The Directors have pleasure in submitting their Report for the year ended 31st March 2017 prepared in accordance with Indian Accounting Standards.
1. FINANCIAL RESULTS FOR THE YEAR ENDED 31st MARCH 2017
Rs, in lakhs
Year ended 31st March 2017
Year ended 31st March 2016
Revenue from operations
Profit before Exceptional items and Tax
Add: Exceptional Items
Profit before Tax
Less: Income tax expenses
Profit for the year
Your Directors are pleased to recommend a Dividend of Rs, 30 per Equity share for the year ended 31st March 2017 (previous year Rs, 50 per Equity share). The Dividend is subject to the approval of shareholders at the Annual General Meeting on 25th July 2017 and will be paid on or after 26th July 2017. If approved by the shareholders at the Annual General Meeting, the Dividend will absorb Rs, 306 crores inclusive of the Dividend Distribution Tax of Rs, 52 crores borne by the Company .
The Board of the Directors of the Company have approved the Dividend Distribution Policy on 27th October 2016 and it is available on the Company website at http://india-pharma.gsk.com/en-in/investors/shareholder-information/policies.
3. management discussion & analysis Economic scenario
With buoyant financial markets and a cyclical recovery in manufacturing and trade under way, world growth is projected to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018, according to the International Monetary Fund''''s World Economic Outlook (WEO) forecast (April 2017). Growth in Emerging Markets and developing economies is forecast to rise to 4.5% and 4.8%, in 2017 and 2018 respectively, from an estimated growth of 4.1% in 2016, according to the IMF.
In India, Gross Domestic Product (GDP) grew by 7.1% in the Fiscal Year 2016-2017, which makes India the fastest-growing G20 economy. The acceleration of structural reforms, the move towards a rule-based policy framework and low commodity prices have provided a strengthening growth impetus. Recent deregulation measures and efforts to improve the ease of doing business have boosted foreign investment. (Source: 2017 Economic Survey of India, OECD). In April 2017, the World Economic Outlook (WEO) report by the International Monetary Fund, estimated that domestic demand and a growth in exports will remain key drivers towards GDP growth. Medium-term growth prospects remain favorable, according to the WEO report, with growth forecast to rise to about 8% due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies. In addition, the country''''s most significant tax reform in decades, the Goods & Services Tax (GST), was approved in Parliament with an expectation for implementation during the latter half of 2017.
In the Union Budget 2017, the government has demonstrated its commitment to increase healthcare spending. The National Health Plan has been approved by the Cabinet and aims at a holistic approach to address the healthcare problems of all sectors of society and their solutions with participation from the private sector as strategic partners in this mission.
overview of the Indian Pharmaceuticals Market
In this economic scenario, the Indian Pharmaceuticals Market (IPM) has seen double-digit growth in the last one year. The Indian pharmaceutical market is forecasted to grow at a compound annual growth rate (CAGR) of 11.8% ( /-3%), between 2015 to 2020, reaching '''' 1859.5 billion by 2020. (Source: IMS Market Prognosis 2016-2020)
I n this environment, your Company has delivered value, aided predominantly through manufacturing and supply chain excellence to ensure continuity and secure supply of medicines, with initiatives to increase reach so that patients can easily access medicines. Your Company continues to enjoy a leadership position in many of the therapy areas in which it provides healthcare solutions to patients. Six of your Company''''s brands feature in the top-50 IPM brand list (IMS MAT March ''''17), namely Augmentin, Calpol, Zinetac, Betnovate - N, Betnovate - C, and Synflorix. Your Company has set in motion, initiatives to re-engineer its business model to maintain competitive 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 and partly price-controlled generic market with an underlying focus on delivering quality products to patients. To support the long-term strategy, your Company is making progress in the construction of its new manufacturing plant at Vemgal, Bengaluru. Furthermore, the Company is enhancing its technological capabilities to optimize its medical and field force engagement with healthcare professionals.
Revenue from operations of Rs, 2995 crores increased by 6% in value terms for the year ended 31st March 2017 as compared with the previous year. The Revenue growth was adversely impacted by 5% from a series of mandatory price revisions during the year on products under National List of Essential Medicine (NLEM) price control. Consequently, the gross margin, defined as Revenue from operations less cost of goods sold, decreased by 3% as compared to previous year, mainly due to mandatory price revisions.
Employee benefit expenses increased in line with inflation as compared to the previous year and includes the full year effect of being the fourth year since the wage increase for unionized field staff. Other expenses were optimized and grew 3% as compared to prior year representing a ratio of Revenue from operations of 23% as compared to 24% in the prior year. Other Income reduced by 41% as the Company progresses with its capital investment programme as well as a reduction in interest rates.
Profit Before Exceptional Items and Tax of Rs, 465 crores amounted to 16% of Revenue from operations for the year as compared to the prior year of 20% directly attributable to the NLEM price revisions. Exceptional income for the year of Rs, 45.73 crores is mainly driven by the disposal of surplus assets, such as the profit on sale of property of Rs, 41.76 crores and the sale of non-core brands of Rs, 6.41 crores, that is partly offset by restructuring costs of Rs, 1.70 crores. This compares favorably to the prior year net Exceptional Income of Rs, 2.31 crores from the profit on disposal of property of Rs, 15.99 crores that is partly offset by the rationalization costs of Rs, 5.15 crores relating to Portfolio and Manufacturing activities as well as the one-time costs associated with the Novartis Asset Sale transaction of Rs, 7.70 crores.
Cash generation from Operations continued to remain favorable this year and is in line with business performance. Your Company spent Rs, 304 crores as capital expenditure mainly for the new manufacturing facility at Vemgal, Bengaluru. Your Company continues to look for ways and means of deploying accumulated cash balances as at 31st March 2017, which remain invested largely in bank deposits.
During the year, the Company embedded 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 ensuring a strong financial governance across the organization. The implementation of the finance operating model has enabled the Company to commence a project to upscale its future Enterprise Resource Planning systems.
Furthermore, your Company has enhanced its Indirect Tax Capabilities, as it prepares for the country''''s implementation of the Goods and Services Tax (GST) system, as well as its ongoing strengthening of its Assurance and Control team structure.
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 amount outstanding towards unclaimed deposits payable to depositors as on 31st March 2017.
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, nor are there any material changes and commitments affecting the financial position of the Company as on the date of this report.
The Company successfully completed the transaction with Novartis on 30th September 2015, upon receipt of all applicable legal and regulatory approvals. Your company acquired the distribution rights of Novartis vaccines portfolio, predominantly the distribution of the anti-rabies vaccine, whilst terminating its distribution rights to a portfolio of oncology products. Your Company''''s sales performance for the current year was Rs, 91 crores from the acquired vaccines as compared to Rs, 61 crores in the prior period. Transitional arrangements were implemented upon deal closure to ensure the ongoing market supply on oncology products to patients during the transfer period of the Marketing Authorization to Novartis. The effect of these transitional arrangements enabled your Company to record sales of Rs, 81 crores during the year relating to the terminated Oncology business.
(b) Pharmaceuticals Business Performance and outlook
Your Company has been focused on increasing access to its medicines in order to serve patients better. Around 68% of the Indian population resides in rural India. The expanding rural economy is expected to increase the pool of patients at a much faster rate than metros and major towns. Healthcare professionals (HCPs) that serve rural patients find it difficult to update their knowledge due to inadequate educational infrastructure. Your Company expanded its presence in these markets through the REACH division with the aim of improving patient access by educating HCPs on your Company''''s portfolio for appropriate therapy areas. Your Company conducted unique scientific programmes like Van SPMs (Scientific Promotional Meetings) wherein, your Company''''s doctors travel as speakers to interior towns and conduct scientific promotional meetings in a modified bus. Your Company also conducted chemist meetings, to educate pharmacists about the right ways of inventory management, dispensing and their role in guiding patients on treatment adherence. Your Company is one of the first few to reach rural doctors through webcasts to educate them on disease therapy areas in which your company is present with a portfolio. Your Company is clearly ahead of the curve in leveraging technology to increase access and train HCPs.
Your Company launched the innovative strain LGG as brand Entero Plus in India for the very first time as a probiotic capsule and sachet. The strain is in-licensed from Chr Hansen, Denmark, and is the world''''s most researched probiotic strain. Entero Plus was recognized as the best new introduction in the Indian Pharmaceutical market by Quintiles IMS, amongst 359 new launches in the last quarter of 2016-17. EnteroPlus is received well by HCPs and the trial feedback has been positive.
I n Mass Markets, according to IMS data (December 2016), Calpol, a significant 50-year old brand of your Company''''s Mass Markets portfolio saw 27% unit volume growth and still remains the most prescribed brand in the Indian Pharmaceutical Market (IPM). Calpol also won the Silver award for Brand of the Year for Marketing Excellence.
Another classic and established product, Zinetac, completed 30 years of serving patients. It remains the top brand in the highly competitive acid peptic ulcer therapy area with a double-digit growth rate (IMS Dec 2016). The team behind Zinetac initiated an expansion plan in 2016 by entering many new specialties and in keeping with your Company''''s new ways of working, the focus was on expansion through multi-channel marketing initiatives.
Though Zentel de-grew by value (-5%) due to inclusion in the NLEM, it grew by 36% in volume and attained market share of 47% in its category for 2016 (IMS Dec 2016). Your Company plans to expand this category and reach out to the maximum number of patients by increasing awareness on worm infestations through digital channels, in addition to our HCP engagement initiative to improve diagnosis of worm infestation.
Your company maintained its leadership in the Dermatology segment in the Indian Pharmaceutical Market during the year. Within the GSK global dermatology franchise, your Company continued to maintain significant salience. Amongst notable initiatives for the year under consideration, the team rolled out a “Treat and Care” campaign to present a complete management approach for Psoriasis
- a psychologically debilitating condition. Keeping patients at the focus of activities, the team sought to help HCPs optimize management of the condition, with a steroid portfolio in conjunction with the emollient range - Oilatum. The team also took on the challenge of increasing awareness amongst patients on the dangers of self-medication and the appropriate use of steroids through posters and educational material both in clinic and at pharmacists. The team has been in the forefront in engaging dermatologists, pediatricians and GPs through multi-channel activities and webinars that have seen up to 7000 HCP registrations.
During the year, your Company took the initiative to launch team “Invictus”, a dedicated team of therapy executives for high-quality scientific engagement with endocrinologists for Eltroxin, your Company''''s flagship therapeutic solution for thyroid management. An innovative media awareness campaign on congenital hypothyroidism was undertaken in six cities. Your Company won the ''''Social Responsibility Communication'''' award for our campaign on Congenital Hypothyroidism by the Association of Business Communicators of India.
I n order to aid rapid and early diagnosis of thyroid disorders and to improve treatment outcomes, your Company undertook several digital Scientific Promotional meetings (SPMs) on “maternal hypothyroidism” and “translating thyroid guidelines to Indian practice.” The team engaged 20,000 HCPs during the year. The team conducted a nation-wide pharmacist campaign on Appropriate Corticosteroid Dispensing, engaging around 17,000 pharmacists in the year.
I n the respiratory segment, your Company undertook a price-volume initiative in 2015 to make Seretide Accuhaler accessible to more asthma and COPD (Chronic Obstructive Pulmonary Disorder) patients in India. As a result, patient share in the ICS-LABA market tripled in the first 18 months, with a volume growth of 45%. The respiratory team re-launched the Seretide Accuhaler in March 2015, since then, there has been an increase in patient user base from 0.2 million in 2000-2010 to 1 million in 2016. This has made Seretide the fastest growing brand in the ICS-LABA market.
Your Company''''s flagship brand in the Mass Specialty segment, Augmentin, faced fresh mandatory price reductions in 2016. The management team used this opportunity to increase access of the drug to more patients. This helped Augmentin to achieve unit leadership in the market with Augmentin Solids 625 mg.
Neosporin, your Company''''s range of topical antibiotics, has returned to the market after a gap of almost two years. The brand faced a temporary setback related to supply of its API (Active Pharmaceutical Ingredients) and its absence has impacted patients across the country. IMS prescription audit indicated a modest prescription erosion of Neosporin and subsequent share gain by other companies. One million prescriptions were reported for the Neosporin range according to IMS January 2017 data on a MAT basis.
CCM & Fefol Z returned to the market during the year. In a crowded market of more than 300 calcium oral solid brands, CCM registered a growth of 25%. Avamys, Fluticasone furoate nasal spray, grew by 28% for the year under consideration.
Your Company''''s success in these Mass Specialties can be attributed to the efforts of the field force in conducting more activities like virtual scientific promotional meetings (SPMs) - ''''AOM vs. OME'''' (Acute Otitis Media vs. Otitis Media with Effusion), ''''Understanding Allergic Rhinitis'''', ''''Appropriate Antibiotic Prescribing'''', ''''SSP clinics for Paramedics''''.
I n the hospital business segment, the Key Account Management programme was rolled out to all the Area Business Managers and Key Account Executives of the Hospital Business Team. This enabled them to provide value addition to hospitals by identifying attributes that are important to hospitals. The Green Cross pharmacy programme for hospital pharmacists was one such educational programme certified by the Indian Pharmaceutical Association (IPA). This has already seen participation of ten hospitals. In addition, the hospital business team, along with the Association of Healthcare Professionals of India (AHPI) and Bureau Veritas (BV) launched the “Green and Clean Hospital Programme” in 2016. This unique certification programme is the first in the industry and aims at achieving high standards of hygiene and sustainability, for which the hospital will be certified by AHPI and Bureau Veritas.
Preventive healthcare - Vaccines
I n the area of preventive healthcare, your Company continues to be the No. 1 vaccines company in the self-pay segment growing in double digits, well ahead of the vaccines market. Your Company began marketing vaccines in India more than 25 years ago and currently markets 10 vaccines for varied age groups-infants, adolescents and adults. The vaccines self-pay market is currently estimated to be '''' 1700 crores (IMS MAT March 2017) and is growing at around 5%.
Your Company''''s vaccines has consistently led the vaccines self-pay market with a share of ~34%. Six of your Company''''s vaccines feature in the Top-20 list of vaccines in the self-pay market. Your Company launched Priorix Tetra during the year, India''''s first combination MMRV (Measles, Mumps, Rubella and Varicella), which has been well received by pediatricians.
To ensure the highest quality, your Company has upgraded its primary vaccines cold chain to world standards. To increase awareness of vaccines amongst the journalist community, your Company conducted a novel journalist engagement workshop titled “Value of Vaccines” across 19 cities, reaching 500 journalists.
Your Company strives to ensure that we have the right high-quality scientific knowledge catered to HCPs through the appropriate channel. During the year, your Company''''s field force was equipped with Tablets, which enabled them to capture HCP insights and preferences on digital channels. With the launch of Veeva CRM (a customer relationship management tool), your Company aims to provide HCPs with high-quality information and education about our medicines in more convenient ways, using their channels of preference.
The Company''''s HCP engagement model has consistently focused on ensuring sustained customer aggregation from all possible channels. This has given your Company unique customer differentiation within a fragmented market. From 25,000 touch points in a single activity, your Company has grown to 1,50,000 touch points through the multi-channel engagement model.
Also, the Company has successfully piloted a digital project, “Infectious Smiles”. This is a comprehensive, integrated 360° multi-channel programme with a new tele-call component. This will enable your Company to become more predictive in our value proposition as your Company continues to expand the programme and tailor engagements best suited to HCP and patient needs.
(c) Opportunities, Risks, Concerns & Threats
The National Health Policy (NHP), has been approved by the Union Cabinet in March 2017, aims to deliver quality healthcare services to all sections of society, at an affordable cost, in a comprehensive integrated way. The NHP, 2017 aims to tie up with the private sector for critical gap filling towards achieving national goals. It envisages private sector collaboration for strategic purchasing, capacity building, skill development programmes, awareness generation, developing sustainable networks for the community to strengthen mental health services and disaster management. The policy also advocates financial and non-financial incentives for encouraging private sector participation. Your Company welcomes these measures to serve more patients of our country.
The Union Budget 2017-2018 announced certain changes connected to the healthcare sector and has increased the health outlay to Rs, 48878 crores in Financial Year 2017-2018 (versus Rs, 39879 crores in Financial Year 2016-2017). Increase in funding to the National Health Mission will help strengthen efforts towards measles vaccination along with reduction in Maternal Mortality Rate to 100 by 2018-2020. Higher medical education will receive a much-needed boost by an increase in the number of post-graduate seats by 5,000 and adding more hospitals to offer the Diplomate National Board (DNB) degree and enhance specialty care in fields like endocrinology and oncology. In addition, primary care''''s focus will be broadened with the conversion of 1.5 lakh health sub-centres into Health Wellness Centres.
Drug pricing received attention with proposals to reduce the cost of life-saving drugs. The government proposes to amend the Drugs and Cosmetics Act to ensure availability of drugs at reasonable prices. Aadhar-based smart cards for senior citizens, listing out their health conditions, will help in providing an efficient monitoring mechanism for geriatric health conditions. It will be piloted in 15 districts during Financial Year 2017-2018.
The ''''Pradhan Mantri Bhartiya Janaushadhi Pariyojana'''' is a campaign which has been launched by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, Government of India, to provide quality medicines at affordable prices to the masses through special stores known as Pradhan Mantri Bhartiya Jan Aushadhi Kendra.
The Government of India has recently announced that it is considering a legal framework to ensure doctors prescribe low-cost generic medicines to patients. Your Company shares the government''''s priority of providing quality drugs at affordable prices and your Company''''s business model resonates well with what the Government envisages to achieve. A mechanism should be developed to ensure that price alone does not become the foremost criteria in dispensing drugs and that quality and safety should receive equal consideration.
Your Company applauds the government''''s efforts to ensure the quality of generic drugs approved
by the State FDAs (Food & Drug Administration). We understand that these may now require bio-equivalence (BE) studies to be conducted for all drugs (new or otherwise) for category II and category IV of the biopharmaceutical classification system (Gazette notification dated April 3, 2017). However, we urge that such quality assurance measures should be extended to existing licensed generics also, in the interests of patients. In addition, there should be an emphasis on adherence to global manufacturing standards certified by the World Health Organization.
(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. Some of the applications made were to register a hexavalent vaccine for diphtheria, tetanus, pertussis, hepatitis B, homophiles influenza type B and inactivated polio vaccine (Infanrix hexa). In addition, applications were made to register a new strength of the already registered drug lamotrigine (Lamictal DT) used in epilepsy. An expansion of indication to include 19A serotype effectiveness for the pneumococcal polysaccharide conjugate vaccine (Synflorix) was registered. Transfer of marketing authorization from Novartis to GSK for meningococcal vaccine (Menveo) and diphtheria, tetanus, pertussis (whole cell), hepatitis B and haemophilus type b conjugate vaccine (Quinvaxem) were also registered. After a thorough review of its applications, your Company has received approval for the expansion of indication to include 19A serotype effectiveness for the pneumococcal polysaccharide conjugate vaccine (Synflorix) and for transfer of Marketing Authorization from Novartis to GSK for meningococcal vaccine (Menveo) and the diphtheria, tetanus, pertussis (whole cell), hepatitis B and homophiles influenza Type b conjugate vaccine (Quinvaxem), which will enable timely access to new and innovative therapeutic options to patients in our country.
Medical Affairs & Medical Governance
Your Medical Affairs team has played a crucial role in shaping strategic direction and leading execution of the strategies for several key products / therapy areas including Seretide, Augmentin, Eltroxin, Vaccines, Dermatology, amongst others, and facilitated the launch of a new probiotic, EnteroPlus. Medical Affairs is at the forefront in getting the patient''''s perspective to ensure that the activities and communication with the HCPs are patient-focused. The medical team also led the communication of high-quality and clinically relevant 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 engagements are consistent with global GSK standards and in line with all the applicable guidelines and standard operating procedures.
In line with your Company''''s new HCP Engagement model that leads the new ways of working in the industry, 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. Disease area experts in dermatology and respiratory in the medical team were hired and a field-based medical team was introduced to strengthen the Medical Affairs team. The internal medical team, including disease area experts and the field-based medical team, delivered more than 500 scientific presentations to HCPs in 2016. To measure the impact of these talks, feedback was sought from 2801 HCPs and 96% of the HCPs have agreed that their interaction/meeting with your Company''''s Medical team helped them to make a more informed decision benefitting patient care, in line with your Company''''s value of patient focus.
Your Company has developed and/or supported high-quality scientific educational programmes for HCPs to update their knowledge about disease management which will ultimately help their patients receive appropriate treatment. During the year, an innovative rural Van Scientific Promotional Meeting (SPM) was conducted by the internal medical team to educate HCPs from rural areas within a modified bus. Rural HCPs have high patient load and there is a dearth of opportunities to update their scientific knowledge. Given the infrastructural challenges to conduct scientific meetings in rural areas, your company has organized rural Van SPMs with the internal medical team in a modified bus (converted to a class room setting) with all the facilities to conduct the meeting.
Your Company has been supporting independent medical education programmes aimed at enhancing the knowledge and skills of primary care physicians in the management of thyroid disorders, through an educational grant by your company towards the ''''Certificate Course in Management of Thyroid Disorders (CCMTD)''''. So far, more than 1800 HCPs across India have successfully completed this course and the programme has won many accolades and recognition internationally. Your Company has also initiated similar educational programmes in Respiratory (Asthma and COPD) and women''''s health.
(e) Internal Control Framework
Your Company conducts its business with integrity and high standards of ethical behavior and in compliance with the laws and regulations that govern its business. Your Company follows a risk-based approach for evaluating its operations. 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. Your Company leverages on best practices in the field of Risk management and controls by drawing on global standards designed by GSK Group. In addition to the external statutory audit, the financial and operating controls of your company at various locations are reviewed quarterly by Internal Auditors, to report significant findings to the Audit Committee of the Board. The annual internal audit plan is reviewed and approved by the Audit Committee and Head of Internal Audit has a direct reporting line to the Audit Committee. 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 a 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, adequately designed 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 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, your Company continues its annual Independent Business Monitoring (IBM). The IBM Framework is designed by the GSK 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. In addition, your Company actively tracks all agreed remedial actions and ensures that corrective actions address underlying root causes.
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 seek to ensure everyone has a solid understanding on how to implement and uphold the values in 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. In addition, your Company conducts face-to-face sessions with commercial teams to ensure that all field-based colleagues are well versed on policies and their expected behavior.
Employees are also required to certify on an annual basis whether there have been any transactions which are fraudulent, illegal or violate 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''''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 (Organization of Pharmaceuticals Producers in India) Code of Marketing Conduct.
Your Company has a Risk Management and Compliance Board (RMCB) which follows a charter. 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.
Your Company has a Speak Up Programme, which offers people, within and outside, GSK a range of channels to voice concerns and report misconduct. The Speak Up culture and procedures encourage 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 endeavors 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 in place, a whistle blower policy, with a view to provide a mechanism for its employees/ external stakeholders to approach Local/Group management or the Chairman of Audit Committee (email@example.com) in case of any grievance or concern. The Whistle Blower policy can be accessed on your Company''''s website [http://india-pharma.gsk.com/en-in/investors/ shareholder-information/policies.
(f) Human Resources
Your Company, in the year under consideration, enhanced its focus on its Human Resources practices and renewed its commitment to serving the needs of business. During the year, the Human Resources function was aligned to leverage the three circle structure, HR Business Leaders, HR Services and HR Centres of Excellence, enabling us to strengthen efforts on leadership and talent development, capability building, talent acquisition, employee engagement and wellness & wellbeing. New initiatives aligned to the corporate strategy were launched during the year.
Leadership and Talent Development: During the year, your Company''''s sustained focus on leadership and talent management reaped rich dividends with a number of employees being selected for key roles in the global organization towards enhancing their development to take on future leadership roles on their return. With a focus to develop leaders for manufacturing sites and the regional hub within
Emerging Markets, the Asia Leadership Development programme was launched. This programme provides an opportunity to develop internal talent for key roles. Your Company has made significant investments in developing First Line Leaders (FLL) at its Nashik site. 20 FLLs were sponsored for a Post Graduate Diploma in Operations Management from Symbiosis Institute of Operations Management and 12 high potential employees (operators and FLLs) visited the International Site of Poznan (Poland) to study best practices and implement the same at Nashik.
Your Company continues to invest in its ''''Future Leaders'''' programme, drawing on fresh talent from leading universities/business schools around the country. This programme supports the organization in building a robust talent pipeline to meet the current and future business requirements.
Capability Building: During the year, employees participated in various programmes, such as the Asia Leadership Programme for Emerging Leaders, Accelerating Difference (specific to developing women managers) First Line Leaders, Practical Coaching at the Workplace, Personal Resilience, Energy for Performance, Implementing Strategy etc. The “GMAC-GSK Marketing Accreditation Programme” launched in 2015 to develop marketing capability was successfully concluded.
Your Company has invested significantly in building the sales capability of its large and distributed field-based workforce. During the year, the sales training team launched a sales competency framework which enables every employee to identify their learning needs across scientific knowledge, business planning and patient-focused selling skills and work with their manager towards continuous development. Your Company also leverages contemporary practices and technology, such as mobile learning apps and the internal social network (Yammer), to engage and train its field-based team.
Employee Engagement and Wellness & Wellbeing: 2016 was also a great year for employee engagement initiatives and corporate volunteering. There were 43 cross-functional teams across India participate in the Innovation Growth League (IGL). 10 employees participated in the 2016 PULSE programme, contributing their skills to solve healthcare challenges in India and abroad, through our NGO non-profit partners. India is now among the ''''Top-5 volunteering countries'''' in GSK.
Wellness and wellbeing of employees and their families continued to be a top priority. Your company launched the Partnership for Prevention (P4P), its preventive healthcare programme, for all employees and their families. This was very well received with a large number of employees and their families registering for the programme. The use of technology in the implementation made the programme successful as employees can avail the benefit at any time and any location. The GSK Driver Safety Programme ''''Every Journey Counts'''' won the first place in the ''''Safe Workplace'''' category of the 2016 CEO''''s Environment, Health, Safety and Sustainability Awards. This programme was launched for employees based in the field who ride two-wheelers for work on a daily basis. A pilot was run in western India and a significant reduction in the instances of accidents was observed after implementation of this programme. Further to this, the programme is now being implemented across India.
Diversity and Inclusion: Your Company launched its Women''''s Leadership Board (WLB) in December, 2016 to help reap the gender dividend. The aim of this Board is to develop women talent across all levels and build a pipeline of senior women leaders. The launch is supported by excellent progress in hiring women across all levels at our upcoming state-of-the-art manufacturing facility at Vemgal, Karnataka. At present, 30% of personnel hired at the upcoming site in Vemgal are women, of which four are a part of the site leadership team.
There are four recognized unions based on the Selling Area (zonal), that is, 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 at Nashik . The Unions are an integral part of the business and are committed to the progress of the company. The management and the unions, in the areas where we have a sales force, have signed long-term settlement contracts valid for a period of four years. The salient features of the agreement include adoption of technology, acceptance of our new ways of working and supporting management in all initiatives to strengthen the company''''s position in the market.
Your Company''''s sales force is also compensated through a variable pay component that is linked to process parameters, such as disease product knowledge, coverage, business planning etc. Your Company no longer incentivizes its sales force on individual sales targets. However, the incentive scheme provides a 60% weight age to individual key performance indicators referred to above and 40% weight age to the achievement of the country sales plan. Incentive payouts are made based on the calendar year and paid periodically during the course of the year.
Your Company continued to ensure that its values are at the heart of everything it did. Importance of values was emphasized through story-telling, focused group discussions, leadership town halls and Let''''s Talk sessions. During the year, your Company was selected for a follow-up Values Assurance Review by GSK Plc. Values Assurance is a programme that provides insightful feedback about the state of the GSK Values in the local culture and acts as an enabling tool to help management know where to focus their efforts. Your Company has made good progress on its Values Index since the last review completed in 2014.
Your Company ended 2016 by participating in the CII (Confederation of Indian Industry) HR Excellence Awards (2016). Your Company received the award for ''''Significant Achievement in Human Resources Excellence'''' in early 2017. As at 31st March 2017, your company had 4697 employees on its rolls.
Prevention of Sexual Harassment at Work Place
Your Company has adopted a policy on prevention, prohibition and redressal of sexual harassment at the workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“the Act”) and the Rules there under.
Your Company has established an Internal Complaint Committee (ICC) across its commercial offices and manufacturing sites. In 2016, an e-learning module which includes all aspects of the Act was designed and leveraged to create awareness on the Act amongst all employees. In 2016, the Company received one complaint and was investigated. The Complaint was withdrawn at the end of investigation.
(g) Supply Chain
Manufacturing operations in India are being progressively upgraded and strengthened. Your Company''''s manufacturing facility at Nashik has continued to deliver on its overall strategic intent and has invested heavily in Safety and Quality over the past years, while further securing supply and our capability to serve our patients better. The new Eltroxin facility will be fully operational in 2018 with the highest safety standards. The Nashik facility is delivering on its strategic intent with significant investments in processes, infrastructure and capability. Your company has plans to upgrade the Dermatological and Tablets facilities by investing in infrastructure with special focus on GMP, Safety & Sustainability at the Nashik site.
The Nashik facility has embraced the GSK Production System (GPS), based on Lean Working principles. There are 30 continuous improvement frameworks in place to meet the facility''''s goals under Safety, Quality, Service and financial optimization for 2017.
Environment, Health, Safety and Sustainability (EHSS)
An environment, health, safety and sustainability strategy has been implemented across the entire value chain from raw materials to product disposal at the Nashik facility. As your Company grows its business to bring innovative medicines to people across the world, environment sustainability continues to be a priority and your Company remains committed to reducing any adverse impact to the environment.
Your Company''''s policy on EHSS conforms to local laws as well as GSK''''s global standards and various initiatives were undertaken at our Nashik facility. During the year, the Nashik facility received the commendation under the Group''''s Global Manufacturing & Supply (GMS) President''''s award and a CEO Runner up EHSS award for “Work on Wellness - Leading GSK Nashik for a Healthier Tomorrow”. An employee engagement programme on ergonomics at the workplace was initiated. The site also won the Water trophy for water reduction among all global GSK manufacturing sites.
With regard to waste management, waste is segregated and given to government-approved vendors for recycling, wherever appropriate. The facility at Nashik runs on zero discharge basis with respect to water. Treated site effluents are used for site gardening and cooling water recycling.
Your Company has invested in a new Greenfield manufacturing facility at Vemgal, Karnataka. Care for the environment has been at the forefront of factory design and future operation. Your Company aims to achieve LEED (Leadership in Energy and Environmental Design) Gold standard, an internationally recognized 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. In addition, 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.
New Manufacturing Facility
Vemgal, Karnataka, location has been identified for a number of reasons including amongst others; Bengaluru is a recognized pharmaceutical/ biotechnology hub with skilled staff, close to the Southern Distribution hub. It enjoys moderate climate, easy accessibility, availability of investment incentives by the State, and availability of government-owned land. This new site is part of the strategic plan to rationalize, streamline and reduce costs in the supply network, whilst increasing capacity to meet the growing local demands for important medicines. Quality, safety and compliance are the key drivers for the project team, along with rigorous cost management and control.
The new facility, which represents up to Rs, 1000 crores in investment, will be the first Greenfield pharmaceutical facility that GSK has built across the globe over the past twelve years. This site will be state-of-the-art and will be the first factory designed for the new ''''GSK Production Systems'''', whereby it will deliver, by first design intent, the concepts of zero accidents, defects and waste. A major effort has been made to ensure that we employ a diverse workforce. The design ensures easy access and support for those with disabilities. Gender diversity and local employment is also a key part of the operational strategy. With the local community, your Company has also invested in two significant CSR activities, including a youth training centre, feminine hygiene product manufacturing and residential sanitation facilities. The site has been designed with the future in mind and its innovative design will support easy expansion into the future as the need arises. Initially, the site will supply a range of solid dose form products and is expected to be operational in 2018. The site will have an installed capacity of more than 8 billion tablets and 1 billion capsules per year.
End-to-End Supply Chain & Logistics:
Your Company has been implementing several initiatives in driving greater safety and tracking when the products are transported from the manufacturing locations to various warehouses across the country by using GPS tracking devices, and engaging with the transporters to ensure that product handling is appropriate from the perspective of pilferage and theft. Your Company is looking at strengthening the cold chain capability across the supply chain through the warehouses, transportation and packaging. This initiative aims to further enhance compliance to patient safety and regulatory requirements.
Research and Development (R&D)
The Company''''s R&D unit, namely Pharmaceutical Research & Development (PR&D) at Nashik, is approved by the Department of Science and Industrial Research, Government of India. Pharmaceutical R&D introduced Product Life Cycle Management (PLM), which provides a framework and mechanism to assess the effectiveness of our Product Control Strategies (PCS), via TRA (Technical Risk Assessment), Process Robustness Diagnostic and Product Performance Assessment (PPA) tool to tackle the defects and reduce the waste in our product and process. The department undertook a number of improvement initiatives and new source qualifications through MRA (Material Risk Assessment) process.
During the year, PR&D focused on building/ strengthening technical capability in PLM, TRA, process robustness, product ownership, technical due diligence, and statistical analysis, technical resources were fully aligned to support the supply chain strategy and product-related issues. The department has successfully transferred 13 products right first time and implemented 24 new sources of APIs and recipients which has resulted in significant improvement in security of supply and in cost savings.
The Company continues to be privileged to have access to various research databases used worldwide and to latest technologies/processes developed by the GlaxoSmithKline Group.
(h) Corporate Social Responsibility
Your Company has a rich legacy of partnering with the communities in which we live and operate. Strong partnerships with community groups are critical, as local organizations 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 50 million people across India based on our albendazole donation for our CSR project on ''''Partnering India for Elimination of Lymphatic Filariasis''''
Pursuant to the provisions of Section 135 and rules made there under 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: http://india-pharma.gsk. com/en-in/investors/shareholder-information/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.
Mr. R. Simard, Non-Executive Director and Mr. R. Sequeira, Whole-time Director resigned as Directors from 11th February 2017. The Board places on record their appreciation of the valuable services rendered by Mr. Simard and Mr. Sequeira during their tenure and for their contribution to the deliberations of the Board.
The Board of Directors has appointed Mr. Marc Jones and Mr. Subesh Williams as Non-Executive Directors with effect from 7th April 2017.
In terms of the provisions under Section 149 of the Companies Act, 2013, the Board and Shareholders have approved the appointment of all the existing Independent Directors that is, Mr. R. R. Bajaaj, Ms. A. Bansal, Mr. P.V. Bhide, Mr. N. Kaviratne, Mr. A. N. Roy and Mr. D. Sundaram for a term for five years from 30th March 2015.
The Independent Directors have submitted the Declaration of Independence, as required pursuant to Section 149(7) of the Companies Act, 2013, stating that they meet the criteria of Independence as provided in sub-section (6).
During the year ended 31st March 2017, five Board Meetings were held, the details of which are given in the Corporate Governance Report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013.
Remuneration Policy and Board Evaluation
I n compliance with the provisions of the Companies Act, 2013 and Regulation 27 of the Listing Obligations & Disclosures Regulations (LODR), the Board of Directors on the recommendation of the Nomination & Remuneration Committee, adopted a Policy on remuneration of Directors and Senior Management. The Remuneration Policy is stated in the Corporate Governance Report. Performance evaluation of the Board was carried out during the period under review. The details are given in the Corporate Governance Report.
Familiarization programmes for the Independent Directors
In Compliance with the requirements of SEBI Regulations, the Company has put in place a familiarization programme for the Independent Directors to familiarize them with their role, rights and responsibility as Directors, the working of the Company, nature of the industry in which the Company operates business model, etc. It is also available on the Company website: http://india-pharma. gsk.com/en-in/investors/shareholder-information/policies/
5. PARTICULARS OF CONTRACTS AND RELATED PARTY TRANSACTIONS
In line with the requirements of the Companies Act, 2013 and LODR, your Company has formulated a policy on Related Party Transactions. All related party transactions that are entered into during the year, were on arm''''s length basis and were in the ordinary course of business. There were no materially significant related party transactions made with the Promoters, Directors or Key Managerial Personnel which may have a potential conflict of Interest with the Company at large. The Policy of related party transactions can be accessed on Company website: http://india-pharma.gsk.com/en-in/investors/shareholder-information/policies/
All Related Party Transactions are placed before the Audit Committee for review and approval. Prior omnibus approval is obtained for Related Party Transactions on a quarterly basis for transactions which are of repetitive nature and / or entered in the ordinary course of business and are at arm''''s length. All Related Party Transactions are subjected to independent review by a reputed accounting firm to establish compliance with the requirements of Related Party Transactions under the Companies Act, 2013 and LODR.
6. DIRECTORS'''' RESPONSIBILITY STATEMENT
Your Directors confirm:
(i) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures, if any
(ii) that the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March 2017 and of the profit of the Company for the year ended on that date;
(iii) that the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
(iv) that the Directors have prepared the annual accounts on a going concern basis;
(v) that proper internal financial controls laid down by the Directors were followed by the Company and such internal financial controls are adequate and were operating effectively, and
(vi) that proper systems to ensure compliance with the provisions of all applicable laws have been devised and such systems were adequate and were operating effectively.
7. CORPORATE GOVERNANCE & BUSINESS Sustainability REPORT
Your Company is part of the GlaxoSmithKline Plc group and conforms to norms of Corporate Governance adopted by them. As a Listed Company, necessary measures are taken to comply with the Listing Obligations & Disclosures Regulations, 2015 (LODR) with the Stock Exchanges. A report on Corporate Governance, along with a certificate of compliance from the Auditors, given in Annexure ‘A'''', forms a part of this Report. Further, a Business Responsibility Report, describing the initiatives taken by your Company from an environmental, social and governance perspective, given in Annexure ‘B'''', forms a part of this Report.
According to the provisions of Section 139 of the Companies Act, 2013 the term of office of Price Waterhouse & Co Bangalore LLP, Chartered Accountants, the Statutory Auditors of the Company, will conclude from the close of the forthcoming Annual General Meeting of the Company.
Subject to the approval of the Members, the Board of Directors has recommended the appointment of Deloitte Haskins and Sells LLP, Chartered Accountants as the Statutory Auditors of the Company. Member''''s attention is drawn to a Resolution proposing the appointment of Deloitte Haskins and Sells LLP as Statutory Auditors of the Company, which is included as Item No 5 of the Notice convening the Annual General Meeting.
Pursuant to the provisions of Section 204 of the Act, and the Rules made there under, the Company has appointed Parikh & Associates, Practicing Company Secretaries, to undertake Secretarial Audit of the Company. The Report of the Secretarial Auditor is annexed to the Board Report as Annexure “D” forms a part of this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.
Pursuant to Section 148 of the Companies Act, 2013, the Board of Directors, on the recommendation of Audit Committee, have appointed R. Nanabhoy & Co., Cost Accountants, for conducting the audit of the cost accounting records maintained by the Company for its Formulations for 2017-2018. The Committee recommended ratification of remuneration for the year 2016-17 to the Shareholders of the Company at the ensuing Annual General Meeting. As required under Section 92(3) of the Act and the Rules framed there under, the extract of the Annual Return in Form MGT 9 is enclosed as Annexure “G” forms a part of this Report.
The information on conservation of energy, technology absorption and foreign exchange earnings and outgo as stipulated in Section 134(3) M of the Companies Act, 2013, and the rules framed there under is attached herewith as Annexure “E” forms a part of this Report. The Disclosures pertaining to the remuneration and other details as required under Section 197(12) of the Companies Act, 2013 and the rules made there under is enclosed as Annexure “F” forms a part of this Report. Pursuant to Section 129(3) of the Companies Act, 2013 a statement in form “AOC-1” containing salient features of the Financial Statements of the Subsidiary Company is attached.
Although the audited statements of accounts, relating to the Company''''s Subsidiary are no longer required to be attached to the Company''''s Annual Report, the same is enclosed as and in way of better disclosure practice.
The information relating to top ten employees in terms of remuneration and employees who were in receipt of remuneration of not less than Rs, 1.02 cores during the year or Rs, 8.5 lakhs per month during any part of the year forms part of this Report and will be provided to any Shareholder on a written request to the Company Secretary. In terms of Section 136 of the Companies Act, 2013 the report entitled at the registered office of the Company during the business on working day of the Company up to date of Annual General Meeting.
The Directors express their appreciation for the contribution made by the employees to the significant improvement in the operations of the Company and for the support received from all other stakeholders, including Shareholders, Doctors, Medical Professionals, Customers, Suppliers, Business Partners and the Government.
The Board and the Management of your Company are indeed appreciative of the substantial support being received from GSK Plc, the parent organization, in providing new healthcare solutions which are products of its discovery labs and the technology improvements which benefits your Company immensely.
On behalf of the Board of Directors
Mumbai, 19th May 2017