EUR 492.40 For Business Accounts Only

Etude de l'AG du 04/05/2017

HS controversy:

In 2011, the Korean Centre for Disease Control (KCDC) determined that Oxy RB’s (the Company’s Korean subsidiary) humidifier sanitiser (HS) products might have been responsible for serious respiratory diseases, including fatalities (about 100) dating back to 2001. After charges were brought against the Company by the Korean government, it decided to defend itself in court and subsequently settled 63 of 79 cases brought by Category I and II Oxy HS victims through to March 2016. In July 2016, the Company announced a compensation plan for the remaining victims and as of 31 January 2017, 97% of them were participating in the plan. A total exceptional charge of £300 million was recorded in 2016 pertaining to this plan.

We also take this opportunity to remind shareholders that the Company was fined £890,000 in April 2016 by the Australian courts after determining that it misled consumers. The Company was found to have represented its Nurofen Specific Pain products as targeting specific pains even though they turned out to be chemically identical.

Mead Johnson acquisition:

On 10 February, the Company announced it had signed a merger agreement with Mead Johnson Nutrition Company under which Mead Johnson shareholders will receive US$90 in cash for each share of common stock, valuing the total equity at US$16.6bn. Including Mead Johnson’s net debt, the total value of the transaction is US$17.9bn. It is expected to be completed by the end of Q3 2017, subject to Shareholder and regulatory approvals.

Pursuant to the Mead Johnson acquisition, the Remuneration Committee asserted that 2017 EPS will be adjusted for the impact of the acquisition and that it may be revised downwards should it fare below expectations. We regret that the magnitude of these adjustments will only be disclosed after the awards vest.

Item 2: Approve the Remuneration Report.

The remuneration structure is unsatisfactory. The LTIP is solely based on EPS, which is not considered appropriate given the potential for executives to manipulate the share price and therefore the payout of their award. The targets have previously been identified as insufficiently challenging and the company has undertaken share buybacks and has not confirmed that targets were adjusted accordingly. Furthermore, there is no monetary cap on the LTIP awards, though there is a cap in terms of the number of shares which can be awarded. In the current year, the LTIP award had a total value of £10,527,726, which is grossly excessive

During the previous proxy season, we urged shareholders to vote against the Remuneration Report. Chief among our concerns was the fact that EPS was the sole target used to determine the LTIP and that quantum was considered excessive. At the 2016 AGM, 18% (17% and the 2015 AGM) and 24% of shareholders voted against the Remuneration Report and Remuneration Policy respectively.

In our 2016 survey of remuneration in Europe, Rakesh Kapoor, was the second highest paid CEO in Europe trailing Sergio Marchionne of Fiat Chrysler. We estimated his total compensation at approximately €26.15 million, reflecting a bonus payout of 428% of base salary and a LTIP award of almost 1,600% of base salary.

Given the HS controversy in Korea, and despite the fact that said events took place between 2001 and 2011, prior to the current CEO’s tenure, the Remuneration Committee decided that no annual bonus will be paid to the CEO in 2016 and that the vesting of the LTIP will be reduced by 50%. This reduced the Single Figure remuneration by £14 million.

Item 9: Re-elect the CEO. The CEO is a member of the Nomination Committee, which does not meet ECGS guidelines.