GlaxoSmithkline Consumer Healthcare Ltd Management Discussions.

Fiscal year 2017-18 was characterised by enhanced global economic growth, stabilising crude oil prices, changing global political landscape, shifting attitudes to globalisation, free trade, wage stagnation and political uncertainty etc.

In India, the past year has been significant with implementation of key economic reforms such as GST. Indian government remains keen on driving economic reforms and initiatives such as Goods and Service tax (GST), Digitisation, Make in India, Infrastructure Capital Investments, Rural Development and Financial Inclusion etc. Last year saw Indian economy growing at 6.6% (projected for F.Y 18). Other major developments included improvement in Ease of Doing business index, Upgradation of Indias sovereign credit rating and other digital inclusion initiatives.

The introduction of GST marked a huge stride towards a single economic union of India with unified tax structure. It is an indirect tax levied on the supply of goods and services implemented to replace several cascading taxes levied by the central and state governments. However, your Company was proactive to ensure GST readiness well in advance. To ensure GST readiness and compliance, several key processes were reviewed, IT systems were upgraded and stakeholders across the different nodes of the value chain were trained. These dedicated efforts ensured orderly and smooth transition into a new economic environment. A uniform taxation system resulted in economic benefits for the business and it was one of the first organizations to pass on the benefits to consumers.

The implementation of uniform tax regime led to a short-term disruption in Trade. FMCG Industry continued to remain under pressure but picked up growth in the last two quarters of the year owing to stabilizing rural demand, rising urban consumption and low-base effect (demonetization in Q3, Q4 in F.Y 2017).

Despite challenges, it was well placed to deliver consistent performance given the understanding of consumer behaviour. It also has robust price value proposition, high-science based products, Go-to-Market Strategy, pipeline for innovative products, efficient cost and talent management processes. These, it believes, fortifies us against headwinds.

The rural business has been working with the vision of building a strong connect with the communities it serves. Over the years, your Company has built a strong rural business that continues to reach over 21,500 villages directly. This has helped the Company build categories & brands and create positive social impact by building awareness on nutrition & promoting good health practices.

Two key growth drivers in the Rural Programme are Horlicks Swasthya Abhiyan (HSA) and Village Level Entrepreneurs (VLE); HSA program aims to improve the standard of hygiene & health in the rural areas, engaging with rural medical practitioners and community workers, thus creating awareness, education and relevance for the brands. HSA now reaches over 5,900 villages, 14,000 Rural Medical practitioners and connects with over a million consumers. VLE has reached more than 3,600 villages by which we are reaching out to bottom of the pyramid (Direct reach of 2,16,000 households) and in this process, create livelihood for underprivileged rural women while enhancing access of the products in small villages economically empowering rural women. Mobile Sakhi, a mobile based advisory service for pregnant mothers, delivers vital information pertaining to pregnancy is used by over 63,000 rural women.

Further, your Company has continued to address the issue of malnutrition under Mission Health, working with strategic partners as part of CSR initiatives during the year. It has also formulated a clear outline on the CS R philosophy and further details are provided in CSR Section.

Your Company brings a strong heritage and years of trust and credibility. It has strong R&D capabilities and the product portfolio continues to be strengthened by accelerated innovation and renovation to stay relevant to the emerging and differentiated needs of the consumers. Your Company continues to invest in brands and connect with the consumers through innovative and diversified platforms of online and offline advertising. Recognizing the trend of increasing digitization, your Company enhanced its presence in ecommerce channels.

Your Company has made significant efforts towards digital advocacy programs including activity targeting moms online, social media amplification of TVCs, Bone Density Tests on Womens Day, popularisation of "Horlicks Brand Store", digital launches for Protein+ etc. All these have helped increase engagement, consideration and strengthen benefit perception amongst customers.

Your Companys focus on cost management, working capital optimisation and simplification program continued to deliver positive results in mitigating inflation and supporting profitable growth. Improvement in working capital, better cash flow and cost optimization have supported sustained investments in Companys brands.


The total reserves as on March 31,2018 stood at Rs. 34,43,06.34 Lacs representing an increase of 11.77% from March 31,2017

Research and Development (R&D)

Your Companys R&D vision is to improve lives of more by creating and sustaining consumer-led science based innovation. Science remains the core of the product portfolio that addresses the nutritional needs of consumers. At R&D, new product innovation teams have been working on new claims, new formats, product platforms and science platforms to build Innovation pipeline. There were 2 New products launched in the year.

Horlicks Protein+: Launched in Feb2018 in 2 flavours i.e. Vanilla and Chocolate, Protein + extended Horlicks presence in the high protein HFD segment for adults (30- 45 yrs.). Protein+ helps adults in the age group 30+ to support healthy muscles and energy release. Product has been designed with triple sources of protein and better quality of proteins with higher levels of essential amino acids.

Womens Horlicks relaunch: Women Horlicks continued its differentiation through product launch in Feb2018 with "Great New Taste" to Increase penetration by offering new chocolate flavour.

GSK Consumer Health advisory Board 2017-2019 is a category led initiative. The first meeting was conducted in Dec201 7 for Nutrition category wherein various aspects of "Childhood Growth and Development in Indian Children" were discussed. Renowned scientists and physicians in the field of nutrition and paediatrics attended this meeting to discuss about the current & future nutrition status, challenges and opportunities for growth and development in Indian children.

The R&D function continues to focus on the regulatory compliance with local food laws, and proactively engages with the regulatory authorities and industry associations to shape the regulatory environment for science based innovation in food and nutrition. FSSAI released Food Safety & Standards Amendment Regulations, 2016 (notification), stating changes in permitted levels/or removal of specific ingredient/actives from food items. It has successfully complied with the FSSR regulations including technical feasibility of regulatory initiatives on proposed Codex changes on Food Safety & Standards Amendment (Ingredients & Additives) & Proprietary food products meeting ONE RDA (ICMR) for all vitamins & minerals meeting July17 timelines.

Also, a high science packaging lab has been established to drive science based packaging innovation program. This high science lab will help conducting the product package interactions at early stage of project to enhance speed of execution. It received many packaging excellence awards and recognitions for the efforts.

Printed electronics Point of Sale (POS) for Horlicks growth Plus: Printed electronics technology was developed on commercial scale in India as a part of Horlicks Growth+ POS to enable "Go for More Strategy" in the market. Moreover, CLS (Core Lab Systems) has been implemented as improvement in R&D Product development process to enhance the compliance and data integrity.

You will be pleased to know your Companys R&D function has adopted best practices as mentioned below:

• As part of the initiative to build future innovation pipeline, ideation workshops and consumer insights, developments have been made during the year by consumer Insight group and commercial category teams with active participation from R&D. The ideas and concepts generated through this workshop are under validation and scoping, to build the medium and long-term pipeline. It also adopted best practices in consumer insights and have a strong network with GSKs global capabilities on scientific exploration, clinical science, sensory and product understanding, packaging expert networks to access best information to deliver product of best quality, science and relevance.

• Profitable growth ambitions are actively supported by R&D through a structured Value Engineering Program which also helps to mitigate the increasing cost of raw materials. Design to value remains an integral part of R&D product development process to provide most efficient cost advantage to end consumer.

• R&D is working towards the environment sustainability initiatives. In the area Packaging (Material science), it moved into more sustainable foil less primary laminate pack structure.

You will be glad to know that your Companys R&D is significantly involved in building and defining new science and benefits through modern technology that would give cutting edge advantage to the offerings along with scientific research to drive differentiated claims, enabling us to sustain our category leadership. Some of the high science differentiated products are in advance stage of development for launches in short, medium, and long term, and thus making it innovation pipeline robust.

ISO Certification

Your Companys manufacturing facilities at Nabha, Rajahmundry and Sonepat continue to be certified to ISO 9001: 2008, ISO 22000: 2005, ISO 14001: 2004 and OHSAS 18001: 2007 by SGS, a leading International Certification Company. These certifications indicate its commitment in meeting in a sustainable manner Global Quality, Environment, Health, and Safety Standards.

Information Technology

Your Company strengthened its efforts in integration of Information Technology for business efficiencies.

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

During the year, the Company has kicked off simplification projects like creation of E-forms for streamlining the requisition process. CH tech roadshow was organized to increase the Tech Quotient of employees by showcasing the technologies readily available and future innovations which will enhance their productivity.

Internal Control System and Adequacy

Your Company has established and maintained adequate internal control framework in line with the Internal Financial Controls ("IFC") requirement within the meaning of the explanation to Section 134(5)(e) of the Companies Act, 2013 including financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI). The Company has evaluated the operating effectiveness of internal control systems which are supplemented by:

• Well-documented standard operating procedures, policies, risk and control matrices for all material processes and fraud risk mitigation. Further, these documents are tested for operating effectiveness, regularly reviewed and updated to align with global best practices.

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

• The self-assessment by process/ control owner is also used as the basis of CEO/CFO certification as required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the Stock Exchange. Further, the self-certification is reviewed by the Audit Committee on a half yearly basis.

• Your Company has a Risk Management and Compliance Board (RMCB), now called the ‘Risk Management Committee (RMC), comprising of the Managing Director, Finance Director, Operations Director, Executive Vice President - Legal and Executive Vice President -Human Resource. Risk maps stating the significant business risks, potential consequences along with mitigation plans are prepared by each function and reviewed by RMC on a regular basis.

• Your Company has a robust internal audit function, that reports into the Audit Committee and carries out review of operations, systems and functions basis the plan approved by Audit Committee.

All significant Audit observations and follow-up actions thereon are reported to the Audit Committee. The Committee reviews the adequacy and effectiveness of your Companys internal control framework and monitors the implementation of audit recommendations including those relating to strengthening your Companys risk management policies and systems.

Human Resource Development

Your Company has set a new goal to be one of the most innovative, best performing and trusted healthcare companies in the world. The Company has also defined a new set of GSK Expectations to realize this goal - Courage, Accountability, Development and Teamwork. The new GSK expectations alongside the values will be the foundation of the culture; it wants to establish at GSK.

A large part of embedding this culture in the organization is linked to providing rewarding careers to the people. Building on the 2017 integrated approach to Career Frameworks (My Winning Career), the focus this year was on employee experience - enabling people to chart their long-term careers, have conversations with senior leaders and build plans to develop skills for their next career move.

Various initiatives around ‘My Winning Career, enabled employees in the organization to come together, take a step back and spend time dedicated to conversations around careers & development.

The focus has resulted in improved engagement scores in 2017 The latest engagement survey scores have increased across the themes of the Values, Expectations and Priorities of Innovation, Performance & Trust.

Your Company continued to invest significantly in developing talent across levels, leveraging processes such as integrated talent management to ensure sustainability of talent, role changes and robust succession pipelines for all key roles. It started the ‘India Leadership Program - an initiative to develop, engage and retain emerging leaders in the organization to strengthen succession pipeline at leadership level.

In 2017 it has focused on ‘Employee Experience - to enable employees experience key people processes/offerings in the Company. It set-up Kiosks in the annual conferences to enable employees understand & experience ‘Learning on-the-go (online learning resources), Workday (HR management system), Employee Referral Program, GSK Values & Expectations, Career Frameworks, Employee Safety and Partnership for Prevention (Health & Wellbeing initiative).

The focus on Differentiated Development ensured that employees can leverage a variety of opportunities to develop and take on greater responsibilities in line with their career aspirations. It also continued to build the early talent pipeline by hiring from the best B-schools in the country, as well as sending the high potential talent on global talent acceleration programs.

Your Company is strongly committed to principles of inclusion and diversity (I&D) which is a critical element of the global HR strategy, as well. In 2017, it planned and executed the second "Inclusion and Diversity Week" which included a set of events conducted across locations, designed to help our employees value and draw on diverse knowledge and experiences. In 2017, it also launched the first Inclusion & Diversity Council. The council created a roadmap for themselves and identified the areas that they will work on such as awareness & training around I&D, new mothers related initiatives, talent acquisition & talent management. It focussed itself in ensuring 100% coverage of all employees in the Prevention of Sexual Harassment (POSH) training. It also participated in external I&D forums to share and understand best practices as well as to build future plans around this agenda. Your Company also initiated discussions with external agencies around child care centres for the benefit of its women employees.

Building a healthy, engaged workforce remains one of the key priorities thus, it focussed on embedding the Partnership for Prevention (P4P) program further in India. The program was launched in India in 2016, offering a host of preventive healthcare services for employees and their dependents. 2017 saw multiple on ground activations around P4P like awareness sessions, health and vaccine camps organised across locations to drive awareness and increase uptake.

Awards and Recognition

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

• Mission Health won the best award in category of Food and Nutrition Education Program of the Year at Nutrition and Food Security Awards 201 7 by ASSOCHAM (Associated Chambers of Commerce and Industry of India).

• Horlicks won a Gold at DBA Design Effectiveness Awards 2017 for the product design in the beverage category.

• Sensodyne won a Bronze at Big Bang Awards 2017 under the social media category for the Whitening launch Facebook campaign.

• Boost has won a Silver @ EMVIEs17 for the Best Media Strategy for the campaign Play A Bigger Game.

• Boost won the Gold for Best Video Content & Silver for Best In-App Strategy for the digital video campaign #playabiggergame at The Maddies17.

• Boost won the Silver for Best Work in Mobile Analytics for its digital video campaign #playabiggergame at The Big Bang Awards17

• GSK Consumer Health Care was awarded at the prestigious India Star 2017 for Boost restage and Horlicks growth Plus for the packaging design in consumer category.

• The "Sustainable sourcing of Horlicks raw materials project won first place in ‘Environmental sustainability category in this years CET Environment, Health, Safety and Sustainability Awards.

Cautionary Statement

Statements in this report particularly that pertains to Management Discussion and Analysis may contain certain statements that might be considered forward looking. These statements are subject to certain risks and uncertainties. Actual results may differ materially from those expressed in the statement as important factors could influence the Companys operations such as Government policies, local, political and economic development, risks inherent to the Companys growth and such other factors.

For and on behalf of the Board
Zubair Ahmed Navneet Saluja
(DIN: 00182990) (DIN: 002183350)
Chairman Managing Director
Vivek Anand Kunal Kashyap
(DIN: 06891864) (DIN: 00231891)
Director Director
Place : Gurugram
Dated : May 11, 2018