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GlaxoSmithkline Consumer Healthcare Ltd.

BSE: 500676 Sector: Agri and agri inputs
NSE: GSKCONS ISIN Code: INE264A01014
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OPEN 5414.55
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VOLUME 294
52-Week high 6486.70
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P/E 35.98
Mkt Cap.(Rs cr) 22,603
Buy Price 0.00
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Sell Price 5374.00
Sell Qty 94.00
OPEN 5414.55
CLOSE 5351.15
VOLUME 294
52-Week high 6486.70
52-Week low 4650.00
P/E 35.98
Mkt Cap.(Rs cr) 22,603
Buy Price 0.00
Buy Qty 0.00
Sell Price 5374.00
Sell Qty 94.00

GlaxoSmithkline Consumer Healthcare Ltd. (GSKCONS) - Director Report

Company director report

Your Directors are pleased to present the Annual Report on the business and operationsof your Company and the audited Financial Statements of the Company for the year endedMarch 31 2016.

Financial Results

Year ended March 31 2016 Year ended March 31 2015
Revenue from operations (Net) 430872.75 430758.52
Profit before Depreciation Amortisation and Tax 111283.53 95122.96
Less: Depreciation 5743.87 6208.66
Profit Before Tax 105539.66 88914.30
Less: Provision for Tax
- Current Tax 37661.44 31692.52
- Deferred Tax (813.27) (1138.15)
36848.17 30554.37
Profit After Tax 68691.49 58359.93
Previous year figures regrouped/reclassified wherever necessary to conform to this year’s classification.
Appropriations
Proposed Final Dividend (29438.88) (23130.55)
Corporate Dividend Tax (5993.06) (4708.83)
Transferred to General Reserves (6869.15) (5835.99)
(42301.09) (33675.37)
Earnings Per Share (Rs.) (Basic & Diluted) 163.34 138.77
Dividend per Share (Rs.) 70.00 55.00

Performance of the Company

Your Company has delivered consistently 11 years in a row double digit profitablegrowth. Net Sales and PAT for the year ended March 31 2016 were Rs. 410660.54 Lacs andRs. 68691.49 Lacs respectively despite the end of fiscal benefits from end April’15 (457 bps impact on Net Sales). Your Company strengthened its leadership positionin HFD category to 66.2% and 58.3% by gaining 1.4% and 0.9% volume and value market sharerespectively.

Your Company continues to focus on innovation and delivering products of value withsuperior science.

Horlicks built on its Power of Milk that was led by the claim that "Horlicks isclinically proven to increase the power of milk". Awesome Squad fully animatedcampaign was launched with the objective of making milk consumption exciting for kids andgives children a chance to see their animated selves digitally. Further Horlickscontinued on its strategy of driving daily consumption in core markets by activating the"Drink Daily Grow Daily" and "Food Science" campaign to address theevening consumption. This educates the Mother about her food basket that may be varied andgood but may not have the requisite nutrition unless she adds Horlicks twice a day to it.Further Rs. 10 sachet has been launched in South and East markets to drive penetrationand cater to the bottom of pyramid.

New ‘Best Ever’ Chocolate Horlicks was launched in October ’15 toenhance the consumption experience in terms of taste for the Consumers. Productdevelopment and formulation optimisation was completed utilising global cutting edgesensory techniques by understanding the drivers of liking and the consumer segmentationof both groups of consumers. The launch was backed up by 360 degree campaign includingconsumer activation "Toy Store" for kids to taste Chocolate Horlicks and alsoget a chance to choose toys from a store full of toys if selected as the winner.

The Life stage Nutrition portfolio driven by Horlicks brand extensions continued to dowell during the year on the back of innovative campaigns as a result of which impressiveall round performance with key milestones have been achieved and 0.5% increase in valuemarket share.

Mother’s Horlicks continues to grow high double digits with the launch of"Early Start" campaign in March ’15 to drive brand adoption from Trimester1 of Pregnancy. Further new campaign launched in Q4 ’16 was accompanied by thelaunch of the concept of "Small for Gestational Age" to detail Gynaecologists todrive recommendation from Trimester 1 by the Expert Team. This has resulted in higher offtakes and the highest ever prescription share.

Women’s Horlicks continued its differentiation through "Bone Health"platform. New improved product with 100% Recommended Dietary Allowance (RDA) of Calciumand Vitamin D with improved taste was launched that has seen a steady increase inhousehold penetration across the country. Further it was backed by 360 degree campaignthat highlights ‘30’ as the age to start nutrients consumption for strong bones.The digital campaign "Strong to the Bone" launched on the Women’s Day thatincluded an online Bone Mineral Density test (BMD) resulting in Women’s Horlicksemerging as the No.1 brand in share of voice.

Junior Horlicks launched a new campaign and visibility drives in select citiesincluding Modern Trade that focuses on healthy weight gain and brain development of thechild that has resulted in improving the Market Share.

Boost restage was launched in March 2016 with a new pack and trendy design than focuseson building "3X more stamina"** that was backed up new campaign with a marketinsight that inspires kids with the theme of ‘Play the Bigger Game’. This wassupported with compelling thematic communication shopper and consumer activation"Boost Race of Champions" strong trade and shopper visibility to increaseawareness and importance of correct nutrition and highlight the unique proposition of"Scientifically Proven to Give 3X more Stamina". As a result Boost continues torank third in HFD Category.

Further a new campaign "Har Chhote Dhoni Ke Liye Chhota Boost" for Boostsachets was released in October ’15 to engage create excitement and accelaratetrials with the consumers including the bottom of pyramid end users.

The Foods portfolio focus is to improve profitability margin. Horlicks Oats new packagerolled out in July ’15 backed by distribution focus and consumer promotions tostrengthen its second number position in the category in South India. Horlicks Oats hasbeen launched in the East India for the first time in Q4 2015-16.

Your Company had taken a decision to have in-house resources for detailing of GSKbrands to Health Care Professionals (HCP’s) to enable delivery of cutting edgescience through a highly engaged field force. The team has enabled the Company Brands andthe product science to reach out to HCP’s and chemists across India through thevarious programs to drive awareness on the ‘Role of right nutrition’ in pregnantwomen and kids educate gynecologists on the detection of anomalies in fetus due tonutrition deficiencies and the role of early nutrition intervention with supplements likeMother’s Horlicks during pregnancy. This has resulted in higher off takes and thehighest ever prescription share for the Company products.

Dividends

The Directors recommend a total dividend of Rs. 70 per equity share of Rs. 10each for the year ended March 31 2016. If approved by the Members at the ensuing AnnualGeneral Meeting to be held on August 5 2016 it will be paid on or before September 42016 to those Members whose names appear in the Company’s Register of Members and tothose persons whose names appear as beneficial owners (as per the details to be furnishedby the Depositories in respect of the shares held in dematerialised form) as at the closeof business hours on July 27 2016.

Management Discussion and Analysis Report

The economic environment in the financial year 2015-16 remained largely neutral due tosubdued growth momentum though the overall consumer sentiments remained positive forpotential and revival. The global economy slowdown and uncertainty amidst China fears inthe recent year has made growth and profitability increasingly elusive. There is atremendous focus on the Emerging Markets due to continuous pressure and stress at globallevel. Indian economy faced its own set of challenges in terms of weak / poor monsoons fortwo successive years subdued consumer sentiment impacting consumption and slowdown ofrural economy natural calamities (Chennai floods Nepal earthquake) politicaldisturbances in Bangladesh and Nepal leading to low growth in volume and value in HFD andthe Company.

The economy benefitted in the financial year from softening of commodity and crudeprices that kept the general inflation to moderate levels Central Bank decision to cutrates and highest forex reserves. The Government focus on "Make in India"investments in infrastructure projects rural development and financial empowerment (bankaccounts direct benefit transfer) of the people at the bottom of pyramid are the positiveindicators for the economy and industry to be optimistic that the economy will pick up intimes to come. Further the fundamentals of the Indian economy continue to be good thatreinforces it’s growth potential however the pace of executing the reforms agendaremains key to translate the positive sentiment to the economy’s revival.

According to A C Nielsen market researcher FMCG volume growth slowed down to 0.9% forPAN India. The impact was high in Southern market where growth declined by 0.2%. TheRural growth has also slowed down on account of below average monsoon and unseasonalrains low minimum wages and MSP hike.

Despite these challenges we believe we are well placed to deliver strong performancegiven our understanding of consumer behaviour. We also have robust Go to Market Strategysuperior science pipeline for innovative products efficient cost management and talentmanagement processes. These we believe fortifies us against all headwinds that we mayface.

Your Company is growing consistently and improving the Market Share both in volume andvalue terms despite category slowdown due to macroeconomic challenges through sustainedfocus on brand connect continuous investment in brands and driving execution excellencein coverage expansion in the urban and rural business. Rural business now reaches directlyto over 20000 villages and works with the rural communities to build our categoriesbrands and create positive social impact by building awareness on nutrition and promotinggood health practices amongst the rural population.

Two key growth drivers in our Rural Programme are Horlicks Swasthya Abhiyan (HSA) andVillage Level Entrepreneurs (VLE); HSA program aims to improve the standard of living inthe rural areas engaging with rural medical practitioners and community workers thuscreating awareness education and relevance for our brands. HSA now reaches over 5000villages and connects with over a million consumers. VLE has reached more than 1000villages by which we are reaching out to bottom of the pyramid and in this processcreate livelihood for underprivileged rural women while enhancing access of our productsin small villages economically empowering rural women. Further Mobile Sakhi a mobilebased advisory service for pregnant mothers delivers vital information pertaining topregnancy is used by over 50000 rural women. Rural Marketing Association of India hasrecognised your Company efforts for its marketing campaigns in rural India at the recentlyconvened Flame Asia awards as GSK won 6 awards in different categories.

Your Company’s growth in Modern Trade continues to defy the slowdown in thechannel and improve penetration level with a double digit growth and gaining 196 bps inVolume Market Share (A C Nielsen). The strong performance has been on the back of strongand competitive growth during Big Day sales activations and bone health checks.

Your Company continues to invest in Brands and connect with the Consumers throughinnovative and diversified platforms of Advertising. In today’s environment digitalmedia is an effective mean to connect with a large Consumer base in real time. The Companylaunched a digital campaign "Strong to the Bone" on the Women’s Day thatincluded an online Bone Mineral Density test (BMD) resulting in Women’s Horlicksemerging as the No.1 brand in share of voice. The film saw 17 million views across variousdigital platforms and more importantly 25000+ women take Online Bone Mineral Density test.Further Chocolate Horlicks "Mixes in milk even before you skip this Ad" wasawarded the Best Digital Strategy award at Media Abbys in April ’15.

Your Company’s focus on cost management working capital optimisation andsimplification program continued to deliver strong results in mitigating inflation andsupporting profitable growth despite the end of fiscal benefits at Baddi in the financialyear. Sustained improvement in working capital continued in the current financial year.The cost optimisation programs and returns from surplus cash arising from working capitalinitiatives have supported sustained investments in your Company’s brands.Simplification initiatives like Electronic Collection Model and E-claims were taken toempower improve speed and strengthen the existing processes for better customerexperience.

Reserves

The total Reserves as on March 31 2016 stood at Rs. 240357.70 Lacs representing anincrease of 16% from March 31 2015. An amount of Rs. 6869.15 Lacs has beentransferred to Reserves.

Research and Development (R&D)

Your company’s vision is to develop novel products backed by consumer insightsalong with superior science and differentiation from competitors. Last year saw 3 newlaunches and restages in India including the reformulation of Chocolate Horlicks for Northand West market delivering a significantly better tasting product based on strong regionalconsumer preference to drive strong HFD category growth in North & West market.Product development and formulation optimisation was completed utilising global cuttingedge sensory techniques by understanding the drivers of liking and the consumersegmentation of both groups of consumers. With this launch Chocolate Horlicks has gainedsignificant market share than competition.

Your favourite Women Horlicks brand was restaged with new and improved taste to driveenhanced consumption. The restage also offered other exciting delivery of contemporaryuser friendly packaging. These new products were also harmonised with the efficientmanufacturing technology to provide the best end to end benefits to the supply chain. Yourcompany’s R&D goal continues to focus on strengthening our category leadershipthrough the differentiated Science and Technology breakthrough in the Indian subcontinentwhile leveraging synergies to drive growth in other new geographies across the world. Inaddition efforts were also undertaken to drive efficient development to enable the futuregrowth agenda for other markets such as Bangladesh and Sri Lanka.

R&D is significantly involved in building defining new science and benefits eitherthrough new technology that would give cutting edge advantage for our offerings along withscientific research to drive differentiated claims to maintain category leadership for2016 and beyond. Some of the high science differentiated products are in advance stage ofdevelopment for launches in short medium and long term and thus making our innovationpipeline robust.

New end to end Innovation process has been rolled out to bring rigor in projectmanagement and ensure delivery of the innovation pipeline in time meeting strong qualityspeed product design to value and process governance. Your Company continues to focus itsefforts on commercialising differentiated science based innovations in all the categorieswe compete in while keeping the values and compliance in mind.

You will be glad to know that your company’s R&D has significantly dialled upour reach to external technologies through the Open Innovation network. The OpenInnovation team is working to bring external innovation from across the globe to driveunique technology advantages to the Company and speed to market to strengthen innovationportfolio.

You will be pleased to know your Company’s R&D function is adopting bestpractices in consumer insights and have strong network with GSK’s global capabilitieson scientific exploration clinical science sensory and product understanding packagingnetworks to access best information to deliver product of best quality science andrelevance.

Profitable growth ambitions are actively supported by R&D through a structuredValue Engineering Program which also helps to mitigate the increasing cost of rawmaterials. Design to value remains an integral part of R&D product development processto provide most efficient cost advantage to end consumer. R&D also partners withSupply Chain on a long term manufacturing process that is cost efficient more sustainablemanufacturing process and high quality

You will be proud to know that your Company’s R&D is working towards ourenvironment sustainability initiatives. The R&D function has also partnered withSupply Chain for capacity enhancement projects and initiated work on long termmanufacturing processes that are efficient from a capital operational cost and aspiresto have a lower carbon footprint.

The R&D function continues to focus on the regulatory compliance with local foodlaws and also proactively engages with the regulatory authorities and industryassociations to shape the regulatory environment for science based innovation in food andnutrition.

Packaging has long proven to be a critical success factor for winning with theconsumers at the first and second moments of truth. The team works seamlessly with DesignCommercial and R&D functions to drive Packaging Innovation. The team also has beenrecognised externally through multiple Packaging Excellence awards in India Asia and atthe Global level. This is in recognition of the committed efforts from the Company’sPackaging function.

ISO Certification

Your Company’s manufacturing facilities at Nabha Rajahmundry and Sonepat continueto be certified to the latest version of ISO 9001: 2008 ISO 22000: 2005 ISO 14001: 2004and OHSAS 18001: 2007 by SGS a leading International certification Company. Thesecertifications indicate our commitment in meeting in a sustainable manner GlobalQuality Environment Health and Safety Standards.

Information Technology

Your Company continues to lead integration of Information Technology for businessefficiencies.

The Information Technology function has been a key business enabler across allfunctions of the Company.

During the year your Company has rolled out projects to strengthen Human Resource (HR)processes by implementing WORKDAY an integrated system for all HR processes and continuedto focus on increasing the consumer reach by enabling digital solutions across brands.

During the year Company also kicked off the following projects

- New ERP (SAP) Project to support and strengthen the Business process operations adedicated team is working on this project with a target to go live by June 2017.

- New DMS system (Distributor Management System) to strengthen the Sales operations andtarget to rollout by March 2017

The Information Technology function continues to display excellent agility andinnovation to address the challenging business and economic environment and has come up asa key growth enabler for your Company.

Internal Control System and Adequacy

The Company has established and maintained adequate internal control framework in linewith the Internal Financial Controls ("IFC") requirement within the meaning ofthe explanation to Section 134(5)(e) of the Companies Act 2013 including financialcontrols based on the internal control over financial reporting criteria established bythe Company considering the essential components of internal control stated in theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting issued bythe Institute of Chartered Accountants of India (ICAI). The Company has evaluated theoperating effectiveness of internal control systems and is supplemented by:

• Well-documented standard operating procedures policies risk and controlmatrices for all material processes and fraud risk mitigation. Further these documentsare tested for operating effectiveness regularly reviewed and updated to align withglobal best practices.

• Any material variances from the budget are reviewed on a monthly basis andrequire approval of the Management Team. All major policy changes are approved by theManaging Director.

• Quarterly submission of structured Internal Control Letters (ICLs) covers allfunctions in the Company. The self-assessment by process/ control owner is also used asthe basis of CEO/CFO certification as required under Clause 49 of the Listing Agreementwith the Stock Exchange.

• The Company has a Risk Management and Compliance Board (RMCB) now called the‘Risk Management Committee’ (RMC) comprising of the Managing Director FinanceDirector Operations Director Executive Vice President – Legal and Executive VicePresident –Human Resource. Risk maps stating the significant business riskspotential consequences along with mitigation plans are prepared by each function andreviewed by RMC on a regular basis.

The Company has a robust internal audit function that reports into the Audit Committeeand carries out review of operations systems and functions basis the plan approved byAudit Committee.

All significant Audit observations and follow-up actions thereon are reported to theAudit Committee. The Committee reviews the adequacy and effectiveness of theCompany’s internal control framework and monitors the implementation of auditrecommendations including those relating to strengthening the Company’s riskmanagement policies and systems.

Human Resource Development

In 2015 your Company continued its journey to embed the new People and Performanceculture to become a truly fast moving consumer healthcare company that employees wouldlove to work for.

Your Company remains focussed on building a culture where both People & Performanceare equally important. It is a culture that focuses on speed with accountabilityappropriate risk taking and an enterprise orientation.

To support this we continue to invest significantly in developing talent acrosslevels leveraging processes such as Integrated Talent Management to ensure sustainabilityof talent and robust succession pipelines for all our key roles. Our focus onDifferentiated Development ensures that employees are able to leverage a variety ofopportunities to develop and take on greater responsibilities in line with their careeraspirations. Along with this in 2016 we rolled out the "Winning Soft Skills"program to enhance the behavioural capability of our frontline sales force and acceleratetheir careers.

Your organisation has also reshaped the Expert Sales & Marketing organisation in2015 by in sourcing the existing employees and giving a fresh impetus to the Go-To-Marketapproach. The entire exercise of designing hiring and integrating a multi functionalorganisation took place over the entire year and in 2016 the focus will be to furtherintegrate the new organisation into the Company and make it engaged empowered andsuccessful.

Your organisation also took positive steps towards Industrial relations. As a part ofthis the Rajahmundry Long Term Wage Settlement was successfully signed on 17th December2015 with the recognised union.

Simplification remains one of our top priorities. In keeping with the same we haveembraced technology and have launched a new cloud based people management system on 14thDecember 2015 for all our employees across India. Introduction of this system willtransform the way HR functions; it will make people management simpler and more effectiveand help deliver superior business results. It is a simple intuitive easy-to-useinterface for manager and employee self-service coupled with anytime anywhere accesswill substantially change the life for our people. Providing a single global system ofrecord the system will facilitate a more strategic role for HR as a genuine partner tothe business. Workday will also be supported by an efficient HR Service Delivery Model anda query management solution.

The employee uptake of this new system has been heartening and it was demonstratedduring the 2016 Performance and Development Planning cycle.

Your Company is strongly committed to principles of Inclusion and Diversity which is aglobal HR focus. This is being driven across the Company through a set of programmes tosensitise managers to appreciate the diversity in workforce hiring suitable womencandidates and by building a culture more congenial for women colleagues. We are delightedthat we have been constantly improving our gender ratio over the years and have beensuccessful in hiring women candidates in roles that have been traditionally filled up bymen. In 2015 for the first time we have hired the women Sales managers and women Salestrainees. In 2016 our focus will be to build a culture of inclusive empowerment and trustthrough various initiatives.

We continue to reinforce the values of the company through relevant and transparentinternal communication employee engagement and direct contact programmes to ensure wehave a highly engaged workforce that is truly aligned to the Company’s mission of"do more feel better live longer"

Awards and Recognition

Your Company efforts to deliver the best quality products backed up by science basedinnovation strong talent base and brands have been recognised during the year. Some ofthe key recognitions are:

• In the Economic Times Brand Equity Survey 2015 Horlicks has been ranked as themost trusted brand in Hot Beverages. Further Horlicks has moved to Top 10 Brands acrossIndia (Ranked 6 vs 25 last year).

• Your Company featured amongst Forbes "Super 50" Companies.

• Your Company Rural Marketing Initiatives (HSA VLE etc) won 6 awards at the10th Annual Flame Asia Awards conducted by Rural Marketing Association of India.

• Horlicks makes it to Hot 50 brands of Delhi-NCR

• Horlicks won at INK awards for excellence in newspaper advertising

• The Primary manufacturing sites have won the Runner Up award (EnvironmentSustainability category) by GSK global CEO for project Green Leap which is a globalrecognition for sustainability practices for GSK’s efforts towards sustainability.

Directors

The Board of Directors at its meeting held on May 8 2015 appointed Mr. ManojKumar as Managing Director of the Company for a period of 5 years with effect fromJune 1 2015 pursuant to nomination received from the Horlicks Ltd. in place of Mr.Zubair Ahmed. The appointment was also approved by the shareholders at the Annual GeneralMeeting held on August 6 2015.

The Board of Directors at its meeting held on May 8 2015 also appointed Mr. VivekAnand as Director- Finance and Chief Financial Officer (CFO) of the Company with effectfrom June 1 2015 in the casual vacancy caused by the resignation of Mr. RamakrishnanSubramanian.

Mr. Joaquin Mascaro was nominated as Director by Horlicks Limited under Article 97A ofthe Articles of Association of the Company w.e.f. May 18 2016 in place of Mr. JonathanBox. The Board of Directors wishes to place on record its sincere appreciation for thevaluable advice and guidance rendered by Mr. Jonathan Box.

Performance Evaluation of Board

A regular process of evaluating the Board’s performance can help the Board invalidating the relevance of its processes and provide insights for strengthening itsoverall efficiency and effectiveness.

Evaluation mechanism:

(i) The performance evaluation of independent directors shall be done by the entireBoard of Directors excluding the director being evaluated.

(ii) On the basis of the report of performance evaluation it shall be determinedwhether to extend or continue the term of appointment of the independent director.

The Act has not specified a rigid procedure for this evaluation keeping it open forthe Board to adopt a procedure best suited for it. Therefore the Remuneration &Nomination Committee decided that a peer feedback process will be adopted and a 360 degreefeedback will be taken from all Directors. The final results will be compiled andsubmitted to the Chairman. The Committee also mentioned that it should be anonymous andconfidentiality should be maintained.

The Committee decided that it will take place annually. The mechanism adopted will beas follows:

1. Every February the survey will be sent to all Directors through a secure onlinesurvey portal.

2. The Evaluation shall be based on: Board Effectiveness Processes adopted by theBoard Contribution by the Board Members Value addition by the Board CommitteeEffectiveness and contribution at the Committee.

3. All Directors will fill in the survey and inform the Head Human Resource.

4. The Head - HR will then compile the Results and share the same with the NRC Chairmanand Chairman of the Board.

5. The results can be individually discussed and feedback can be provided to theDirectors by the Chairman.

Criteria for Appointment of Directors

The success of the Board of Directors depends on the composition structure resourcesdiligence and authority of the entire board as well as their working relationships withother participants of corporate governance including management. Your Company iscommitted to corporate governance best practices and is vigilant at the time ofappointment of its Directors.

Key Responsibilities:

The Board of Directors is ultimately responsible for the Company’s businessaffairs and governance. To that goal a director would be expected to:

• Represent organisation’s shareholders’ interests and create value forthem

• Align the interests of management with those of shareholders while protectingthe interests of other stakeholders (customers creditors suppliers)

• Oversee the Company’s performance by setting objectives establishingshort-term and long-term strategies to achieve these objectives

• Provide counsel to the Company’s senior executives on material strategicdecisions and risk management. Establish or approve strategic plans and decisions toachieve these goals

• Oversee the sustainability of the Company in creating long-term shareholdervalue and protecting interests of other stakeholders

Pre-requisites for consideration:

• The candidate to acknowledge that s/he have sufficient time to effectivelydischarge her/his duties.

• The candidate should have skill sets and expertise area which is complementaryto the current Board. The Board assesses the needs of the current Board to ensure thatthere is a range of skills experience and diversity represented including anunderstanding of:

• the industry and markets in which the Company operates

• accounting finance and legal matters

• other key areas of business operations

• The candidate should have experience and depth of knowledge in her/ his area ofwork so as to contribute meaningfully to the operations of the Board

• There should be no conflict of interest between the candidate and the Company.The individual should not be in relation to any current employee of the Company and shouldnot be holding more than 2% of the Company’s shares at the time or during theappointment

• The candidate should not be employed or related to another organisation/bodywhich can directly/indirectly influence the operations of the Company or is in directcompetition with the Company.

The Candidate has not been convicted of any offence whether involving moral turpitudeor otherwise and sentenced to imprisonment for not less than six months and a period offive years has not elapsed from the date of expiry of sentence.

Remuneration Policy

Remuneration Policy for Non-Executive Directors

GSK believes that its Board Members bring immense value in their independent evaluationand oversight of the operations of the company. It is therefore expected that they willdevote significant time and provide unbiased point of view to their board duties.

The remuneration paid to each Non-executive Director is as per the structure determinedby the Nomination & Remuneration Committee and the Board. This is reviewed on aperiodically basis and also compared to other peer organisations. It is ensured that theremuneration paid to them is in accordance with the provisions of the Companies Act andany other applicable law.

The remuneration structure for the Non-Executive Directors comprises of annualCommission and sitting fee per meeting attended.

Remuneration Policy for Employees Philosophy

GSK recognises that reward is important in engaging employees and motivating them to dotheir best work to deliver our strategic priorities and mission. We reward highperformance and recognise outstanding achievements of employees in a way that isconsistent with our values and behaviours.

Principles

• Competitive - We provide competitive rewards within a global reward framework

• Differentiated - We differentiate reward to attract and retain skilledemployees; reward the greatest contributors and recognise employees who evolve theirskills to enhance their individual contribution to GSK’s success

• Alignment - Our reward programs and practices are transparent and focus onensuring alignment at several levels

– Business alignment - Our reward program take into account the common andbusiness-specific skill/ performance requirements across our various business units

– Country alignment - Reward aims at meeting the needs of our diverse workforceand enabling them to live out our mission - to do more feel better and live longer

– Individual alignment - Individual objectives are set and reviewed annually toensure employees have a clear understanding of the link between the business value theydeliver and their own performance based reward

Managerial Remuneration

The Company believes its employees are its biggest assets and aligns its compensationand benefits towards rewarding employees in line with its Rewards policy. The Companyfocuses on being market aligned as well as differentiate basis performance to drive a highperformance culture.

Your Company has 3731 permanent workers including workmen. The remuneration for theworkmen at two of the factories is governed by Long Term Wage Settlement (LTWS) which isdone in consultation with the unions. For the remaining employees the targeted salaryincrease was 5% for all employees including KMP.

If we compare the remuneration of these to that of median employee we observe a ratioas given below.

Name Designation Remuneration for the year ended March 31 2016 Remuneration for the year ended March 31 2015 Ratio of Salary to Median Employee Salary Change
Zubair Ahmed* Managing Director 19557115 85783750 33 NC**
R Subramanian* Director - Finance 5504819 31582597 9 NC**
Jaiboy Philips Director - Operations 28692921 31111666 48 -8%
Sonali Khanna General Manager - Legal & Company Secretary 6740191 6670208 11 1%
Manoj Kumar # Managing Director 57661832 - 98 NA***
Vivek Anand # Director - Finance 28206218 - 49 NA***

*Ceased to be in role with effect from May 31 2015 therefore salary increase notcomparable. **Not Comparable.

***Not Applicable.

#Appointed in the role with effect from June 1 2015 salary increase notcomparable

The Company believes that by means of the variable pay plan the company is able to linka portion of compensation to the individual and business performance which creates astrong positive reinforcement. It also ensures that the employees of the Company arerewarded only when the shareholders’ goals are met. The Company’s variable payplan therefore links the variable pay to both – individual performance and businessresults such as sales growth and operating profits.

The ratio of the remuneration of the highest paid director to that of the employees whoare not directors but receive remuneration in excess of the highest paid director duringthe financial year is not applicable. It is also affirmed that the remuneration is as perthe Remuneration Policy of the Company

Name Designation Remuneration of KMP as percentage of Revenue Remuneration of KMP as percentage of PBT
Zubair Ahmed* Managing Director 0.05% 0.19%
R Subramanian* Director-Finance 0.01% 0.05%
Manoj Kumar# Managing Director 0.13% 0.55%
Jaiboy Philips Director - Operations 0.07% 0.27%
Vivek Anand# Director – Finance 0.07% 0.27%
Sonali Khanna General Manager Legal 0.02% 0.06%
& Company Secretary

*Ceased to be in role with effect from May 31 2015

#Appointed in the role with effect from June 1 2015

Total KMP Remuneration as a percentage of Revenue: 0.3% Total KMP Remuneration as apercentage of PBT: 1.4%

The Company believes in balancing the competitiveness of pay as well as sustainabilityof the associated costs for the organisation. The salary increases for this year wereaimed at maintaining the pay competitiveness with market as well as performance of thecompany.

Policy on Board Diversity

As stated in the policy for appointment of Directors GSK recognises that the successof the Board of Directors depends on the composition structure resources diligence andauthority of the entire board as well as their working relationships with otherparticipants of corporate governance including management. GSK is committed to build atruly diverse board which brings with it diversity of expertise skills regional andindustry experience gender and demographics. GSK believes that such a Board will enhancethe quality of decisions by utilising the diversity of its members.

The Nomination and Remuneration Committee (NRC) is responsible for reviewing andassessing the composition and performance of the Board as well as identifyingappropriately qualified persons to occupy board positions. At time of appointment thecandidate must bring with him/her skill sets and expertise area which is complementary tothe current Board composition. The Board will have an optimum combination of ExecutiveNon-executive and Independent Directors with at least one women director in compliancewith all statutory provisions. The Board of Directors shall maintain an appropriate mix ofdiversity skill experience and expertise on the Board.

The NRC and the Board of Directors shall refer to this Policy on Board Diversity at thetime of appointment of persons as a Board Member.

Particulars of Employees

The information required pursuant to Section 197 of the Companies Act 2013 read withRules 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 in respect of employees of the Company will be provided to membersupon request in writing made before the Annual General Meeting wherein FinancialStatements for the relevant financial year are proposed to be adopted. In terms of Section136 of the Act the copy of the Annual Report is being sent to the Members and othersentitled thereto and is also available for inspection by the Members at the RegisteredOffice of the Company during business hours on working days of the Company up to the dateof the ensuing Annual General Meeting. If any Member is interested in obtaining a copythereof such Member may write to the Company Secretary in this regard.

The Annual Report of the Company is also available on the Company’s website-www.gsk-ch.in.

Particulars of Loans Guarantee Investment u/s 186

There are no Loans guarantees Investments to be reported u/s 186 of Companies Act2013.

Details of Board Meetings

A calendar of Meetings is prepared and circulated in advance to the Directors.

During the year five Board Meetings and five Audit Committee Meetings were convened andheld the details of which are given in the Corporate Governance Report. The interveninggap between the Meetings was within the period prescribed under the Companies Act 2013.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo

Information required as per the Companies Accounts Rules 2014 is given in the AnnexureI to this Report.

Auditors

Messrs. Price Waterhouse Chartered Accountants who retire at the conclusion of theforthcoming Annual General Meeting and being eligible offer themselves forre-appointment.

Secretarial Audit

Pursuant to provisions of section 204 of the Companies Act 2013 the Secretarial AuditReport is annexed herewith as Annexure II to this Report duly certified by S NAnanthasubramanian & Co. a firm of Company Secretaries in practice to undertake theSecretarial Audit of the Company.

Composition of Audit Committee

Please refer corporate governance report for composition of audit committee.

Risk Management Policy

The Company has a Risk Management policy and an internal control framework which isused to manage risks.

Vigil Mechanism for Directors and Employees of Company

The detailed policy for Vigil Mechanism and Whistle blower is available athttp://www.gsk-ch.in/Policies.aspx

Extract of Annual Report

Information required under this clause is given in the Annexure III to this report.

Related Party Transaction

Disclosures as required under Form AOC 2 are contained in Note 34 (FinancialStatements).There are no transactions which are not at arm’s length and all theRelated Party transactions are at arm’s length basis.

The detailed policy for Related Party Transactions is available at http://www.gsk-ch.in/Policies.aspx

Fixed Deposits

The Company has not accepted any deposits within the meaning of Section 73 of theCompanies Act 2013 and the Companies (Acceptance of Deposits) Rules 2014.

Information on Company’s Share Performance

The market capitalisation of the Company decreased by 4% (Rs. 2538113 lacs) Vs March31 2015 (Rs. 2649352 lacs). The EPS as on March 31 2016 stands at Rs. 163.34 vsRs.138.77 as on closing date of last financial year. The PE ratio as on March 31 2016stands at 37 vs 45 as on closing date of last financial year.

Environment and Social Commitment

Your Company is dedicated towards improving the quality of human life by enablingpeople to do more feel better and live longer. As a Global Healthcare Company yourCompany believes that it can play an important role in meeting societal challenges throughright engagement towards environmental and societal commitments. Your Company’sphilosophy is to target support to selected programmes that are innovative sustainableand which produce tangible results.

Your Company’s stated mission statement is "To lend a helping hand to theunderserved in our society through the support of women children and the aged in theareas of health and education". Towards implementing this philosophy in spirit yourCompany continued its positive contributions during the current period to the communitiesand invested in health and education programmes and partnerships that aimed to bringsustainable improvements to under-served people.

The initiatives undertaken by your Company are primarily focused towards womenchildren and the aged and are directed in the areas of Health Education and Livelihood.

In line with our commitment towards our stakeholders the Company has been consistentlysupporting and spending on CSR programs focussing on skill development income generationand awareness generation on health & nutrition to comply with the provision of law.However as per the experts interpretation we reclassified certain CSR program spendsduring the year and post this reclassification the Company has spent 1.27% of our averagenet profit of last three financial years as part of our CSR in the reporting period.

For the reporting period the Company focused on aligning our ongoing socialdevelopment programs to the requirements of the Act. We have invested considerableresources on laying a foundation for implementing and scaling up future projects bydeveloping strong internal mechanisms and identifying strategic and high impact avenuesfor CSR. Moving forward we will endeavour to spend on CSR programs / activities as perthe prescribed limits.

Your Company undertakes these activities in 4 different ways:

a. Disaster relief: We provided disaster relief support to the victims of theChennai Floods through our partners Charities Aid Foundation (CAF) and Save the Children(SC).

b. Community Development: All community and rural development focussed projectsrunning under supervision of BCF and CAF continued. The projects were focused onhealthcare and nutrition education vocational training income generation support tothe elderly across the country. Under these projects GSK-CH is supporting 16 grass rootsprojects in 9 states of India addressing some important issues of poverty malnutritioneducation health disability support to widows differently-abled infant & maternalmortality and community disease like Kalazar among others.

c. Rural development and malnutrition: Project Aaharam (with Save the Children) andProject Briddhi (with CARE) addressing rural development and malnutrition in Tamil Naduand West Bengal were undertaken.

d. Healthcare: We supported our Global program for eradicating Lymphatic Filariasis(elephantiasis) through Albendazole contribution to World Health Organization (WHO).

e. The Company sponsors education for about 20 girl students studying in classes10th to 12th in Government senior secondary school Nabha by providing scholarships. Thegirls are selected on a merit-cum means basis.

The Company procures liquid milk from 400 villages in Nabha & Rajahmundry milk shedarea. The Company drives a structured Dairy Development programme in its milk shed throughAnimal Health care Breed improvement Farm management and Clean Milk production.

Key activities:

• Free Veterinary Service

• Deworming Camps Free deworming of animals

• Multipurpose camps Vet treatment & awareness lectures

• Subsidy on Veterinary Medicines

• Subsidy on Feed Supplements - Mineral Mixture & Calcium Preparations

For other details regarding CSR please refer Annexure IV to Director’s Report.

Significant Material Orders Passed by the Court/Regulator/Tribunal Impacting GoingConcern Status and Company’s Operations In Future

The Company has not received any material Show cause under the Act / SEBI Regulations.Notices received from other regulatory/statutory authorities are being suitably dealtwith.

There are no significant legal /arbitral proceedings against the Company. All suchmatters are being brought to the notice of the Audit Committee / Board as the case may be.

Director’s Responsibility Statement

To the best of their knowledge and belief and according to the information andexplanation obtained your Directors make the following statement in terms of Section 134(3) (c) and 134(5) of the Companies Act 2013 for the year ended March 31 2016:

a. The Financial Statements of the Company for the period ended March 31 2016 havebeen prepared in accordance with the accounting principles generally accepted in Indiaincluding the Accounting Standards specified under Section 133 of the Act read with Rule7 of the Companies (Accounts) Rules 2014. There have been no material departures in theadoption and application of accounting standards.

b. All Financial Statements have been prepared on historical cost convention as agoing concern and on the accrual basis.

c. The estimates and judgments relating to Financial Statements have been made on aprudent and reasonable basis in order to ensure that Financial Statements reflect in atrue and fair manner the form and substance of the transactions and reasonably presentthe Company’s state of affair and profit for the year.

d. The Directors of the Company have taken adequate care for the maintenance ofadequate accounting records in accordance with the provisions of Companies Act 2013 forsafeguarding of assets of the Company and for preventing and detecting fraud and otherirregularities.

e. The Company has established and maintained adequate internal control framework inline with the Internal Financial Controls ("IFC") requirement within the meaningof the explanation to Section 134(5) (e) of the Companies Act 2013 including financialcontrols based on the internal control over financial reporting criteria established bythe Company considering the essential components of internal control stated in theGuidance Note on Audit of Internal Financial Controls Over Financial Reporting issued bythe Institute of Chartered Accountants of India (ICAI). The internal financial controlsare adequate and operating effectively and our internal auditors have conducted periodicaudits to provide reasonable assurances on the same.

f. The systems to ensure compliance with the provisions of all applicable laws are inplace and were adequate and operating effectively.

Declaration of Independent Directors

Pursuant to Sections 149(6) & 149(7) of Companies Act 2013 the IndependentDirectors of GlaxoSmithKline Consumer Healthcare Limited have given a declaration thatthey have complied with the criteria of independence as set out under sub section (6) ofSection 149 of the Companies Act 2013

Cautionary Statement

Statements in this report particularly that pertains to Management Discussion andAnalysis may contain certain statements that might be considered forward looking. Thesestatements are subject to certain risks and uncertainties. Actual results may differmaterially from those expressed in the statement as important factors could influence theCompany’s operations such as Government policies local political and economicdevelopment risks inherent to the Company’s growth and such other factors.

Acknowledgements

The Directors wish to extend their thanks and appreciation to all the employees of theCompany at all levels agents and other business associates for their commitmentdedication and respective contributions to the Company’s operations during the yearunder review. The Directors would also like to acknowledge the valuable guidancetechnical assistance and advice being received from the Associate Company in the U.K. YourDirectors look forward to the future with confidence.

For and on behalf of the Board
Subodh Bhargava Manoj Kumar Vivek Anand
(DIN: 00035672) (DIN: 07177262) (DIN: 06891864)
Chairman Managing Director Mukesh H. Butani
(DIN: 01452839)
Directors
Place : Gurgaon
Dated : May 17 2016