SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the period ending 23rd April 2008

GlaxoSmithKline plc

(Name of registrant)
980 Great West Road,
Brentford,
Middlesex, TW8 9GS
(Address of principal executive offices)

Indicate by check mark if the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-Fx      Form 40-Fo

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yeso      Nox

 

 

 

Issued: Wednesday, 23rd April 2008, London, U.K.

Results Announcement for the first quarter 2008

GSK reports Q1 Business Performance* EPS of 25.6p

GlaxoSmithKline plc (GSK) today announces its unaudited results for the first quarter ended 31st March 2008. The full results are presented under ‘Income Statement’ on page 7 and are summarised below.

BUSINESS PERFORMANCE RESULTS*

		Q1 2008				Q1 2007				Growth
		£m				£m				CER%				£%
Turnover			5,686				5,592				(3	)			2
Operating profit			2,048				2,166				(9	)			(5	)
Earnings per share			25.6	p			27.0	p			(9	)			(5	)

STATUTORY RESULTS*

		Q1 2008				Q1 2007				Growth
		£m				£m				CER%				£%
Turnover			5,686				5,592				(3	)			2
Restructuring charges			85				—				—				—
Operating profit			1,963				2,166				(13	)			(9	)
Earnings per share			24.4	p			27.0	p			(14	)			(10	)

BUSINESS PERFORMANCE SUMMARY*

•		GSK on track to meet financial guidance for 2008
•		Pharmaceutical turnover down 4% to £4.8 billion, with growth from key products offset by generic competition to products in the USA and declines in Avandia sales
•		Seretide/Advair sales up 10% to £954 million; Vaccine sales up 10% to £436 million
•		Sustained product flow with US regulatory approvals for Rotarix and Treximet, and positive EU opinions for Volibris and Prepandrix
•		GSK has 157 projects in clinical development of which 75% involve new molecules or new vaccines
•		Continued strong performance of Consumer Healthcare with sales up 8% to £893 million
•		Q1 dividend of 13p, up 8%; approximately £1 billion of shares repurchased in the quarter; total cash return of £1.7 billion
•		Sterling EPS benefited by 4 percentage points due to currency movements

Commenting on GSK’s performance for the quarter, JP Garnier, Chief Executive Officer, said:

“Our performance this quarter was in line with our expectations. We continue to see sustained growth from key areas of our business such as Seretide/Advair, vaccines and consumer. However, sales were impacted by generic competition and declines in Avandia sales.

We are also making good progress in strengthening our product portfolio, with approvals and regulatory progress on 4 key products already this year. These products are at the forefront of a substantive pipeline of projects in clinical development — with 96 NCEs and 24 new vaccines this pipeline is testament to GSK’s innovation and gives the company a very strong foundation for the future.”

PHARMACEUTICAL UPDATE

Total pharmaceutical turnover for the first quarter declined 4% to £4.8 billion, with growth from key products offset by significant generic competition to products in the USA and declines in Avandia sales in all regions. In the United States, turnover was £2,138 million, down 10%, in Europe turnover was £1,526 million, down 1%, and in International markets sales were £1,129 million, up 6%.

Seretide/Advair sales up 10% with strong performance in all regions

Sales of Seretide/Advair, for asthma and COPD, rose 10% to £954 million, with sales in the USA also growing 10% to £499 million. In Europe, sales grew 9% to £351 million and in International sales grew by 16% to £104 million.

GSK continues to see increased use of Seretide/Advair in the treatment of COPD and is in ongoing discussions with the FDA to further expand the indication for use in this patient group. GSK expects a decision from the FDA during the second quarter.

Vaccine sales of £436 million up 10% driven by strong US performance

US vaccine sales grew 34% for the quarter to £109 million, driven by continued strong performances of hepatitis vaccines, up 66% to £53 million, and Infanrix/Pediarix, up 21% to £51 million. In Europe, sales of vaccines were up 5% to £202 million. In International markets sales rose 2% to £125 million, adversely impacted in part by the timing of shipments. GSK expects stronger growth in this region in the rest of this year.

GSK expects to submit a response to the FDA’s Complete Response letter regarding Cervarix in the second quarter and will continue discussions with the agency regarding the application. Cervarix has now been approved in more than 60 countries with discussions regarding reimbursement and tender orders on-going. Sales for Cervarix in the quarter were £12 million.

In April, GSK received FDA approval for Rotarix, a new two-dose vaccine to prevent rotavirus gastroenteritis, with launch expected in the second half of the year. Sales of Rotarix in markets outside of the USA grew 79% to £27 million.

In February, GSK received a positive opinion from the EMEA regarding Prepandrix, its pre-pandemic flu vaccine. Prepandrix will be the first vaccine approved for pre-pandemic use in Europe. In March a supply contract was signed by the Finnish Government for 5.2 million doses of Prepandrix for use in advance of a pandemic flu outbreak. Shipments will commence in the second half of 2008.

New growth drivers

Arixtra, for deep vein thrombosis and pulmonary embolism, delivered strong growth with sales up 70% to £35 million. Sales grew in Europe (up 33% to £14 million) following approval last year for the treatment of specific acute coronary syndromes (ACS). In the USA, GSK is in on-going discussions with the FDA regarding a potential ACS indication.

Avodart, for benign prostatic hyperplasia (enlarged prostate), continued to perform strongly with sales up 30% to £85 million for the quarter. GSK has filed for a co-prescription indication in the USA, Europe and International markets for use of Avodart in combination with the alpha-blocker, tamsulosin. In April, GSK received its first regulatory approval for this indication in Europe under the mutual recognition procedure. GSK expects a response from the FDA in June for this application.

GSK’s co-promotion income for Boniva/Bonviva, the only once-monthly oral medicine for post-menopausal osteoporosis, was up 50% to £49 million.

Sales of GSK’s newly acquired Lovaza, an omega-3-acid product for adult patients with very high levels of triglycerides, contributed £50 million (+72% on a proforma basis).

Tykerb/Tyverb, for breast cancer, achieved sales of £19 million for the quarter. An extensive development programme involving 10 phase III clinical trials is ongoing, including metastatic, first line and adjuvant breast cancer. Last week new data were presented at the European Breast Cancer Conference in Berlin which demonstrated the efficacy of Tykerb in shrinking tumours prior to surgery and reducing the number of chemotherapy-resistant cancer stem cells responsible for tumour regeneration. Enrolment was completed for TEACH in the quarter – a phase III study investigating whether adjuvant treatment with Tykerb will improve survival in early breast cancer by preventing the disease from recurring.

Veramyst/Avamys, for allergic rhinitis, generated sales of £13 million across the USA and Europe for the quarter.

Other key pharmaceutical products

Sales of Avandia products, for the treatment of type 2 diabetes, fell 56% to £191 million. Sales in the USA for the quarter were £99 million, down 66%, with Avandia’s share of total prescriptions in the US oral anti-diabetic market currently stable at around 4%. In Europe sales were £54 million, down 14%, and in International markets £38 million, down 44%.

Sales of Coreg products, for heart disease, fell 77% to £48 million, following the introduction of generic competition to Coreg IR in September 2007. Sales of Coreg CR were £35 million with increasing share gains made in the US hypertension market.

Total sales of HIV products were £358 million, down 5%. Competition to older products, Combivir (-13% to £105 million) and Epivir (-22% to £34 million), was partially offset by strong sales growth of Epzicom/Kivexa (+25% to £99 million).

Sales of Lamictal, for the treatment of epilepsy and bipolar disorder, were £290 million driven by strong performance in the USA with sales up 22% to £240 million.

Sales of Relenza, an antiviral treatment for flu, were £29 million (£92 million in Q1 2007), reflecting the variable timing of tender orders from governments stockpiling against a possible flu pandemic.

Sales of Requip, for Parkinson’s Disease/Restless Legs Syndrome, grew 15% to £94 million for the quarter. Requip XL, a new once-daily formulation for Parkinson’s Disease, has now been launched in 12 European markets. In the USA, GSK expects a response from the FDA on its application for Requip XL during the second quarter of 2008.

Sales of Valtrex, for herpes, rose 9% to £249 million, with US sales up 7% to £173 million, driven by increased use of the product for prevention of herpes transmission. Sales in Europe grew 18% to £37 million and in International sales grew 9% to £39 million.

Product sales affected by generic competition were Wellbutrin (-3% to £126 million), Flixonase/Flonase (-33% to £46 million) and Zofran (-69% to £29 million).

CONSUMER HEALTHCARE UPDATE

     Consumer Healthcare sales grew 8% to £893 million, driven by innovation and geographic expansion

In Europe, sales grew 7% to £413 million with strong performances in Central and Eastern Europe. In International, sales grew 18% to £285 million with strong performances from key markets, Latin America, India and the Middle East.

Sales in North America declined 2% to £195 million due to strong competition to smoking cessation products from prescription medicines and retailers’ own-label nicotine replacement products. Excluding the smoking cessation brands, North American consumer healthcare sales grew 6% to £157 million.

Over-the-counter medicine sales grew 4% to £411 million. Following its successful launch in June 2007, alli contributed sales of £9 million which were impacted by normalisation of inventory levels after a year-end promotion. Demand for alli continues to be strong and, based on retail market data, underlying demand is estimated to have been £35 million during the quarter. Panadol sales grew 19% to £80 million. Sales of Breathe Right, recently acquired from CNS, grew 14% to £17 million. The product will be launched in European, Asian and Latin American markets this year.

Oral healthcare sales were up 8% to £289 million for the quarter. Sales of Sensodyne grew 19% to £86 million, aided by the successful launch of Sensodyne Pronamel. Sales of Aquafresh grew 7% to £83 million, and sales of the denture care brands, Poligrip, Corega and Polident, grew 4% to £60 million.

Nutritional healthcare sales for the quarter increased by 14% to £193 million. Lucozade continued its excellent performance, up 18% to £86 million. Horlicks sales grew 18% to £56 million, whilst sales of Ribena declined 5% to £37 million.

PHARMACEUTICAL PIPELINE UPDATE

In February, the company published an update of its R&D pipeline. GSK currently has 157 projects in clinical development comprising 96 NCEs, 37 PLEs and 24 Vaccines. GSK has 34 key assets currently in phase III development or registration.

First major market approvals and filings

In April, GSK received FDA approval for Treximet, a new acute treatment of migraine. Treximet is the first and only migraine product designed to target multiple mechanisms of migraine by combining a triptan, a class of migraine-specific medicines pioneered by GSK, and an anti-inflammatory pain reliever in a single tablet. Treximet will be launched in the USA in May.

In March, the FDA granted priority review for Promacta, an oral thrombopoeitin receptor agonist, for the short-term treatment of patients with chronic idiopathic thrombocytopenic purpura. The FDA’s decision on Promacta is expected in the second quarter and, if approved, would be the first treatment of its type to be approved for this indication.

In February, the EMEA granted a positive opinion for approval of Volibris (ambrisentan) to treat functional class II and III pulmonary arterial hypertension.

Late-stage pipeline progress

Following analysis of the full data set for darapladib, which includes the dose ranging study presented at the American College of Cardiology in March and the IBIS-2 imaging study, GSK intends to progress darapladib into Phase III development and will shortly start discussions with regulators regarding the structure of the Phase III programme. GSK expects data from IBIS-2 to be presented and published in the second half of the year.

In March, positive phase III data were published demonstrating that Bosatria (mepolizumab) showed disease control with reduced corticosteroid use in treatment of hypereosinophilic syndrome. This is a group of rare disorders leading to significant respiratory, cardiac, skin and gastrointestinal problems and can be life-threatening in some people with advanced disease.

Positive results from the third pivotal phase III study for GSK1838262 (XP13512) were also received in the quarter demonstrating its efficacy as a treatment of moderate-to-severe symptoms of primary restless legs syndrome. GSK expects to file ‘262 with the FDA for approval in the third quarter of 2008.

Acquisitions

On 22nd April GSK announced an agreement to acquire Sirtris Pharmaceuticals, a world leader in ‘sirtuin’ research and development. Sirtuins are a class of enzymes that could be used to develop new medicines to address diseases associated with metabolism and ageing such as diabetes, muscle wasting and neurodegeneration.

Collaborations

On 17th April, GSK announced a worldwide strategic alliance with Regulus Therapeutics to discover, develop and market novel microRNA-targeted therapeutics, a new approach for the treatment of a wide range of diseases, including inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease.

FINANCIAL REVIEW

Dividend

The Board has declared a first interim dividend of 13 pence per share. This compares with a dividend of 12 pence per share for Q1 2007. The equivalent interim dividend receivable by ADR holders is 51.8570 cents per ADS based on an exchange rate of £1/$1.9945. The ex-dividend date will be 30th April 2008, with a record date of 2nd May 2008 and a payment date of 10th July 2008.

Share buy-back programme

GSK repurchased £986 million of shares in Q1 2008 which have been cancelled. Repurchases of £6 billion are expected in 2008.

Operational Excellence

In October 2007, GSK announced a significant new £1.5 billion Operational Excellence programme to improve the effectiveness and productivity of its operations. This new programme is expected to deliver annual pre-tax savings of £700 million by 2010. GSK expects to realise the majority of annual savings within the first two years of the programme, with approximately £350 million expected in 2008 and £550 million in 2009.

One-off charges of £87 million before tax relating to the new Operational Excellence programme were recorded in Q1 2008.

Operating profit and earnings per share

Business performance operating profit of £2,048 million decreased by 9% in CER terms compared with Q1 2007. This was more than the fall in turnover of 3%, reflecting higher R&D costs and lower other operating income, partly offset by lower SG&A expenditure. Costs of sales increased to 22.8% of turnover (Q1 2007: 22.1%) reflecting the impact of generic competition to higher margin products and lower Avandia sales, partly offset by improvements in manufacturing efficiencies.

In the quarter, gains from asset disposals and legal settlements were £54 million (Q1 2007: £102 million), costs for legal matters were £39 million (Q1 2007: £26 million), fair value movements on financial instruments resulted in income of £66 million (Q1 2007: £33 million) and charges related to previous restructuring programmes were £6 million (Q1 2007: £9 million). The business performance operating profit impact of these items was a £75 million credit in Q1 2008 (Q1 2007: £100 million credit).

GSK’s share of the results of associates was a £1 million loss (Q1 2007: £15 million profit) as a result of the recognition of a legal provision made by Quest Diagnostics Inc.

Business performance profit after taxation decreased by 13% in CER terms, more than the decline in operating profit, reflecting higher net interest costs (primarily driven by increased borrowing to fund the share repurchase programme) and a higher tax rate. Business performance EPS of 25.6 pence decreased 9% in CER terms (5% in sterling terms) compared with Q1 2007.

Statutory operating profit for the quarter, including restructuring costs of £85 million for the new Operational Excellence programme and significant acquisitions, was £1,963 million and statutory EPS was 24.4 pence.

Currencies

The Q1 2008 results are based on average exchange rates, principally £1/$1.99, £1/Euro 1.32 and £1/Yen 210. The period-end exchange rates were £1/$1.99, £1/Euro 1.26 and £1/Yen 198. If exchange rates were to hold at the average Q1 2008 levels for the rest of the year, the positive currency impact on business performance EPS growth for the full-year would be around 4 to 5 percentage points.

2008 earnings guidance

GSK continues to expect a mid-single digit percentage decline in business performance EPS, at constant exchange rates.

GlaxoSmithKline – one of the world’s leading research-based pharmaceutical and healthcare companies – is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For company information including a copy of this announcement and details of the company’s updated product development pipeline, visit GSK at www.gsk.com.

Enquiries:		UK Media		Philip Thomson		(020) 8047 5502
				Alice Hunt		(020) 8047 5502
				Gwenan White		(020) 8047 5502
		US Media		Nancy Pekarek		(215) 751 7709
				Mary Anne Rhyne		(919) 483 2839
		European Analyst / Investor		David Mawdsley		(020) 8047 5564
				Sally Ferguson		(020) 8047 5543
				Gary Davies		(020) 8047 5503
		US Analyst / Investor		Frank Murdolo		(215) 751 7002
				Tom Curry		(215) 751 5419

Brand names appearing in italics throughout this document are trademarks of GSK or associated companies with the exception of Levitra, a trademark of Bayer, Bonviva/Boniva, a trademark of Roche, and Vesicare, a trademark of Astellas Pharmaceuticals in many countries and of Yamanouchi Pharmaceuticals in certain countries, all of which are used under licence by the Group.

Cautionary statement regarding forward-looking statements

Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions investors that any forward-looking statements or projections made by the company, including those made in this Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Factors that may affect the Group’s operations are described under ‘Risk Factors’ in the ‘Business Review’ in the company’s Annual Report 2007.

INCOME STATEMENT
Three months ended 31st March 2008

		Business
		performance								Restructuring				Statutory
		Q1 2008				Growth				Q1 2008				Q1 2008				Q1 2007
		£m				CER%				£m				£m				£m
Turnover:
Pharmaceuticals			4,793				(4	)							4,793				4,806
Consumer Healthcare			893				8								893				786
TURNOVER			5,686				(3	)							5,686				5,592
Cost of sales			(1,299	)			1				(60	)			(1,359	)			(1,234	)
Gross profit			4,387				(4	)			(60	)			4,327				4,358
Selling, general and administration			(1,720	)			(2	)			(25	)			(1,745	)			(1,673	)
Research and development			(780	)			5								(780	)			(726	)
Other operating income			161												161				207
Operating profit:
Pharmaceuticals			1,889				(10	)			(84	)			1,805				2,028
Consumer Healthcare			159				4				(1	)			158				138
OPERATING PROFIT			2,048				(9	)			(85	)			1,963				2,166
Finance income			82												82				58
Finance expense			(168	)							(2	)			(170	)			(96	)
Share of after tax (losses)/profits of associates and joint ventures			(1	)											(1	)			15
PROFIT BEFORE TAXATION			1,961				(13	)			(87	)			1,874				2,143
Taxation			(563	)			(12	)			21				(542	)			(610	)
Tax rate %			28.7	%											28.9	%			28.5	%
PROFIT AFTER TAXATION FOR THE PERIOD			1,398				(13	)			(66	)			1,332				1,533
Profit attributable to minority interests			25								—				25				19
Profit attributable to shareholders			1,373								(66	)			1,307				1,514
			1,398								(66	)			1,332				1,533
EARNINGS PER SHARE			25.6	p			(9	)							24.4	p			27.0	p
Diluted earnings per share			25.5	p											24.2	p			26.7	p

PHARMACEUTICAL TURNOVER
Three months ended 31st March 2008

		Total								USA								Europe								International
		£m				CER%				£m				CER%				£m				CER%				£m				CER%
RESPIRATORY			1,355				6				616				8				495				4				244				5
Seretide/Advair			954				10				499				10				351				9				104				16
Flixotide/Flovent			162				(1	)			75				7				45				(7	)			42				(7	)
Serevent			67				(5	)			17				(11	)			37				6				13				(21	)
Flixonase/Flonase			46				(33	)			4				(84	)			14				—				28				—
Veramyst			13				—				12				—				1				—				—				—
CENTRAL NERVOUS SYSTEM			829				3				594				7				131				(7	)			104				(8	)
Seroxat/Paxil			121				(15	)			31				(16	)			29				(21	)			61				(11	)
Paxil IR			88				(13	)			2				—				29				(21	)			57				(12	)
Paxil CR			33				(20	)			29				(22	)			—				—				4				—
Wellbutrin			126				(3	)			121				(4	)			3				>100				2				(33	)
Wellbutrin IR, SR			13				(43	)			11				(45	)			1				—				1				(50	)
Wellbutrin XL			113				6				110				4				2				—				1				—
Imigran/Imitrex			165				(1	)			134				—				23				(5	)			8				(11	)
Lamictal			290				16				240				22				34				(11	)			16				—
Requip			94				15				60				9				29				24				5				67
ANTI-VIRALS			739				(8	)			347				(9	)			213				(15	)			179				6
HIV			358				(5	)			152				(6	)			159				(6	)			47				2
Combivir			105				(13	)			45				(8	)			43				(20	)			17				(6	)
Trizivir			54				(16	)			27				(16	)			24				(19	)			3				—
Epivir			34				(22	)			11				(21	)			15				(22	)			8				(22	)
Ziagen			25				(8	)			10				(9	)			9				(11	)			6				—
Agenerase, Lexiva			35				(3	)			18				(10	)			15				8				2				—
Epzicom/Kivexa			99				25				40				17				48				33				11				29
Herpes			274				6				174				7				45				11				55				2
Valtrex			249				9				173				7				37				18				39				9
Zovirax			25				(15	)			1				(50	)			8				(13	)			16				(13	)
Zeffix			46				8				3				—				7				—				36				10
Relenza			29				(71	)			8				(82	)			—				—				21				19
VACCINES			436				10				109				34				202				5				125				2
Hepatitis			139				16				53				66				57				(5	)			29				—
Influenza			5				—				—				—				4				—				1				—
Infanrix/Pediarix			153				6				51				21				82				(1	)			20				—
Boostrix			13				(8	)			5				(29	)			5				—				3				50
Rotarix			27				79				—				—				9				100				18				70
Cervarix			12				—				—				—				10				—				2				—
CARDIOVASCULAR AND UROGENITAL			398				(12	)			232				(22	)			119				6				47				19
Coreg			48				(77	)			48				(78	)			—				—				—				(50	)
Coreg CR			35				>100				35				>100				—				—				—				—
Coreg IR			13				(94	)			13				(94	)			—				—				—				—
Levitra			14				—				13				—				1				—				—				—
Avodart			85				30				49				22				28				39				8				75
Arixtra			35				70				19				73				14				33				2				—
Fraxiparine			51				(4	)			—				—				44				(7	)			7				20
Vesicare			14				36				14				36				—				—				—				—
Lovaza			50				—				50				—				—				—				—				—
ANTI-BACTERIALS			365				(2	)			45				(13	)			181				(7	)			139				10
Augmentin			156				(1	)			17				(29	)			82				—				57				10
Altabax			2				—				2				—				—				—				—				—
METABOLIC			274				(45	)			133				(57	)			74				(6	)			67				(30	)
Avandia products			191				(56	)			99				(66	)			54				(14	)			38				(44	)
Avandia			122				(62	)			71				(69	)			22				(35	)			29				(48	)
Avandamet			62				(29	)			24				(49	)			31				8				7				(30	)
Avandaryl			7				(63	)			4				(73	)			1				—				2				—
Bonviva/Boniva			49				50				33				48				15				44				1				—
ONCOLOGY AND EMESIS			113				(27	)			58				(41	)			38				6				17				—
Zofran			29				(69	)			3				(95	)			16				(30	)			10				(9	)
Hycamtin			30				(3	)			17				(5	)			11				11				2				(50	)
Tykerb			19				>100				10				>100				7				>100				2				—
OTHER			284				13				4				(91	)			73				20				207				32
			4,793				(4	)			2,138				(10	)			1,526				(1	)			1,129				6

Pharmaceutical turnover includes co-promotion income.

CONSUMER HEALTHCARE TURNOVER
Three months ended 31st March 2008

		Q1 2008				Growth
		£m				CER%
Over-the-counter medicines			411				4
Analgesics			116				13
Dermatological			46				8
Gastrointestinal			68				—
Respiratory tract			71				18
Smoking control			58				(27	)
Natural wellness support			32				—
Weight management			9				—
Oral care			289				8
Nutritional healthcare			193				14
Total			893				8

FINANCIAL REVIEW — INCOME STATEMENT

Operating profit — business performance

		Q1 2008								Q1 2007								Growth
						% of								% of
		£m				turnover				£m				turnover				CER%				£%
Turnover			5,686				100.0				5,592				100.0				(3	)			2
Cost of sales			(1,299	)			(22.8	)			(1,234	)			(22.1	)			1				5
Selling, general and administration			(1,720	)			(30.3	)			(1,673	)			(29.9	)			(2	)			3
Research and development			(780	)			(13.7	)			(726	)			(13.0	)			5				7
Other operating income			161				2.8				207				3.7
Operating profit			2,048				36.0				2,166				38.7				(9	)			(5	)

Business performance operating margin decreased 2.7 percentage points, as sterling operating profit decreased 5% while sterling turnover increased 2%.

Cost of sales as a percentage of turnover increased by 0.7 percentage points. At constant exchange rates, cost of sales as a percentage of turnover increased by 0.8 percentage points, reflecting the impact of generic competition to higher margin products and lower Avandia sales, partially offset by improvements in manufacturing efficiencies.

SG&A costs as a percentage of turnover increased 0.4 percentage points compared with Q1 2007. Pharmaceuticals SG&A fell by 4% and Consumer Healthcare SG&A grew by 9% as a result of higher advertising and promotion expenses. The combined 2% reduction in SG&A costs was less than the 3% fall in turnover.

R&D expenditure increased 0.7 percentage points, and included significant increased investment in vaccines R&D. Pharmaceuticals R&D expenditure in the quarter represented 15.8% (Q1 2007: 14.6%) of pharmaceutical turnover.

Other operating income includes royalty income, equity investment disposals and impairments, product disposals and fair value adjustments to financial instruments. Other operating income was £161 million in Q1 2008 (Q1 2007: £207 million). This reduction in other operating income added some 2 percentage points to the EPS decline in the quarter. Other operating income in Q1 2008 included higher royalty and asset disposal income and favourable fair value movements on financial instruments compared with Q1 2007, partly offset by some write-downs of equity investments. Other operating income in Q1 2007 also included the Roche litigation settlement relating to carvedilol.

Operating profit — statutory results

Statutory operating profit for Q1 2008 was £1,963 million, down 13% CER and 9% in sterling terms compared with Q1 2007. This included £85 million of restructuring charges; £60 million was charged to cost of sales and £25 million to SG&A. There were no such charges in Q1 2007.

Taxation

The charge for taxation on business performance profit, amounting to £563 million, represents an effective tax rate of 28.7%. The charge for taxation on statutory profit was £542 million.

Transfer pricing and other issues are as previously described in the ‘Taxation’ note to the Financial Statements included in the Annual Report 2007. The Group has open issues with the revenue authorities in the UK, USA, Canada and Japan. There have been no further developments on these issues since the publication of the Annual Report 2007.

GSK uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer pricing and other issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of litigation proceedings and negotiations with the relevant tax authorities.

Weighted average number of shares

		Q1 2008				Q1 2007				2007
		millions				millions				millions
Weighted average number of shares — basic			5,355				5,599				5,524
Dilutive effect of share options and share awards			39				63				43
Weighted average number of shares — diluted			5,394				5,662				5,567

The number of shares in issue, excluding those held by the ESOP Trusts and those held as Treasury shares at 31st March 2008, was 5,289 million (31st March 2007: 5,580 million).

Dividends

		Paid/				Pence per
		payable				share				£m
2008
First interim		10th July 2008					13				688
2007
First interim		12th July 2007					12				670
Second interim		11th October 2007					12				667
Third interim		10th January 2008					13				708
Fourth interim		10th April 2008					16				860
							53				2,905

The liability for an interim dividend is only recognised when it is paid, which is usually after the accounting period to which it relates. The fourth interim dividend for 2007 and first interim dividend for 2008 have not been recognised in these results.

STATEMENT OF RECOGNISED INCOME AND EXPENSE

		Q1 2008				Q1 2007
		£m				£m
Exchange movements on overseas net assets			160				17
Tax on exchange movements			(6	)			—
Fair value movements on available-for-sale investments			(87	)			(19	)
Deferred tax on fair value movements on available-for-sale investments			15				(4	)
Exchange movements on goodwill in reserves			(31	)			(1	)
Actuarial gains on defined benefit plans			219				330
Deferred tax on actuarial movements in defined benefit plans			(54	)			(94	)
Fair value movements on cash flow hedges			—				(3	)
Deferred tax on fair value movements on cash flow hedges			—				1
Net gains recognised directly in equity			216				227
Profit for the period			1,332				1,533
Total recognised income and expense for the period			1,548				1,760
Total recognised income and expense for the period attributable to:
Shareholders			1,527				1,739
Minority interests			21				21
			1,548				1,760

BALANCE SHEET

		31st March				31st March				31st December
		2008				2007				2007
		£m				£m				£m
ASSETS
Non-current assets
Property, plant and equipment			8,026				7,051				7,821
Goodwill			1,372				946				1,370
Other intangible assets			4,492				3,702				4,456
Investments in associates and joint ventures			328				305				329
Other investments			424				581				517
Deferred tax assets			2,262				2,199				2,196
Derivative financial instruments			113				119				1
Other non-current assets			806				616				687
Total non-current assets			17,823				15,519				17,377
Current assets
Inventories			3,314				2,554				3,062
Current tax recoverable			45				90				58
Trade and other receivables			5,316				5,124				5,495
Derivative financial instruments			483				92				475
Liquid investments			1,225				1,009				1,153
Cash and cash equivalents			2,147				1,981				3,379
Assets held for sale			3				7				4
Total current assets			12,533				10,857				13,626
TOTAL ASSETS			30,356				26,376				31,003
LIABILITIES
Current liabilities
Short-term borrowings			(1,799	)			(1,205	)			(3,504	)
Trade and other payables			(5,329	)			(4,534	)			(4,861	)
Derivative financial instruments			(244	)			(49	)			(262	)
Current tax payable			(1,056	)			(914	)			(826	)
Short-term provisions			(851	)			(740	)			(892	)
Total current liabilities			(9,279	)			(7,442	)			(10,345	)
Non-current liabilities
Long-term borrowings			(8,114	)			(4,786	)			(7,067	)
Deferred tax liabilities			(989	)			(739	)			(887	)
Pensions and other post-employment benefits			(1,326	)			(2,033	)			(1,383	)
Other provisions			(1,084	)			(817	)			(1,035	)
Derivative financial instruments			—				(37	)			(8	)
Other non-current liabilities			(354	)			(360	)			(368	)
Total non-current liabilities			(11,867	)			(8,772	)			(10,748	)
TOTAL LIABILITIES			(21,146	)			(16,214	)			(21,093	)
NET ASSETS			9,210				10,162				9,910
EQUITY
Share capital			1,476				1,503				1,503
Share premium account			1,295				1,067				1,266
Retained earnings			5,717				7,202				6,475
Other reserves			428				163				359
Shareholders’ equity			8,916				9,935				9,603
Minority interests			294				227				307
TOTAL EQUITY			9,210				10,162				9,910

RECONCILIATION OF MOVEMENTS IN EQUITY

		Q1 2008				Q1 2007				2007
		£m				£m				£m
Total equity at beginning of period			9,910				9,648				9,648
Total recognised income and expense for the period			1,548				1,760				6,134
Dividends to shareholders			(708	)			(671	)			(2,793	)
Shares issued			30				214				417
Shares purchased and held as Treasury shares			—				(828	)			(3,537	)
Shares purchased for cancellation			(1,591	)			—				(213	)
Consideration received for shares transferred by ESOP Trusts			6				41				116
Shares acquired by ESOP Trusts			(1	)			—				(26	)
Share-based incentive plans			52				54				237
Tax on share-based incentive plans			(2	)			—				4
Distributions to minority shareholders			(34	)			(56	)			(77	)
Total equity at end of period			9,210				10,162				9,910

FINANCIAL REVIEW – BALANCE SHEET

Net assets

The book value of net assets decreased by £700 million from £9,910 million at 31st December 2007 to £9,210 million at 31st March 2008. This reflects an increase in net debt arising from the funding of the share buy-back programme and dividend payments, partly offset by the elimination of the pension deficit. The elimination of the pension deficit arose from an increase in the rate used to discount UK pension liabilities from 5.75% to 6.75%, partially offset by a reduction in asset values and by changes in the estimated long-term UK inflation rate. At 31st March 2008, the net surplus on the Group’s pension plans was £13 million.

The carrying value of investments in associates and joint ventures at 31st March 2008 was £328 million, with a market value of £864 million.

Equity

At 31st March 2008, total equity had decreased from £9,910 million at 31st December 2007 to £9,210 million. The decrease arose principally from further purchases of shares for cancellation and dividend payments, partially offset by retained earnings and actuarial gains on defined benefit pension and post-employment plans in the period.

At 31st March 2008, the ESOP Trusts held 131.4 million GSK shares against the future exercise of share options and share awards. The carrying value of £1,507 million has been deducted from other reserves. The market value of these shares was £1,401 million.

During the period, GSK purchased £986 million of shares for cancellation and in addition an accrual of £605 million was provided to reflect the maximum potential commitment under an irrevocable purchase agreement to acquire shares for cancellation during the period from 1st April to 23rd April 2008. At 31st March 2008, the company held 484.2 million Treasury shares at a cost of £6,418 million, which has been deducted from retained earnings.

CASH FLOW STATEMENT
Three months ended 31st March 2008

		Q1 2008				Q1 2007				2007
		£m				£m				£m
Profit after tax			1,332				1,533				5,310
Tax on profits			542				610				2,142
Share of after tax losses/(profits) of associates and joint ventures			1				(15	)			(50	)
Net finance expense			88				38				191
Depreciation and other non-cash items			310				274				1,333
Decrease/(increase) in working capital			39				(31	)			(538	)
Decrease in other net liabilities			(204	)			(603	)			(308	)
Cash generated from operations			2,108				1,806				8,080
Taxation paid			(307	)			(256	)			(1,919	)
Net cash inflow from operating activities			1,801				1,550				6,161
Cash flow from investing activities
Purchase of property, plant and equipment			(254	)			(312	)			(1,516	)
Proceeds from sale of property, plant and equipment			2				19				35
Purchase of intangible assets			(61	)			(396	)			(627	)
Proceeds from sale of intangible assets			—				—				9
Purchase of equity investments			(12	)			(141	)			(186	)
Proceeds from sale of equity investments			2				14				45
Purchase of businesses, net of cash acquired			—				(233	)			(1,027	)
Investment in associates and joint ventures			(2	)			—				(1	)
Interest received			87				59				247
Dividends from associates and joint ventures			2				4				12
Net cash outflow from investing activities			(236	)			(986	)			(3,009	)
Cash flow from financing activities
(Increase)/decrease in liquid investments			(14	)			34				(39	)
Proceeds from own shares for employee share options			6				41				116
Shares acquired by ESOP Trusts			(1	)			—				(26	)
Issue of share capital			30				214				417
Purchase of own shares for cancellation			(986	)			—				(213	)
Purchase of Treasury shares			—				(575	)			(3,538	)
Increase in long-term loans			693				—				3,483
Repayment of long-term loans			—				—				(207	)
Net (repayment of)/increase in short-term loans			(1,811	)			440				1,632
Net repayment of obligations under finance leases			(12	)			(9	)			(39	)
Interest paid			(42	)			(24	)			(378	)
Dividends paid to shareholders			(708	)			(671	)			(2,793	)
Dividends paid to minority interests			(34	)			(56	)			(77	)
Other financing cash flows			54				(38	)			(79	)
Net cash outflow from financing activities			(2,825	)			(644	)			(1,741	)
(Decrease)/increase in cash and bank overdrafts in the period			(1,260	)			(80	)			1,411
Exchange adjustments			(5	)			7				48
Cash and bank overdrafts at beginning of period			3,221				1,762				1,762
Cash and bank overdrafts at end of period			1,956				1,689				3,221
Cash and bank overdrafts at end of period comprise:
Cash and cash equivalents			2,147				1,981				3,379
Overdrafts			(191	)			(292	)			(158	)
			1,956				1,689				3,221