Glaxosmithkline Pharmaceuticals Ltd Management Discussions.

Economic Scenario

Global economic activity in 2015 remained muted. Growth in emerging markets and developing economies declined for the fifth consecutive year (still contributing 70% to global growth), while a modest recovery continued in advanced economies. This has been attributed to: 1) The slow shift in focus from investment and manufacturing to consumption and services in China; 2) Lower prices for energy and other commodities; and 3) Gradual tightening in monetary policy in the US. (Source: Media reports)

In India, in the Fiscal Year 2014-2015, Gross Domestic Product (GDP) grew by 7.3 per cent, following a 6.9 per cent growth rate in the previous year. In the first half of Fiscal Year 2015-16, the growth was 7 per cent. Domestic consumption (57 per cent) and investment (33.1 per cent) were major contributors to growth in Fiscal Year 2014-15. This can be attributed to high savings rates, a growing labour force and an expanding middle class. Following the downward trend in global commodity prices, the retail inflation averaged 4.5 per cent in first half of Fiscal Year 2015-16. (Source: KPMG report, "India Soars High" (February 2016) and Finance Ministry/ Reserve Bank of India website) This has allowed RBI to cut its policy rate by 125 basis points in 2015, which is expected to underpin the domestic demand. India’s current account deficit has continued to narrow, enabling the RBI to increase the foreign exchange reserves, which could protect the economy from possible disruptions in global financial markets (through monetary tightening in advanced countries).

Overview of the Indian Pharmaceuticals Market

In this economic scenario, the Indian Pharmaceuticals market has seen double-digit growth in the last one year. It is forecasted to grow at a compound annual growth rate (CAGR) of 11.8% (+3%) between 2015 and 2020, reaching Rs 1859.5 billion by 2020. (Source: Media reports).

Business Performance

In this challenging environment, your Company has delivered value, aided predominantly by manufacturing and supply chain excellence to ensure continuity and secure supply of medicines, along with initiatives to increase reach so that patients can access medicines. Your Company continues to enjoy a leadership position in the therapy areas in which it provides healthcare solutions to patients. Seven of your Company’s brands feature in the top 50 Industry brand list, namely Augmentin, Calpol, Zinetac, Betnovate - N, Betnovate - C, Synflorix and Eltroxin. Your Company has set in motion initiatives to re-engineer its business model to maintain margins and to best deliver value to patients and stakeholders.

(a) Finance and Accounts

Your Company strives to drive profitable volume growth in a competitive generic market with an underlying focus on delivering quality products to patients. To support the long term strategy, the Company is undergoing an investment initiative to upscale its existing manufacturing capabilities at its Nashik plant and has commenced the construction of its new plant at Vemgal, Karnataka.

Sale of Products (net of Excise Duty) decreased by 16% for the twelve-month period ended 31st March 2016 as compared with the previous fifteen-month period ending 31st March 2015. The corresponding Sales of the Pharmaceutical business decreased by 17% over these periods. The Gross Margin increased by a percentage as compared to last year, driven by portfolio mix. Other Expenses for the period include increased Corporate Social Responsibility spend which amounts to 2% of the last three years’ average of Profit After Tax.

Profit Before Exceptional Items and Tax amounted to 21% of Sales for the year compared to the fifteen-month previous period of 25%. This reduction is mainly on account of lower Other Income as business enhances its capital investment programme.

Net Profit for the Year remained flat at 14% of Net Sales. Exceptional income for the year of Rs 2.61 crores includes the profit on disposal of property during the year of Rs 15.99 crores [pre-tax] that is partly offset by the rationalisation costs of Rs 5.15 crores for Portfolio and Manufacturing activities as well as the costs relating to the Asset Sale transaction with Novartis of Rs 7.70 crores. This compares favourably to the prior year Exceptional costs of Rs 52 crores in the prior fifteen-month period relating to actuarial loss on employee benefits of Rs 21.51 crores and a charge of Rs 30.37 crores for the rationalisation of capital assets for one dosage form at the Nashik facility.

Cash generation from Operations continued to remain favourable this year and is in line with business performance. The Company utilised Rs 232 crores of cash as capital expenditure, predominantly for the new project at Vemgal, as well as for the upgrade of the existing factory at Nashik. Your Company continues to look for ways and means of deploying accumulated cash balances as at 31st March 2016 which remain invested largely in bank deposits.

During the year, the Company remodeled its finance operating model to enhance the efficiency of end-to-end processing of transactions, increase capabilities toward finance partnering with the business as well as ensure strong financial governance across the organisation. The implementation of the finance operating model positions the Company to upscale its future Enterprise Resource Planning systems.

There are no loans, guarantees given, securities provided and investments covered under Section 186 of the Companies Act, 2013. Your Company has not accepted any fixed deposits during the year. There was no outstanding towards unclaimed deposit payable to depositors as on 31st March 2016.

There are no significant or material orders passed by the Regulators, Courts or Tribunals which impact the going concern status of the Company and its future operations. There are no material changes and commitments affecting the financial position of the Company as on the date of the report.

Key comparable figures for the 12-month period ending April - March 2016 and April - March 2015

As mentioned above, the audited results for the year ended 31st March 2016 are not comparable with those of the fifteen-month period ended 31st March 2015. However, on a memorandum basis and for comparative purposes, unaudited results for the twelve months ended 31st March 2015 are given below:

Rupees in lakhs

Year ended 31st March 2016 Unaudited Twelve month ended 31st March 2015
Revenue from Operations 2756,95.69 2679,96.99
Profit Before Exceptional Items and Tax 574,39.96 651,75.24
Exceptional Items 2,61.33 (54,87.05)
Profit Before Tax 577,01.29 596,88.19
Less: Tax expense 201,79.95 220,41.41
Net Profit for the Year 375,21.34 376,46.78

Revenue from Operations increased 3% in the year. The first two quarters of the year were impacted by supply factors that led to a decline in sales growth for the first half of the year. The second half of the year saw recovery to a growth rate in excess of 12%, assisted by reduced constraints as well as the sales from the acquired Novartis vaccines.

The gross margin improved by 1% as compared to the prior year’s unaudited twelve-month period due to portfolio mix, however, the Profit Before Exceptional Items and Tax declined by 4%, driven by a reduction in Other Income and the inflation impact on the cost base.

Exceptional income for the year, as detailed above, compares favourably to the exceptional cost of the prior year unaudited twelve-month period of Rs 54.87 crores relating to actuarial loss on employee benefits of 24.50 crores and a charge of Rs 30.37 crores for the rationalisation of capital assets for one dosage form at the Nashik facility.

Net profit margin for the year of 14% of sales is comparable to the same margin as in the prior year.

Novartis Transaction

In April 2014, GlaxoSmithKline plc (GSK), London, UK, entered into three inter-conditional agreements with Novartis AG (Novartis), Basel, Switzerland. In one such agreement, GSK agreed to acquire Novartis’ Vaccines Business (excluding influenza vaccine) and manufacturing capabilities and facilities from Novartis, and in the second agreement, GSK agreed to sell the rights to its Marketed Oncology Portfolio, related R&D activities and AKT Inhibitors currently in development to Novartis. Globally, these transactions with Novartis were completed on 2nd March 2015. In connection with the above transactions, the GlaxoSmithKline Pharmaceuticals Limited ("your Company") Board, in its meeting held on 12th February 2015, approved the transactions on an Asset Sale basis with Novartis Healthcare Private Limited, a private unlisted company incorporated under the Companies Act 1956. Pursuant to the global deal, your Company will have its distribution rights terminated for the oncology portfolio and acquire distribution rights for the vaccines portfolio. GSK plc and Novartis AG have obtained the approval from the Competition Commission of India. Your Company and Novartis Healthcare Private Limited had filed separate applications for approval with the Foreign Investment Promotion Board (FIPB). The closing of the asset sales between the companies was subject to the receipt of all applicable legal and regulatory approvals, consent, permissions and sanctions as may be necessary from concerned authorities. Your Company successfully completed this transaction on 30th September 2015 on receipt of all applicable legal and regulatory approvals. Your Company’s sales performance for the current year was enhanced by Rs 61 crores from the acquired sales in vaccines. Furthermore, your Company continues to sell the Oncology portfolio relating to this transaction up until the marketing authorisations transfer to Novartis Healthcare Private Limited.

Whilst the transaction is expected to be profit neutral for your Company, your Company’s vaccines portfolio is enhanced predominantly from distribution of the anti-rabies vaccine as well as from the expected pipeline of vaccines from GSK.

b) Pharmaceuticals Business Performance and Outlook

The year under consideration was focused on increasing access to medicines to serve patients better. 68% of the Indian population resides in more than 638000 villages and small towns. Access to their desired medicines is a significant challenge for them. Healthcare in most of these areas is managed through primary and community healthcare centres. Your Company invested in increasing its resources in the REACH team (with the specific task to increase access) to increase penetration into rural markets with a large portfolio of brands spanning the Company’s therapeutic areas. The rural initiative is expanding for greater geographical reach and will now ensure prescription leadership and support to patients in rural markets. Your Company started its unique scientific programme, Van Scientific Promotional Meetings (SPM), conducting meetings with Doctors from a van that travels to the areas that are difficult to reach. The Doctors who benefit from this programme otherwise have limited or no access to continuous medical education due to infrastructure challenges and lack of medical expertise.

According to IMS data, the hospital segment is estimated to grow at a CAGR of 20% by 2020, almost 8% more than the retail segment. Your company expanded the Hospital Business Team reaching out to more hospitals with a customised approach, promoting mass market and mass specialty brands along with the cardiac portfolio. Some of the products like Betnovate were moved from specialty business to mass market business for greater coverage. Your Company’s established products like Augmentin, Cobadex CZS and Calpol are now promoted by all the teams to ensure that the benefits are passed on to maximum number of patients possible, which has resulted in prescriptions growing from month to month during the last year.

Your Company’s Respiratory team launched a price- volume initiative on Seretide Accuhaler with an objective to make Seretide Accuhaler accessible to more patients in India in order to help them better manage and control their Asthma and Chronic Obstructive Pulmonary Disorder (COPD) in a better way. As a result of this initiative, the patient share on Seretide Accuhaler has gone up by almost three times and this initiative has had a positive impact on the Seretide Evohaler.

Your company’s Dermatology business maintained its leadership in the segment’s market in the year under consideration; backed by above par performances from classic brands like Betnovate & Tenovate, as well as strategically important brands such as Zimig, Oilatum and Clindoxyl. Keeping the patient as the focus of all activities, the team launched different patient campaigns like ‘Skinfie’ skin care awareness camps which were conducted in colleges and corporate offices by renowned Dermatologists. Your company also took on the challenge of increasing awareness on the right and appropriate use of steroids by way of meetings, leaflets and posters in order to educate patients and pharmacists.

The Mass Specialty business continued its growth trajectory and Augmentin, the flagship brand of your Company regained the No. 1 position in the "Amoxy Clav" market, showing a remarkable recovery after it was bought under the NLEM (National List of Essential Medicines) list as per DPCO 2013 with an annual prescription growth of 35%. Your Company used the opportunity of the price control induced downward correction to improve access to patients and improve outcomes as is evidenced by the growth of prescriptions. The team not only focused on improving access, but also on therapy-shaping activities. It carried out various initiatives on "Appropriate use of antibiotics" by Health Care Professionals (HCPs) and "Responsible Antibiotic Adherence" by patients. The team remains focused to enable Augmentin to achieve the status of volume leader in the market and be the highest prescribed brand in the "Amoxy Clav" market.

"Eltroxin", your Company’s flagship therapeutic solution for Thyroid management achieved an annual growth of 5%. Many recent advances in prevention and management of Hypothyroidism need to be translated into practice for Health Care Professionals (HCPs) in Tier 1 and Tier 2 cities. To help rapid and early diagnosis of Thyroid disorders, your Company undertook several Scientific Promotional meetings on "Maternal Hypothyroidism" and "Translating of Thyroid guidelines". As many as 10000 such meetings took place during the year. The ‘One-on-One’ SPMs were a good example in our pursuit of being a patient- focused organisation and taking a lead to ‘door deliver’ knowledge to equip HCPs for appropriate disease management. The Disease Awareness initiative on Congenital Hypothyroidism (CH) was conducted in many cities during the year. Feedback from doctors was encouraging as they believed that your Company is spreading awareness in the society and thus improving the future of children with CH. Your Company has taken an initiative of launching team "INVICTUS"- a dedicated task force based at various locations in the country. The team caters to key stakeholders for Eltroxin and engages them for scientific promotional activities. The key brand Ceftum also registered a double digit prescription growth in major specialty areas.

The key brands in Mass markets like Zinetac, Calpol, Betnesol, Zentel, and Cetzine have maintained dominant market leadership positions. Calpol is the No. 1 prescribed brand in the Indian Pharmaceutical Market and generates 3 prescriptions every 2 seconds. Your Company’s strategy was to increase access to patients by targeting the adjacent and direct category competition and drive unit sales consistent with following your Company’s policy of increasing access to medicines.

In the area of preventive healthcare, your Company continues to be the No. 1 vaccines Company in the self-pay segment in India. Consistent with your Company’s philosophy of increasing access, your Company continues to offer cost-effective presentation of a flagship pneumococcal vaccine in the form of vials to help protect more kids from pneumococcal disease, which is the leading cause of infant mortality in India. Sudden changes in interpretation of licensing requirements coupled with constraints of supplies from the parent facility led to shortages of a number of vaccines through the year. Notwithstanding that, the measure of the ability of your Company’s vaccines to benefit children and women’s health is indicated in the healthy growth registered. The vaccines team is gearing up for the launch of the combined MMRV vaccine - the first of its kind to be launched in India in 2016. The merger of Novartis Vaccines Business, has given a key anti-rabies vaccine, "Rabipur" to enhance the overall portfolio of vaccines.

c) Opportunities, Risks, Concerns and Threats

The Union Budget 2016-17 announced certain big changes connected to the healthcare sector. Out of nine pillars of the Union Budget, one was social healthcare. The Government announced setting up of 3000 new drug stores across the country to handle shortage of drugs, especially in rural areas under the Jan Aushadi Yojna to provide generic drugs at affordable rates. A health insurance cover of up to Rs 1 lakh per family is also provided. With the launch of the National Dialysis Programme to deal with high costs involved in healthcare as part of the Programme, every district hospital will have facilities of dialysis. The Health Protection Scheme of Rs 1 lakh to cover unforeseen illness for poor families with addition of Rs 30,000/- for senior citizens, was a welcoming step in deepening access. The 15% increase in government spending on social sectors with focus on healthcare and the government’s promise to provide health insurance to the under-privileged class through the new Health Protection Scheme is welcome. All these would act as a catalyst for investment in the healthcare sector and help in improving affordability and accessibility of quality healthcare in India, which in turn will help growth of your Company.

Government issued a Fixed Dose Combination [FDC] notification on 10th March 2016 pursuant to which more than 350 fixed dose communication drugs were banned. As per the said notification, Companies were not allowed to manufacture, sell and distribute the FDCs. Many companies and industry associations have filed a writ petition in the Delhi High Court challenging the abrupt ban of FDCs. The Delhi High Court has granted a stay order and the matter continues to be heard on a regular basis at the High Court. The abrupt ban on FDCs has caused an environment of uncertainty as some of the FDCs were available in the market and used by patients for many years. Your company has minimal impact on account of the said FDC Notification.

d) Regulatory Affairs

During the year under review, in order to support the commercial availability of new drugs that would benefit and improve the quality of life of Indian patients suffering from various diseases, your Company submitted necessary applications for New Products in India to the CDSCO (Central Drugs Standard Control Organization), Ministry of Health and Family Welfare, Government of India. After a thorough review of its applications, your Company has received approval for some of these products from CDSCO, which will enable timely access to new and innovative therapeutic options to patients in our country.

Some of the innovator products approved by the regulatory agency in India during the year under review includes albiglutide (Tanzeum) for the treatment of type 2 diabetes mellitus in adults, a pediatric vaccine for immunisation of children of 1 year to 12 years of age against measles, mumps, rubella and varicella (Priorix tetra), inactivated poliomyelitis vaccine (Poliorix) indicated for immunisation against poliomyelitis from age of 6 weeks onwards. All these new products approved for your Company during the year under reviewwill be beneficial to Indian patients. In addition, your Company also received approval for import and marketing of 2 new cosmetic products in India and approval for continued marketing of 9 fixed dose combination products in India upon reassessment of efficacy and safety data presented by your Company.

Medical Affairs and Medical Governance

The Medical Affairs team has provided valuable medical inputs for the development and execution of strategy for several key products including Seretide, Augmentin, Eltroxin and also the Vaccines portfolio. The team played a crucial role in communicating high-quality scientific information to the medical fraternity and regulatory authorities. The Medical Affairs and the Medical Governance teams ensure that your Company’s promotional activities and HCP (Healthcare Professional) engagements are consistent with global GSK standards and in line with all the applicable guidelines and standard operating procedures.

At the end of 2013, GSK globally announced industry-leading changes to the way the company interacts with HCPs. One of these changes includes stopping payments to Healthcare Professionals to speak at scientific meetings on behalf of GSK and by doing this, the Company increases trust by eliminating the perception of a conflict of interest. This change has been implemented in India by your Company from 1st January 2016 and in preparation for this new HCP Engagement model, your Company has taken steps to build internal medical capacity and capability to deliver this new model and enhance the way your Company interacts with HCPs. Your Company has developed and/or supported high quality scientific educational programmes for Healthcare Professionals to update their knowledge about disease management which will ultimately help their patients receive appropriate treatment.

One such independent medical education programme supported through an educational grant by your Company is the Certificate Course in Management of Thyroid Disorders (CCMTD) which has been developed and implemented by Public Health Foundation of India (PHFI) in collaboration with Chellaram Diabetes Institute (CDI), Pune. This is a comprehensive training programme with the main objective of enhancing the knowledge and skills of primary care physicians in the management of thyroid disorders and till date, more than 700 physicians have completed this course.

Your company also planned and conducted Pulmonary Rehabilitation (PR) workshops across India, in consultation with experts in the field, in order to educate chest physicians and physiotherapists regarding various aspects of PR and its benefits in patients with respiratory disease.

e) Internal Control Framework

Your Company conducts its business with integrity and high standards of ethical behaviour and in compliance with the laws and regulations that govern its business. Your Company has a well-established framework of internal controls in operation, supported by standard operating procedures, policies and guidelines, including suitable monitoring procedures and self-assessment exercises. In addition to external audit, the financial and operating controls of your Company at various locations are reviewed by the Internal Auditors, to report significant findings to the Audit Committee of the Board. The Audit Committee reviews the adequacy and effectiveness of the implementation of audit recommendations including those relating to strengthening your Company’s risk management policies and systems. Compliance with laws and regulations is also monitored through a matrix of well laid down framework which requires individual functions to confirm and report statutory compliances on all laws and regulations concerning their respective functions and which gets integrated with the overall compliance reporting on all laws and regulations for the purposes of review and monitoring by the Audit Committee.

As required by the Companies Act 2013, your Company has implemented an Internal Financial Control (IFC) Framework. Section 134(5)(e) requires the Directors to make an assertion in the Directors Responsibility Statement that your Company has laid down internal financial controls, which are in existence, adequate and operate effectively. Under Section 177(4)(vii), the Audit Committee evaluates the internal financial controls and makes a representation to the Board. The purpose of the IFC is to ensure that policies and procedures adopted by your Company for ensuring the orderly and efficient conduct of its business are implemented, including policies for and the safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information. The IFC implementation required all processes of your Company to be documented alongside the controls within the process. All processes were satisfactorily tested for both design and effectiveness during the year.

Furthermore, the Company extended its Independent Business Monitoring (IBM) project under ‘ECHO’. The ECHO IBM Framework is designed by the GSK plc group requiring a regular review of activities, data, exceptions and deviations in order to continuously monitor and improve the quality of operations. It is a risk-based enterprise approach ensuring consistency, quality, transparency and clear accountability of Risk Management and Internal Controls across all business units.

Your Company expects all employees to act transparently, respectfully and with integrity and to put the interests of patients and consumers first at all times. Your Company aims to put these core values at the heart of everything it does and every decision it makes. The GSK Code of Conduct and accompanying training, seeks to ensure everyone in your Company understands how to put values into practice. Mandatory training on the Code of Conduct helps your Company’s employees gain the confidence to make the right decisions and become familiar with the policies and procedures applicable to their areas of operation, avoid conflicts of interest and report all unethical and illegal conduct. Your Company also has an Anti-Bribery and Corruption (ABAC) programme designed to prevent non-compliance through controls, practical guidance and mandatory training. The programme complies with the principles laid down under US Foreign Corrupt Practices Act and British Anti-Bribery laws.

Additionally, employees are required to certify on an annual basis whether there have been any transactions which are fraudulent, illegal or violative of the Code of Conduct. Strong oversight and self-monitoring policies and procedures demonstrate your Company’s commitment to the highest standards of integrity.

Your Company has also successfully complemented its Internal Control Framework with the test of design and effectiveness of all its processes across the organisation as part of meeting the requirements of the Companies Act, 2013, to ensure the existence and effectiveness of Internal Financial Controls.

Your Company’s policies and updated Global Code of Practice for Promotion and Customer

Interactions prescribe the nature of practices and prohibits specifically those which are unethical. Your Company is a signatory to the OPPI (Organisation of Pharmaceuticals Producers in India) Code of Marketing Conduct.

Risk Management

The Company has a Risk Management and Compliance Board (RMCB). Risk maps stating the significant business risks, potential consequences and mitigation plans are prepared by each function and reviewed by the RMCB on a regular basis. Business Continuity Plans are periodically reviewed and tested to enhance their relevance. The Risk Management Framework covering business, operational and financial risks is being continuously reviewed by the Audit Committee. At present, in the opinion of the Board of Directors, there are no risks which may threaten the existence of the Company.

Vigil Mechanism

Your Company has a Speak Up Programme. The Programme offers people within and outside GSK a range of channels to voice concerns and report misconduct. The Speak Up culture and procedures encourages everyone to raise concerns about potential unethical or illegal conduct and assures confidentiality and protection from retaliation, retribution or any form of harassment to those reporting such concerns. Confidential Speak Up integrity line phone numbers are available to people within and outside of your Company. An independent company manages these reporting lines and calls are logged through their central system to ensure integrity of the programme.

Your Company endeavours to treat all questions or concerns about compliance in a confidential manner, even if the person reporting a question or concern identifies themselves. Your Company also has a well laid down process to prevent, take disciplinary action and deter acts of sexual harassment. Your Company has constituted a complaint mechanism and a complaint committee to deal in a timely manner with all instances of sexual harassment and to ensure that no victims or witnesses are victimised or discriminated.

Your Company has in place a whistle blower policy with a view to provide a mechanism for its Directors/employees/ customers to approach the Chairman of Audit Committee, in case of any grievance or concern. The Whistle Blower policy can be accessed on your Company’s website www.gsk-india.com/investors/policies.

f) Human Resources:

Your Company in the year under consideration saw a renewed focus on the Human Resources front with initiatives in leadership & talent management, capability building, rewards & recognition, ERP systems and employee communication.

In 2015, your Company significantly strengthened its Human Resources capability in the Supply Chain organisation with particular emphasis on Quality and Employee Health & Safety. The Human Resources team partnered with the business to develop and implement a Change Management plan across the Nashik site. The focus was on sustainability of policies and processes, underpinned with a 4-day training programme, ‘Gurukul’ for all employees. The Nashik Site won GMS President’s Award on "Building a culture of Zero Accidents" and 2nd prize at the "Best Safety award competition - 2015" by National Safety Council - Maharashtra Chapter in collaboration with Directorate of Industrial Safety & Health, Maharashtra.

Your Company continues to focus on Talent Management and Leadership to build a strong Leadership pipeline. Differentiated development plans have been drawn up for individuals identified as key talent, which covers on-the-job development, relationship/coaching skills along with formal development/classroom training. Identified high potential Sales Managers have been put through the "GMAC - GSK Marketing Accreditation Program" for 18 months to develop their Marketing capability. Your Company continues to invest in its ‘Future Leaders’ programme drawing on fresh talent from leading universities/business schools around the country. Managers have been through various leadership programmes, such as Accelerating Difference - for talented Women Managers, Emerging Leaders programme, first line leaders, leading delivery, coaching etc. Towards enhancing employee capability, extensive sales training programmes were launched, including distance learning programmes. For instance, 72 e-learning modules for about 44 brands were also implemented.

Your Company launched ‘Workday’, an ERP initiative, to enhance its HR Systems. Workday allows Managers to have access to employee information on a real-time basis that helps managers to better manage their people. Workday covers performance management, leave, talent management, query resolutions, amongst other features. Managers can also readily access Workday on smartphones and iPads to enhance efficiency.

Following the acquisition of Novartis Vaccines business globally, your Company seamlessly completed the ‘asset deal’ transfer. In October 20l5, around 120 employees of Novartis were integrated into your Company’s Vaccines business after going through an Orientation and Crossover Induction programme covering GSK values, business processes and SOPs. About 40 employees transferred to Novartis as part of divestment of our Oncology business.

A number of employee engagement initiatives were carried out such as volunteering - through the Company’s ‘Pulse’ and ‘Orange day’ programmes, the wellness and wellbeing programme, the Let’s Talk programme, the Empowerment League programme, the Star Recognition programmes, the employee Health and Safety programmes, etc. During the course of the year, an employee Survey was carried out and your Company had some of the highest scores in both Engagement and Empowerment within the GSK group and these scores also compared favourably against external benchmarks.

Towards developing and growing women leaders, talented Women Managers are being put through a unique programme, ‘Accelerating Difference’ which will help them to hone their capability in managing senior roles. Women-friendly policies have also been put in place.

Your Company has also put in place a number of initiatives with respect to values and maturity assessment. This has led to an extensive coverage of all employees to ensure that they understand and learn to live our values of Transparency, Respect for people, Integrity and Patient Focus.

There are four recognised unions - Selling Area (zonal) based - North, East, West and South to address the grievances of employees working in the field. The Union in the West selling area also represents the workers working at Nashik site. The Unions have been committed to the growth and development of the Company.

Prevention of Sexual Harassment at Work Place

As per the requirements of the Sexual Harassment of Women at the workplace (Prevention, Prohibition & Redressal) Act, 2013 ("Act") and rules made thereunder, your Company has adopted a policy (www.gsk-india.com/investors/policies) for prevention of sexual harassment at workplace and has constituted an Internal Complaints Committee. During the year, your Company has not received any complaints on Sexual Harassment under the said Act.

g) Supply Chain Manufacturing:

Manufacturing operations in India continue to progress and develop. The Nashik Site has continued to deliver on its overall strategic intent and has invested heavily in Safety and Quality in the past year, while further securing supplies and capability to serve the patient. The Site has increased output capability from 2014 through 2016 by approximately 30% with a target for the end of 2016 reaching a 50% efficiency gain from 2014. The Site successfully launched new strengths in Bactroban and Eltroxin, further supporting patient need. The Site has upgraded key utilities, including electrical, HVAC and purified water systems.

The site has invested heavily in dust containment capability and fire-fighting capability to ensure a safe working environment for all staff. The site has invested in the upgradation of all manufacturing areas to improve Safety and Quality standards to GSK global expectations. Progress on the new Building for the Eltroxin Suite has progressed to plan and the facility is on track for commercial supply from January 2017.

New Manufacturing Site:

As you are aware, your Company has decided to create a new Greenfield manufacturing site in Bengaluru. The new factory, is being built to the highest International Standards. It has been designed in India and will incorporate the highest appropriate levels of technology and automation to ensure cost- effective production of the highest quality medicines. The process equipment is either being imported or sourced locally, wherever possible.

Environmental considerations have been at the forefront of the Factory Design and future operation. Your Company is aiming to achieve LEED (Leadership in Energy and Environmental Design) Gold standard which is an internationally recognised US set of rating systems for the design, construction, operation, and maintenance of green buildings, that aims to help building owners and operators be environmentally responsible and use resources efficiently. Additionally, your Company is investing in renewable energy in the form of a 0.5 MW Photovoltaic array, which will generate a significant part of the site’s energy requirement. All waste water will be recycled with zero waste. Advanced ‘Programme Management’ techniques are being used to ensure all the various processes, quality management systems, staff recruitment, and other operational readiness activities are in place prior to start-up.

Manufacturing Excellence:

The Nashik site has significantly increased capability in the delivery of the GSK Production System (GPS) with the Site showing significant improvement in Safety, Quality and Cost as your Company drives towards Zero Accident, Zero Defect and Zero Waste. Site performance last year showed significant improvement in all performance parameters for Safety, Quality and Cost from the previous year. The Site launched two key initiatives to support knowledge and understanding. These include the launch of Site B2B programme - a 4-day intensive EHS and Quality training programme to ensure all staff are meeting a common standard for these critical activities. In addition, the Site launched its Site Learning Zone; a hands-on learning environment where staff can practice in a safe way, common, day-to-day work practices and drive improvement into the process.

End-to-End Supply Chain & Logistics:

Your Company is implementing several initiatives in driving greater safety & tracking when the products are transported from our manufacturing locations to various warehouses across the country, by using GPS tracking devices, engaging with the transporters to ensure that product handling is appropriate from pilferage & theft perspective. Your company is looking at strengthening the cold chain capability across the supply chain through the warehouses, transportation & packaging. This initiative is to further enhance compliance to patient safety & regulatory requirements.

h) Corporate Social Responsibility

Your Company has a rich legacy of partnering the communities in which we live and operate. Strong partnerships with community groups are critical, as local organisations have the greatest insights into the needs of their people and the strategies that stand the greatest chance of success. Your Company’s focus is on making life-changing, long-term differences in human health by addressing the healthcare burdens of accessibility, affordability and awareness. Your Company works to fulfill this and other social change efforts, through our Corporate Social Responsibility (CSR) programmes. During the last year, the CSR programme touched the lives of over a million people across India.

Pursuant to the provisions of Section 135 and rules made thereunder of the Companies Act, 2013, the Company has constituted a CSR committee to monitor CSR activities of the Company. The CSR policy of the Company may be accessed on the Company website at the link www.gsk-india.com/investors/policies. The CSR Report on the activities undertaken during the year, given in Annexure ‘C’, forms a part of this Report.

i) Certain statements in the "Management Discussion and Analysis" section may be forward-looking and are stated as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook.