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Organon (India) Ltd.

BSE: 532002 Sector: Health care
NSE: INFARINDIA ISIN Code: INE568A01018
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Organon (India) Ltd. (INFARINDIA) - Director Report

Company director report

ORGANON (INDIA) LIMITED ANNUAL REPORT 2009 DIRECTOR'S REPORT To The Members, Your Directors have pleasure in presenting the Forty-Second Annual Report together with the Audited Accounts of your Company for the year ended December 31, 2009. FINANCIAL RESULTS (Rs. in Million) 2009 2008 Gross Sales: Domestic 1646 1525 Export 70 144 1716 1669 Less: Excise Duty 37 69 Net Sales 1679 1600 Profit before taxation 348 388 Less : Provision for taxes 115 142 Net Income before prior period adjustment 233 246 Prior period adjustment-(Income)/Expenses (net) - (13) Net Income 233 259 Balance brought forward from prior year 389 163 622 422 Appropriations: Transfer to General Reserve 23 19 Proposed dividend 27 12 Corporate tax on dividend 5 2 Balance carried forward to Balance Sheet 567 389 622 422 DIVIDEND: The Directors recommend a Dividend of Rs. 4.50 per equity share of Rs. 10 each for the year ended December 31, 2009. If the proposed dividend is approved by the Members at the Annual General Meeting, the total dividend payout will be Rs. 27 Million. The tax on dividend payout borne by the company will be Rs. 5 Million. INDUSTRY STRUCTURE AND DEVELOPMENTS: India Healthcare Environment: Structure and Recent Develoaments:- The Government's Healthcare policy continues to focus on broadening basic healthcare access and improving quality of public healthcare delivery system. Public healthcare spending is estimated to increase and move to 2% of GDP in the medium term. The Government's commitment to raise the Healthcare spending is well reflected through the effective roll-out of flagship program of National Rural Health Mission (NRHM), which aims at providing valuable healthcare services to rural households all over the country focusing on 18 states. NRHM was launched by Government in 2005 with the aim to improve the availability of and access to quality healthcare by people, especially for those residing in rural areas, the poor, women and children. Since then several encouraging architectural changes have been witnessed in the healthcare delivery system in rural areas. The Government has also increased the outlay towards healthcare expenditure in the Union Budget 2010, which is yet another step for improving health status of the populace at large. Indian Pharmaceutical Market: Key Trends:- The Indian Pharmaceutical Market witnessed a turnover of INR 400 Billion MAT December 2009 and grew by 17% over MAT December 2008. New introductions were in therapeutic areas such as Antibiotics, Cardiovascular and Diabetes. Chronic disease areas like Cardiovascular, Diabetes, Central Nervous System and Cancer continue to supersede the growth rates of acute segments and the overall market. During the year 2009 growth from new introductions was 7.7% with a volume growth of 8.6% and price growth of 0.7% (Source: IMS SSA December 2009) . According to McKinsey estimates, the Indian Pharmaceutical Market is expected to touch USD 20 Billion with a Compounded Annual Growth Rate of 12.3% by 2015. The key drivers to this are growth in income, rising prevalence of chronic diseases, growth in medical infrastructure, increase in health insurance coverage, aggressive market creation by players leveraging treatment discontinuities and increased government focus. During 2009, National Pharmaceutical Pricing Authority mandated downward price revisions of several medicines such as antibiotic tablets, multi- vitamin formulations, eye-drops, insulin and painkillers which impacted the growth of the Industry. The Government is expected to take a decision on the National Pharmaceutical Policy which has been pending since 2002. As a measure to expedite the whole process, the Central Government has formed a new Group of Ministers to decide the National Pharmaceutical Policy. Global Pharmaceutical Market Overview & Key Trends: The Global Pharmaceutical Market witnessed a slowdown in the growth rate from 7.2%-4.8% during 2005-2008. Year 2009 witnessed a marginal improvement with year-on-year growth touching 5% (IMS MIDAS December 2009) . IMS forecasts Global Pharmaceutical Market growth of 4-6% in 2010 and predicts 4-7% growth through 2013. Most of this growth would be fuelled by emerging markets like Asia, Commonwealth of Independent States and Latin America. Developed markets like the US, EU and Japan are expected to witness subdued growth. OPPORTUNITIES, THREATS, RISKS AND CONCERNS: The Pharmaceutical Industry in India is estimated to grow at around an average of 12-14% over the next 5 years. The key drivers are increased healthcare awareness, improved per capita income, increased incidence of both acute and chronic diseases, emergence of insurance, growth in rural areas and emergence of corporate hospitals which offer opportunity to bring valuable treatment options to the patients. Price controls, increasing costs and exchange rate fluctuations could impact the performance of the industry at large. India as a part of its TRIPS obligations adopted Product Patent Regime in 2005. However, there are some areas of concern to the innovative Pharmaceutical Industry such as patents for incremental innovations, pre and post grant opposition mechanism, regulation on data protection, etc. Counterfeiting poses a major problem for the Industry. In order to combat counterfeit a multi-pronged strategy has to be adopted with a sustained and concentrated action backed jointly by the Government, the Pharmaceutical Industry and Consumer Action Groups. The Pharmaceutical companies are adopting various measures such as training its consumers, drug procurement agencies and use of anti-counterfeit measures like holographic products in a variety of forms such as full coverage labels, holographic foils on blisters, in-shrink sleeves and on primary cartons and also usage of innovative packaging with attractive and unique color combinations and scrambled images printing as a means to combat counterfeiting. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY: The Company has a comprehensive internal control system that includes well- defined policies and appropriate monitoring procedures. Compliance, with integrity, is a core value of the Company. The Company's funds/monies are effectively regulated by Approval Authorisation policy. The Internal Audit Program conducted by an external agency covers all key areas on periodic basis to assess and ensure conformity to Applicable Laws, Accounting Standards, Company Policies and protection of the Company's assets and interests. The Audit Committee of the Board reviews the findings and recommendations of internal auditors as well as auditors appointed by Members and also reviews the action plan to address the areas of improvement and thereby strengthen the system continuously. The Global Internal Audit team conducted Financial and Business Integrity and Assurance audit of the Company during the year. The processes are in place to comply with the recommendation of the Global Internal Audit team. MATERIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS: Our people are the driving force for developing and implementing Company strategy. the Company's Human Resources (HR) strategy is based on the firm foundation of the following principles or people management practices including: attracting talent, developing employees, managing ongoing performance and rewarding performance. The HR agenda includes having the right people at the right place and maintaining a focus on critical talent at all levels. The web enabled Performance Management Program (myPMP) ensures that we follow a globally consistent process for recognizing and rewarding performance. The Company has a strategic commitment to develop talent and executes multiple learning and development related initiatives. These initiatives include a structured induction program for all new joinees based on the Global Curriculum, Management Development Programs, Situational Coaching Programs and Selling Skills Programs. There is a state of the art e-learning platform which covers a wide area of topics and ensures continued education and inputs to our colleagues. In addition to this, there were several Change Management related programs which were launched in 2009 to ensure enhanced change readiness of employees at all levels. Keeping in mind the organizational goals, the compensation and benefits too have been made market competitive to attract and retain talent. Also to align with the Company strategy of business growth and market competitiveness, several assessment & development centres were conducted for field colleagues in 2009, which enabled skill development and offered career progression. The Company had open communication meetings at regular intervals to keep all colleagues informed about key developments and to enhance their participation in decision making and effective implementation. The total number of employees as on December 31, 2009 was 388. OPERATIONAL PERFORMANCE AND FUTURE OUTLOOK: The Company recorded net sales of INR 1,679 Million in year 2009, and grew by 4.9% over 2008. According to audited IMS data, the Company has maintained its market share in the Indian pharma market. The Company executed its key strategy of expanding into high growth therapeutic areas by entering into Cardiovascular and Diabetes (CVD) markets. It launched 5 products in CVD space through local in-licensing arrangements. The new products have recorded encouraging response from clinicians. High quality training programs and modules are rolled out to sales force to augment product knowledge, along with high science activity with clinicians and healthcare professionals. A key milestone accomplishment has been launch of monthly contraceptive ring - NUVARING In India. This is yet another step to demonstrate Company's commitment towards providing contraceptive choices for Indian women. NUVARING is an innovative contraceptive, used by millions of women across the world. Commitment to help patients in their journey towards parenthood is supported with the launch of dedicated website {fertilityjourney.in). This will help couples get quick-easy-reliable information about fertility, diagnosis, treatment and locate clinics. This year we saw a full migration to SAP system, and the process got rolled out and adopted company-wide. Sales Force Automation (SFA) is also improved and new processes got incorporated into the suite. All these happened simultaneously with the Company moving into a new office premises in Mumbai. The new setup will help in enhancing the efficiency and quality with which it does business. The Company continues to focus on conducting business with the highest standards of business ethics and integrity. All employees are provided extensive compliance training during induction program Outlook: The year 2010 holds a new promise as the Company plans to strengthen its efforts to launch new global and local products and provide high quality scientific support - all these with a core focus on 'patient comes first' approach. Key economic indicators, overall confidence in economy and increase in government expenditure on health are expected to have positive impact on healthcare industry. DIRECTORS: Mr. Rodney Unsworth, Mr. Rohan Abayasekara, Mr. Steven Koehler and Mr. Ashley Morris resigned from the Board of your Company w.e.f. February 4, 2010. The Board places on record its sincere appreciation and gratitude for the valuable contribution made by Mr. Rodney Unsworth, Mr. Rohan Abayasekara, Mr. Steven Koehler and Mr. Ashley Morris during their respective tenure as Directors of the Company. Mr. K.G. Ananthakrishnan and Dr. V.S. Sohoni retire from office and being eligible, offer themselves for reappointment at the ensuing Annual General Meeting of the Company. Mr. Ramesh Subrahmanian, Mr. Chirstopher McNamara, Dr. Naveen Rao and Ms. Hwee Ping Chua were appointed as Additional Directors with effect from February 2, 2010. As per provisions of Section 260 of the Companies Act, 1956, they will hold office upto the date of ensuing Annual General Meeting of the Company. The Company has received notices from Members under Section 257 of the Act together with the requisite deposit, in respect of the above persons proposing their appointment as Directors of the Company. Resolution(s) seeking approval of the Members for the appointment of Mr. Ramesh Subrahmanian, Mr. Christopher McNamara, Dr. Naveen Rao and Ms. Hwee Ping Chua as Directors of the Company have been incorporated in the Notice of the ensuing Annual General Meeting. Mr. Sanjiv Navangul, Mr. Rajesh Marwaha and Mr. Suresh Pattathil were appointed as Alternate Directors to Mr. Ramesh Subrahmanian, Mr. Christopher McNamara and Ms. Hwee Ping Chua respectively with effect from February 16, 2010. The Board welcomes Mr. Ramesh Subrahmanian, Mr. Christopher McNamara, Dr. Naveen Rao, Ms. Hwee Ping Chua, Mr. Sanjiv Navangul, Mr. Rajesh Marwaha and Mr. Suresh Pattathil and is confident that they will provide valuable guidance to steer the Company's operation to greater heights. CORPORATE GOVERNANCE: Your Company has consistently adopted good corporate governance norms as it believes it is an important instrument for ensuring transparency, fairness and accountability. Your Company overviews different aspects of operations through two committees of Directors. The Audit Committee comprises of Mr. Christopher McNamara, Dr. Naveen Rao and Dr. V. S. Sohoni. The Share Transfer and Shareholders/ Investors Grievance Committee comprises of Mr. Christopher McNamara and Mr. K.G. Ananthakrishnan. REDUCTION OF SHARE CAPITAL OF THE COMPANY U/S. 100 OF THE COMPANIES ACT, 1956: The Board of Directors considering the interests of the minority shareholders who hold illiquid shares had recommended subject to the approval of the equity shareholders and Honourable High Court of Judicature at Bombay, reduction of equity share capital of the Company under section 100 of the Companies Act, 1956 and Article 50 of the Articles of Association of the Company. The equity shareholders of the Company at the ExtraOrdinary General Meeting held on October 15, 2009 approved the Special Resolution for reduction of equity share capital. The Company has thereafter filed the Petition before the Honourable High Court for Capital Reduction. On receipt of the Confirmation of the Honourable High Court, the public shareholders holding 95,106 equity shares will receive a sum of Rs. 425 per equity share. The paid-up equity share capital of the Company which presently stands at Rs.6,07,61,600 divided into 60,76,160 equity shares of Rs.10 each will stand reduced to Rs.5,98,10,540 divided into 59,81,054 equity shares of Rs.10 each consequent upon reduction of capital. FIXED DEPOSITS: The Company has not accepted any deposits during the year under review. Also, there are no fixed deposits outstanding as on December 31, 2009. RELATED PARTY TRANSACTIONS: Related party transactions have been disclosed in the notes to the accounts. INFORMATION PURSUANT TO SECTION 217 OF THE COMPANIES ACT, 1956 ('the Act'): Information required to be annexed to this Report in accordance with clause (e) of sub-section (1) of Section 217 of the Act read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given as Annexure I. Information in accordance with sub-section (2A) of Section 217 of the Act read with the Companies (Particulars of Employees) Rules, 1975 forms part of the Directors' Report for the year ended December 31, 2009. In accordance with sub-section (2AA) of Section 217 of the Companies (Amendment) Act, 2000 concerning `Directors Responsibility Statement' and to the best of their knowledge and belief and according to the information and explanation obtained by them, your Directors confirm that: i) in the preparation of Annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; ii) they 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 at the end of the financial year and of the profit of the Company for that period; iii) they have exercised proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and iv) the annual accounts are prepared on a going concern basis. AUDITORS: M/s. Deloitte Haskins & Sells, Chartered Accountants, retiring Auditors of the Company, have informed the Company that they do not wish to seek re- appointment at the ensuing Annual General Meeting. The Company has thereafter received a Notice from a Member proposing the appointment of M/s Price Waterhouse, Chartered Accountants in place of the retiring Auditors. The Company has received a Certificate from M/s Price Waterhouse to the effect that their appointment, if made, would be in accordance with the limits specified under Section 224(1 B) of the Companies Act, 1956. The Board recommends the appointment of M/s Price Waterhouse as the Statutory Auditors of the Company for the financial year 2010 and to hold office until the conclusion of the Annual General Meeting of the Company for the financial year ended December 31, 2010. COST AUDIT: The Directors have, subject to the approval of the Central Government, appointed M/s. S.S. Mani & Co. as Cost Auditors to conduct the Cost Audit for the financial year ended December 31, 2010. CORPORATE SOCIAL RESPONSIBILITY (CSR): While we continuously work on bringing improved medicines for patients to enhance quality of their health and lives, we also participate in overall community support and development. We support and care towards our society through various initiatives. Not only as an organization, but our colleagues also work at individual level for the community where we live and work. Your Company has been associated with CSR activities since 1985. During 2009 Organon through its Sishebisha Charitable Trust made donations to Behala Naba Proyas and Antodaya Anath Ashram in Kolkata. We are committed to hold up the interest of our fellow citizens and society. ACKNOWLEDGEMENT: The Directors wish to place on record their appreciation of the contribution made by the employees at all levels and for their dedication and commitment to the Company throughout the year. The Directors would also like to record their thanks to Schering-Plough Corporation, Merck & Co., Inc., the Company's shareholders, bankers, medical professionals, hospitals, vendors, distributors, pharmacists and all customers for their valuable support and co-operation. For and on behalf of the Board of Directors V.S. Sohoni Mumbai, February 23, 2010 Chairman ANNEXURE I TO THE DIRECTORS' REPORT Information pursuant to the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988. 1. CONSERVATION OF ENERGY: (i) Energy conservation measures taken in the recent past: Nil (ii) Additional investments and proposals for reduction of energy consumption being implemented: Nil (iii) Impact of measure (i) and (ii) above for reduction of energy consumption and consequent impact on the cost of production of goods: Nil (iv) Total energy consumption and energy consumption per unit of production: FORM A A. Power & Fuel Consumption 2009 2008 1. Electricitv a. Purchased Not Applicable - Units - Total Amount - Rate/Unit b. Own Generation Not Applicable i) Though Diesel Generator - Units - Units per Itr. of Diesel Oil - Cost / Unit (Rs.) ii) Though Steam Turbine/generator Not Applicable - Units - Units per ltr. of fuel oil / gas - Cost/Unit 2. Coal (cecify Quality and where used) Not Applicable Quantity (Tonnes) Total Cost Average Rate 3. Furnace Oil Not Applicable Quantity (K. Ltrs) Total Cost Average Rate / Litre 4. Others/Internal Generation Not Applicable Quantity Total Cost Rate/Unit B. Consumption per unit Standards 2009 2008 of Production (If any) Products (with details) Unit Not Applicable Electricity Furnace Oil Coal (Specify quality) Others (Specify) 2. TECHNOLOGY ABSORPTION FORM-B Research & development (R&D) a) Specific areas in which R&D carried out by the Company: The Company through Technical know-how Arrangement with the parent Company gets the benefits of the research and development efforts of it. Most of the products introduced by the Company in India are original research products its parent Company. b) Benefits derived as a result of the above R&D: The Company has also benefited from the supply of technology from its parent Company. This includes training of Company's personnel during short and long-term assignments and deputation of technical experts. c) Future Plan of action: Since the Company in India is not involved in any R&D Activities, there is no definite future plan of action but the Company will continue to receive support from its parent Company in terms of sharing necessary information on R&D activities. d) Expenditure on R&D: 1. Capital - Nil 2. Recurring - Nil 3. Total - Nil 4. Total R&D expenditure as a percentage of total turnover - Nil Technology absorption, adaptation and innovation: 1. Efforts, in brief, made towards technogy absorption, adaptation and innovation: Nil 2. Benefits derived as a result of the above efforts, e.g. product improvement, cost reduction, product development, import substitution, etc.: N.A. 3. In case of imported technology (imported during the last 5 years reckoned from the beginning of the financial year), following information may be furnished. a) Technology imported: NA b) Year of Import: NA c) Has technology been fully absorbed: NA d) If not fully absorbed, areas NA where this has not taken place, reasons, thereof and future plans of action: 3. FOREIGN EXCHANGE EARNINGS AND OUTGO: (i) Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services and export plans: Presently, the Company does not export any of the products and there are no significant foreign exchange earnings. (ii) Total Foreign exchange earned and used Rs. in Million (A) Total Foreign exchange earned: 69.54 (B) Total Foreign exchange used: (i) On import of raw materials/finished goods 516.06 (ii) On import of capital goods, 1.36 spares and components (iii) Expenditure in foreign currencies 5.02 for business travels, subscription, honorarium, participants and others (iv) Remittance during the year in foreign currency On account of dividend 5.98 (v) Royalty and Technical know-how - For and on behalf of the Board of Directors V.S. Sohoni Mumbai, February 23, 2010 Chairman