Andrew Witty
Management
Let me start by saying, I really think that 2009 was a very important year for GSK, more than for any other reason that it really started to demonstrate that the strategy that we've been deploying over the last couple of years has really begun to bite and start to deliver. And that's being true across a number of parts of the business that I'll describe in a few minutes. I think it's also an important year, psychologically, because it saw the return to sales growth for the first time, since 2007. And it's sometimes interesting, and I did this little analysis on Friday just to look back and during '07, '08, and '09 between U.S. generics and the loss of an Avandia sales, the company actually lost £4.5 billion of turnover in the '07,'08, '09 period, but actually grew by 500 million. So, in that period, where we clearly had tremendous pressure on us from U.S. generics and Avandia to name just a couple of big areas, we've been able to grow the overall business, actually added £5 billion of new sales over those three years. And of course, in 2009, what you started to see is that reflected in a net growth of sales, as the headwinds have started to diminish and the tailwinds have started to become stronger. And that's because, A, obviously, a change in some of those negatives, but, B, more importantly, coming on stream of a whole series of sources of growth for the business. In some ways, as I look forward now into 2010, really start to see the company come through what you might have regarded, as its patent cliff in terms of saying goodbye to a whole portfolio of legacy brands in the U.S. marketplace. I am not too humorous this early in the afternoon, I think, to some degree, GSK's patent cliff ended up being a gentle slope. Let me move on to where we are in terms of strategy. What you've seen across the organization is a real commitment to drive growth on a diversified global basis. That's really been driven through our investments in our emerging markets, our consumer business in Japan, our vaccine business, and of course, ensuring that our new product pipeline is delivered into the marketplace efficiently. I just want to point out, some of you will notice there's some different numbers on this slide. There's a typing mistake in the slide book you have in front of you, where it says Rx, CX sales in emerging markets. The numbers on here are 21% of GSK sales growth 16% are correct. This is the correct version. I think the books you have in front of you have slightly wrong numbers, in there. We just simply pull that measure together just to try and put our emerging market numbers on the same basis, as many other companies, obviously, everybody measures their emerging markets slightly different ways. What this does is bring together everything we do in the emerging markets, whether it's consumer or Rx into the same place. What you can see immediately is, it's a substantial part of the business and it's growing very well. The right hand side of the slide, you can see that we are continuing to be successful in diminishing our exposure to white pills western market business, that business which has been most volatile for the industry in the last 10 years due to patent invalidation, for example, and the phenomenon of super rapid genericization at the end of exclusivity. That business has now come down to under 30%, about 29% for 2009, from a level of 40% in 2007. What you've also seen during the year is a continued effort to really make sure that we are allocating capital and resources in this company in the places, where we can generate the very best returns. You know, we've been running a program to save £1.7 billion out of our cost base, much of it reinvested back into growth businesses of the organization. We're on track with that program, £1 billion of cost savings achieved by the end of 2009, the rest to be achieved by the end of 2011. And today, we've made an announcement that we intend to increase that number by a further £500 million, new £500 million of savings to be delivered in full by the end of 2012, half of it to come from R&D, half of it from SG&A around the world and 70% of that new £500 million flow to the bottom line. Working capital is now a focus of the company. It was not a focus of the company up until two years ago. And you can see that we've generated a benefit of £1.5 billion in improved working capital. You won't necessarily see that in the numbers because clearly, what that has allowed us to do is to engage in growth businesses, which, for example, consume more working capital, like emerging markets, et cetera. And it also somewhat allowed us to absorb the huge stock build that was required around H1N1 without increasing the working capital for the company. Julian will talk more about that in a second, but rest assured the fundamental efficiency of the company is working well in terms of working capital, all of that helping contribute to a significant increase of about 12% in free cash flow to just over £5 billion during the year. R&D continued to perform extremely strong, and I'm going to talk more about R&D in a few minutes, because you will have seen that we've made some announcement today on proposals that we are planning to make changes in parts of R&D. But right from the beginning, let me emphasize, the strategy for GSK R&D is working. Again, in 2009, we achieved more NME and vaccine approvals from FDA than any other company, in fact, we were neck and neck with Novartis, four each. If you look over the period 2007, '08, '09, we have the highest number, 13% of all new molecular approvals from FDA were GSK's. Real evidence of the performance of the R&D organization, and of course that's helping us diversify even in our core business. So, whereas, in the past we've been hugely dependent on one or two drugs even in our core Western Pharma business you are beginning to see us diversify out of that potential growth, I'll touch on more later. Looking forward, we've seen six opportunities for new molecular entity launches over the next 18 months, the most exciting of which is likely to be Benlysta, but also among the several new vaccines. Now, if I just go for a quick summary of 2009, Julian is going to give you a lot more detail of the numbers. But just to pull out some of the highlights, first of all, growth, back to positive sales growth for the company, 3% overall, obviously driven by very strong performance of a number of our newer portfolio brands, particularly in the vaccine area. Obviously, H1N1 was a significant contributor to sales during the year. Delighted by the performance of the company in response to the H1N1 demand from governments around the world, an absolutely excellent example of long-term investment over the last 15 years, putting the company in a position where we have the right technology and capacity to be able to respond in an unprecedented speed to the demands that government has placed on us. As you will have seen substantial sales in 2009 and as of today, obviously following a whole variety of conversations with governments over the last eight weeks, we currently expect sales in this area of H1N1 to be about the same in 2010, as they were in 2009. But elsewhere in the vaccine business, great start for Synflorix. You can see Synflorix was only launched at the end of Q3 of last year, £73 million, very strong start in, particularly, the emerging markets, now registered in about 50 countries around the world. Cervarix, good strong growth here, very lumpy in terms of sales because so much of that business is dominated by particularly European tenders. You tend to get quarters with very big sales and then another quarter very low sales. Q4 happened to be a low quarter, I can tell you Q1 is going to be a big quarter. So, Cervarix is a very lumpy product at the moment, but as we speak, promotion is starting both in the U.S. and in Japan. Those markets are likely to be less tender driven and therefore, I think, you will start to see Cervarix move out over the next couple of years. But for this year, like last year, I would expect to see that European tender phenomenon continue to be present in the patent. Elsewhere, in terms of growth, I have to mention Advair. Advair, our biggest product, continues to perform very strongly, up 5% for the year, in fact up 7% in Q4, very strong performance across the world, emerging markets, Japan extremely strong and a pickup in our U.S. performance is of course is a key metric for us. If I look generally across our business, you can see some core, midsize brands performing well, Lovaza, Avodart, Arixtra, and in particular also you see Europe strongly helped by H1N1, and Japan have very strong performance. I'll just mention, just for your information, there are zero sales of H1N1 in 2009 Japan numbers. So that is all new products, core organic business. And Relenza, an unusually, the majority of Relenza in Japan is in the retail sector, not in government orders. So, Japan had an extremely strong year, and shipments of H1N1 vaccine to the Japanese market have started in Q1 of this year. If I look at R&D, one very important area we wanted to focus on a couple of years ago was to build up our Biopharma area, and you see that really beginning to now deliver, first approval of Arzerra, now we have a positive opinion for Prolia. This is denosumab in partnership obviously with Amgen, where we have essentially PMO marketing rights in Europe, we have PMO in oncology and commercialization rights in the emerging markets. Positive opinion there from the European Union was very encouraging. Benlysta, you all know the data looks encouraging, we aim to file during the first half, for Benlysta. So, Biopharma is moving forward. We have a series of other molecules in full development, for example, [Trex 4] type I diabetes. And right now, we have 19% of our R&D clinical programs are biopharmaceuticals. So, significant shift forward in making sure that we have a portfolio of large molecules in addition to our vaccines portfolio and alongside the small molecules. Emerging market, Pharma business had a very strong year, up 20%. You can see Advair, Augmentin and others driving that and our consumer business, I think, frankly had a spectacular year, 7% up in a year of recession in most economies of the world, 7% up in a marketplace which grew around 2%. We grew market share in almost every segment, with the exception of U.K. Nutritionals. And in America, for example, we increased our oral care toothpaste market share by over 3 percentage points. The launch of alli in Europe, first pan-European deregulation by any company and although, launched in early April of 2009, achieved sales of the third highest selling product in OTC for Europe. So, very, very strong performance from Europe, which has been continued, certainly, into January of this year. Now, in terms of inorganic growth, we made it very clear that we would be focused on value creating bolt on acquisitions. And during 2009, we in fact executed 11 of those across the business. You can see here a summary of small to medium in all of the key areas we wanted to focus on. So, we make these investments in those businesses we want to drive great growth in, emerging markets. Obviously, on select areas of the pharmaceutical business, vaccines and consumer. All of these deals put in place last year. We set ourselves disciplined financial metrics, there are lots more deals than this around. We were involved in plenty more, but we walked away from a series, particularly in Q4, there was quite a lot of activity around and our view was that companies were being sold for prices which didn't make economic sense for us. Just as an aside, all of the deals on this chart, all of these transactions we have a projected internal rate of return which exceed 14% for us. So, it gives you some idea of the kind of return that we anticipate in the future, that these transactions can generate for the company. Very disciplined financially around this and we are not going to get drawn into buying or bidding up at prices on companies. It was important period at the end of last year to signal to a number of putative sellers that they couldn't necessarily count on GSK to be there at the last round of the auction, they can't. We'll be there, if it makes sense for GSK at the right price. Let me go into a little bit more detail about the biggest of these acquisitions, which is Stiefel. And I just wanted to take a couple of minutes just to describe to you why, in my view, Stiefel is the right kind of acquisition for GSK and you've seen the numbers, you've seen the synergies which we can generate and essentially, we could value, we could generate the value of the acquisition through the synergies, which were achievable for the business. So, we have a lot of opportunity to take cost out of this business. Why do we do that? Why are we confident? Because, we are bolting on to a pre-existing dermatology organization. In fact, on a pro-forma basis, counting the sales that Stiefel booked before we took control, last year, this business combined, GSK dermatology plus Stiefel dermatology generated sales of over £1 billion, so big business, you bring these two businesses together, great synergies. We are taking cost out of GSK dermatology, and of course, we are taking cost out of Stiefel, as an organization. We're well on the way to integration and you can see very substantial amounts of cost synergies coming out of this business in the upper right hand box of this slide. G&A coming down dramatically, not surprisingly. You can bolt on these small acquisitions, you really, this is a marginal increase in activity for our finance organization, HR organization in GSK, huge synergy opportunities, very aggressive chance. The area which is much more unusual and actually was one of the reasons we originally targeted Stiefel was the opportunity to hit the gross margin. And you will see here that five out of the six factories that Stiefel ran are already announced for closure. And you might wonder how we can go so quickly to close those plants. I want to explain that to you very briefly, and I will use a prop for this. This is a pack of Univate, manufactured by Glaxo Dermatology at Barnard Castle, a factory we run in the north of England. In the last 2.5 years, through a reengineering of the process of that plant, we were able to increase efficiency of that factory by 40%. By increasing the efficiency of the factory by 40%, that factory, without any new investment can absorb 55% of all of Stiefel's volume. So, we were able to eliminate essentially an entire fixed asset base and draw all that volume into spare capacity that we had created in GSK. What that's allowing us to do is not just take synergy from the obvious SG&A line of the Stiefel P&L, but also from the cost of goods line, very unusual to do, very hard to get out so quickly and that's, on that level, why we are so confident, we can generate very rapid improvements in the margin of Stiefel. Right now, very hard to see because of all of the puts and takes in the acquisition year, but roughly, roughly, the margin when we bought Stiefel that business about 20%. What you can see, it's going to very dramatically improve. What we also believe, unusually with an acquisition like this, is that we have the chance to now globalize the portfolio of products. So, this speaks very much to it's a global footprint company acquiring a business, which for whatever reason, had been resource constrained, had never commercialized. No Stiefel products in Japan, no Stiefel products in China, no Stiefel products in India. That clearly is an agenda for us to move forward. For our synergies in terms of how we develop our compounds, obviously, GSK had, overtime, not prioritized dermatology development of a series of assets. Now, by retaining an R&D focus from Stiefel on dermatology, we can restart that effort to find new assets. And the final area is that we intend to create a fourth platform for our Consumer business. Within Stiefel, there is a big chunk of the pharmaceutical business, but there are also a tremendous portfolio of straight consumer dermatology brands, which have never really been commercialized, as a true consumer business through a professional consumer organization. So, in future our intention alongside Nutritionals, Oral Care, OTC is to build up now a consumer dermatology platform for our consumer business. So, what you have in this acquisition is a multi-pronged approach to extract value from the transaction, which was initially justified simply on the cost synergies that were achievable. That's the kind of acquisition we like to find, they're not easy to find, there aren't many around, but when we can find them, we're prepared to go and win them. Now, I want to move on now to a more generalized set of comments about how we think about cost and capital allocations and simplifying our business and I'm going to start by focusing on R&D, not least because we've made announcement today on some further changes in terms of where we intend to invest in R&D. Before I go into that detail, I really want to make a couple of comments about our overall strategy in R&D. This slide you've seen before. Moncef Slaoui presented this slide, it captures exactly the themes on which we focus and how we want to develop our R&D capabilities. We want to focus on the best science, we want to bring, re-personalize R&D, bring individuals, not the process, back into discovery. We want to diversify our effort through greater externalization, and we'll focus on improving the return on investments. None of that has changed. In fact, nothing in the GSK strategy has changed, as a consequence of the announcements made today. We are extremely, extremely positive about the way things are going. And I'll show you a little bit why. This gives you a sense of the progression of our delivery from R&D, a whole raft of products. This is why we have the highest number of approvals from FDA over the last three years. And if I project forward just another year, what might we have over the next year and a half, another six molecules. And it's interesting, if you look at this tall bright bar, there are actually 21 novel small chemical entities, all biopharmaceuticals, all vaccines, 21. Remember, this company didn't launch a single novel molecule between 1998 and 2007. So, a huge shift in terms of the delivery of pipeline, of course, what this requires is tremendous changes in commercialization approaches. How do we tackle specialist markets, all of those things? But the flow of products, which is coming through is clearly demonstrating a huge shift in capability. The performance of the R&D is extremely positive all the way from our discovery performance units, which are all up and running, all the way through development. Can we expect more? I believe we can. So, if I just look at a snapshot of the performance card that I look at for our R&D organization, this shows you what 2009 looks like, how many approvals, how many filings, how many key Phase III starts, how many first time in humans. Now, you know, I never talked about anything before Phase III; I'm not going to change that commitment today, but I think, it's worthwhile every few years just let you know that actually, beneath the surface, there's a tremendous amount of progression in terms of activity. What's critical is that nowhere are we paying anybody just for numbers. We will pay people for quality. What does quality mean? It means differentiated medicines of value to patients and to payors. That's why the reimbursement system or the payment system of bonuses in our R&D organization has in it a trigger, which is associated with reimbursement. So, the R&D team cannot get their maximum bonuses simply by churning out files or simply by progressing molecules. They have to deliver molecules which ultimately get reimbursed, which clearly the measure of value for money in today's society. So, great that we've got activity, what's more important is that activity is focused on delivering quality. That's why, during 2009, we terminated at least six programs of drugs which had nothing wrong with them, they were perfectly safe as far as we could see. They had activity in the disease area. We just didn't believe, we could differentiate them and we weren't going to carry on spending money on them simply to generate a product where we failed to get reimbursements. That is evidence of the focus on quality in the business. How might we drive greater returns inside our R&D organization? Well, we can shift more of the activity to late stage development because that's where value is really created. We've got more going on in the late stage, it means, we are really bringing product to the marketplace, not just spinning our wheels going around hypothesis after hypothesis. And you can see in the first left hand box, a big shift over the last several years of resources from the early phase conceptual research to late phase full development. We can do more with external partners. And again, you can see this is not something we're talking about for the first time that we might do in the future. It's something that's fundamentally part of our organization and you can see the number of projects in the middle box, which are now executed with external partners. We want to grow biopharmaceuticals because we know that the run out period of returns on those molecules are likely to be higher than small molecules. So, I've said to you already, 19% of our clinical pipeline is now Biopharma excluding vaccines, and you can see here the number of biopharmaceutical molecules which have now been brought through. I've told you already about how we focus on differentiation and it's clear that we want to drive more efficiency. And I'll give you some examples of that in a second. Before that, just to remind you where our externalization network is at, this is a slide I showed you last year, 34 or so external engines. We now have 47 external engines, you can see here a raft of the deals, we've done during the year, and the company continues to be a very strong believer in the merits of this. It's not just about numbers, it's about diversity of approach, tapping into research teams, which have a fundamentally different thought process than our own gives us more probability of hitching a win. What this has done is actually replaced quite a bit late stage licensing. So, rather than chasing around after the one or two assets which are out there, we go for them sometimes, but generally those things have not proven to be so productive for us. What this has given us is low cost optionality over a huge amount of potential product flow, most recent one of which came through positively with the Crohn's disease program from ChemoCentryx, which we optioned in just after Christmas. So, the externalization is really a feature of the way we run this business and there are certain DPUs in GSK, who have elected to spend, or up to, or even, in some cases, more than half of their resources on external collaboration. Very interesting, because what that's telling you is that the researchers are saying, I'll take the money, I have got from GSK, and rather than pay for GSK scientists in GSK labs, I want to use that money with an external partner. It really shows an open mindedness to chase the best science, which is what we are trying to encourage. Move on now to efficiency. So, from one part of the R&D framework of discovery and invention to the second, which is, now we've got the product, how do we do this at a lower cost? And this is, again, an area where we've made, I believe, very, very strong progress over the last couple of years. And this slide simply lists for you a few examples of how we are trying to change, the way, we spend money in this part of the business. It's obvious to everybody, this consumes enormous amounts of resources. And you may look at some of these things and think, God, that's very simple. How obvious is that? But you can imagine when you are talking about, as we are, at GSK, having 40,000 patients in clinical trials just in pharmaceuticals excluding vaccines, how you make a performance change across 40 countries, how you get those kind of improvements in performance, they are not trivial operational challenges. What this shows you is, we are making great strides, very obvious stuff. How many sites only ever recruit zero patients after you've spent all the money to initiate the site? It used to be 29% of the sites, now it's 19%, huge benefit. How many save money by not over supplying clinical trial materials that aren't ultimately used. Yes, in fact, over the last two or three years, we've saved over $100 million. Can we be more focused in where we do our research, yes, by reducing our clinical trials footprint. Can we get things more consolidated and go quicker, yes, you can see from Syncria, who are far ahead of schedule because of the approach we've taken in simplifying and consolidating our research planning. All of these are just very simple examples, but you can imagine, just by that $120 million price tag in the middle, each one of these apparently minor twitches of the dial generates huge dollars. And that's why we are able to keep the same 30 drugs in full development and deliver the filings and approvals without massively increasing our R&D spend. We spend today, roughly, roughly the same amount we spent three, four years ago, adjusted for inflation. And yet, we are churning out a substantially greater amount of product because of these sorts of disciplines in the organization. Now, let me move on to what we've announced today, which really speaks to how we can go further in terms of tackling our return on investment in R&D. The strategy, I believe, is the right strategy. It's delivering, but we should never be complacent about driving up returns. Just a couple of facts or a couple of dimensions to think about, first of all, about a third of our R&D cost is in fixed infrastructure. What does that mean? January 1st, the first scientist walks through the door, turns on the light, and a third of the costs are incurred for the entire company, because its building it's all that fixed infrastructure. It's a huge overhang from the 1980s. Today, if we started again, would we all go around building massive research centers? I don't think we would, because we want to see a more flexible, a more virtual, a more engaged, diversified research collaborative environment, but we have these enormous research centers. That's what's driving our fixed infrastructure, in many instances. So, can we do something about it now? Secondly, if we look across all of the diseases we are active in, where are we in terms of risk and return? So, in terms of the cost of being successful, versus the probability of success, have we got outliers where, frankly, the right decision is to say, right now this isn't a place for us to be focused. Doesn't mean, we could never win, but the probability is we won't. And that's why today we've made announcements associated with proposals, subject to consultations, to reduce our research activity in the neuroscience area. So, what this means is, we'll be proposing to cease research in areas such as depression, in pain, anxiety et cetera, because we'll continue in areas such as Alzheimer's, other neurodegenerative conditions. The point here is that we've identified those first set of neuroscience diseases, as ones where we believe, for various reasons, I'm happy to get into if you wish, where we believe the probability of success is relatively low. We think the cost of achieving success is disproportionately high, and it so happens that that research activity underpins the some pretty substantial fixed infrastructure. By disinvesting from this area, we are able to significantly reduce our exposure to fixed infrastructure costs, about £250 million in total, releasable over the next three years. 70% of that we intend to deploy back to the bottom line. About a third reinvested, you saw today, we announced creation of a rare disease initiative. That's where some of that money is going to go, so the majority of it coming to the bottom line. And what this is about is finding a clear opportunity, where we can target a change in activity without changing the strategy and significantly improve the return of the operation. Let me go to a general point about returns. I think, I'm probably talking to a room full of people, who are completely convinced that the return rate of the pharmaceutical industry's R&D engines over the last 15 years has been less than optimal. And I don't know what number you would pick, but if you looked at the work that McKenzie did, they basically assessed industry return on investments in pharmaceuticals published last year, and they estimate about 7%, 7% internal rate of return. We've looked at all of our activities with our current late stage pipeline, so those products we've just launched and those that we are imminently to launch and we basically tried to assess what we believe our current internal rate of return is. And we believe, it sits around 11% across our organization. Now, of course, this is subject to all those future sales, which will come in over the next 20 years, a very long forecast. And it's subject to a view of how we allocate resources. I think the back of your packs there's a page which gives you a little bit more detail of the methodologies that I'm not going to go through. Our view today is that our internal rate of return is about 11%. We believe, we can improve that and so we set for ourselves an aspiration to improve that 11% by another 25% to somewhere in the order of 14% over the next few years and that's where we'd like to go, and that's why we're so focused on trying to drive all those things I've just talked to you about in R&D, better quality decisions, focus in areas where we have the best chance of winning, making sure we are efficient and making sure that organization continues on a steady state basis to generate the outputs that we've been seeing. I think, we're well on the way, as this indicates, to that. Now, let me move on to other areas of where we spend money in the organization. Cost control and thoughtful allocation of resources is really a key dimension of how we're running the business in GSK. I'll go to SG&A, first of all. I thought, it would be interesting just to give you a sense over the last couple of years of how we've been moving our resources around. We've obviously been restructuring the business and we've taken a lot of money away from our legacy businesses, particularly in Western Europe, particularly in America and we've redeployed them into our emerging markets. And you can see here the amount of resource, which has grown over the last several years in terms of allocation to our emerging markets. Just as an anecdote, nothing more than that, it's interesting that for the very first time in December 2009, we employed more representatives outside of America and Europe than we did inside of America and Europe. It gives you just a sense of the reality of the shift of resources in the organization. Let me jump to consumer for a second. You see here in the consumers, two parts of this slide, the left hand slide incremental advertising, largely funded by savings from within the consumer business. That's been a key priority for us over the last two years, increased our advertising activity and also, importantly, increased our spend on innovation. Today, we spend about twice as much on consumer R&D, as we did when I took over. I believe that's why we've been able to keep some of our biggest brands so current in a period of recession. It doesn't matter how much you spend on advertising if you add to rubbish. So, the slide, the picture on the right hand side of this slide simply gives you a sense of how we judge that. So, we test every ad for persuasion, for brand recognition, memorability, typical FMCG tests, and you can see that 83% of our ads score in the upper 20% of all ads. The combination of volume, of activity, quality is what is really underpinning consumer. That's why, I've been very keen and prepared to continue to invest behind our consumer business, it's why you'll see last year, we saw great sales growth. You didn't see parallel profit growth. Why? Because, we needed to get that consumer business to the right level of investment, the right decision and even as we went through Q4, we continued to spend that level. I'm delighted, we did because we've had a fantastic start in January with our consumer business, even stronger than the performance we saw last year. And I think vindicates the commitment to allocate resources to this part of the business. Going forward, though, I believe, we've got the right kind of level in the equation for the consumer business. So, going forward, I fully expect to see profit growth come alongside sales growth in this business. If I look at our emerging markets, probably, talk a little bit more about an increase in SG&A. There you can see again increases. Just to show you where they've come from, you can see the effort, the allocation of resources in China, in Russia, reinvestment behind some legacy products. It's an interesting phenomenon in our emerging markets business that for a few years some of the products like Augmentin and Ventolin haven't been invested in as well as they should have been. It's been a big shift to try and reverse that trend and that's why you are seeing a lot of out performance in the emerging markets. If we look at, now, G&A, so, moving away from S and focus more on G&A, I just wanted to touch on a couple of areas that we are very focused on. One is how do we reduce the cost of support or administration to the business? We have a goal to take out 20% of our costs in this area by the end of 2011. We're already well on the way to that. What does that look like? A sense of excellence, new systems, we run today something like over 20 back office finance systems across the world. You can imagine how complex that is to make anything happen. There's a lot of standardization, simplification, creation of sense of excellence, a real opportunity to drive that across the business. And overtime, you'll see us move towards a global business service type environment which will give us over the next four or five years, year-on-year opportunities, I believe, to drive efficiency in this part of the organization. We also have real opportunity to further reduce our real estate footprint. And you can see from this slide, over the next few years, we expect to exit up to another 11 million square feet, about 13% of our real estate portfolio. That gives us a real chance to reduce our infrastructure costs, at least partially. I've already mentioned some of it, in R&D. What it also does, it simplifies the organization, allows us to really concentrate our activities in a few places and take away what is clearly a lot of cost driver. One other little example here, we are in the process right now of reducing the people, who supply our sites, these are people who do catering, cleaning, all of those things, from 40 to 3. And you can see, just doing something like that generates almost £100 million of savings. So, across the Board we are very much focused on how to do that. Finally, on this piece of the commentary, I wanted to touch on manufacturing. I don't often talk in this group about manufacturing, and I think it's something that deserves a little bit of a spotlight because the amount of work that's been going on there over the last several years is quite incredible. Just to give you an orientation, this is our manufacturing network for our consumer and pharmaceutical businesses. It does not include the vaccine business. To give you a sense, vaccines are another 15 factories with another 6000 people. But everything, I'm going to talk about from now on is really about Pharma and consumer. You see spread across the world, 79 sites, over 1300 brands. We have a massive contract manufacturing network of about 150 suppliers, and this has changed dramatically over the last few years. I think, it's also fair to say this benchmarked extremely well against others. So, for example, we run less consumer factories than Reckitt Benckiser. We run about the same total number of factories, as the new Pfizer/Wyeth. So, if you look across the headlines, they look broadly similar. We continue to look for ways in which we can reduce this footprint. There's been a tremendous number of site exits over the last five or six years. And in the future, there will be a few, but not many. So, where the real opportunity now sits is really making sure that we are getting process efficiency into our organization and there is a huge effort going on across the business. I wanted to show you some of the results of that because I think sometimes, we haven't necessarily told, as much about this as we should have done. This slide on the left shows you, first of all, what I've just said, number of sites exiting over the last few years. But the second bar chart shows you remarkable improvement in productivity, so an 80% improvement in productivity per head in the manufacturing organization over the last eight years. And then, we've simply taken one product, probably one you are interested in, in terms of what that actually means for cost of goods on a product like Advair and you can see here very substantial reduction in cost associated with Advair. How do we do that? Very much grinding through the process, you see on the slide, lean Sigma practices, making sure that we've got absolutely the best process in place across all of our lines across the organization, constantly looking to upgrade technologies. That kind of activity is going on across all of our product lines in the business. That's what's allowing us to offset some of this very big margin pressure, you've seen in the past from losing the old generic products in America. As that loss of generic product goes away, the negative margin pressure is going to ameliorate significantly and you are going to see benefits come through in terms of these sorts of changes. I thought, it might be useful just to show you a little bit what this looks like over a lifecycle of a product, so how we think about manufacturing, because, again, people tend to be a little bit religious about manufacturing. It's either all in house or it's all out of house. And the reality is, it has to be a bit of both. And we want to be clear about where we believe manufacturing makes sense to be held internally versus done externally. So, the beginning of a product, we truly believe this is where enormous amounts of value, intellectual property and trade secrets are developed. Sometimes those become so important and so pivotal, you are never going to release them. On others, they don't. You generate them, you generate smooth introduction, and then, you are fine to disengage. So, at the beginning, we'll be very engaged around API manufacture. So, for example, in Singapore and Ireland, you will see the company very active around how we develop the manufacturing technologies using a series of technologies we have as a company. We've driven towards co-location of development and scale up and we focus on making sure that the manufacturing people are engaged with R&D to make sure that the production process actually can work in the factories, quite a novel concept in drug discovery. As we move forward into the mid and late stage of the life of a product, then we're going to be much more flexible about how we might operate. So, for example, on products where we don't think there is significant IP, that's when we're going to start to bring in outsourcing, we start to externalize our pipelines. On others, like Advair, nobody is coming anywhere near it. So, on that one, completely inside the company, tremendous amount of technology there, we all know how difficult others find it to do what we do. And we focus very much on process improvement. As you get to the end of a product life, then we're looking to essentially externalize the manufacturing supply line and to then consolidate our environment with only just a few exceptions. Now, to bring this to life, I thought, I'd show you what we're doing with Valtrex. So, Valtrex is our most recent product to go to generic. We launched it in 1999. I've used percentages rather than pounds per kilogram. Nonetheless, you can see what is happening. You start at the beginning, it costs, obviously, 100% of the start price in terms of average costs. By 2006, we had already reduced that cost by 40%, by going through the procedures I just described, and today, we are at 40% of the price we had back at the beginning, in 1999. So, a very clear example of the effect of being able to deploy the right manufacturing approach to the right phase of the drug. Some of you might wonder, why didn't you give me just the pounds? Why are you making life difficult by having percentages and indexing it? Why not just give you the pounds? The reason, I'm not giving you the pounds is because the generic manufacturers are interested in buying it from us. And I didn't think, we should tell them what our costs were. Interesting notion that the generics would like to buy from us time-to-time. If we look now, finally, I want to pull together all of this. So, we have an organization, back to sales growth, strategy working, a series of engines firing for the organization, headwinds diminishing, in terms of genericization, and we have an organization focused on appropriate capital deployment and ensuring that we are minimizing our costs. The net of all of that is why I think we are right to be confident about the future prospects of the company. If we look at the overall operating margin of the business, which, if you will, is the final bringing together of all of this, there are clearly questions. Obviously, as you lose Valtrex, you get some pressure on your margins. Obviously, as we grow consumer, we create pressure on the margin, quite rightly, because we know that business shouldn't be run at the same high margin as historic pharmaceuticals. But we are ready to go for that because we want the growth of profits even though it's at a lower margin. On the counter side, you can see the programs we have in place to reduce costs and to reallocate resources rather than just create new spend is all about how we believe, certainly during 2010, we expect our operating margin to be broadly stable with that of 2009. And Julian will give you a little bit more detail. So, for me to finish, before I hand over to Julian, really just to summarize where we are at. We are back to growth. We've got very effective cost control in this organization, and we have made very strategically coherent decisions about where to divert resources, spend money and where necessary increase activity. Our R&D modeling in my view is working and against all the benchmarks in this industry, I think, its fair to say that we are succeed in changing R&D. Notwithstanding that, we are ready to commit to what we believe a reasonable rate of return ought to be and to do what's necessary to deliver it, as you've seen with the proposal today. And all of that is driven around the commitment to delivering shareholder value in terms of performance of the business and of course, in terms of generation of cash and then ultimately dividend increases to our shareholders, which, again, I was delighted, we were able to increase by 7% this time for our shareholders. So with that, I'll hand over to Julian, who will take you through the detail of 2009. Let me start by saying, I really think that 2009 was a very important year for GSK, more than for any other reason that it really started to demonstrate that the strategy that we've been deploying over the last couple of years has really begun to bite and start to deliver. And that's being true across a number of parts of the business that I'll describe in a few minutes. I think it's also an important year, psychologically, because it saw the return to sales growth for the first time, since 2007. And it's sometimes interesting, and I did this little analysis on Friday just to look back and during '07, '08, and '09 between U.S. generics and the loss of an Avandia sales, the company actually lost £4.5 billion of turnover in the '07,'08, '09 period, but actually grew by 500 million. So, in that period, where we clearly had tremendous pressure on us from U.S. generics and Avandia to name just a couple of big areas, we've been able to grow the overall business, actually added £5 billion of new sales over those three years. And of course, in 2009, what you started to see is that reflected in a net growth of sales, as the headwinds have started to diminish and the tailwinds have started to become stronger. And that's because, A, obviously, a change in some of those negatives, but, B, more importantly, coming on stream of a whole series of sources of growth for the business. In some ways, as I look forward now into 2010, really start to see the company come through what you might have regarded, as its patent cliff in terms of saying goodbye to a whole portfolio of legacy brands in the U.S. marketplace. I am not too humorous this early in the afternoon, I think, to some degree, GSK's patent cliff ended up being a gentle slope. Let me move on to where we are in terms of strategy. What you've seen across the organization is a real commitment to drive growth on a diversified global basis. That's really been driven through our investments in our emerging markets, our consumer business in Japan, our vaccine business, and of course, ensuring that our new product pipeline is delivered into the marketplace efficiently. I just want to point out, some of you will notice there's some different numbers on this slide. There's a typing mistake in the slide book you have in front of you, where it says Rx, CX sales in emerging markets. The numbers on here are 21% of GSK sales growth 16% are correct. This is the correct version. I think the books you have in front of you have slightly wrong numbers, in there. We just simply pull that measure together just to try and put our emerging market numbers on the same basis, as many other companies, obviously, everybody measures their emerging markets slightly different ways. What this does is bring together everything we do in the emerging markets, whether it's consumer or Rx into the same place. What you can see immediately is, it's a substantial part of the business and it's growing very well. The right hand side of the slide, you can see that we are continuing to be successful in diminishing our exposure to white pills western market business, that business which has been most volatile for the industry in the last 10 years due to patent invalidation, for example, and the phenomenon of super rapid genericization at the end of exclusivity. That business has now come down to under 30%, about 29% for 2009, from a level of 40% in 2007. What you've also seen during the year is a continued effort to really make sure that we are allocating capital and resources in this company in the places, where we can generate the very best returns. You know, we've been running a program to save £1.7 billion out of our cost base, much of it reinvested back into growth businesses of the organization. We're on track with that program, £1 billion of cost savings achieved by the end of 2009, the rest to be achieved by the end of 2011. And today, we've made an announcement that we intend to increase that number by a further £500 million, new £500 million of savings to be delivered in full by the end of 2012, half of it to come from R&D, half of it from SG&A around the world and 70% of that new £500 million flow to the bottom line. Working capital is now a focus of the company. It was not a focus of the company up until two years ago. And you can see that we've generated a benefit of £1.5 billion in improved working capital. You won't necessarily see that in the numbers because clearly, what that has allowed us to do is to engage in growth businesses, which, for example, consume more working capital, like emerging markets, et cetera. And it also somewhat allowed us to absorb the huge stock build that was required around H1N1 without increasing the working capital for the company. Julian will talk more about that in a second, but rest assured the fundamental efficiency of the company is working well in terms of working capital, all of that helping contribute to a significant increase of about 12% in free cash flow to just over £5 billion during the year. R&D continued to perform extremely strong, and I'm going to talk more about R&D in a few minutes, because you will have seen that we've made some announcement today on proposals that we are planning to make changes in parts of R&D. But right from the beginning, let me emphasize, the strategy for GSK R&D is working. Again, in 2009, we achieved more NME and vaccine approvals from FDA than any other company, in fact, we were neck and neck with Novartis, four each. If you look over the period 2007, '08, '09, we have the highest number, 13% of all new molecular approvals from FDA were GSK's. Real evidence of the performance of the R&D organization, and of course that's helping us diversify even in our core business. So, whereas, in the past we've been hugely dependent on one or two drugs even in our core Western Pharma business you are beginning to see us diversify out of that potential growth, I'll touch on more later. Looking forward, we've seen six opportunities for new molecular entity launches over the next 18 months, the most exciting of which is likely to be Benlysta, but also among the several new vaccines. Now, if I just go for a quick summary of 2009, Julian is going to give you a lot more detail of the numbers. But just to pull out some of the highlights, first of all, growth, back to positive sales growth for the company, 3% overall, obviously driven by very strong performance of a number of our newer portfolio brands, particularly in the vaccine area. Obviously, H1N1 was a significant contributor to sales during the year. Delighted by the performance of the company in response to the H1N1 demand from governments around the world, an absolutely excellent example of long-term investment over the last 15 years, putting the company in a position where we have the right technology and capacity to be able to respond in an unprecedented speed to the demands that government has placed on us. As you will have seen substantial sales in 2009 and as of today, obviously following a whole variety of conversations with governments over the last eight weeks, we currently expect sales in this area of H1N1 to be about the same in 2010, as they were in 2009. But elsewhere in the vaccine business, great start for Synflorix. You can see Synflorix was only launched at the end of Q3 of last year, £73 million, very strong start in, particularly, the emerging markets, now registered in about 50 countries around the world. Cervarix, good strong growth here, very lumpy in terms of sales because so much of that business is dominated by particularly European tenders. You tend to get quarters with very big sales and then another quarter very low sales. Q4 happened to be a low quarter, I can tell you Q1 is going to be a big quarter. So, Cervarix is a very lumpy product at the moment, but as we speak, promotion is starting both in the U.S. and in Japan. Those markets are likely to be less tender driven and therefore, I think, you will start to see Cervarix move out over the next couple of years. But for this year, like last year, I would expect to see that European tender phenomenon continue to be present in the patent. Elsewhere, in terms of growth, I have to mention Advair. Advair, our biggest product, continues to perform very strongly, up 5% for the year, in fact up 7% in Q4, very strong performance across the world, emerging markets, Japan extremely strong and a pickup in our U.S. performance is of course is a key metric for us. If I look generally across our business, you can see some core, midsize brands performing well, Lovaza, Avodart, Arixtra, and in particular also you see Europe strongly helped by H1N1, and Japan have very strong performance. I'll just mention, just for your information, there are zero sales of H1N1 in 2009 Japan numbers. So that is all new products, core organic business. And Relenza, an unusually, the majority of Relenza in Japan is in the retail sector, not in government orders. So, Japan had an extremely strong year, and shipments of H1N1 vaccine to the Japanese market have started in Q1 of this year. If I look at R&D, one very important area we wanted to focus on a couple of years ago was to build up our Biopharma area, and you see that really beginning to now deliver, first approval of Arzerra, now we have a positive opinion for Prolia. This is denosumab in partnership obviously with Amgen, where we have essentially PMO marketing rights in Europe, we have PMO in oncology and commercialization rights in the emerging markets. Positive opinion there from the European Union was very encouraging. Benlysta, you all know the data looks encouraging, we aim to file during the first half, for Benlysta. So, Biopharma is moving forward. We have a series of other molecules in full development, for example, [Trex 4] type I diabetes. And right now, we have 19% of our R&D clinical programs are biopharmaceuticals. So, significant shift forward in making sure that we have a portfolio of large molecules in addition to our vaccines portfolio and alongside the small molecules. Emerging market, Pharma business had a very strong year, up 20%. You can see Advair, Augmentin and others driving that and our consumer business, I think, frankly had a spectacular year, 7% up in a year of recession in most economies of the world, 7% up in a marketplace which grew around 2%. We grew market share in almost every segment, with the exception of U.K. Nutritionals. And in America, for example, we increased our oral care toothpaste market share by over 3 percentage points. The launch of alli in Europe, first pan-European deregulation by any company and although, launched in early April of 2009, achieved sales of the third highest selling product in OTC for Europe. So, very, very strong performance from Europe, which has been continued, certainly, into January of this year. Now, in terms of inorganic growth, we made it very clear that we would be focused on value creating bolt on acquisitions. And during 2009, we in fact executed 11 of those across the business. You can see here a summary of small to medium in all of the key areas we wanted to focus on. So, we make these investments in those businesses we want to drive great growth in, emerging markets. Obviously, on select areas of the pharmaceutical business, vaccines and consumer. All of these deals put in place last year. We set ourselves disciplined financial metrics, there are lots more deals than this around. We were involved in plenty more, but we walked away from a series, particularly in Q4, there was quite a lot of activity around and our view was that companies were being sold for prices which didn't make economic sense for us. Just as an aside, all of the deals on this chart, all of these transactions we have a projected internal rate of return which exceed 14% for us. So, it gives you some idea of the kind of return that we anticipate in the future, that these transactions can generate for the company. Very disciplined financially around this and we are not going to get drawn into buying or bidding up at prices on companies. It was important period at the end of last year to signal to a number of putative sellers that they couldn't necessarily count on GSK to be there at the last round of the auction, they can't. We'll be there, if it makes sense for GSK at the right price. Let me go into a little bit more detail about the biggest of these acquisitions, which is Stiefel. And I just wanted to take a couple of minutes just to describe to you why, in my view, Stiefel is the right kind of acquisition for GSK and you've seen the numbers, you've seen the synergies which we can generate and essentially, we could value, we could generate the value of the acquisition through the synergies, which were achievable for the business. So, we have a lot of opportunity to take cost out of this business. Why do we do that? Why are we confident? Because, we are bolting on to a pre-existing dermatology organization. In fact, on a pro-forma basis, counting the sales that Stiefel booked before we took control, last year, this business combined, GSK dermatology plus Stiefel dermatology generated sales of over £1 billion, so big business, you bring these two businesses together, great synergies. We are taking cost out of GSK dermatology, and of course, we are taking cost out of Stiefel, as an organization. We're well on the way to integration and you can see very substantial amounts of cost synergies coming out of this business in the upper right hand box of this slide. G&A coming down dramatically, not surprisingly. You can bolt on these small acquisitions, you really, this is a marginal increase in activity for our finance organization, HR organization in GSK, huge synergy opportunities, very aggressive chance. The area which is much more unusual and actually was one of the reasons we originally targeted Stiefel was the opportunity to hit the gross margin. And you will see here that five out of the six factories that Stiefel ran are already announced for closure. And you might wonder how we can go so quickly to close those plants. I want to explain that to you very briefly, and I will use a prop for this. This is a pack of Univate, manufactured by Glaxo Dermatology at Barnard Castle, a factory we run in the north of England. In the last 2.5 years, through a reengineering of the process of that plant, we were able to increase efficiency of that factory by 40%. By increasing the efficiency of the factory by 40%, that factory, without any new investment can absorb 55% of all of Stiefel's volume. So, we were able to eliminate essentially an entire fixed asset base and draw all that volume into spare capacity that we had created in GSK. What that's allowing us to do is not just take synergy from the obvious SG&A line of the Stiefel P&L, but also from the cost of goods line, very unusual to do, very hard to get out so quickly and that's, on that level, why we are so confident, we can generate very rapid improvements in the margin of Stiefel. Right now, very hard to see because of all of the puts and takes in the acquisition year, but roughly, roughly, the margin when we bought Stiefel that business about 20%. What you can see, it's going to very dramatically improve. What we also believe, unusually with an acquisition like this, is that we have the chance to now globalize the portfolio of products. So, this speaks very much to it's a global footprint company acquiring a business, which for whatever reason, had been resource constrained, had never commercialized. No Stiefel products in Japan, no Stiefel products in China, no Stiefel products in India. That clearly is an agenda for us to move forward. For our synergies in terms of how we develop our compounds, obviously, GSK had, overtime, not prioritized dermatology development of a series of assets. Now, by retaining an R&D focus from Stiefel on dermatology, we can restart that effort to find new assets. And the final area is that we intend to create a fourth platform for our Consumer business. Within Stiefel, there is a big chunk of the pharmaceutical business, but there are also a tremendous portfolio of straight consumer dermatology brands, which have never really been commercialized, as a true consumer business through a professional consumer organization. So, in future our intention alongside Nutritionals, Oral Care, OTC is to build up now a consumer dermatology platform for our consumer business. So, what you have in this acquisition is a multi-pronged approach to extract value from the transaction, which was initially justified simply on the cost synergies that were achievable. That's the kind of acquisition we like to find, they're not easy to find, there aren't many around, but when we can find them, we're prepared to go and win them. Now, I want to move on now to a more generalized set of comments about how we think about cost and capital allocations and simplifying our business and I'm going to start by focusing on R&D, not least because we've made announcement today on some further changes in terms of where we intend to invest in R&D. Before I go into that detail, I really want to make a couple of comments about our overall strategy in R&D. This slide you've seen before. Moncef Slaoui presented this slide, it captures exactly the themes on which we focus and how we want to develop our R&D capabilities. We want to focus on the best science, we want to bring, re-personalize R&D, bring individuals, not the process, back into discovery. We want to diversify our effort through greater externalization, and we'll focus on improving the return on investments. None of that has changed. In fact, nothing in the GSK strategy has changed, as a consequence of the announcements made today. We are extremely, extremely positive about the way things are going. And I'll show you a little bit why. This gives you a sense of the progression of our delivery from R&D, a whole raft of products. This is why we have the highest number of approvals from FDA over the last three years. And if I project forward just another year, what might we have over the next year and a half, another six molecules. And it's interesting, if you look at this tall bright bar, there are actually 21 novel small chemical entities, all biopharmaceuticals, all vaccines, 21. Remember, this company didn't launch a single novel molecule between 1998 and 2007. So, a huge shift in terms of the delivery of pipeline, of course, what this requires is tremendous changes in commercialization approaches. How do we tackle specialist markets, all of those things? But the flow of products, which is coming through is clearly demonstrating a huge shift in capability. The performance of the R&D is extremely positive all the way from our discovery performance units, which are all up and running, all the way through development. Can we expect more? I believe we can. So, if I just look at a snapshot of the performance card that I look at for our R&D organization, this shows you what 2009 looks like, how many approvals, how many filings, how many key Phase III starts, how many first time in humans. Now, you know, I never talked about anything before Phase III; I'm not going to change that commitment today, but I think, it's worthwhile every few years just let you know that actually, beneath the surface, there's a tremendous amount of progression in terms of activity. What's critical is that nowhere are we paying anybody just for numbers. We will pay people for quality. What does quality mean? It means differentiated medicines of value to patients and to payors. That's why the reimbursement system or the payment system of bonuses in our R&D organization has in it a trigger, which is associated with reimbursement. So, the R&D team cannot get their maximum bonuses simply by churning out files or simply by progressing molecules. They have to deliver molecules which ultimately get reimbursed, which clearly the measure of value for money in today's society. So, great that we've got activity, what's more important is that activity is focused on delivering quality. That's why, during 2009, we terminated at least six programs of drugs which had nothing wrong with them, they were perfectly safe as far as we could see. They had activity in the disease area. We just didn't believe, we could differentiate them and we weren't going to carry on spending money on them simply to generate a product where we failed to get reimbursements. That is evidence of the focus on quality in the business. How might we drive greater returns inside our R&D organization? Well, we can shift more of the activity to late stage development because that's where value is really created. We've got more going on in the late stage, it means, we are really bringing product to the marketplace, not just spinning our wheels going around hypothesis after hypothesis. And you can see in the first left hand box, a big shift over the last several years of resources from the early phase conceptual research to late phase full development. We can do more with external partners. And again, you can see this is not something we're talking about for the first time that we might do in the future. It's something that's fundamentally part of our organization and you can see the number of projects in the middle box, which are now executed with external partners. We want to grow biopharmaceuticals because we know that the run out period of returns on those molecules are likely to be higher than small molecules. So, I've said to you already, 19% of our clinical pipeline is now Biopharma excluding vaccines, and you can see here the number of biopharmaceutical molecules which have now been brought through. I've told you already about how we focus on differentiation and it's clear that we want to drive more efficiency. And I'll give you some examples of that in a second. Before that, just to remind you where our externalization network is at, this is a slide I showed you last year, 34 or so external engines. We now have 47 external engines, you can see here a raft of the deals, we've done during the year, and the company continues to be a very strong believer in the merits of this. It's not just about numbers, it's about diversity of approach, tapping into research teams, which have a fundamentally different thought process than our own gives us more probability of hitching a win. What this has done is actually replaced quite a bit late stage licensing. So, rather than chasing around after the one or two assets which are out there, we go for them sometimes, but generally those things have not proven to be so productive for us. What this has given us is low cost optionality over a huge amount of potential product flow, most recent one of which came through positively with the Crohn's disease program from ChemoCentryx, which we optioned in just after Christmas. So, the externalization is really a feature of the way we run this business and there are certain DPUs in GSK, who have elected to spend, or up to, or even, in some cases, more than half of their resources on external collaboration. Very interesting, because what that's telling you is that the researchers are saying, I'll take the money, I have got from GSK, and rather than pay for GSK scientists in GSK labs, I want to use that money with an external partner. It really shows an open mindedness to chase the best science, which is what we are trying to encourage. Move on now to efficiency. So, from one part of the R&D framework of discovery and invention to the second, which is, now we've got the product, how do we do this at a lower cost? And this is, again, an area where we've made, I believe, very, very strong progress over the last couple of years. And this slide simply lists for you a few examples of how we are trying to change, the way, we spend money in this part of the business. It's obvious to everybody, this consumes enormous amounts of resources. And you may look at some of these things and think, God, that's very simple. How obvious is that? But you can imagine when you are talking about, as we are, at GSK, having 40,000 patients in clinical trials just in pharmaceuticals excluding vaccines, how you make a performance change across 40 countries, how you get those kind of improvements in performance, they are not trivial operational challenges. What this shows you is, we are making great strides, very obvious stuff. How many sites only ever recruit zero patients after you've spent all the money to initiate the site? It used to be 29% of the sites, now it's 19%, huge benefit. How many save money by not over supplying clinical trial materials that aren't ultimately used. Yes, in fact, over the last two or three years, we've saved over $100 million. Can we be more focused in where we do our research, yes, by reducing our clinical trials footprint. Can we get things more consolidated and go quicker, yes, you can see from Syncria, who are far ahead of schedule because of the approach we've taken in simplifying and consolidating our research planning. All of these are just very simple examples, but you can imagine, just by that $120 million price tag in the middle, each one of these apparently minor twitches of the dial generates huge dollars. And that's why we are able to keep the same 30 drugs in full development and deliver the filings and approvals without massively increasing our R&D spend. We spend today, roughly, roughly the same amount we spent three, four years ago, adjusted for inflation. And yet, we are churning out a substantially greater amount of product because of these sorts of disciplines in the organization. Now, let me move on to what we've announced today, which really speaks to how we can go further in terms of tackling our return on investment in R&D. The strategy, I believe, is the right strategy. It's delivering, but we should never be complacent about driving up returns. Just a couple of facts or a couple of dimensions to think about, first of all, about a third of our R&D cost is in fixed infrastructure. What does that mean? January 1st, the first scientist walks through the door, turns on the light, and a third of the costs are incurred for the entire company, because its building it's all that fixed infrastructure. It's a huge overhang from the 1980s. Today, if we started again, would we all go around building massive research centers? I don't think we would, because we want to see a more flexible, a more virtual, a more engaged, diversified research collaborative environment, but we have these enormous research centers. That's what's driving our fixed infrastructure, in many instances. So, can we do something about it now? Secondly, if we look across all of the diseases we are active in, where are we in terms of risk and return? So, in terms of the cost of being successful, versus the probability of success, have we got outliers where, frankly, the right decision is to say, right now this isn't a place for us to be focused. Doesn't mean, we could never win, but the probability is we won't. And that's why today we've made announcements associated with proposals, subject to consultations, to reduce our research activity in the neuroscience area. So, what this means is, we'll be proposing to cease research in areas such as depression, in pain, anxiety et cetera, because we'll continue in areas such as Alzheimer's, other neurodegenerative conditions. The point here is that we've identified those first set of neuroscience diseases, as ones where we believe, for various reasons, I'm happy to get into if you wish, where we believe the probability of success is relatively low. We think the cost of achieving success is disproportionately high, and it so happens that that research activity underpins the some pretty substantial fixed infrastructure. By disinvesting from this area, we are able to significantly reduce our exposure to fixed infrastructure costs, about £250 million in total, releasable over the next three years. 70% of that we intend to deploy back to the bottom line. About a third reinvested, you saw today, we announced creation of a rare disease initiative. That's where some of that money is going to go, so the majority of it coming to the bottom line. And what this is about is finding a clear opportunity, where we can target a change in activity without changing the strategy and significantly improve the return of the operation. Let me go to a general point about returns. I think, I'm probably talking to a room full of people, who are completely convinced that the return rate of the pharmaceutical industry's R&D engines over the last 15 years has been less than optimal. And I don't know what number you would pick, but if you looked at the work that McKenzie did, they basically assessed industry return on investments in pharmaceuticals published last year, and they estimate about 7%, 7% internal rate of return. We've looked at all of our activities with our current late stage pipeline, so those products we've just launched and those that we are imminently to launch and we basically tried to assess what we believe our current internal rate of return is. And we believe, it sits around 11% across our organization. Now, of course, this is subject to all those future sales, which will come in over the next 20 years, a very long forecast. And it's subject to a view of how we allocate resources. I think the back of your packs there's a page which gives you a little bit more detail of the methodologies that I'm not going to go through. Our view today is that our internal rate of return is about 11%. We believe, we can improve that and so we set for ourselves an aspiration to improve that 11% by another 25% to somewhere in the order of 14% over the next few years and that's where we'd like to go, and that's why we're so focused on trying to drive all those things I've just talked to you about in R&D, better quality decisions, focus in areas where we have the best chance of winning, making sure we are efficient and making sure that organization continues on a steady state basis to generate the outputs that we've been seeing. I think, we're well on the way, as this indicates, to that. Now, let me move on to other areas of where we spend money in the organization. Cost control and thoughtful allocation of resources is really a key dimension of how we're running the business in GSK. I'll go to SG&A, first of all. I thought, it would be interesting just to give you a sense over the last couple of years of how we've been moving our resources around. We've obviously been restructuring the business and we've taken a lot of money away from our legacy businesses, particularly in Western Europe, particularly in America and we've redeployed them into our emerging markets. And you can see here the amount of resource, which has grown over the last several years in terms of allocation to our emerging markets. Just as an anecdote, nothing more than that, it's interesting that for the very first time in December 2009, we employed more representatives outside of America and Europe than we did inside of America and Europe. It gives you just a sense of the reality of the shift of resources in the organization. Let me jump to consumer for a second. You see here in the consumers, two parts of this slide, the left hand slide incremental advertising, largely funded by savings from within the consumer business. That's been a key priority for us over the last two years, increased our advertising activity and also, importantly, increased our spend on innovation. Today, we spend about twice as much on consumer R&D, as we did when I took over. I believe that's why we've been able to keep some of our biggest brands so current in a period of recession. It doesn't matter how much you spend on advertising if you add to rubbish. So, the slide, the picture on the right hand side of this slide simply gives you a sense of how we judge that. So, we test every ad for persuasion, for brand recognition, memorability, typical FMCG tests, and you can see that 83% of our ads score in the upper 20% of all ads. The combination of volume, of activity, quality is what is really underpinning consumer. That's why, I've been very keen and prepared to continue to invest behind our consumer business, it's why you'll see last year, we saw great sales growth. You didn't see parallel profit growth. Why? Because, we needed to get that consumer business to the right level of investment, the right decision and even as we went through Q4, we continued to spend that level. I'm delighted, we did because we've had a fantastic start in January with our consumer business, even stronger than the performance we saw last year. And I think vindicates the commitment to allocate resources to this part of the business. Going forward, though, I believe, we've got the right kind of level in the equation for the consumer business. So, going forward, I fully expect to see profit growth come alongside sales growth in this business. If I look at our emerging markets, probably, talk a little bit more about an increase in SG&A. There you can see again increases. Just to show you where they've come from, you can see the effort, the allocation of resources in China, in Russia, reinvestment behind some legacy products. It's an interesting phenomenon in our emerging markets business that for a few years some of the products like Augmentin and Ventolin haven't been invested in as well as they should have been. It's been a big shift to try and reverse that trend and that's why you are seeing a lot of out performance in the emerging markets. If we look at, now, G&A, so, moving away from S and focus more on G&A, I just wanted to touch on a couple of areas that we are very focused on. One is how do we reduce the cost of support or administration to the business? We have a goal to take out 20% of our costs in this area by the end of 2011. We're already well on the way to that. What does that look like? A sense of excellence, new systems, we run today something like over 20 back office finance systems across the world. You can imagine how complex that is to make anything happen. There's a lot of standardization, simplification, creation of sense of excellence, a real opportunity to drive that across the business. And overtime, you'll see us move towards a global business service type environment which will give us over the next four or five years, year-on-year opportunities, I believe, to drive efficiency in this part of the organization. We also have real opportunity to further reduce our real estate footprint. And you can see from this slide, over the next few years, we expect to exit up to another 11 million square feet, about 13% of our real estate portfolio. That gives us a real chance to reduce our infrastructure costs, at least partially. I've already mentioned some of it, in R&D. What it also does, it simplifies the organization, allows us to really concentrate our activities in a few places and take away what is clearly a lot of cost driver. One other little example here, we are in the process right now of reducing the people, who supply our sites, these are people who do catering, cleaning, all of those things, from 40 to 3. And you can see, just doing something like that generates almost £100 million of savings. So, across the Board we are very much focused on how to do that. Finally, on this piece of the commentary, I wanted to touch on manufacturing. I don't often talk in this group about manufacturing, and I think it's something that deserves a little bit of a spotlight because the amount of work that's been going on there over the last several years is quite incredible. Just to give you an orientation, this is our manufacturing network for our consumer and pharmaceutical businesses. It does not include the vaccine business. To give you a sense, vaccines are another 15 factories with another 6000 people. But everything, I'm going to talk about from now on is really about Pharma and consumer. You see spread across the world, 79 sites, over 1300 brands. We have a massive contract manufacturing network of about 150 suppliers, and this has changed dramatically over the last few years. I think, it's also fair to say this benchmarked extremely well against others. So, for example, we run less consumer factories than Reckitt Benckiser. We run about the same total number of factories, as the new Pfizer/Wyeth. So, if you look across the headlines, they look broadly similar. We continue to look for ways in which we can reduce this footprint. There's been a tremendous number of site exits over the last five or six years. And in the future, there will be a few, but not many. So, where the real opportunity now sits is really making sure that we are getting process efficiency into our organization and there is a huge effort going on across the business. I wanted to show you some of the results of that because I think sometimes, we haven't necessarily told, as much about this as we should have done. This slide on the left shows you, first of all, what I've just said, number of sites exiting over the last few years. But the second bar chart shows you remarkable improvement in productivity, so an 80% improvement in productivity per head in the manufacturing organization over the last eight years. And then, we've simply taken one product, probably one you are interested in, in terms of what that actually means for cost of goods on a product like Advair and you can see here very substantial reduction in cost associated with Advair. How do we do that? Very much grinding through the process, you see on the slide, lean Sigma practices, making sure that we've got absolutely the best process in place across all of our lines across the organization, constantly looking to upgrade technologies. That kind of activity is going on across all of our product lines in the business. That's what's allowing us to offset some of this very big margin pressure, you've seen in the past from losing the old generic products in America. As that loss of generic product goes away, the negative margin pressure is going to ameliorate significantly and you are going to see benefits come through in terms of these sorts of changes. I thought, it might be useful just to show you a little bit what this looks like over a lifecycle of a product, so how we think about manufacturing, because, again, people tend to be a little bit religious about manufacturing. It's either all in house or it's all out of house. And the reality is, it has to be a bit of both. And we want to be clear about where we believe manufacturing makes sense to be held internally versus done externally. So, the beginning of a product, we truly believe this is where enormous amounts of value, intellectual property and trade secrets are developed. Sometimes those become so important and so pivotal, you are never going to release them. On others, they don't. You generate them, you generate smooth introduction, and then, you are fine to disengage. So, at the beginning, we'll be very engaged around API manufacture. So, for example, in Singapore and Ireland, you will see the company very active around how we develop the manufacturing technologies using a series of technologies we have as a company. We've driven towards co-location of development and scale up and we focus on making sure that the manufacturing people are engaged with R&D to make sure that the production process actually can work in the factories, quite a novel concept in drug discovery. As we move forward into the mid and late stage of the life of a product, then we're going to be much more flexible about how we might operate. So, for example, on products where we don't think there is significant IP, that's when we're going to start to bring in outsourcing, we start to externalize our pipelines. On others, like Advair, nobody is coming anywhere near it. So, on that one, completely inside the company, tremendous amount of technology there, we all know how difficult others find it to do what we do. And we focus very much on process improvement. As you get to the end of a product life, then we're looking to essentially externalize the manufacturing supply line and to then consolidate our environment with only just a few exceptions. Now, to bring this to life, I thought, I'd show you what we're doing with Valtrex. So, Valtrex is our most recent product to go to generic. We launched it in 1999. I've used percentages rather than pounds per kilogram. Nonetheless, you can see what is happening. You start at the beginning, it costs, obviously, 100% of the start price in terms of average costs. By 2006, we had already reduced that cost by 40%, by going through the procedures I just described, and today, we are at 40% of the price we had back at the beginning, in 1999. So, a very clear example of the effect of being able to deploy the right manufacturing approach to the right phase of the drug. Some of you might wonder, why didn't you give me just the pounds? Why are you making life difficult by having percentages and indexing it? Why not just give you the pounds? The reason, I'm not giving you the pounds is because the generic manufacturers are interested in buying it from us. And I didn't think, we should tell them what our costs were. Interesting notion that the generics would like to buy from us time-to-time. If we look now, finally, I want to pull together all of this. So, we have an organization, back to sales growth, strategy working, a series of engines firing for the organization, headwinds diminishing, in terms of genericization, and we have an organization focused on appropriate capital deployment and ensuring that we are minimizing our costs. The net of all of that is why I think we are right to be confident about the future prospects of the company. If we look at the overall operating margin of the business, which, if you will, is the final bringing together of all of this, there are clearly questions. Obviously, as you lose Valtrex, you get some pressure on your margins. Obviously, as we grow consumer, we create pressure on the margin, quite rightly, because we know that business shouldn't be run at the same high margin as historic pharmaceuticals. But we are ready to go for that because we want the growth of profits even though it's at a lower margin. On the counter side, you can see the programs we have in place to reduce costs and to reallocate resources rather than just create new spend is all about how we believe, certainly during 2010, we expect our operating margin to be broadly stable with that of 2009. And Julian will give you a little bit more detail. So, for me to finish, before I hand over to Julian, really just to summarize where we are at. We are back to growth. We've got very effective cost control in this organization, and we have made very strategically coherent decisions about where to divert resources, spend money and where necessary increase activity. Our R&D modeling in my view is working and against all the benchmarks in this industry, I think, its fair to say that we are succeed in changing R&D. Notwithstanding that, we are ready to commit to what we believe a reasonable rate of return ought to be and to do what's necessary to deliver it, as you've seen with the proposal today. And all of that is driven around the commitment to delivering shareholder value in terms of performance of the business and of course, in terms of generation of cash and then ultimately dividend increases to our shareholders, which, again, I was delighted, we were able to increase by 7% this time for our shareholders. So with that, I'll hand over to Julian, who will take you through the detail of 2009.