regions, comprising £828 million in the US, £456 million in Europe, and £1,025 million in International.
Vaccines turnover
2022 £m 2021 £m Growth £% Growth CER%
Meningitis 1,116 961 16 11
Influenza 714 679 5 (4 )
Shingles 2,958 1,721 72 60
Established Vaccines 3,085 2,970 4 —
Pandemic Vaccines 7,873 6,331 24 17
64 447 (86 ) (86 )
Vaccines 7,937 6,778 17 11
Meningitis
Meningitis vaccines sales grew 16% at AER, 11% at CER to £1,116 million mainly driven by Bexsero up 16% at AER, 12% at CER to £753 million resulting from higher CDC (Center for Disease Control) demand and increased share in the US. Menveo sales were also up 27% AER, 18% CER to £345 million, primarily driven by post-pandemic vaccination catch-up and higher public demand in International, together with favourable pricing mix and share gain in the US.
Influenza
Fluarix/FluLaval sales grew by 5% AER but decreased 4% CER to £714 million, primarily driven by lower post-pandemic demand in Europe and the US, partly offset by lower expected returns in the US
Shingles
Shingrix sales grew 72% at AER, 60% at CER to £2,958 million. All regions grew significantly reflecting post-pandemic rebound, strong uptake and new market launches with more than half of the growth contributed from outside of the US. In the US, Shingrix grew 46% at AER, 32% at CER to £1,964 million due to higher non-retail and retail demand and strong commercial execution. Germany and China contributed strongly to the Shingrix growth. Shingrix was launched in 9 markets during 2022 and is now available in 26 countries.
Established Vaccines
Established Vaccines grew 4% AER but were stable at CER to £3,085 million mainly resulting from supply constraints in MMR/V vaccines and lower tender demand in International for Synflorix. This was offset by hepatitis vaccines demand rebound in the US and Europe and Boostrix post-pandemic demand recovery and increased share in the US.
Pandemic Vaccines
Pandemic Vaccines decreased 86% AER and CER primarily reflecting comparison to 2021 pandemic adjuvant sales to the US and Canadian governments partly offset by GSK’s share of 2022 contracted European volumes related to the COVID-19 booster vaccine developed through a collaboration with Sanofi Pasteur (Sanofi).
General Medicines turnover
2022 £m 2021 (revised) £m Growth £% Growth CER%
Respiratory 6,548 6,048 8 3
Other general medicines 3,570 3,619 (1 ) (2 )
General medicines 10,118 9,667 5 1
2021 has been revised to reflect changes to product groups previously reported as Established Pharmaceuticals.
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Respiratory
Respiratory sales were £6,548 million, up 8% at AER, 3% at CER. The performance was driven by Trelegy sales of £1,729 million, up 42% AER, 32% CER, including strong growth across all regions. Advair/Seretide sales of £1,159 million decreased 15% at AER, 17% at CER predominantly reflecting the adverse impact of generic competition, with growth in certain International markets due to targeted promotion offsetting the decrease.
Other general medicines
Other General Medicines sales were £3,570 million, decreasing 1% at AER, 2% at CER. Augmentin sales were £576 million, up 35% at AER, 38% at CER, reflecting the post pandemic rebound of the antibiotic market since H2 2021 in the International and Europe regions. This partially offsets the ongoing adverse impact of generic competition, and approximately two percentage points impact at AER and CER from the divestment of cephalosporin products in Q4 2021.
Turnover by regions
US
In the US, sales were £14,542 million, up 22% at AER, 10% at CER. Sales of COVID-19 solutions contributed 2% growth at AER and CER to US Commercial Operations turnover.
Sales of Xevudy were £828 million.
In Specialty Medicines, HIV sales of £3,756 million were up 30% at AER, 17% at CER. Growth benefited from strong patient demand for all new HIV products, pricing favourability and year-end inventory build. New HIV medicines (Dovato, Cabenuva, Juluca, Rukobia and Apretude) sales were £1,685 million up 88% at AER, 70% at CER. Nucala in respiratory and Benlysta in immunology both continued to grow double-digit and reflected ongoing strong patient demand. Oncology sales increased 14% at AER, 3% at CER with diagnosis and treatment rates continuing to be impacted by the pandemic for Zejula, and the withdrawal of Blenrep from the US market in Q4 2022.
Vaccine sales were £4,243 million, up 22% at AER, 10% at CER. Sales of pandemic adjuvant contributed 9% growth at AER and 8% CER to US Commercial Operations turnover. The performance was primarily driven by Shingrix sales of £1,964 million up 46% at AER, 32% at CER, mostly due to higher non-retail and retail demand and strong commercial execution. Demand recovery in Established Vaccines and share gains in Meningitis vaccines also contributed to growth.
General Medicines sales were £3,572 million up 10% at AER down 1% at CER. Trelegy was up 47% at AER, 32% at CER reflecting increased patient demand and growth of the single inhaler triple therapy market, and Flovent grew on launch of authorised generics in the year. Overall, there was a three- percentage point reduction in growth of US General Medicines due to prior period Returns and Rebates (RAR) adjustments in the year.
Europe
In Europe, sales were £6,348 million, up 18% at AER, 19% at CER. Sales of COVID-19 solutions of £513 million contributed 8 percentage points of growth at AER and CER.
In Specialty Medicines, HIV sales were £1,310 million up 10% at AER, 10% at CER primarily driven by strong patient demand for Dovato, Cabenuva and Juluca. Dovato delivered sales of £478 million, Juluca £127 million and Cabenuva £40 million. Benlysta in immunology, Nucala in respiratory, and Oncology medicines Zejula, Blenrep and Jemperli all continued to show strong double-digit growth.
Vaccine sales were £1,884 million, up 31% at AER, 32% at CER. The performance was driven by Shingrix sales of £688 million, >100% at AER and CER, particularly in Germany. Pandemic adjuvant sales of £57 million contributed four percentage points of growth at AER and CER.
General Medicines sales of £2,079 million decreased 3% at AER and CER, reflecting the ongoing impact of generic competitive pressures on Seretide and the divestment in Q4 2021 of cephalosporin products which caused one percentage point of drag on growth at AER and CER. This was partly offset, however, by strong demand for Trelegy and the growth of Augmentin following the post-pandemic rebound of the antibiotic market since H2 2021.
International
International sales were £8,434 million, up 14% at AER and CER, including Xevudy sales of £1,025 million. Sales of COVID-19 solutions contributed 7% AER and 8% CER growth to International Commercial Operations turnover.
In Specialty Medicines, HIV sales were £683 million, stable at AER and decreased 3% at CER, primarily driven by tender decline. Excluding tenders, International grew driven by strong Dovato growth. Combined Tivicay and Triumeq sales were £506 million, down 12% at AER and 15% at CER. Nucala sales of £242 million grew 24% at AER and 28% at CER reflecting strong market growth and patient uptake. Benlysta sales of £114 million grew 44% at AER, 43% at CER reflecting growth in the biological market in Japan and inclusion on China’s National Reimbursement Drug List.
Vaccine sales were £1,810 million, down 3% at AER, 5% at CER, reflecting an 11 percentage points drag at AER and CER from COVID-19 vaccine adjuvant sales in 2021. Growth excluding COVID-19 solutions was driven by strong Shingrix take-up in China, Canada and Japan more than offsetting the impact of supply constraints in MMR/V vaccines and lower Synflorix tender demand across several markets.
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General Medicines sales were £4,467 million up 5% at AER and CER. Respiratory sales of £1,955 million increased 10% at AER, 9% at CER, with Trelegy sales up 47% at AER, 48% at CER reflecting strong demand and inclusion on China’s National Reimbursement Drug List. Sales of Advair/Seretide were up 3% at AER, 1% at CER with the adverse impact of generic competition offset by growth in certain markets due to targeted promotion. Other General Medicines sales of £2,512 million increased 1% at AER, 2% at CER, and reflected growth of Augmentin following the post-pandemic rebound of the antibiotic market since H2 2021, partially offset by generic competition and price reductions in certain markets.
Cost of sales
2022 £m 2021(1) £m Growth £% Growth CER%
Total cost of sales (9,554 ) (8,163 ) 17 16
Adjusted cost of sales (8,741 ) (7,346 ) 19 18
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total cost of sales as a percentage of turnover was 32.6%, 0.5 percentage points lower at AER and 0.9 percentage points higher in CER terms than 2021.
Adjusted cost of sales as a percentage of turnover was 29.8%, 0.1 percentage points higher at AER and 1.3 percentage points higher at CER compared with 2021. This primarily reflected higher sales of lower margin Xevudy compared to 2021 which included higher margin pandemic adjuvant sales, increasing cost of sales margin by 2.5 percentage points at AER and CER, as well as the impact of increased commodity prices and freight costs. This was partially offset by a favourable mix primarily from increased sales of Shingrix in the US and Europe and increased sales of HIV medicines in the US, lower inventory adjustments and write offs in Vaccines and continued contribution from restructuring savings.
Selling, general and administration
2022 £m 2021(1) £m Growth £% Growth CER%
Total selling, general and administration (8,372 ) (7,070 ) 18 13
Adjusted selling, general and administration (8,128 ) (6,749 ) 20 15
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total SG&A costs as a percentage of turnover were 28.6%, 0.1 percentage points lower at AER and stable at CER compared to 2021. This included a reduction in restructuring charges.
Adjusted SG&A costs as a percentage of turnover were 27.7%, 0.4 percentage points higher at AER and 0.5 percentage points higher at CER than in 2021. Adjusted SG&A costs increased 20% at AER, 15% at CER which primarily reflected an increased level of launch investment in Specialty Medicines particularly HIV and Vaccines including Shingrix to drive post-pandemic recovery demand and support market expansion. The growth in Adjusted SG&A also reflected an unfavourable comparison to a beneficial legal settlement in 2021 as well as impairment provisions relating to Russia and Ukraine. This growth was partly offset by the continuing benefit of restructuring and tight control of ongoing costs.
Research and development
2022 £m 2021(1) £m Growth £% Growth CER%
Total research and development (5,488 ) (5,019 ) 9 4
Adjusted research and development (5,062 ) (4,525 ) 12 6
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total R&D expenditure was £5,488 million up 9% at AER, 4% at CER. This included amortisation and impairments.
Adjusted R&D expenditure in the full-year increased by 12% at AER, and 6% at CER, to £5,062 million. This reflected continued increased investment across Vaccines clinical development, including investments into our mRNA technology platforms, continued investment in the late-stage portfolio and several early discovery programmes, as well as expenditure related to our recent acquisition of Affinivax, Inc (Affinivax).
In addition, in Specialty Medicines, the level of R&D investment increased to support the phase III respiratory programme for depemokimab, a potential new medicine to treat severe asthma, and bepirovirsen, our study in chronic hepatitis B, in preparation for the start of the phase III trial. In Oncology, investment increased in our early-stage immuno-oncology assets and in momelotinib (MMB), our potential new treatment of myelofibrosis patients with anaemia, acquired as part of the recent Sierra Oncology acquisition. These increases in investment were offset by decreases related to the completion of several late-stage clinical development programmes and reduced R&D investment in COVID-19 pandemic solutions versus 2021.
Royalty income
Royalty income was £758 million (2021: £417 million), up 82% at AER, 81% at CER, the increase primarily reflecting royalty income from Gilead under the settlement and licensing agreement with Gilead announced on 1 February 2022 and Gardasil royalty income increasing to £446 million due to higher sales.
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Other operating income/(expense)
Net other operating expense was £235 million (2021: £504 million) reflecting accounting charges of £1,726 million (2021: £1,101 million) arising from the remeasurement of contingent consideration liabilities and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare. This included a remeasurement charge of £1,431 million (2021: £1,026 million) for the contingent consideration liability due to Shionogi, including the unwinding of the discount of £410 million and a charge for £1,021 million primarily from changes to exchange rates as well as adjustments to sales forecasts. This was partly offset by £922 million upfront income received from the settlement with Gilead, fair value gain on investments including £229 million on the retained stake in Haleon plc (Haleon), reflecting an increase in share price since listing and milestone income from disposals.
Operating profit
Total operating profit from continuing operations was £6,433 million compared with £4,357 million in 2021. Total operating margin was 21.9%, lower compared to 2021 due to the net impact of adjusting items described on page 11.
This included the £922 million upfront income received from the settlement with Gilead, increased profits on turnover growth of 19% at AER, 13% at CER and fair value gains on investments including £229 million on the retained stake in Haleon, partly offset by higher remeasurement charges for contingent consideration liabilities. Adjusted operating profit was £8,151 million, 26% higher at AER and 14% at CER than 2021 on a turnover increase of 13% at CER. The Adjusted operating margin of 27.8% was 1.5 percentage points higher at AER and 0.3 percentage points higher at CER compared to 2021. This primarily reflected the impact from low margin COVID-19 solutions sales (Xevudy), which reduced Adjusted Operating profit growth by 3% AER and CER and reduced the Adjusted operating margin by approximately 1.4 percentage points at AER and approximately 1.3 percentage points at CER. This was offset by operating leverage from strong sales growth, mix benefit, lower inventory adjustments and write offs and higher royalty income.
Contingent consideration cash payments made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in 2022 amounted to £1,137 million (2021: £856 million). These included cash payments made to Shionogi of £1,100 million (2021: £826 million).
Adjusted operating profit by business
Commercial Operations operating profit was £13,590 million, up 19% at AER and 10% at CER on a turnover increase of 13% at CER. The operating margin of 46.3% was 0.1 percentage points lower at AER, 1.2 percentage points lower at CER than in 2021. This primarily reflected strong sales of lower margin Xevudy, increased investment behind launches in Specialty Medicines including HIV and Vaccines plus higher commodity, freight and distribution costs as well as an adverse comparison to a favourable legal settlement in 2021. This was partly offset by leverage from strong sales growth, mix and lower inventory adjustments and write-offs, continued tight control of ongoing costs, benefits from continued restructuring and increased royalty income from Biktarvy and Gardasil sales.
R&D segment operating expenses were £5,060 million, up 11% at AER, 5% at CER, primarily reflecting increased investment in Vaccines including priority investments for mRNA, late stage portfolio and expenditure from the acquisition of Affinivax and in Specialty Medicines in early stage HIV and depemokimab. This was partly offset by decreases related to the completion of several late-stage clinical development programmes and reduced R&D investment in COVID-19 pandemic solutions versus 2021.
Net finance costs
Finance income 2022 £m 2021(1) £m
Interest and other income 62 13
Fair value movements 14 1
76 14
Finance expense
Interest expense (789 ) (735 )
Unwinding of discounts on provisions (7 ) (2 )
Remeasurements and fair value movements (20 ) (2 )
Finance expense on lease liabilities (30 ) (27 )
Other finance expense (33 ) (3 )
(879 ) (769 )
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total net finance costs were £803 million compared with £755 million in 2021. Adjusted net finance costs were £791 million compared with £752 million in 2021. The increase is mainly driven by costs associated with the Sterling Notes repurchase in Q4 2022 and higher interest on tax offset by increased interest income due to higher interest rates and larger cash balances as a result of the Consumer Healthcare demerger.
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Share of after tax profits of associates and joint ventures
The share of after tax loss of associates and joint ventures was £2 million (2021: £33 million share of profit).
Loss on disposal of interest in associates
In 2021, the Group also reported a net loss on disposal of interests in associates of £36 million, primarily driven by a loss on disposal of our interest in the associate Innoviva Inc.
Profit before tax
Taking account of net finance costs, the share of profits of associates and loss on disposal of interest in associates, profit before taxation was £5,628 million compared with £3,599 million in 2021.
Taxation
2022 £m 2021(1) £m
UK current year charge 200 119
Rest of world current year charge 1,351 593
Charge/(credit) in respect of prior periods (60 ) 219
Total current taxation 1,491 931
Total deferred taxation (784 ) (848 )
Taxation on total profits 707 83
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The charge of £707 million represented an effective tax rate on Total results of 12.6% (2021: 2.3%) and reflected the different tax effects of the various Adjusting items. Included in 2021 was a credit of £430 million resulting from the remeasurement of deferred tax assets following enactment of the proposed change of UK corporate income tax rates from 19% to 25%. Tax on Adjusted profit amounted to £1,138 million and represented an effective Adjusted tax rate of 15.5% (2021: 15.9%).
Issues related to taxation are described in Note 14 to the financial statements ‘Taxation’. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.
Non-controlling interests
The allocation of Total profit from continuing operations to non-controlling interests amounted to £460 million (2021: £200 million). The increase was primarily due to an increased allocation of ViiV Healthcare profits of £416 million (2021: £197 million), including the Gilead upfront settlement income, partly offset by increased credits for remeasurement of contingent consideration liabilities, as well as higher net profits in some of the Group’s other entities with non-controlling interests.
The allocation of Adjusted earnings from continuing operations to non-controlling interests amounted to £595 million (2021: £441 million). The increase in allocation primarily reflected an increased allocation of ViiV Healthcare profits of £551 million (2021: £438 million), as well as higher net profits in some of the Group’s other entities with non-controlling interests.
Earnings per share from continuing operations
Total EPS from continuing operations was 110.8p compared with 82.9p in 2021. This primarily reflected the £922 million upfront income received from the settlement with Gilead, increased profits on turnover growth of 13% at CER and fair value gains on investments including the retained stake in Haleon, partly offset by higher remeasurement charges for contingent consideration liabilities and an unfavourable comparison due to a credit of £430 million to Taxation in 2021 resulting from the remeasurement of deferred tax assets.
Adjusted EPS was 139.7p compared with 110.3p in 2021, up 27% at AER, 15% at CER on a 13% CER turnover increase. Operating leverage from growth in sales of Specialty Medicines including HIV and Vaccines, beneficial mix and lower inventory adjustments and write-offs, higher royalty income and a lower effective tax rate was partly offset by increased investment behind launches in Specialty Medicines including HIV and Vaccines plus higher supply chain costs, freight and distribution costs and higher non-controlling interests. Growth in lower margin COVID-19 solutions sales reduced Adjusted EPS growth by 4% AER and 3% CER.
Profit and earnings per share from discontinued operations
Discontinued operations include the Consumer Healthcare business and certain Corporate costs directly attributable to the Consumer Healthcare business. Profit after taxation from discontinued operations amounted to £10,700 million (2021: £1,580 million). This includes £10,084 million for the gain arising on the demerger of Consumer Healthcare split between the amount distributed to shareholders on demerger of £7,651 million and profit after taxation on discontinued operations for the retained stake of £2,433 million. In addition, the Profit after taxation from discontinued operations for the Consumer Healthcare business was £616 million (2021: £1,580 million).
EPS from discontinued operations was 260.6p, compared with 26.7p in 2021. The increase primarily reflected the gain arising on the demerger of the Consumer Healthcare business. For further details see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below, discontinued operations.
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Total earnings per share
Total EPS was 371.4p compared with 109.6p in 2021. The increase primarily reflected the profit after taxation for discontinued operations recognised on the Consumer Healthcare business demerger, upfront income received from the settlement with Gilead, increased profits and fair value gains on investments, partly offset by higher remeasurement charges for contingent consideration liabilities and an unfavourable comparison due to a credit of £397 million to Taxation in 2021.
Dividends
The Board has declared four interim dividends resulting in a total dividend for the year of 61.25p per share retrospectively adjusted for the share consolidation. The 2021 dividend per share was 100p retrospectively adjusted for the share consolidation. See “Note 16 – Dividends”, to the financial statements incorporated by reference in Item 18 below.
Dividend policy
On 23 June 2021, at the new GSK Investor Update, GSK set out that from 2022 a progressive dividend policy will be implemented guided by a 40 to 60 percent pay-out ratio through the investment cycle. The dividend policy, the total expected cash distribution, and the respective dividend pay-out ratios for GSK remain unchanged.
GSK has previously stated that it expected to declare a 27p per share dividend for the first half of 2022, a 22p per share dividend for the second half of 2022 and a 45p per share dividend for 2023 (before the Share Consolidation) but that these targeted dividends per share would increase in step with the Share Consolidation to maintain the same aggregate dividend pay-out in absolute Sterling terms. Accordingly, using the consolidation ratio, GSK’s expected dividend for the fourth quarter of 2022 converts to 13.75p per new ordinary share. This results in an expected total dividend for the second half of 2022 of 27.5p per new ordinary share. The expected dividend for 2023 converts to 56.5p per new ordinary share in line with the original expectation converted for the Share Consolidation and rounded up.
COVID-19 solutions
Based on known binding agreements with governments, GSK does not anticipate any significant COVID-19 pandemic-related sales or operating profit in 2023. Sales of COVID-19 solutions were £2.4 billion in 2022 and therefore we expect a reduction in Turnover growth by approximately 9% and a reduction in Adjusted Operating profit growth by 6% to 7%. However, the Company continues to discuss future opportunities to support governments, healthcare systems, and patients whereby its COVID-19 solutions can address the emergence of any new COVID-19 variant of concern.
Profit from discontinued operations
Discontinued operations include the Consumer Healthcare business and certain Corporate costs directly attributable to the Consumer Healthcare business. Profit after taxation from discontinued operations amounted to £10,700 million (2021: £1,580 million). This includes £10,084 million for the gain arising on the demerger of Consumer Healthcare split between the amount distributed to shareholders on demerger of £7,651 million and profit after taxation on discontinued operations for the retained stake of £2,433 million. In addition, the Profit after taxation from discontinued operations for the Consumer Healthcare business was £616 million (2021: £1,580 million).
Intangible asset amortisation
See “Note 20 – Other intangible assets” to the financial statements incorporated by reference in Item 18 below for description and information on Intangible asset amortisation.
Intangible asset impairment
See “Note 20 – Other intangible assets” to the financial statements incorporated by reference in Item 18 below for description and information on Intangible asset impairment. No individual intangible asset accounted for a material impairment.
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long life cycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.
Major restructuring costs are those related to specific Board-approved Major restructuring programmes and are excluded from Adjusted results. Major restructuring programmes, including integration costs following material acquisitions, are those that are structural and are of a significant scale where the costs of individual or related projects exceed £25 million. Other ordinary course smaller-scale restructuring costs are retained within Total and Adjusted results.
Total Major restructuring charges incurred in 2022 were £321 million (2021(1): £424 million), analysed as follows:
2022 2021(1)
Cash £m Non- cash £m Total £m Cash £m Non- cash £m Total £m
Separation preparation restructuring programme 177 110 287 353 59 412
Significant acquisitions 20 — 20 — — —
Legacy programmes 9 5 14 32 (20 ) 12
206 115 321 385 39 424
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
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Cash charges of £177 million under the Separation Preparation programme primarily arose from the restructuring of some administrative functions as well as Global Supply Chain, R&D functions and commercial. The non-cash charges of £110 million primarily reflected the write-down of assets in administrative and manufacturing locations and impairment of IT assets.
Total cash payments made in 2022 were £388 million (2021: £551 million), £332 million (2021: £428 million) relating to the Separation Preparation restructuring programme, £17 million relating to significant acquisitions (2021: £nil) and £39 million (2021: £123 million) relating to other legacy programmes including the settlement of certain charges accrued in previous quarters.
The analysis of Major restructuring charges by income statement line was as follows:
2022 £m 2021(1) £m
Cost of sales 102 102
Selling, general and administration 180 277
Research and development 39 45
Total Major restructuring costs from continuing operations 321 424
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The benefit in 2022 from restructuring programmes was £0.5 billion, primarily relating to the Separation Preparation restructuring programme. The Group initiated in Q1 2020 a Separation Preparation programme to prepare for the separation of GSK into two companies: The programme aims were:
• Drive a common approach to R&D with improved capital allocation
• Align and improve the capabilities and efficiency of global support functions to support GSK
• Further optimise the supply chain and product portfolio, including the divestment of non-core assets
• Prepare Consumer Healthcare to operate as a standalone company
The programme delivered £0.9 billion of annual savings by 2022 and targets to deliver £1.0 billion by 2023, with total costs estimated at £2.4 billion, of which £1.6 billion is expected to be cash costs. The proceeds of divestments have largely covered the cash costs of the programme.
Transaction-related adjustments
Transaction-related adjustments from continuing operations resulted in a net charge of £1,750 million (2021: £1,143 million). This included a net £1,726 million accounting charge for the re-measurement of the contingent consideration liabilities and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
Charge/(credit) 2022 £m 2021(1) £m
Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture (including Shionogi preferential dividends) 1,431 1,026
ViiV Healthcare put options and Pfizer preferential dividends 85 48
Contingent consideration on former Novartis Vaccines business 193 27
Contingent consideration on acquisition of Affinivax 17 —
Other adjustments 24 42
Total transaction-related charges 1,750 1,143
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The £1,431 million charge relating to the contingent consideration for the former Shionogi-ViiV Healthcare joint venture represented an increase in the valuation of the contingent consideration due to Shionogi, as a result of the unwind of the discount for £410 million and a charge of £1,021 million primarily from adjustments to sales forecasts and the settlement with Gilead as well as updated exchange rate assumptions. The £85 million charge relating to the ViiV Healthcare put option and Pfizer preferential dividends represented an increase in the valuation of the put option as a result of the settlement with Gilead, offset by lower cash and updated exchange rate assumptions.
The ViiV Healthcare contingent consideration liability is fair valued under IFRS. An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on pages 19 to 20 above.
Divestments, significant legal charges and other items
Divestments, significant legal charges and other items primarily included the £922 million upfront settlement income received from Gilead, a fair value gain on investments including £229 million on the retained stake in Haleon as well as milestone income and gains from a number of asset disposals, partly offset by certain other Adjusting items.
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Discontinued operations
From Q2 2020, the Group started to report additional costs to prepare for establishment of the Consumer Healthcare business as an independent entity (“Separation costs”). These are presented as part of discontinued operations. Total separation costs incurred in 2022 were £366 million (2021: £314 million). This includes £103 million relating to transaction costs incurred in connection with the demerger and preparatory admission costs related to the listing of Haleon.
Total separation costs to date are £748 million including £141 million relating to transaction costs.
Cash generation and conversion
A summary of the consolidated cash flow statement is set out below.
2022 £m 2021 £m
Total net cash inflow from operating activities 7,403 7,952
Total net cash (outflow) from investing activities (8,772 ) (1,777 )
Total net cash inflow/(outflow) from financing activities 823 (7,589 )
Decrease in cash and bank overdrafts (546 ) (1,414 )
Cash and bank overdrafts at beginning of year 3,819 5,262
Exchange adjustments 152 (29 )
Decrease in cash and bank overdrafts (546 ) (1,414 )
Cash and bank overdrafts at end of year 3,425 3,819
Cash and bank overdrafts at end of year comprise:
Cash and cash equivalents 3,723 4,274
Overdrafts (298 ) (455 )
3,425 3,819
Total net cash inflow from operating activities
Total net cash generated from operating activities for the year was £7,403 million (2021: £7,952 million).
The decrease primarily reflected unfavourable timing of profit share payments for Xevudy sales, increased cash contributions to UK pension schemes, increased contingent consideration payments for the settlement with Gilead and to Shionogi, plus a higher increase in inventory and a reduction in cash from discontinued operations. The decrease was primarily offset by a significant increase in operating profit including the upfront income from the settlement with Gilead, favourable exchange impact and favourable timing of collections.
Reconciliation of net cash inflow from continuing operating activities to free cash inflow
A reconciliation of net cash inflow from operating activities, which is the closest equivalent IFRS measure to free cash flow, is shown below.
2022 £m 2021(1) £m
Net cash inflow from continuing operating activities 6,634 6,277
Purchase of property, plant and equipment (1,143 ) (950 )
Purchase of intangible assets (1,115 ) (1,704 )
Proceeds from sale of property, plant and equipment 146 132
Proceeds from sale of intangible assets 196 641
Net finance costs (784 ) (758 )
Dividends from joint ventures and associates 6 9
Contingent consideration paid (reported in investing activities) (79 ) (114 )
Contribution from non-controlling interests 8 7
Distributions to non-controlling interests (521 ) (239 )
Free cash inflow 3,348 3,301
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Capital expenditure and financial investment
Cash payments for tangible and intangible fixed assets amounted to £2,258 million (2021: £2,654 million) and disposals realised £342 million (2021: £773 million). Cash payments to acquire equity investments amounted to £143 million (2021: £162 million) and sales of equity investments realised £238 million (2021: £202 million).
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Free cash flow
Free cash flow is the amount of cash generated by the Group after meeting our obligations for contingent consideration, interest, tax and dividends paid to non-controlling interests, and after capital expenditure on property, plant and equipment and intangible assets.
2022 £m 2021(1) £m
Free cash inflow 3,348 3,301
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total cash payments to Shionogi in relation to the ViiV Healthcare contingent consideration liability in the year were £1,100 million (2021: £826 million), of which £1,031 million was recognised in cash flows from operating activities and £69 million was recognised in contingent consideration paid within investing cash flows. These payments are deductible for tax purposes.
Future cash flow
Over the long term, we expect that future cash generated from operations will be sufficient to fund our operating and debt servicing costs, normal levels of capital expenditure, obligations under existing licensing agreements, expenditure arising from restructuring programmes and other routine outflows including tax, pension contributions and dividends, subject to the “Principal risks and uncertainties” discussed under Item 3.D “Risk Factors” above. We may from time to time have additional demands for finance, such as for acquisitions. We have access to multiple sources of liquidity from short and long-term capital markets and financial institutions for such needs, in addition to the cash flow from operations.
Investment appraisal and capital allocation
We have a strong framework for capital allocation, including a board to govern the allocation of capital between our businesses. We utilise a consistent cash return on invested capital (CROIC) methodology to prioritise investment across the Group as a whole, so that we can more effectively compare the returns from each of the businesses as we allocate capital between them. We also consider the impact on EPS and our credit profile where relevant.
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Financial position and resources
2022 £m 2021 £m
Assets
Non-current assets
Property, plant and equipment 8,933 9,932
Right of use assets 687 740
Goodwill 7,046 10,552
Other intangible assets 14,318 30,079
Investments in associates and joint ventures 74 88
Other investments 1,467 2,126
Deferred tax assets 5,658 5,218
Derivative financial instruments — 18
Other non-current assets 1,194 1,676
Total non-current assets 39.377 60,429
Current assets
Inventories 5,146 5,783
Current tax recoverable 405 486
Trade and other receivables 7,053 7,860
Derivative financial instruments 190 188
Current equity investments 4,087 —
Liquid investments 67 61
Cash and cash equivalents 3,723 4,274
Assets held for sale 98 22
Total current assets 20,769 18,674
Total assets 60,146 79,103
Liabilities
Current liabilities
Short-term borrowings (3,952 ) (3,601 )
Contingent consideration liabilities (1,289 ) (958 )
Trade and other payables (16,263 ) (17,554 )
Derivative financial instruments (183 ) (227 )
Current tax payable (471 ) (489 )
Short-term provisions (652 ) (841 )
Total current liabilities (22,810 ) (23,670 )
Non-current liabilities
Long-term borrowings (17,035 ) (20,572 )
Corporation tax payable (127 ) (180 )
Deferred tax liabilities (289 ) (3,556 )
Pensions and other post-employment benefits (2,579 ) (3,113 )
Other provisions (532 ) (630 )
Derivative financial instruments — (1 )
Contingent consideration liabilities (5,779 ) (5,118 )
Other non-current liabilities (899 ) (921 )
Total non-current liabilities (27,240 ) (34,091 )
Total liabilities (50,050 ) (57,761 )
Net assets 10,096 21,342
Total equity 10,096 21,342
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Property, plant and equipment
Our business is science-based, technology-intensive and highly regulated by governmental authorities. We allocate significant financial resources to the renewal and maintenance of our property, plant, equipment and vehicles to minimise risks of interruption to production and to ensure compliance with regulatory standards. A number of our processes use hazardous materials.
The total cost of our property, plant and equipment at 31 December 2022 was £19,451 million, with a net book value of £8,933 million. Of this, land and buildings represented £3,113 million, plant, equipment and vehicles £4,012 million and assets in construction £1,808 million. In 2022, we invested £1,245 million in new property, plant and equipment. This was mainly related to a large number of projects for the renewal, improvement and expansion of facilities at various worldwide sites to support new product development and launches as well as to improve the efficiency of existing supply chains. Property is mainly held freehold. New investment is financed from our liquid resources. At 31 December 2022, we had contractual commitments for future capital expenditure of £743 million. We believe that our property and plant facilities are adequate for our current requirements.
We observe stringent procedures and use specialist skills to manage environmental risks from our activities. Environmental issues, sometimes dating from operations now modified or discontinued, are reported under ‘Environment’ on pages 45 and 46 of the GSK Annual Report 2022 and in “Note 47 – Legal Proceedings” to the financial statements incorporated by reference in Item 18 below.
Right of use assets
Right of use assets amounted to £687 million at 31 December 2022 compared with £740 million at 31 December 2021. The decrease in the year reflected the impact of depreciation and transfer to assets held for sale/distribution of £192 million and £127 million respectively, disposals and impairments amounting to £75 million, partly offset by additions through business combinations of £53 million and other additions of £233 million.
Goodwill
Goodwill decreased to £7,046 million at 31 December 2022, from £10,552 million primarily as a result of transfer of assets held for sale/distribution of £5,183 million for the Consumer Healthcare demerger partially offset by an increase of £1,127 million for the acquisitions of Sierra Oncology and Affinivax. The values for Affinivax are provisional and are subject to change.
Other intangible assets
Other intangible assets include the cost of intangibles acquired from third parties and computer software. The net book value of other intangible assets as at 31 December 2022 was £14,318 million (2021: £30,079 million). The decrease primarily reflected transfer to assets held for sale/distribution of £20,057 million, impairment losses, net of reversals and amortisation of £1,519 million, offset by additions, net of disposals, write-offs of £4,047 million and exchange rate gains of £1,628 million.
Investments in associates and joint ventures
We held investments in associates and joint ventures with a carrying value at 31 December 2022 of £74 million (2021: £88 million). See “Note 21 – Investments in associates and joint ventures” to the financial statements incorporated by reference in Item 18 below for more details.
Current equity investments
Current equity investments amounted to £4,087 million at 31 December 2022 (2021: £nil). Current equity investments comprise equity investments which the Group holds with the intention to sell and which it may sell in the short term. Where acquired with this intention, they are measured at fair value through the profit and loss (FVTPL). They are initially recorded at fair value plus transaction costs and then remeasured at subsequent reporting dates to fair value. Unrealised gains and losses are recognised in the income statement. The investment of £4,087 million (2021: £nil) represents the shares held in Haleon after the demerger.
Other investments
We held other investments with a carrying value at 31 December 2022 of £1,467 million (2021: £2,126 million). The most significant of these investments held at 31 December 2022 were in Vir Biotechnology and Nimbus Discovery. These investments had a fair value at 31 December 2022 of £180 million (2021: £266 million) and £139 million (2021: £32 million) respectively. The other investments included equity stakes in companies with which we have research collaborations, and which provide access to biotechnology developments of potential interest and interests in companies that arise from business divestments.
Derivative financial instruments: assets
We held current derivative financial assets at fair value of £190 million (2021: £188 million) and non-current derivative financial assets held at fair value of £nil (2021: £18 million). The majority of these financial instruments related to foreign exchange contracts both designated and not designated as accounting hedges.
Inventories
Inventories amounted to £5,146 million (2021: £5,783) at 31 December 2022. The decrease was mainly driven by the Consumer Healthcare demerger partially offset by vaccines stock build.
Trade and other receivables
Trade and other receivables amounted to £7,053 million (2021: £7,860 million) at 31 December 2022. The decrease was mainly driven by the Consumer Healthcare demerger and lower pandemic adjuvant sales compared to last year.
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Deferred tax assets
Deferred tax assets amounted to £5,658 million (2021: £5,218 million) at 31 December 2022.
Derivative financial instruments: liabilities
We held current and non-current derivative financial liabilities at fair value of £183 million (2021: £228 million). This primarily related to foreign exchange contracts both designated and not designated as accounting hedges.
Trade and other payables
At 31 December 2022, trade and other payables were £16,263 million compared with £17,554 million at 31 December 2021. See “Note 29 – Trade and other payables” to the financial statements incorporated by reference in Item 18 below. The decrease was mainly driven by the Consumer Healthcare demerger and profit share collaborations offset by an increase in promotional activity in the regions.
Provisions
We carried deferred tax provisions and other short-term and non-current provisions of £1,473 million at 31 December 2022 (2021: £5,027 million). Other provisions at the year-end included £218 million (2021: £196 million) related to legal and other disputes and £351 million (2021: £652 million) related to Major restructuring programmes. Provision has been made for legal and other disputes, indemnified disposal liabilities, employee related liabilities and the costs of the restructuring programme to the extent that at the balance sheet date a legal or constructive obligation existed and could be reliably estimated.
Pensions and other post-employment benefits
We account for pension and other post-employment arrangements in accordance with IAS 19. The net deficits were £1,356 million (2021: £1,129 million) on pension arrangements and £994 million (2021: £1,243 million) on unfunded post- employment liabilities. See “Note 31 – Pensions and other post-employment benefits” to the financial statements, incorporated by reference in Item 18 below.
Other non-current liabilities
Other non-current liabilities amounted to £899 million at 31 December 2022 (2021: £921 million).
Contingent consideration liabilities
Contingent consideration amounted to £7,068 million at 31 December 2022 (2021: £6,076 million), of which £5,890 million (2021: £5,559 million) represented the estimated present value of amounts payable to Shionogi relating to ViiV Healthcare, £501 million (2021: £nil) represented the estimated present value of contingent consideration payable to the former shareholders of Affinivax and £673 million (2021: £479 million) represented the estimated present value of contingent consideration payable to Novartis related to the Vaccines acquisition.
The liability due to Shionogi was £263 million in respect of preferential dividends. An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on pages 19 to 20 above.
Of the total contingent consideration payable (on a post-tax basis) at 31 December 2022, £940 million (2021: £937 million) is expected to be paid within one year. The consideration payable is expected to be paid over a number of years. As a result, the total estimated liabilities are discounted to their present values, on a post-tax basis using post-tax discount rates.
The Shionogi-ViiV Healthcare contingent consideration liability is discounted at 8% and the Novartis Vaccines contingent consideration liability is discounted partly at 7.5% and partly at 8.5%.
Net debt
2022 £m 2021 £m
Liquid investments 67 61
Cash and cash equivalents 3,723 4,274
Short term borrowings (3,952 ) (3,601 )
Long term borrowings (17,035 ) (20,572 )
Net debt the end of the year (17,197 ) (19,838 )
At 31 December 2022, net debt was £17.2 billion, compared with £19.8 billion at 31 December 2021, comprising gross debt of £21.0 billion and cash and liquid investments of £3.8 billion. Net debt reduced by £2.6 billion primarily due to £3.3 billion free cash flow from continuing operations, £0.2 billion disposals of equity investments and £7.2 billion decrease from discontinued operations as result of demerger primarily reflecting £7.1 billion of pre-separation dividends attributable to GSK funded by Consumer Healthcare debt. This was partly offset by purchases of businesses of £3.1 billion, net of cash acquired, reflecting the acquisitions of Sierra Oncology and Affinivax, dividends paid to shareholders of £3.5 billion, net adverse exchange impacts of £1.4 billion from the translation of non-Sterling denominated debt and exchange on other financing items and £0.1 billion purchases of equity investments.
At 31 December 2022, GSK had short-term borrowings (including overdrafts and lease liabilities) repayable within 12 months of £4.0 billion and £1.9 billion repayable in the subsequent year.
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At 31 December 2022, GSK’s cash and liquid investments were held as follows:
2022 £m 2021 £m
Bank balances and deposits 1,324 2,825
US Treasury and Treasury repo only money market funds 146 54
Liquidity funds 2,253 1,395
Cash and cash equivalents 3,723 4,274
Liquid investments – government securities 67 61
3,790 4,335
Cash and liquid investments of £3.1 billion (2021: £2.9 billion) were held centrally at 31 December 2022.
The analysis of cash and gross debt after the effects of hedging is as follows:
2022 £m 2021 £m
Liquid investments 67 61
Cash and cash equivalents 3,723 4,274
Gross debt – fixed (19,214 ) (23,167 )
– floating (1,773 ) (1,006 )
Net debt (17,197 ) (19,838 )
Movements in net debt
2022 £m 2021 £m
Total net debt at beginning of year (19,838 ) (20,780 )
Decrease in cash and bank overdrafts (7,597 ) (2,504 )
Decrease in liquid investments (1 ) (18 )
Net decrease in long-term loans 569 —
Net decrease of short-term loans 4,053 2,003
Repayment of lease liabilities 202 181
Debt of subsidiary undertaking acquired (24 ) —
Exchange adjustments (1,531 ) 314
Other non-cash movements (207 ) (134 )
Decrease/(increase) in net debt from continuing operations (4,536 ) (158 )
Decrease/(increase) in net debt from discontinued operations 7,177 1,100
Total net debt at end of year (17,197 ) (19,838 )
Total equity
At 31 December 2022, total equity had decreased from £21,342 million at 31 December 2021 to £10,096 million.
A summary of the movements in equity is set out below:
2022 £m 2021 £m
Total equity at beginning of year 21,342 20,808
Total comprehensive income for the year 14,790 4,759
Non-cash distribution to non-controlling interests (2,960 ) —
Deconsolidation of former subsidiaries (3,045 ) —
Dividends to shareholders (3,467 ) (3,999 )
Ordinary shares issued 25 21
Changes in non-controlling interests (20 ) —
Non-cash dividends to shareholders (15,526 ) —
Hedging gain/loss transferred to non-financial assets 9 —
Transaction with non-controlling interest — 10
Share-based incentive plans 357 367
Tax on share-based incentive plans (8 ) 11
Contributions from non-controlling interests 8 7
Distributions to non-controlling interests (1,409 ) (642 )
Total equity at end of year 10,096 21,342
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Share purchases
At 31 December 2022, GSK held 217.1 million shares as Treasury shares (2021: 284.2 million shares), at a cost of £3,798 million (2021: £4,969 million), which has been deducted from retained earnings.
No ordinary shares were repurchased in the period 1 January 2022 to 28 February 2023 and the company does not expect to make any ordinary share repurchases in the remainder of 2023.
In 2022, 77.1 million Treasury shares were transferred to the Employee Share Ownership Plan (ESOP) Trusts, of which 50.3 million shares were transferred prior to the share consolidation. Shares are held by the Trusts to satisfy future exercises of options and awards under the Group share option and award schemes.
A proportion of the shares held by the Trusts are in respect of awards where the rules of the scheme require GSK to satisfy exercises through market purchases rather than the issue of new shares. The shares held by the Trusts are matched to options and awards granted.
At 31 December 2022, the ESOP Trusts held 59.9 million (2021: 23.3 million) GSK shares against the future exercise of share options and share awards. The carrying value of £353 million (2021: £27 million) has been deducted from other reserves. The market value of these shares was £861 million (2021: £371 million).
Contractual obligations and commitments
Financial commitments are summarised in “Note 36 – Commitments” and in “Note 44 – Financial instruments and related disclosures” to the financial statements incorporated by reference in Item 18 below.
The following table sets out our contractual obligations and commitments at 31 December 2022 as they fall due for payment.
Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+
£m £m £m £m £m
Loans 20,086 3,786 3,213 2,259 10,828
Interest on loans 6,322 594 1,101 961 3,666
Finance lease obligations 1,008 167 328 177 336
Future Finance Charges on leases 146 25 41 28 52
Lease contracts that have not yet commenced 396 18 42 68 268
Intangible assets 10,659 317 590 1,616 8,136
Property, plant & equipment 743 612 131 — —
Investments 138 51 71 13 3
Purchase commitments 161 96 61 4 —
Pensions and post-retirement benefits 345 345 — — —
Total 40,004 6,011 5,578 5,126 23,289
Commitments in respect of loans and future interest payable on loans are disclosed before taking into account the effect of derivatives.
We have entered into a number of research collaborations to develop new compounds with other pharmaceutical companies. The terms of these arrangements can include upfront fees, equity investments, loans and commitments to fund specified levels of research. In addition, we will often agree to make further payments if future ‘milestones’ are achieved.
As some of these agreements relate to compounds in the early stages of development, the potential obligation to make milestone payments will continue for a number of years if the compounds move successfully through the development process. Generally, the closer the product is to marketing approval, the greater the probability of success. The amounts shown above within intangible assets represent the maximum that would be paid if all milestones were achieved. There was a decrease in the commitments in 2022 as a result of a reduction in outstanding loan commitments.
In connection with the demerger of Consumer Healthcare, the 31 December 2020 pension scheme valuations identified cash funding or technical provisions deficits in three GSK UK Pension Schemes. Scottish limited partnerships (“SLPs”) were established to provide a funding mechanism for each of GSK’s UK defined benefit pension schemes. The SLPs together hold shares representing 7.5% of the total issued share capital of Haleon.
Each pension scheme, through its SLP interest, is entitled to receive a distribution from that SLP in an amount equal to the net proceeds of sales of Haleon shares, and to receive dividend income on Haleon shares, until it has received an aggregate amount equal to an agreed threshold (“Proceeds Threshold”). The Proceeds Thresholds total £1,080 million (as increased by notional interest on the remaining balance from time to time), and payment of this amount would fully fund the cash funding or technical provisions deficits in the three schemes shown by the 31 December 2020 valuations. Once the Proceeds Threshold has been reached the GSK-controlled General Partner of each SLP is entitled to sell the remaining Haleon shares held by the SLP and distribute the proceeds to GSK. As at 31 December 2022, £345 million remains outstanding to the UK Pension Trustees.
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Contingent liabilities
Other contingent liabilities are set out in “Note 35 – Contingent liabilities” to the financial statements incorporated by reference in Item 18 below.
The following table sets out contingent liabilities, comprising performance guarantees, letters of credit and other items arising in the normal course of business, and when they are expected to expire.
Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+
£m £m £m £m £m
Guarantees 12 8 3 — 1
Other contingent liabilities 46 10 — 11 25
Total 58 18 3 11 26
In the normal course of business, we have provided various indemnification guarantees in respect of business disposals in which legal and other disputes have subsequently arisen. A provision is made where an outflow of resources is considered probable and a reliable estimate can be made of the likely outcome of the dispute and this is included in “Note 32 – Other provisions” to the financial statements incorporated by reference in Item 18 below.
We provide for the outcome of tax, legal and other disputes when an outflow of resources is considered probable and a reliable estimate of the outflow may be made. At 31 December 2022, other than for those disputes where provision has been made, it was not possible to make a reliable estimate of the potential outflow of funds that might be required to settle disputes where the possibility of there being an outflow was more than remote.
The ultimate liability for such matters may vary significantly from the amounts provided and is dependent upon negotiations with the relevant tax authorities and the outcome of litigation proceedings, where relevant. This is discussed further in ‘Principal risks and uncertainties’ under Item 3.D above on pages 3 to 8 above and “Note 47 – Legal proceedings” to the financial statements incorporated by reference in Item 18 below.
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Group Financial Review 2021
2021 Financial performance
Financial performance growth commentary other than for growth in Group turnover is not available at CER without unreasonable effort. Growth in turnover is provided at both AER and CER; growth in all other line items is provided at AER only.
The Total results of the Group are set out below.
2021(1) 2020(1) Growth
% of % of
£m turnover £m turnover £%
Turnover 24,696 100 24,354 100 1
Cost of sales (8,163 ) (33.1 ) (7,929 ) (32.6 ) 3
Gross profit 16,533 66.9 16,425 67.4 1
Selling, general and administration (7,070 ) (28.6 ) (7,437 ) (30.5 ) (5 )
Research and development (5,019 ) (20.3 ) (4,793 ) (19.7 ) 5
Royalty income 417 1.7 321 1.3 30
Other operating (expenses)/income (504 ) 1,463
Operating profit 4,357 17.6 5,979 24.6 (27 )
Net finance costs (755 ) (842 )
Loss on disposal of interest in associates (36 )
Share of after-tax (losses)/profits of associates and joint ventures 33 33
Profit before taxation 3,599 5,170 (30 )
Taxation (83 ) (67 )
Profit after taxation from continuing operations for the year 3,516 5,103 (31 )
Profit after taxation from discontinued operations and other gains from the demerger 1,580 1,285
Remeasurement of discontinued operations distributed to shareholders on demerger — —
Profit after taxation from discontinued operations 1,580 1,285 23
Total profit after taxation for the year 5,096 6,388 (20 )
Profit attributable to non-controlling interests from continuing operations 200 230
Profit attributable to shareholders from continuing operations 3,316 4,873
Profit attributable to non-controlling interests from discontinued operations 511 409
Profit attributable to shareholders from discontinued operations 1,069 876
5,096 6,388 (20 )
Total profit attributable to non-controlling interests 711 639
Total profit attributable to shareholders 4,385 5749
5,096 6,388 (20 )
Earnings per share from continuing operations (p) 82.9p 122.4p (32 )
Earnings per share from discontinued operations (p) 26.7p 22.0p 21
Total earnings per share (p) 109.6p 144.4p (24 )
Earnings per ADS from continuing operations (US$) 2.29 3.16
Earnings per ADS from discontinued operations (US$) 0.73 0.57
Total earnings per ADS (US$) 3.02 3.73
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
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The Adjusted results for the Group are set out below. Reconciliations between Total results and Adjusted results for 2021 and 2020 are set out on pages 12 and 13 above.
2021(1) 2020(1) Growth
£m % of turnover £m % of turnover £%
Turnover 24,696 100 24,354 100 1
Cost of sales (7,346 ) (29.7 ) (6,672 ) (27.4 ) 10
Selling, general and administration (6,749 ) (27.3 ) (7,025 ) (28.8 ) (4 )
Research and development (4,525 ) (18.3 ) (4,322 ) (17.7 ) 5
Royalty income 417 1.6 321 1.2 30
Adjusted(2) operating profit 6,493 26.3 6,656 27.3 (2 )
Adjusted profit attributable to shareholders 4,415 4,554 (3 )
Adjusted profit attributable to non-controlling interest 441 481
Adjusted profit after tax 4,856 5,035 (4 )
Adjusted earnings per share (p) 110.3p 114.4p (4 )
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
(2) Adjusted results are non-IFRS measures excluding discontinued operations and other adjustments that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results, AER growth, CER growth and other non-IFRS measures are defined below under “Reporting framework”.
Historical record of Adjusting items
The reconciliations between Total and Adjusted operating profit from continuing operations for 2021(1) and 2020(1) can be summarised as follows:
2021(1) £m 2020(1) £m
Total operating profit from continuing operations 4,357 5,979
Intangible amortisation 761 724
Intangible impairment 347 200
Major restructuring 424 1,178
Transaction-related items 1,143 1,237
Divestments, significant legal and other items (539 ) (2,662 )
Adjusted results 6,493 6,656
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below)
The analysis of the impact of transaction-related items on operating profit for each of the last three years is as follows:
2021(1) £m 2020(1) £m
Contingent consideration on former Shionogi-ViiV Healthcare JV (including Shionogi preferential dividends) 1,026 1,114
ViiV Healthcare put options and Pfizer preferential dividends 48 (52 )
Contingent consideration on former Novartis Vaccines business 27 172
Other adjustments 42 3
Transaction-related items 1,143 1,237
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below)
Full reconciliations between Total and Adjusted results for 2021 and 2020 are set out on pages 12 and 13 above.
Non-controlling interests in ViiV Healthcare
Trading profit allocations
As ViiV Healthcare is a subsidiary of the Group, 100% of its operating results (turnover, operating profit, profit after tax) are included within the Group income statement and then a portion of the earnings is allocated to the non-controlling interests owned by the other shareholders, in line with their respective equity shareholdings (Pfizer, Inc. (Pfizer) 11.7% and Shionogi & Co. Ltd (Shionogi) 10%). Each of the shareholders, including GSK, is also entitled to preferential dividends determined by the performance of certain products that each shareholder contributed. As the relative performance of these products changes over time, the proportion of the overall earnings allocated to each shareholder also changes. In particular, the increasing proportion of sales of dolutegravir and cabotegravir-containing products has a favourable impact on the proportion of the preferential dividends that is allocated to GSK. Adjusting items are allocated to shareholders based on their equity interests. GSK was entitled to approximately 86% of the Total earnings and 83% of the Adjusted earnings of ViiV Healthcare for 2021. Remeasurements of the liabilities for the preferential dividends allocated to Pfizer and Shionogi are included within other operating income/(expense).
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Acquisition-related arrangements
As consideration for the acquisition of Shionogi’s interest in the former Shionogi-ViiV Healthcare joint venture in 2012, Shionogi received the 10% equity stake in ViiV Healthcare and ViiV Healthcare also agreed to pay additional future cash consideration to Shionogi, contingent on the future sales performance of the products being developed by that joint venture, dolutegravir and cabotegravir. Under IFRS 3 ‘Business combinations’, GSK was required to provide for the estimated fair value of this contingent consideration at the time of acquisition and is required to update the liability to the latest estimate of fair value at each subsequent period end. The liability for the contingent consideration recognised in the balance sheet at the date of acquisition was £659 million. Subsequent re-measurements are reflected within other operating income/(expense) and within Adjusting items in the income statement in each period.
Cash payments to settle the contingent consideration are made to Shionogi by ViiV Healthcare each quarter, based on the actual sales performance and other income of the relevant products in the previous quarter. These payments reduce the balance sheet liability and hence are not recorded in the income statement. The cash payments made to Shionogi by ViiV Healthcare in 2021 were £826 million.
As the liability is required to be recorded at the fair value of estimated future payments, there is a significant timing difference between the charges that are recorded in the Total income statement to reflect movements in the fair value of the liability and the actual cash payments made to settle the liability.
The cash payments are reflected in the cash flow statement partly in operating cash flows and partly within investing activities. The tax relief on these payments is reflected in the Group’s Adjusting items as part of the tax charge. The part of each payment relating to the original estimate of the fair value of the contingent consideration on the acquisition of the Shionogi-ViiV Healthcare joint venture in 2012 of £659 million is reported within investing activities in the cash flow statement and the part of each payment relating to the increase in the liability since the acquisition is reported within operating cash flows.
Movements in contingent consideration payable to Shionogi were as follows:
2021 £m 2020 £m
Contingent consideration at beginning of the year 5,359 5,103
Remeasurement through income statement and other movements 1,026 1,114
Cash payments: operating cash flows (721 ) (751 )
Cash payments: investing activities (105 ) (107 )
Contingent consideration at end of the year 5,559 5,359
Of the contingent consideration payable (on a post-tax basis) to Shionogi at 31 December 2021, £937 million (31 December 2020: £745 million) is expected to be paid within one year.
Exit rights
Pfizer may request an IPO of ViiV Healthcare at any time and if either GSK does not consent to such IPO or an offering is not completed within nine months, Pfizer could require GSK to acquire its shareholding. Under the original agreements, GSK had the unconditional right, so long as it made no subsequent distribution to its shareholders, to withhold its consent to the exercise of the Pfizer put option and, as a result, in accordance with IFRS, GSK did not recognise a liability for the put option on its balance sheet. However, during Q1 2016, GSK notified Pfizer that it had irrevocably given up this right and accordingly recognised the liability for the put option on the Group’s balance sheet during Q1 2016 at an initial value of £1,070 million. Consistent with this revised treatment, at the end of Q1 2016 GSK also recognised liabilities for the future preferential dividends anticipated to become payable to Pfizer and Shionogi on the Group’s balance sheet.
Pfizer has the right to require GSK to acquire its shareholding in ViiV Healthcare in certain circumstances at any time. A put option liability is therefore recorded on the Group’s balance sheet as a current liability. It is measured on the gross redemption basis derived from an internal valuation of the ViiV Healthcare business.
The closing balances of the liabilities related to Pfizer’s shareholding are as follows:
2021 £m 2020 £m
Pfizer put option 1,008 960
Pfizer preferential dividend — 1
Under the original agreements, Shionogi could also have requested GSK to acquire its shareholding in ViiV Healthcare in six-month windows commencing in 2017, 2020 and 2022. GSK had the unconditional right, so long as it made no subsequent distribution to its shareholders, to withhold its consent to the exercise of the Shionogi put option and, as a result, GSK did not recognise a liability for the put option on its balance sheet.
However, during Q1 2016, GSK notified Shionogi that it had irrevocably given up this right and accordingly recognised the liability for the put option on the Group’s balance sheet during Q1 2016 at an initial value of £926 million. In Q4 2016, Shionogi irrevocably agreed to waive its put option and as a result GSK de-recognised the liability for this put option on the Group’s balance sheet directly to equity. The value of the liability was £1,244 million when it was de-recognised.
GSK also has a call option over Shionogi’s shareholding in ViiV Healthcare, which under the original agreements was exercisable in six-month windows commencing in 2027, 2030 and 2032. GSK has now irrevocably agreed to waive the first two exercise windows, but the last six-month window in 2032 remains. As this call option is at fair value, it has no value for accounting purposes.
Settlement with Gilead
On 1 February 2022, ViiV Healthcare reached agreement with Gilead to settle the global patent infringement litigation relating to the commercialisation of Gilead’s Biktarvy. Under the terms of the global settlement and licensing agreement, Gilead made an upfront payment of $1.25 billion to ViiV Healthcare in February 2022. In addition, Gilead will also pay a 3% royalty on all future US sales of Biktarvy and in respect of the bictegravir component of any other future bictegravir- containing products sold in the US. These royalties will be payable by Gilead to ViiV Healthcare from 1 February 2022 until the expiry of ViiV Healthcare’s US Patent No. 8,129,385 on 5 October 2027. Gilead’s obligation to pay royalties does not extend into any period of regulatory paediatric exclusivity, if awarded. The settlement resulted in a re- measurement of the existing liabilities for contingent consideration and the Pfizer put option at the 2021 year end.
The impact of the settlement with Gilead on the contingent consideration liability (CCL) was to increase it by £288 million, on a post-tax basis in Q4 2021 due to the obligation ViiV Healthcare has to pay future cash consideration to Shionogi for its share of the upfront and of the future US sales performance of Biktarvy and products containing bictegravir. Including the impact of the settlement at 31 December 2021, the liability which is discounted at 8% stood at £5,559 million, on a post-tax basis.
The impact of the settlement on the Pfizer put option liability was an increase of £114 million and was included in the re-measurement at 31 December 2021.
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Reporting definitions
Reporting definitions are set out on pages 20 and 21 above.
Group turnover
2021(1) £m 2020(1) £m Growth £% Growth CER%
Specialty Medicines 8,251 6,969 18 25
Vaccines 6,778 6,982 (3 ) 2
General Medicines 9,667 10,281 (6 ) (3 )
Consumer Healthcare(2) — 122 — —
24,696 24,354 1 6
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below)
(2) Sales of products outside the perimeter of the Consumer Healthcare business related to sale of shares to Hindustan Unilever.
Group turnover was £24,696 million in 2021, up 1% at AER, 6% at CER compared to 2020. In 2021 sales of COVID-19 solutions contributed growth of 6% at AER and 6% CER.
Specialty Medicines turnover in the year was £8,251 million, up 18% AER, 25% CER. Sales of Xevudy, the monoclonal antibody treatment for COVID-19 of £958 million contributed approximately 15 percentage points to Specialty Medicines growth.
Vaccines turnover in the year decreased 3% at AER but grew 2% at CER to £6,778 million, primarily driven by pandemic adjuvant sales, partially offset by foreign exchange and lower demand for routine adult vaccination due to COVID-19 vaccination programme deployment and disease circulation across regions, resulting in lower Shingrix and Hepatitis vaccines sales. Unfavourable US prior period RAR adjustments reduced overall Vaccines growth by approximately 2 percentage points, particularly in Fluarix/ FluLaval and Shingrix where the impact on product growth was a decrease of 7% and a decrease of 2% respectively.
Sales of pandemic adjuvant contributed 6% at AER, 7% at CER. Excluding these sales Vaccines turnover decreased 9% AER, 5% CER to £6,331 million.
General Medicines in the year decreased 6% at AER and 3% at CER to £9,667 million.
Commercial Operations Innovation sales (sales of products launched in the last five years including lifecycle innovation) amounted to £6,841 million (excluding COVID-19 solutions) in 2021 largely driven by sales of Shingrix, Trelegy, Nucala, Benlysta, Dovato, Juluca, and Zejula.
Specialty Medicines turnover
2021(1) (revised) £m 2020(1) (revised) £m Growth £% Growth CER%
HIV 4,777 4,876 (2 ) 3
Oncology 489 372 31 37
Immuno-inflammation, respiratory and other 2,027 1,721 18 25
7,293 6,969 5 10
Pandemic 958 —
Specialty medicines 8,251 6,969 18 25
(1) 2021 and 2020 have been revised to reflect changes to product groups previously reported as Established Pharmaceuticals.
HIV
HIV sales were £4,777 million a decrease of 2% AER but growth of 3% CER for the year. Triumeq sales were £1,882 million, down 18% AER, 14% CER and Tivicay sales were £1,381 million, down 10% AER, 4% CER. The mature portfolio resulted in less than 1 percentage point of CER sales decrease.
New HIV products Juluca, Dovato, Rukobia and Cabenuva delivered sales of £1,387 million representing 29% of the total HIV portfolio (18% in 2020). Sales of the two drug regimens Juluca and Dovato were £517 million and £787 million, respectively, with combined growth of 50% AER, 58% CER. Rukobia sales were £45 million. Cabenuva, the first long acting injectable, recorded £38 million of sales for the full year.
In the US, total sales were £2,898 million with a decrease of 4% AER, but growth of 3% CER. New HIV products delivered sales of £896 million, including: Dovato £428 million with growth of 87% AER, 99% CER, Juluca £393 million with growth of 2% AER, 8% CER, Rukobia £43 million and Cabenuva £32 million. Combined Tivicay and Triumeq sales were £1,953 million declining 16% AER, 11% CER. In Europe, total sales were £1,194 million with a decrease of 2% AER, but growth of 1% CER. New HIV products delivered sales of £420 million, including: Dovato sales of £302 million, which more than doubled at AER and CER, and Juluca £111 million with growth of 14% AER, 18% CER. Combined Tivicay and Triumeq sales were £738 million declining 21% AER, 19% CER. International continued to grow strongly with total sales of £685 million, with growth of 4% AER, 11% CER, driven by the Tivicay tender business and new HIV products.
Oncology
Sales of Zejula, the PARP inhibitor treatment for ovarian cancer were £395 million, up 17% AER, 22% CER, impacted by ongoing lower diagnosis rates due to the COVID-19 pandemic, particularly in the US. Sales included £212 million in the US and £163 million in Europe.
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Blenrep for the treatment of patients with relapsed or refractory multiple myeloma was approved and launched in the US and Europe in Q3 2020, with ongoing launches throughout Europe in 2021. Blenrep sales globally totalled £89 million.
Immuno-inflammation, respiratory and other
Immuno-inflammation, respiratory and other sales were £2,027 million, up 18% AER, 25% CER with Benlysta sales up 22% AER, 29% CER to £874 million, benefitting from lupus nephritis launches in US and Japan in H2 2020.
Sales of Nucala were £1,142 million in the year and grew 15% AER, 22% CER, with consistent, strong growth across all three regions. US sales were up 15% AER, 23% CER to £690 million and International sales of £195 million grew 23% AER, 34% CER. Europe sales of £257 million grew 8% AER, 11% CER.
Pandemic sales
Sales of Xevudy were £958 million in the year, reflecting the ongoing fulfilment of contracts across the world and most significantly in the US, which reported sales of £602 million. International recorded sales of £287 million and Europe £69 million.
Vaccines turnover
2021 £m 2020 £m Growth £% Growth CER%
Meningitis 961 1,029 (7 ) (2 )
Influenza 679 733 (7 ) (2 )
Shingles 1,721 1,989 (13 ) (9 )
Established Vaccines 2,970 3,231 (8 ) (4 )
6,331 6,982 (9 ) (5 )
Pandemic Vaccines 447 —
Vaccines 6,778 6,982 (3 ) 2
Meningitis
Meningitis sales decreased 7% AER, 2% CER to £961 million driven primarily by unrepeated International tender volumes for other meningitis vaccines. Bexsero sales were stable at AER, but grew 5% CER to £650 million, reflecting increased market share in the US.
Menveo sales were up 3% AER, 9% CER to £272 million, primarily driven by 2020 cohort catch-up vaccinations and 2021 higher demand, as well as increased market share in the US.
Influenza
Fluarix/FluLaval sales decreased 7% AER, 2% CER, to £679 million as a result of unfavourable prior period RAR movements in the US, partially offset by higher volume in the US and strong southern hemisphere demand in International.
Shingles
Shingrix decreased 13% AER, 9% CER to £1,721 million, primarily driven by lower demand in the US and International for routine adult vaccination due to COVID-19 vaccination programme deployment and disease circulation. In Europe, sales growth was driven by Germany and launches in the UK, Spain and Italy. Shingrix was sold in 17 countries, including 9 markets launched during 2021.
Established Vaccines
Hepatitis vaccines sales were down 20% AER, 16% CER to £460 million, adversely impacted by de-prioritisation of routine US adult vaccinations, increased Hepatitis B vaccine competition and unfavourable CDC stockpile movements in the US, and by COVID-19 related travel restrictions in Europe and International.
Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) decreased 4% AER but grew 1% CER. Infanrix/ Pediarix sales decreased 14% AER, 9% CER to £543 million, reflecting lower tender volume in Europe and International as well as a change in recommendation for the dosing schedule in Germany, partly offset by increased demand in the US. Boostrix sales grew 9% AER, 14% CER to £521 million, largely driven by demand recovery and tender volumes in International, as well as higher demand and share in the US.
Rotarix sales were down 3% AER but up 1% CER to £541 million, reflecting demand recovery in International and foreign exchange impacts.
Synflorix sales decreased by 11% AER, 8% CER to £357 million, primarily due to lower tender demand in Emerging markets. MMRV vaccines sales were stable at AER but grew 4% CER to £260 million, largely driven by higher demand in International.
Pandemic Vaccines
Pandemic vaccines sales of £447 million included £444 million of pandemic adjuvant sales to the US and Canadian governments.
General Medicines turnover
2021(1) (revised) £m 2020(1) (revised) £m Growth £% Growth CER%
Respiratory 6,048 6,006 1 6
Other general medicines 3,619 4,275 (15 ) (15 )
General medicines 9,667 10,281 (6 ) (3 )
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below)
2021 and 2020 have been revised to reflect changes to product groups previously reported as Established Pharmaceuticals.
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Respiratory
Total Respiratory sales were up 1% AER, 6% CER. The performance was driven by Trelegy sales of £1,217 million up 49% AER, 57% CER driven by growth in all regions.
Advair/Seretide sales of £1,357 million continued to be eroded by generic competition, decreasing by 12% at AER, 7% at CER.
Other general medicines
Other General Medicines sales were £3,619 million, down 15% at AER and 15% at CER primarily driven by a decline in Augmentin at 13% AER and 7% CER due to lower demand for antibiotics during the COVID-19 Pandemic period. Avodart which declined 19% at AER and 25% at CER due to loss of exclusivity in Japan and Europe and the divestment of GSK’s cephalosporin products in Q4 2021.
Turnover by regions
US
In the US, sales were £11,914 million, up 7% at AER, 14% at CER. Sales of Xevudy were £602 million.
Europe
In Europe, sales were £5,370 million, down 3% at AER, 1% at CER. Sales of Xevudy were £69 million.
International
International sales were £7,412 million, down 3% at AER, up 2% at CER. Sales of Xevudy were £287 million.
Cost of sales
2021(1) £m 2020(1) £m Growth £%
Total cost of sales (8,163 ) (7,929 ) 3
Adjusted cost of sales (7,346 ) (6,672 ) 10
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total cost of sales as a percentage of turnover was 33.1%, 0.5 percentage points higher at AER than 2020.
Adjusted cost of sales as a percentage of turnover was 29.7%, 2.3 percentage points higher at AER compared with 2020. This primarily reflected higher pandemic sales (Xevudy) as well as higher supply chain costs in Vaccines resulting from lower demand and higher inventory adjustments, partly offset by price benefits, including the benefit from prior period RAR adjustments, a further contribution from restructuring savings across the business and favourable mix in Vaccines.
Selling, general and administration
2021(1) £m 2020(1) £m Growth £%
Total selling, general and administration (7,070 ) (7,437 ) (5 )
Adjusted selling, general and administration (6,749 ) (7,025 ) (4 )
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total SG&A costs as a percentage of turnover were 28.6%, 1.9 percentage points lower at AER compared to 2020. This included a reduction in restructuring charges.
Adjusted SG&A costs as a percentage of turnover were 27.3%, 1.5 percentage points lower at AER than in 2020. Adjusted SG&A costs decreased 4% at AER which reflected the tight control of ongoing costs and reduced variable spending across all three businesses as a result of the COVID-19 lockdowns, and the continuing benefit of restructuring in Commercial Operations and support functions. The decrease also reflected a favourable legal settlement in 2021 compared to increased legal costs in 2020 as well as one-off benefits in pensions and insurance which were partly offset by the one-off benefit from restructuring of post- retirement benefits in 2020. This was partly offset by increased investment behind launches in HIV and Vaccines.
Research and development
2021(1) £m 2020(1) £m Growth £%
Total research and development (5,019 ) (4,793 ) 5
Adjusted research and development (4,525 ) (4,322 ) 5
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total R&D expenditure was £5,019 million up 5% at AER including an increase in impairments partly offset by a decrease in major restructuring charges.
Adjusted R&D expenditure increased by 5% at AER to £4,525 million (18.3% of turnover), up 4% at AER, primarily driven by increased investment in our Specialty portfolios, including the early stage research projects. Efficiency savings continued from the implementation of the One R&D programme for Research and Development as part of the Separation preparation restructuring programme.
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The growth of the Specialty portfolio in 2021 was primarily driven by our two programmes for COVID-19 treatment (Xevudy and otilimab) along with the other otilimab programme for rheumatoid arthritis, bepirovirsen, our HBV antisense oligonucleotide and depemokimab, our anti-IL5 for asthma. This has been partly offset by reduced spend on daprodustat due to the completion of programmes. In Oncology, there is continued investment reflecting our commitment to synthetic lethality and in Blenrep, together with bintrafusp alfa, where we have accelerated close-out costs for the programme but this has been largely offset by a reduction in spend on feladilimab following the decision to terminate the programme in April. Vaccines increased investment in clinical programmes for meningitis and RSV and investment in our mRNA platform, partly offset by efficiency savings from the implementation of the One Development programme and variable spending as a result of COVID-19 lockdowns.
Royalty income
Royalty income was £417 million (2020: £321 million), up 30% AER primarily driven by higher sales of Gardasil.
Other operating income/(expense)
Net other operating expenses of £504 million (2020: £1,463 million income) primarily reflected accounting charges of £1,101 million (2020: £1,234 million) arising from the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare. This included a re-measurement charge of £1,026 million (2020: £1,114 million) for the contingent consideration liability due to Shionogi, as a result of the unwinding of the discount for £380 million and a charge for £646 million primarily from adjustments to sales forecasts and the settlement with Gilead (see “Settlement with Gilead Sciences Inc. (Gilead)” above). This was partly offset by a number of asset disposals including the disposal of royalty rights on cabozantinib, the disposal of the cephalosporin business and fair value uplifts on investments. 2020 included the net profit on disposal of Horlicks and other Consumer Healthcare brands of £2,815 million, partly offset by the related loss on sale of the shares in Hindustan Unilever of £476 million.
Operating profit
Total operating profit was £4,357 million compared with £5,979 million in 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of Horlicks and other Consumer brands and resultant sale of shares in Hindustan Unilever. This was partly offset by lower major restructuring costs and lower re-measurement charges on the contingent consideration liabilities. Total operating margin was 17.6%.
Excluding these and other Adjusting items, Adjusted operating profit was £6,493 million, 2% lower than 2020 at AER, on a turnover increase of 1% AER. The Adjusted operating margin of 26.3% was 1.0 percentage points lower at AER.
The decrease in Adjusted operating profit reflected foreign exchange, lower sales in Vaccines, primarily Shingrix, higher supply chain costs in Vaccines and increased investment in R&D across Vaccines and Specialty Medicines. This was partially offset by the benefit from incremental pandemic sales (Xevudy and adjuvant) contributing approximately 9% AER to Adjusted Operating profit growth. Adjusted Operating profit also benefited from sales growth in Commercial Operations including the benefit from prior period RAR adjustments and tight control of ongoing costs including reduced promotional and variable spending across all the business as a result of the COVID-19 lockdowns, favourable legal settlements compared to increased legal costs in 2020 and benefits from continued restructuring across the business.
Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement.
Total contingent consideration cash payments in 2021 amounted to £856 million (2020: £885 million). This included cash payments made to Shionogi of £826 million (2020: £858 million).
Adjusted operating profit by business
Commercial Operations operating profit was £11,467 million, up 2% AER on a turnover increase of 2% AER. The operating margin of 46.4% was 0.2 percentage points lower at AER than in 2020. This primarily reflected price benefits in Commercial Operations, including the benefit from a prior period RAR adjustment, the tight control of ongoing costs, short term benefits to changes in ways of working, a favourable legal settlement in 2021 compared to increased legal costs in 2020, increased royalty income and the continuing benefit of restructuring. This was partly offset by support to launches in HIV and Vaccines and higher supply chain costs in Vaccines.
Research and Development operating expenses were £4,567 million, up 4% AER primarily driven by increased investment in our Specialty portfolios, including the early stage research projects.
Net finance costs
Finance income 2021(1) £m 2020(1) £m
Interest and other income 13 26
Fair value movements 1 6
14 32
Finance expense
Interest expense (735 ) (813 )
Unwinding of discounts on provisions (2 ) (3 )
Remeasurements and fair value movements (2 ) (2 )
Finance expense on lease liabilities (27 ) (33 )
Other finance expense (3 ) (23 )
(769 ) (874 )
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total net finance costs were £755 million compared with £842 million in 2020. Adjusted net finance costs were £752 million compared with £838 million in 2020. The decrease is primarily as a result of reduced interest expense from lower debt levels, favourable movements in foreign exchange rates, a premium paid on the early repayment and refinancing of bond debt in 2020 and reduced interest on tax partly offset by lower interest income on overseas cash post-closing of the divestment of Horlicks and other Consumer Healthcare nutrition products in India and a number of other countries.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates and joint ventures was £33 million (2020 – £33 million).
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Loss on disposal of interest in associates
The net loss on disposal of interests in associates was £36 million, primarily driven by a loss on disposal of our interest in the associate Innoviva Inc.
Profit before tax
Taking account of net finance costs, the share of profits of associates and loss on disposal of interest in associates, profit before taxation was £3,599 million compared with £5,170 million in 2020.
Taxation
2021(1) £m 2020(1) £m
UK current year charge 119 (45 )
Rest of world current year charge 593 745
Charge/(credit) in respect of prior periods 219 11
Total current taxation 931 711
Total deferred taxation (848 ) (644 )
Taxation on total profits 83 67
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The charge of £83 million represented an effective tax rate on Total results of 2.3% (2020: 1.3%) and reflected the different tax effects of the various Adjusting items, including a credit of £430 million resulting from the revaluation of deferred tax assets following enactment of an increase in the headline rate of UK corporation tax (effective 1 April 2023). 2020 reflected the disposal of Horlicks and other Consumer brands and the subsequent disposal of shares received in Hindustan Unilever. Tax on Adjusted profit amounted to £918 million and represented an effective Adjusted tax rate of 15.9% (2020: 13.9%).
Issues related to taxation are described in Note 14 to the financial statements ‘Taxation’ incorporated by reference in Item 18 below. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods which are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.
Non-controlling interests
The allocation of Total earnings to non-controlling interests amounted to £200 million (2020: £230 million). Allocation of ViiV Healthcare profits was £196 million (2020: £223 million), including reduced credits for re-measurement of contingent consideration liabilities.
The allocation of Adjusted earnings to non-controlling interests amounted to £441 million (2020: £481 million). The reduction in allocation primarily reflected a reduced allocation of ViiV Healthcare profits of £438 million (2020: £474 million), partly offset by higher net profits in some of the Group’s other entities with non-controlling interests.
Earnings per share
Total EPS from continuing operations was 82.9p compared with 122.4p in 2020. This primarily reflected an unfavourable comparison to the net profit on disposal in Q2 2020 of Horlicks and other Consumer Healthcare brands partly offset by the related loss on sale of the shares in Hindustan Unilever, partly offset by a credit of £430 million to Taxation in 2021 resulting from the revaluation of deferred tax assets following enactment of an increase in the headline rate of UK corporation tax (effective 1 April 2023), lower major restructuring costs and lower remeasurement charges on the contingent consideration liabilities.
Adjusted EPS was 110.3p compared with 114.4p in 2020, down 4% AER primarily reflecting foreign exchange, lower sales in Vaccines, primarily Shingrix, higher supply chain costs in Vaccines, increased R&D investment and a higher effective tax rate. This was offset by incremental pandemic sales, sales increases in Pharmaceuticals, tight cost control and favourable legal settlements and lower interest costs.
Major restructuring and integration
Within the Pharmaceuticals sector, the highly regulated manufacturing operations and supply chains and long life cycle of the business mean that restructuring programmes, particularly those that involve the rationalisation or closure of manufacturing or R&D sites are likely to take several years to complete.
Major restructuring costs are those related to specific Board-approved Major restructuring programmes and are excluded from Adjusted results. Major restructuring programmes, including integration costs following material acquisitions, are those that are structural and are of a significant scale where the costs of individual or related projects exceed £25 million. Other ordinary course smaller-scale restructuring costs are retained within Total and Adjusted results.
Total Major restructuring charges incurred in 2021 were £424 million (2020 – £1,178 million), analysed as follows
2021(1) 2020(1)
Cash £m Non- cash £m Total £m Cash £m Non- cash £m Total £m
Separation preparation restructuring programme 353 59 412 624 215 839
Legacy programmes 32 (20 ) 12 145 194 339
385 39 424 769 409 1,178
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Cash charges of £353 million under the Separation Preparation programme primarily arose from restructuring of some administrative functions as well as Global Supply chain, R&D functions and Commercial. The non-cash charges of £59 million primarily reflected write-down of assets in administrative locations and R&D sites.
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Total cash payments made in 2021 were £551 million (2020: £435 million), £428 million (2020: £152 million) relating to the Separation Preparation restructuring programme, £123 million (2020: £256 million) relating to other legacy programmes including the settlement of certain charges accrued in previous quarters.
The analysis of Major restructuring charges by income statement line was as follows:
2021(1) £m 2020(1) £m
Cost of sales 102 585
Selling, general and administration 277 395
Research and development 45 198
Total Major restructuring costs from continuing operations 424 1,178
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The benefit in the 2021 from restructuring programmes was £0.7 billion, the benefit from the Separation Preparation restructuring programme was £0.3 billion and the benefit from the 2018 Restructuring programme was £0.2 billion.
The Group initiated in Q1 2020 a two-year Separation Preparation programme to prepare for the separation of GSK into two companies: new GSK, a biopharma company with an R&D approach focused on science related to the immune system, the use of genetics and new technologies, and a new leader in Consumer Healthcare. The programme aimed to:
• Drive a common approach to R&D with improved capital allocation
• Align and improve the capabilities and efficiency of global support functions to support new GSK
• Further optimise the supply chain and product portfolio, including the divestment of non-core assets.
• A strategic review of prescription dermatology is underway
• Prepare Consumer Healthcare to operate as a standalone company
Legacy programmes included the 2018 major restructuring programme, including Tesaro, which cost £1.5 billion to the end of 2021, with cash costs of £0.6 billion and non-cash costs of £0.9 billion, and has delivered annual savings of around £0.5 billion by the end of 2021 (at 2019 rates). These savings were fully re-invested to help fund targeted increases in R&D and commercial support of new products. The programme is substantially complete.
Transaction-related adjustments
Transaction-related adjustments resulted in a net charge of £1,143 million (2020: £1,237 million). This included a net £1,101 million accounting charge for the re-measurement of the contingent consideration liabilities related to the acquisitions of the former Shionogi-ViiV Healthcare joint venture and the former Novartis Vaccines business and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare.
Charge/(credit) 2021(1) £m 2020(1) £m
Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture (including Shionogi preferential dividends) 1,026 1,114
ViiV Healthcare put options and Pfizer preferential dividends 48 (52 )
Contingent consideration on former Novartis Vaccines business 27 172
Other adjustments 42 3
Total transaction-related charges 1,143 1,237
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
The £1,026 million charge relating to the contingent consideration for the former Shionogi-ViiV Healthcare joint venture represented an increase in the valuation of the contingent consideration due to Shionogi, as a result of the unwind of the discount for £380 million and a charge of £646 million primarily from adjustments to sales forecasts and the settlement with Gilead as well as updated exchange rate assumptions. The £48 million charge relating to the ViiV Healthcare put option and Pfizer preferential dividends represented an increase in the valuation of the put option as a result of the settlement with Gilead, offset by lower cash and updated exchange rate assumptions.
An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out above under “Reporting framework”.
Divestments, significant legal charges and other items
Divestments and other items also included gains from a number of asset disposals, including the disposal of royalty rights on cabozantinib, disposal of the cephalosporins business, fair value gains on investments and certain other Adjusting items, including the impact of the enactment of the increase in the headline rate of UK Corporate tax as discussed in “Note 14—Taxation” to the financial statements incorporated by reference in Item 18 below. In 2021 the net loss on disposal of interests in associates was £36 million, primarily driven by a loss on disposal of the interest in the associate Innoviva Inc. A charge of £35 million (2020: £7 million) was recorded for significant legal matters arising in 2021. Significant legal cash payments were £5 million (2020: £9 million).
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Cash generation and conversion
A summary of the consolidated cash flow statement is set out below.
2021 £m 2020 £m
Total net cash inflow from operating activities 7,952 8,441
Total net cash (outflow) from investing activities (1,777 ) 2,161
Total net cash inflow/(outflow) from financing activities (7,589 ) (10,132 )
(Increase)/Decrease in cash and bank overdrafts (1,414 ) 470
Cash and bank overdrafts at beginning of year 5,262 4,831
Exchange adjustments (29 ) (39 )
Decrease in cash and bank overdrafts (1,414 ) 470
Cash and bank overdrafts at end of year 3,819 5,262
Cash and bank overdrafts at end of year comprise:
Cash and cash equivalents 4,274 6,292
Overdrafts (455 ) (1,030 )
3,819 5,262
The net cash inflow from operating activities for the year was £7,952 million (2020: £8,441 million). The decrease primarily reflected , increased trade receivables, adverse timing of RAR, , a reduction in cash from discontinued operations including increased separation costs and reduced adjusted operating profit at AER partly offset by reduced tax payments including tax on disposals.
Reconciliation of net cash inflow from continuing operating activities to free cash inflow
A reconciliation of net cash inflow from operating activities, which is the closest equivalent IFRS measure to free cash flow, is shown below.
2021(1) £m 2020(1) £m
Net cash inflow from continuing operating activities 6,277 6,588
Purchase of property, plant and equipment (950 ) (989 )
Purchase of intangible assets (1,704 ) (956 )
Proceeds from sale of property, plant and equipment 132 49
Proceeds from sale of intangible assets 641 343
Net finance costs (758 ) (824 )
Dividends from joint ventures and associates 9 31
Contingent consideration paid (reported in investing activities) (114 ) (120 )
Contribution from non-controlling interests 7 3
Distributions to non-controlling interests (239 ) (442 )
Free cash inflow 3,301 3,683
(1) The 2021 and 2020 results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Capital expenditure and financial investment
Cash payments for tangible and intangible fixed assets amounted to £2,654 million (2020: £1,945 million) and disposals realised £773 million (2020: £392 million). Cash payments to acquire equity investments amounted to £162 million (2020: £411 million), primarily relating to Vir Biotechnology, and sales of equity investments realised £202 million (2020: £3,269 million).
Free cash flow
Free cash flow is the amount of cash generated by the Group after meeting our obligations for contingent consideration, interest, tax and dividends paid to non-controlling interests, and after capital expenditure on property, plant and equipment and intangible assets.
2021(1) £m 2020(1) £m
Free cash inflow 3,301 3,683
(1) The 2021 comparative results have been restated on a consistent basis from those previously published to reflect the demerger of the Consumer Healthcare business (see “Note 41 – Acquisitions and Disposals” to the financial statements incorporated by reference in Item 18 below).
Total cash payments to Shionogi in relation to the ViiV Healthcare contingent consideration liability in the year were £826 million (2020: £858 million), of which £721 million was recognised in cash flows from operating activities and £105 million was recognised in contingent consideration paid within investing cash flows. These payments are deductible for tax purposes.
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Treasury policies
We report in Sterling and pay dividends out of Sterling cash flows. The role of Treasury is to monitor and manage the Group’s external and internal funding requirements and financial risks in support of our strategic objectives. GSK operates on a global basis, primarily through subsidiary companies, and we manage our capital to ensure that our subsidiaries are able to operate as going concerns and to optimise returns to shareholders through an appropriate balance of debt and equity. Treasury activities are governed by policies approved annually by the Board of Directors, and most recently on 12 October 2022. A Treasury Management Group (TMG) meeting, chaired by our Chief Financial Officer, takes place on a regular basis to review Treasury activities. Its members receive management information relating to these activities.
Treasury operations
The objective of GSK’s Treasury activities is to minimise the post-tax net cost of financial operations and reduce its volatility in order to benefit earnings and cash flows. GSK uses a variety of financial instruments to finance its operations and derivative financial instruments to manage market risks from these operations. Derivatives principally comprise foreign exchange forward contracts and swaps which are used to swap borrowings and liquid assets into currencies required for Group purposes, as well as interest rate swaps which are used to manage exposure to financial risks from changes in interest rates.
Derivatives are used exclusively for hedging purposes in relation to underlying business activities and not as trading or speculative instruments.
Capital management
GSK’s financial strategy, implemented through the Group’s financial architecture, supports GSK’s strategic priorities and is regularly reviewed by the Board. We manage the capital structure of the Group through an appropriate mix of debt and equity. We continue to manage our financial policies to a credit profile that particularly targets short-term credit ratings of A-1 and P-1 while maintaining single A long-term ratings consistent with those targets.
Liquidity risk management
GSK’s policy is to borrow centrally in order to meet anticipated funding requirements. Our cash flow forecasts and funding requirements are monitored by the TMG on a regular basis. Our strategy is to diversify liquidity sources using a range of facilities and to maintain broad access to financial markets.
Each day, we sweep cash to or from number of global subsidiaries to central Treasury accounts for liquidity management purposes.
Interest rate risk management
GSK’s objective is to minimise the effective net interest cost and to balance the mix of debt at fixed and floating interest rates over time. The policy on interest rate risk management limits the net amount of floating rate debt to a specific cap, reviewed and agreed no less than annually by the Board.
Foreign exchange risk management
Our objective is to minimise the exposure of overseas operating subsidiaries to transaction risk by matching local currency income with local currency costs where possible. Foreign currency transaction exposures arising on external and internal trade flows are selectively hedged. GSK’s internal trading transactions are matched centrally and we manage inter-company payment terms to reduce foreign currency risk. Where possible, we manage the cash surpluses or borrowing requirements of subsidiary companies centrally using forward contracts to hedge future repayments back into the originating currency.
In order to reduce foreign currency translation exposure, we seek to denominate borrowings in the currencies of our principal assets and cash flows. These are primarily denominated in US Dollars, Euros and Sterling.
Borrowings can be swapped into other currencies as required. Borrowings denominated in, or swapped into, foreign currencies that match investments in overseas Group assets may be treated as a hedge against the relevant assets.
Forward contracts in major currencies are also used to reduce exposure to the Group’s investment in overseas Group assets. The TMG reviews the ratio of borrowings to assets for major currencies regularly.
Commodity risk management
Our objective is to minimise income statement volatility arising from fluctuations in commodity prices, where practical and cost effective to do so. The TMG is authorised to approve the execution of certain financial derivatives to hedge commodity price exposures.
Counterparty risk management
We set global counterparty limits for each of our banking and investment counterparties based on long-term credit ratings from Moody’s and Standard and Poor’s. Usage of these limits is actively monitored and any breach of these limits would be reported to the Chief Financial Officer immediately.
In addition, relationship banks and their credit ratings are reviewed regularly so that, when changes in ratings occur, changes can be made to investment levels or to authority limits as appropriate. All banking counterparty limits are reviewed at least annually.
Critical accounting policies
The Group consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB).
We are required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue and expenses reported in the financial statements. Actual amounts and results could differ from those estimates.
The critical accounting policies relate to the following areas:
• Turnover (Note 6)
• Taxation (Note 14)
• Legal and other disputes (Notes 47 and 32)
• Contingent liabilities (Note 35)
• Pensions and other post-employment benefits (Note 31).
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Information on the judgements and estimates made in these areas is given in “Note 3 – Critical accounting judgements and key sources of estimation uncertainty” to the financial statements incorporated by reference in Item 18 below.
Turnover
In respect of the Turnover accounting policy, our largest business is US Commercial Operations, and the US market has the most complex arrangements for rebates, discounts and allowances. The following briefly describes the nature of the arrangements in existence in our US Commercial Operations:
• We have arrangements with certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Accruals for estimating chargebacks are calculated based on the terms of each agreement, historical experience and product growth rates
• Customer rebates are offered to key managed care and Group Purchasing Organisations and other direct and indirect customers. These arrangements require the customer to achieve certain performance targets relating to the value of product purchased, formulary status or pre-determined market shares relative to competitors. The accrual for customer rebates is estimated based on the specific terms in each agreement, historical experience and product growth rates
• The US Medicaid programme is a state-administered programme providing assistance to certain poor and vulnerable patients. In 1990, the Medicaid Drug Rebate Program was established to reduce state and federal expenditure on prescription drugs. In 2010, the Patient Protection and Affordable Care Act became law. We participate by providing rebates to states. Accruals for Medicaid rebates are calculated based on the specific terms of the relevant regulations or the Patient Protection and Affordable Care Act
• Cash discounts are offered to customers to encourage prompt payment. These are accrued for at the time of invoicing and adjusted subsequently to reflect actual experience
• We record an accrual for estimated sales returns by applying historical experience of customer returns to the amounts invoiced, together with market-related information such as stock levels at wholesalers, anticipated price increases and competitor activity
A reconciliation of gross turnover to net turnover for US Commercial Operations is as follows:
2022 2021 2020
£m Margin % £m Margin % £m Margin %
Gross turnover 29,814 100 24,432 100 24,570 100
Market-driven segments (8,275 ) (28 ) (6,875 ) (28 ) (7,004 ) (29 )
Government mandated and state programmes (6,218 ) (21 ) (5,134 ) (21 ) (5,710 ) (23 )
Cash discounts (536 ) (2 ) (438 ) (2 ) (453 ) (2 )
Customer returns (255 ) (1 ) (253 ) (1 ) (235 ) (1 )
Prior year adjustments 780 3 855 4 540 2
Other items (768 ) (2 ) (673 ) (3 ) (560 ) (2 )
Total deductions (15,272 ) (51 ) (12,518 ) (51 ) (13,422 ) (55 )
Net turnover 14,542 49 11,914 49 11,148 45
The reconciliation has been revised to include Vaccines as part of US Commercial Operations in all years.
Market-driven segments consist primarily of managed care and Medicare plans with which we negotiate contract pricing that is honoured via rebates and chargebacks. Mandated segments consist primarily of Medicaid and federal government programmes which receive government- mandated pricing via rebates and chargebacks.
Overall sales deduction as a percentage of sales is consistent year over year with sales growth coming primarily from Trelegy and Specialty Products including ViiV. Deductions within the year were split approximately as follows: General Medicines 70%, Specialty Medicines 20% and Vaccines 10%.
At 31 December 2022, the total accrual for rebates, discounts, allowances and returns for US Commercial Operations amounted to £5,855 million (2021: £5,044 million).
A monthly process is operated to monitor inventory levels at wholesalers for any abnormal movements. This process uses gross sales volumes, prescription volumes based on third party data sources and information received from key wholesalers. The aim of this is to maintain inventories at a consistent level from year to year based on the pattern of consumption.
On this basis, US Commercial Operations inventory levels at wholesalers and in other distribution channels at 31 December 2022 were estimated to amount to approximately four weeks of turnover. This calculation uses third party information, the accuracy of which cannot be totally verified, but is believed to be sufficiently reliable for this purpose.
Legal and other disputes
In respect of the accounting policy for Legal and other disputes, the following briefly describes the process by which we determine the level of provision that is necessary.
In accordance with the requirements of IAS 37, ‘Provisions, contingent liabilities and contingent assets’, we provide for anticipated settlement costs where an outflow of resources is considered probable and a reliable estimate may be made of the likely outcome of the dispute and legal and other expenses arising from claims against the Group.
We may become involved in significant legal proceedings, in respect of which it is not possible to meaningfully assess whether the outcome will result in a probable outflow, or to quantify or reliably estimate the liability, if any, that could result from ultimate resolution of the proceedings. In these cases, appropriate disclosure about such cases would be included in the Annual Report, but no provision would be made.
This position could change over time and, therefore, there can be no assurance that any losses that result from the outcome of any legal proceedings will not exceed by a material amount the amount of the provisions reported in the Group’s financial statements.
Like many pharmaceutical companies, we are faced with various complex product liability, anti-trust and patent litigation, as well as investigations of our operations conducted by various governmental regulatory agencies. Throughout the year, the General Counsel of the Group, as head of the Group’s legal function, and the Senior Vice President and Head of Global Litigation for the Group, who is responsible for all litigation and government investigations, routinely brief the Chief Executive Officer, the Chief Financial Officer and the Board of Directors on the significant litigation pending against the Group and governmental investigations of the Group.
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These meetings, as appropriate, detail the status of significant litigation and government investigations and review matters such as the number of claims notified to us, information on potential claims not yet notified, assessment of the validity of claims, progress made in settling claims, recent settlement levels and potential reimbursement by insurers.
The meetings also include an assessment of whether or not there is sufficient information available for us to be able to make a reliable estimate of the potential outcomes of the disputes. Often, external counsel assisting us with various litigation matters and investigations will also assist in the briefing of the Board and senior management. Following these discussions, for those matters where it is possible to make a reliable estimate of the amount of a provision, if any, that may be required, the level of provision for legal and other disputes is reviewed and adjusted as appropriate. These matters are discussed further in “Note 47 – Legal proceedings” to the financial statements incorporated by reference in Item 18 below.
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5.B Liquidity and capital resources
The information set forth under the heading “Note 44 – Financial instruments and related disclosures” on pages 245 to 261 of the GSK Annual Report 2022 is incorporated herein by reference.
The information set forth under the headings “Cash generation and conversion,” “Financial position and resources” and “Treasury policies” in Item 5.A of this annual report on Form 20-F is incorporated herein by reference.
The information set forth under the heading “Note 27 – Cash and cash equivalents” on page 216 of the GSK Annual Report 2022 is incorporated herein by reference.
The Group has, in its opinion, sufficient working capital to meet its present requirements.
Liquidity sources in the short-term
The information set forth under the heading “Liquidity risk management” on page 245 of the GSK Annual Report 2022 is incorporated herein by reference.
Liquidity sources in the long-term
The information set forth under the heading “Cash generation and conversion,” in Item 5.A of this annual report on Form 20-F is incorporated herein by reference.
Material Cash Requirements
The information set forth under the headings:
• “Note 30 – Net debt” on pages 218 and 219; and
• “Note 36 – Commitments” on page 232
of the GSK Annual Report 2022 is incorporated herein by reference.
Loans: At 31 December 2022 the Group had £20.1 billion of borrowings of which £3.8 billion was repayable within one year and £16.3 billion was payable after one year. Interest payable on these loans amounted to £6.3 billion of which £0.6 billion was payable within one year and £5.7 billion was payable after more than one year. Commitments in respect of loans and future interest payable on loans are disclosed before taking into account the effect of derivatives.
Intangible assets commitments: At 31 December 2022, the Group had intangible assets commitments of £10.7 billion. Of these, £0.3 billion fall due within one year and £10.4 billion fall due after more than one year. The commitments include milestone payments, which are dependent on successful clinical development or on meeting specified sales targets, and which represent the maximum that would be paid if all milestones, however unlikely, are achieved. The amounts are not risk-adjusted or discounted.
We have entered into a number of research collaborations to develop new compounds with other pharmaceutical companies. The terms of these arrangements can include upfront fees, equity investments, loans and commitments to fund specified levels of research. In addition, we will often agree to make further payments if future ‘milestones’ are achieved. As some of these agreements relate to compounds in the early stages of development, the potential obligation to make milestone payments will continue for a number of years if the compounds move successfully through the development process. Generally, the closer the product is to marketing approval, the greater the probability of success. The amounts shown above within intangible assets represent the maximum that would be paid if all milestones were achieved.
Finance Lease obligations: At 31 December 2022 the Group had £1.0 billion of finance lease obligation of which £0.2 billion was payable within one year and £0.8 billion was payable after one year.
Property, plant and equipment: At 31 December 2022 the Group had property, plant and equipment commitments of £0.7 billion of which £0.6 billion was payable within one year and £0.1 billion was payable after one year. The information set forth under the heading “Property, plant and equipment” within “Financial position and resources” in Item 5.A of this annual report on Form 20-F is incorporated herein by reference.
Purchases commitments: At 31 December 2022 the Group had £0.2 billion of purchase commitments of which £0.1 billion was payable within one year and £0.1 billion was payable after one year.
Future finance charges on leases: At 31 December 2022 the Group had £0.1 billion of future finance charges most of which was payable after one year.
Investments: At 31 December 2022 the Group had £0.1 billion of investments commitments most of which was payable after one year.
Pensions: In connection with the demerger of Consumer Healthcare, the 31 December 2020 pension scheme valuations identified cash funding or technical provisions deficits in three GSK UK Pension Schemes. Scottish limited partnerships (“SLPs”) were established to provide a funding mechanism for each of GSK’s UK defined benefit pension schemes. The SLPs together hold shares representing 7.5% of the total issued share capital of Haleon.
Each pension scheme, through its SLP interest, is entitled to receive a distribution from that SLP in an amount equal to the net proceeds of sales of Haleon shares, and to receive dividend income on Haleon shares, until it has received an aggregate amount equal to an agreed threshold (“Proceeds Threshold”). The Proceeds Thresholds total £1,080 million (as increased by notional interest on the remaining balance from time to time), and payment of this amount would fully fund the cash funding or technical provisions deficits in the three schemes shown by the 31 December 2020 valuations. Once the Proceeds Threshold has been reached the GSK-controlled General Partner of each SLP is entitled to sell the remaining Haleon shares held by the SLP and distribute the proceeds to GSK. As at 31 December 2022, £345 million remains outstanding to the UK Pension Trustees.
There was a decrease in the commitments in 2022 as a result of a reduction in outstanding loan commitments.
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5.C Research and development, patents and licenses, etc.
The information set forth under the headings:
• “Research and development” on pages 15 to 28;
• “Pharmaceuticals and Vaccines product development pipeline” on pages 278 to 281;
• “Pharmaceutical products, competition and intellectual property” on pages 282 and 283; and
• “Vaccine products, competition and intellectual property” on page 284
of the GSK Annual Report 2022 is incorporated herein by reference.
5.D Trend information
The information set forth under the heading “Group financial review 2022” in Item 5.A of this annual report on Form 20-F is incorporated herein by reference.
5.E Critical Accounting Estimates
Not applicable.