The Board of Directors hereby submits its report on the performance of the Companyalong with the audited Standalone as well as Consolidated financial statements for theyear ended 31st March 2018.
Financial Summary and State of Affairs
| || || || ||H in Crore |
|Year ended 31st ||March 2017 ||Particulars || |
Year ended 31st
|Standalone ||Consolidated || ||Standalone ||Consolidated |
|10974.58 ||14630.24 ||Gross total revenue ||11444.81 ||15219.25 |
|1186.94 ||1222.17 ||Profit before tax and exceptional item ||1911.40 ||1746.98 |
|974.94 ||1006.39 ||Profit for the year (after tax and attributable to shareholders) ||1468.52 ||1410.53 |
|6.93 ||7.46 ||Other comprehensive income for the year (not to be reclassified to P&L) ||1.77 ||24.30 |
|- ||123.89 ||Other comprehensive income for the year (to be reclassified to P&L) ||0.47 ||369.23 |
|7145.00 ||6953.84 ||Surplus brought forward from last balance sheet ||7933.29 ||7774.11 |
|8126.87 ||7967.69 ||Profit available for appropriation ||9403.58 ||9188.05 |
| || ||Appropriations: || || |
|(160.87) ||(160.87) ||Dividend ||(160.94) ||(160.94) |
|(32.71) ||(32.71) ||Tax on Dividend ||(28.33) ||(28.33) |
|7933.29 ||7774.11 ||Surplus carried forward ||9214.31 ||8998.78 |
The financial results and the results of operations including major developments havebeen further discussed in detail in the Management Discussion and Analysis section. TheStandalone as well as the Consolidated financial statement have been prepared inaccordance with the Indian Accounting Standards (Ind AS') under the historical costconvention on accrual basis except for certain financial instruments which are measured atfair value.
During the year under review the Company cancelled the unsubscribed issued equityshare capital of 1003395 equity shares of H2 each aggregating to H 2006790. Uponcancellation such unsubscribed capital became a part of the unissued share capital of theCompany and is available for re-issue at a future date. 609090 equity shares were issuedand allotted under Employee Stock Option Schemes. The issued subscribed and paid up sharecapital of the Company as on 31st March 2018 stood at H 1610238328 dividedinto 805119164 equity shares of H2 each.
In line with the Dividend Policy of the Company we recommend a final dividend of H3per equity share
(i.e. 150% of Face Value) for the FY18. The dividend if approved at the Annual GeneralMeeting (AGM) will be paid to those members whose names will appear in the Register ofMembers on 14th August 2018. The total dividend pay-out will amount toapproximately H 241.54 crore (excluding dividend distribution tax) resulting in a pay-outof 16.45% of the Standalone profit after tax of the Company.
The Company has not transferred any amount to the Reserve for the financial year ended31st March 2018.
Management Discussion and Analysis Report
Pursuant to Regulation 34 of the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 (Listing Regulations) theManagement Discussion and Analysis Report for the year under review is presented in aseparate section forming part of the Annual Report.
Corporate Social Responsibility (CSR)
At Cipla we consider it as our responsibility to support people facing challenges tolive a life with dignity and quality. Cipla undertake its CSR activities primarily inquality health education and skilling. A detailed report on Cipla's various CSRinitiatives has been provided in a separate Section Corporate SocialResponsibility'. The Corporate Social Responsibility Report also contain the Annual Reporton CSR initiatives as required under section 135 of the Companies Act 2013 (Act) isannexed as Annexure I to this report.
The Company's CSR Policy is available on the website of the Company athttps://www.cipla.com/templates/home_tpl/images/Corporate_Social_Responsibility_Policy.pdf
Business Responsibility Report
As mandated by the Securities and Exchange Board of India (SEBI) the BusinessResponsibility Report (BRR) forms part of the Annual Report. Since the Company ispublishing Annual Report under International Integrated Reporting Council (IIRC) frameworkthis year report on the nine principles of the National Voluntary Guidelines on socialenvironmental and economic responsibilities of business as framed by the Ministry ofCorporate Affairs is provided in relevant sections of the IR with suitable references inthe BRR.
Pursuant to the Listing Regulations the Report on Corporate Governance for the yearunder review is presented in a separate section forming part of the Annual Report. Acertificate from M/s. BNP & Associates confirming compliance of conditions ofCorporate Governance as stipulated under the Listing Regulations is annexed as AnnexureII to this report.
Directors' Responsibility Statement
Pursuant to section 134(3)(c) of the Act it is confirmed that the Directors have: i.Followed applicable accounting standards in the preparation of the annual accounts andthere are no material departures for the same; ii. Selected such accounting policies andapplied them consistently and made judgements and estimates that are reasonable andprudent so as to give a true and fair view of the state of affairs of the Company as on 31stMarch 2018 and of the profit of the Company for the year ending 31st March2018; iii. Taken proper and sufficient care for maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding the assets of the Companyand for preventing and detecting fraud and other irregularities; iv. Prepared the annualaccounts on a going concern basis; v. Laid down internal financial controls to be followedby the Company and that such internal financial controls are adequate and were operatingeffectively; and vi. Devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.
Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo
The details of Energy Conservation Technology Absorption and Foreign Exchange Earningsand Outgo as required under section 134(3)(m) of the Act read with Rule 8(3) of theCompanies (Accounts) Rules 2014 is annexed to this report as Annexure III.
Employee Stock Option Scheme
The Company has an Employee Stock Option (ESOP) scheme namely "Employee StockOption Scheme 2013-A" (ESOP Scheme) which helps the Company to retain and attractright talent. The Nomination and Remuneration Committee administers the Company's ESOPscheme. There were no changes in the ESOP scheme during the financial year under review.The ESOP scheme is in compliance with the Securities and Exchange Board of India (ShareBased Employee Benefits) Regulations 2014.
As required under the Securities and Exchange Board of India (Share Based EmployeeBenefits) Regulations 2014 the applicable disclosures as on 31st March 2018are available on the Company's website at https://www.cipla.com/en/investor-information/annual-report-and-chairman-s-speech.html Details of theEmployee Stock Option Scheme 2013-A have been provided under Note No. 43 of the Standalonefinancial statement.
Details of remuneration as required under section 197(12) of the Act read with rule5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014is annexed as Annexure IV. Particulars of employee remuneration as required under section197(12) of the Act read with rule 5(2) and rule 5(3) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 forms part of this report. In terms ofthe provisions of the first proviso to section 136(1) of the Act the Annual Report isbeing sent to shareholders excluding the aforementioned information. The information willbe available on the Company's website www.cipla.com and is also available for inspectionat the registered office of the Company during working hours 21 days before the AnnualGeneral Meeting. Any member interested in obtaining such information may write to theCompany Secretary at the Registered Office of the Company.
Particulars of Loans Guarantees and Investments
Particulars of loans guarantees and investments under section 186 of the Act areprovided in Note No. 45 to the Standalone financial statements.
Extract of Annual Return
As required under sections 92(3) and 134(3)(a) of the Act read with Rule 12 ofCompanies (Management and Administration) Rules 2014 the extract of Annual Return inForm MGT-9 forms part of this report as Annexure V.
The Company believes in upholding professional integrity and ethical behaviour in theconduct of its business. To uphold and promote these standards the Company has formulateda Whistle-Blower Policy which serves as a mechanism for its Directors and employees toreport genuine concerns about unethical behaviour actual or suspected fraud or violationof the Code of Conduct without fear of reprisal. The vigil mechanism consists of adedicated email-id. Any director or employee who becomes aware of an unethical behaviouror fraud or violation of code shall report to the Ethics Committee either through email orby post. In case where directors or employees believe that such issue cannot be resolvedby Ethics Committee or in exceptional cases can be addressed directly to the Chairman ofAudit Committee. An Ethics Committee consisting of the Global Chief People Officer (GCPO)Global Chief Financial Officer (GCFO) General Council (GC) and Chief Internal Auditor hasbeen constituted to look into and investigate on the whistle-blower complaints. Thecomplaints reports and action taken are presented to the Audit Committee on a quarterlybasis. The details of the Whistle-Blower Policy are available on the Company's website athttps://www. cipla.com/images/cipla_pdf/Whistle-Blower.pdf A brief note on the highlightsof Whistle-Blower Policy and compliance with the Code of Conduct is also provided in theReport on Corporate Governance which forms part of this Annual Report.
Contracts and Arrangements with Related Parties
A detailed note on procedure adopted by the Company in dealing with contracts andarrangements with related parties is provided in the Report on Corporate Governance whichforms part of this Annual Report. All contracts arrangements and transactions entered bythe Company with related parties during FY18 were in the ordinary course of business andon an arm's length basis. During the year the Company did not enter into anytransactions contracts or arrangements with related parties that could be consideredmaterial in accordance with the Company's policy on related party transactions.Accordingly the disclosure of related party transactions in Form AOC-2 is not applicable.However detailed disclosure on related party transactions as per IND AS-24 containingname of the related party and details of the transactions have been provided under NoteNo. 42 of the Standalone financial statements on Page No. 211. The policy is available onthe Company's website at https://www.cipla.com//uploads/investor/1532683654_Cipla%20Limited%20-%20Policy%20on%20Dealing%20 with%20Related%20Party%20Transactions.pdf
Material changes and commitments affecting financial position between end of financialyear and date of report
No material changes and commitments have occurred after the close of the year till thedate of this report which may affect the financial position of the Company.
Significant and Material Orders
No significant or material orders were passed by the regulators or courts or tribunalswhich could impact the going concern status of the Company and its future operations.
Internal Financial Controls and its Adequacy
We have adopted policies and procedures for ensuring orderly and efficient conduct ofits business including adherence to the Company's policies safeguarding our assetsprevention and detection of frauds and errors accuracy and completeness of the accountingrecords and timely preparation of reliable financial disclosures and reporting mechanism.The current systems of internal financial controls are aligned with the requirement of theAct in line with globally accepted risk-based framework as issued by the Committee ofSponsoring Organizations (COSO) of the Treadway Commission.
In terms of the provisions of Section 134 of the Act a detailed note on Risk Managementhas been provided on page no. 36 of this report.
During FY18 the Company did not accept any deposit within the meaning of sections 73and 74 of the Act read together with the Companies (Acceptance of Deposits) Rules 2014.
The evaluation of all the Directors including the Chairman the Executive ViceChairperson and the Managing Director and Global CEO Board committee and the Board as awhole was carried out based on the criteria and framework approved by the Nomination andRemuneration Committee. A detailed disclosure on the parameters and the process of theBoard evaluation as well as the outcome has been provided in the Corporate GovernanceReport.
Subsidiaries and Associate
At the beginning of the year the Company had 53 subsidiaries and 1 associate. As on 31stMarch 2018 it has 49 subsidiaries and 1 associate.
During FY18 Anmarat (Pty) Limited was acquired in South Africa as a part of strategyto strengthen OTC portfolio and Cipla Technologies LLC was incorporated in USA to buildspeciality product portfolio for Cipla. During FY18 two non-operating companies viz.Meditab Specialities New Zealand Ltd and Cipla Pharma Nigeria Ltd were deregistered. As apart of strategy the Company has divested its entire stake in Cipla Croatia d.o.o.Croatia Al Jabal For Drugs And Medical Appliances Company Ltd Yemen Cipla AgrimedProprietary Ltd and Cipla Vet Proprietary Ltd. in South Africa. Details of thesesubsidiaries and associate are set out on Page 250 of the Annual Report. Pursuant tosection 129(3) of the Act read with rule 5 of the Companies (Accounts) Rules 2014 astatement containing salient features of the financial statement of the subsidiary andassociate companies is given on Page 300 of the Annual Report. The statement also providedetails of the performance and the financial position of each of the subsidiaries andassociate. The Consolidated financial statements presented in this annual report includefinancial results of the subsidiary and associate companies.
Copies of the financial statement of the subsidiary and associate companies will beavailable on the Company's website www.cipla.com and will also be available for inspectionby the members at the registered office of the Company during business hours. Copies ofthe said financial statements will be made available to any member of the Company andthose of the respective subsidiary companies upon request. The Policy for DeterminingMaterial Subsidiaries is available on the Company's website at https://www.cipla.com//uploads/investor/1443000071_Policy-for-determining-Material-Subsidiaries.pdf
Directors and Key Managerial Personnel
Mr Adil Zainulbhai was designated as the Lead Independent Director w.e.f 11thAugust 2017 for a period of two years from the date of appointment with an authority tothe Board of Directors to renew his appointment for a further term of two years. Ms PunitaLal was designated as the Chairperson of the Nomination and Remuneration Committee inplace of Mr Adil Zainulbhai who relinquished the Chairmanship of the Committee totake charge as Lead Independent Director. Mr S. Radhakrishnan completed his term as aWhole-time Director on 11th November 2017 and w.e.f 12th November2017 he continues as a Non-Executive Director of the Company liable to retire byrotation in terms of re-appointment approved by the Members at the 81stAnnual General Meeting (AGM) held on 11th August 2017. Pursuant to therecommendation of the Kotak Committee the SEBI has recently amended the ListingRegulations. The amended Listing Regulations inter alia require every listed entityto seek consent of its members by way of special resolution for appointment / continuationof the non-executive directors on attaining the age of 75 years. In case of existingdirectors such consent is required to be taken before 1st April 2019. Sinceboth Dr Y. K. Hamied Non-Executive Chairman and Mr M. K. Hamied Non-ExecutiveVice-Chairman have attained the age of 75 years consent of the shareholders by way ofspecial resolution is required for their continuation as non-executive directors. TheBoard recommends the resolutions regarding continuation of Dr Hamied and Mr Hamiedas the non-executive directors of the Company for approval of the shareholders. Ms SaminaVaziralli retires by rotation and being eligible offers herself for re-appointment. TheBoard recommends the re-appointment of Ms Samina Vaziralli as Director liable to retire byrotation.
A brief resume of the Directors seeking re-appointment / continuation is provided inthe Notice of AGM.
The criteria for determining qualification positive attributes and independence of aDirector is given under Nomination Remuneration and Board Diversity Policy.
Neither the Managing Director and Global CEO nor the Whole-time Directors received anyremuneration or commission from any of the Company's subsidiaries during the previousyear.
The Nomination Remuneration and Board Diversity Policy has been disclosed as Exhibit Ato the Report on Corporate Governance.
Declaration by Independent Directors
All Independent Directors of the Company have submitted requisite declarationsconfirming that they continue to meet the criteria of independence as prescribed undersection 149(6) of the Act and Regulation 16(1)(b) of the Listing Regulations. TheIndependent Directors have also confirmed that they have complied with the Company's Codeof Conduct.
Committees of Board Number of Meetings of the Board and Board Committees
The Board currently has six committees namely the Audit Committee the Nomination andRemuneration Committee the Corporate Social Responsibility Committee the StakeholdersRelationship Committee the Investment and Risk Management Committee and the Operationsand Administrative Committee. All the recommendations made by the Committees of Boardincluding the Audit Committee were accepted by the Board. During the year under reviewthe Board met five times. A detailed update on the Board its composition detailedcharter including terms of reference of various Board Committees number of Board andCommittee meetings held during FY18 and attendance of the Directors at each meeting isprovided in the Report on Corporate Governance which forms part of this report.
Auditor and Auditor's Report
Walker Chandiok & Co LLP Chartered Accountants was appointed as the StatutoryAuditor of the Company at the AGM held on 28th September 2016 to hold theoffice till the conclusion of 85th AGM of 2021. The Company has received acertificate from the Statutory Auditor confirming their appointment continues to be inaccordance with the provisions of section 141 of the Act. The Auditor's Report for FY18does not contain any qualification reservation or adverse remark.
Secretarial Auditor and Secretarial Audit Report
The Board on the recommendation of the Audit Committee had appointed M/s BNP &Associates Company Secretaries Mumbai as the Secretarial Auditor for FY18. TheSecretarial Audit Report for the financial year ended 31st March 2018 isannexed to this report as Annexure VI. The Report does not contain any qualificationreservation disclaimer or adverse remark
The Board on the recommendation of the Audit Committee had appointed Mr D. H. Zaveripractising Cost Accountant (Fellow Membership No. 8971) as cost auditor to conduct theaudit of Company's cost records for the financial year ended 31st March 2018.The Cost Auditors will submit their report for the FY18 on or before the due date.
The Cost Audit Report for the year ended 31st March 2017 was filed withthe Central Government within the prescribed time.
In accordance with the provisions of section 148 of the Act read with the Companies(Audit and Auditors) Rules 2014 since the remuneration payable to the Cost Auditors forFY19 is required to be ratified by the shareholders the Board recommends the same forapproval by shareholders at the ensuing AGM.
We wish to place on record our appreciation to the Government of various countrieswhere the Company has its operations. We thank the Ministry of Chemicals &Fertilizers Central Government State Government and other regulatory bodies /authorities banks business partners shareholders medical practitioners and otherstakeholders for the assistance co-operation and encouragement extended to the Company.We also like to place on record our deep sense of appreciation to the employees for theircontribution and services.