On behalf of the Board of Directors (the Board) its our immensepleasure to present the 25th Annual Report of your Company along with the auditedfinancial statements and Auditors Report for the financial year ended March 312018.
Your Companys performance during FY18 compared to the previous year issummarised below.
| || ||(Rs. in Mn) |
|Particulars ||March 31 2018 ||March 31 2017 |
|Total revenue ||14849 ||12716 |
|Total expenditure ||9587 ||7933 |
|Profit before interest depreciation and tax ||5262 ||4783 |
|Depreciation and interest cost ||1541 ||1318 |
|Profit before tax ||3721 ||3465 |
|Tax expenses ||670 ||592 |
|Profit for the year ||3051 ||2873 |
|Other comprehensive income ||87 ||848 |
|Total comprehensive income ||3138 ||3721 |
Key highlights of the Companys financial performance during FY18 are as under:
Revenue increased by 17% (from Rs. 12716 Mn to Rs.fi14849 Mn)
Earnings before interest tax depreciation and amortisation (EBITDA) grew by 10% (fromRs. 4783 Mn to Rs. 5262 Mn)
Profit after tax increased by 6% (from Rs. 2873 Mn to Rs.fi3051 Mn)
A detailed financial performance analysis is provided in the Management Discussion& Analysis Report which is part of this Annual Report.
During FY18 the Company continued to make significant impact on its customersbusinesses through its commitment to innovation operational efficiencies diligent costcontrol strong emphasis on quality and compliance. In line with the Companys visionof becoming a world-class partner to its clients it ramped its capabilities expandedcapacity entered new markets and successfully cleared various regulatory audits.Moreover the Company also added new clients and widened the scope of engagement withexisting clients. All this was done with a singular objective of becoming a trulyone-stop solution for our partners.
The year saw significant traction in the Companys dedicated R&D Centrevertical. The ongoing collaboration with Bristol Myers-Squibb (BMS) for the BMS BioconR&D Centre (BBRC) has been extended until 2026. Syngene will also set up a newdedicated facility for BMS spread across 25000 sq ft. that will house an additional teamof 75 scientists. Syngene and Amgen Inc. also expanded the size and scope of the SyngeneAmgen R&D Centre (SARC) the dedicated R&D Centre set up for Amgen. According tothe agreement the size of SARC will double to 50000 sq. ft. and will house amulti-disciplinary team of up to 185 Syngene scientists. The collaboration with AbbottNutrition for the Abbott
Nutrition Research & Development (ANRD) centre expired at the end of the calendaryear 2017.
The discovery research business got a significant impetus with the signing of astrategic collaboration with GlaxoSmithKline (GSK). The collaboration will focus onaccelerating the discovery of new drug candidates using Syngenes discovery servicesplatforms. Syngene will set up a customised discovery research laboratory for GSK tosupport projects across several therapeutic areas.
Adherence to quality and compliance is one of the cornerstones of Syngenessuccess. The Company diligently complies with global regulatory requirements and continuesto impress regulatory authorities and auditors with the quality of its facilities and itsadherence to various GXP requirements. During FY18 Syngene successfully clearedinspection of the Pharmaceutical and Medical Devices Agency (PMDA) inspection consideredone of the most stringent regulatory authorities globally. During FY18 a Form 483 wasissued by the US FDA for the small molecule Human Pharmacology Unit (HPU) laboratory. TheCompany has filed its responses to the regulator and expects the Form 483 to be withdrawn.It also strengthened its presence in the non-pharma sector with the signing of amulti-year development and manufacturing collaboration with Zoetis a global leader inanimal health.
Biologics is one of the most promising sectors and is estimated to contribute close to30% of the total pharma market revenue globally by 2020. The Company has made strategicinvestments in strengthening its capacity and capabilities in biologics research andmanufacturing to leverage on the emerging business opportunities in this domain. Itcommissioned a new state-of-the-art biologics manufacturing plant complete with threecutting-edge single-use bioreactors each with a capacity of 2000 litres and is designedfor manufacturing clinical as well as commercial batches for global markets.
The construction activities at the upcoming API manufacturing facility at Mangalore hascommenced and the facility is scheduled to begin operations by FY20. When commissioned itwill significantly ramp up Syngenes commercial manufacturing capacities. The S2facility that was significantly impacted due to the fire in December 2016 has beenrefurbished and is expected to be operational in the first half of FY19. Once operationalit will further add to Syngenes capacity. The total capacity at the HumanPharmacology Unit ("HPU") in Bangalore currently stands at 190 with theaddition of 76 more beds during FY18. This will further strengthen the bioequivalencestudy capabilities of the Companys clinical development business.
SUBSIDIARY COMPANY/JOINT VENTURE
During FY18 the Company incorporated a wholly-owned subsidiary Syngene USA Inc. tohave a firm foothold in the US market and allow easy access to its clients based in thatregion.
Pursuant to the first proviso to Section 129(3) of the Companies Act 2013 (theAct) and Rules 5 and 8(1) of the Companies (Accounts) Rules 2014 salient featuresof the financial statements performance and financial position of subsidiary is given inForm AOC-1 as Annexure 1 to this Report. The consolidated financial statements presentedin this Annual Report include the financial results of the subsidiary.
MATERIAL CHANGES AND COMMITMENTS
No material changes and commitments have occurred after the closure of the financialyear till the date of this Report which may affect the financial position of the Company.
The Board recommended a nal dividend of Re. 1 (i.e. 10%) per equity share for FY18. Thetotal dividend pay-out will amount to approximately Rs. 242 Mn (including dividenddistribution tax). The dividend if approved at the Annual General Meeting (AGM) will bepaid to those members whose name appears in the Companys Register of Members as onthe record date of Julyfi18fi2018 and the dividend pay out date is August 1 2018.
In compliance with the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirement) Regulations 2015 ("SEBI Listing Regulations") theDividend policy of the Company is available on the Companys website at http://www.syngeneintl.com/investor-relations/corporategovernance. A copy of the same is annexed tothis Report as Annexure 2.
RELATED PARTY CONTRACTS OR ARRANGEMENTS
There were no materially significant related party transactions entered between theCompany Directors management or their relatives except for those disclosed in thefinancial statements.
All the contracts/arrangements/transactions entered by the Company with the relatedparties during FY18 were in the ordinary course of business and on an arms lengthbasis.
Accordingly particulars of contracts or arrangements with related parties referred toin Section 188(1) along with the justification for entering into such a contract orarrangement in Form AOC-2 does not form a part of the Report.
The Company formulated the policy on Materiality of Related Partytransactions and on dealing with Related Party Transactions and the same isavailable at http://www.syngeneintl. com/investor-relations/corporate-governance.
The details of related party disclosures form part of note to the financial statementsprovided in the Annual Report.
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO
The particulars as prescribed under Section 134 (3) (m) of the Companies Act 2013read with Rule 8(3) of the Companies (Accounts) Rules 2014 are annexed to this Report asAnnexure 3.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO INVESTOR EDUCATION AND PROTECTION FUND
The Ministry of Corporate Affairs under Section 124 and 125 of the Companies Act 2013requires dividends that are not encashed/claimed by the shareholders for a period of sevenconsecutive years to be transferred to the Investor Education and Protection Fund (IEPF).In FY18 there was no amount due for transfer to IEPF.
CHANGE IN THE NATURE OF BUSINESS
There has been no change in the Companys nature of business. Your Companycontinues to be one of the largest and fastest growing Contract Research Organisation("CRO") in the world.
LOANS GUARANTEES OR INVESTMENTS
Loans guarantees and investments covered under Section 186 of the Companies Act 2013forms part of the notes to the financial statements.
During the financial year the Company did not accept any deposits covered underChapter V of the Companies Act 2013.
CRISIL has rated CRISIL AA/Positive on the banking facilities availed bySyngene from various banking/financial institutions. The rating on the short-termfacilities were reaffirmed at CRISIL A1+.
During the financial year the paid-up share capital stood at Rs. 2000 Mn.
Your Company considers its people its biggest assets. As on March 31 2018 it had4138 full-time employees including 3540 scientists. This diverse talent pool ofscientific and non-scientific professionals continues to support it business in achievingsustainable growth by building the right capabilities. In FY18 your Company was awardedfor its Best Talent Management Strategy by the ET Now World HRD Congress. Toattract and retain the best talent Syngene continues to foster an engaging workenvironment to attract and retain the best talent. Going forward the Company intends tocontinue driving significant growth with its strong intellectual strength and deepknowledge base.
PARTICULARS OF EMPLOYEES
Disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are annexed to this Report as Annexure4.
Particulars of employees remuneration as required under Section 197(12) of theCompanies Act 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 forms part of this report. Consideringthe first proviso to Section 136(1) of the Companies Act 2013 the Annual Reportexcluding the said information was sent to the shareholders of the Company and othersentitled thereto. The said information is available for inspection at the registeredoffice of the Company during working hours up to the date of the ensuing AGM. Anyshareholder interested in obtaining such information may write to the Company Secretary inthis regard.
EMPLOYEE STOCK OPTION PLAN
Syngenes Employee Stock Option Plan ("the Plan") is administered by theSyngene Employee Welfare Trust ("the Trust") under the instructions andsupervision of the Nomination and Remuneration Committee (NRC). The Trust overall holds6680000 equity shares of the Company. The NRC on various occasions had granted optionsto various eligible employees of the Company through the trust. The options under eachtranche will vest in the ratio of 25% 35% and 40% at end of second third and fourth yearfrom the date of each grant respectively. The exercise period under each tranche is threeyears from the date of each vesting.
During the financial year there was no change in the Plan and the Plan is incompliance with SEBI (Share Based Employee Benefits) Regulation 2014. A total of 121500options were granted to eligible employees and 1447561 equity shares were transferred toeligible employees by the Syngene Employee Welfare Trust on exercise of stock options.Further the Company has obtained a certificate from the statutory auditors of the Companythat the scheme has been implemented in accordance with SEBI (Share Based EmployeeBenefits) Regulation 2014 and in accordance with the resolution passed by theshareholders.
As required under Regulation 14 of the above said Regulation the applicable disclosureas on March 31 2018 is annexed to this Report as Annexure 5. The details of the Plan formpart of the notes to accounts of the financial statements in this Annual Report.
CORPORATE GOVERNANCE REPORT
The Companys philosophy on Corporate Governance is to consistently follow goodgovernance practices based on fairness integrity transparency professionalism honestyand accountability in all its business practices and dealings. The Companyscorporate governance framework focusses on adequate and timely disclosures transparentand robust accounting policies and a strong and Independent Board to maximiseshareholders benefits.
The Companys Report on corporate governance for the financial year ended March31 2018 as per Regulation 34(3) read with Schedule V of the SEBI Listing Regulationsforms part of the Annual Report.
AUDITORS CERTIFICATE ON CORPORATE GOVERNANCE
As required under Schedule V(E) of SEBI Listing Regulations the auditorscertificate on compliance with the requirement of corporate governance is enclosed asAnnexure 6 to this Report. The auditors certificate for FY18 does not contain anyqualification reservation or adverse remarks.
DIRECTORS I. Appointment
During the financial year Jonathan Hunt Chief Executive Officer has been elevated asthe Whole-time Director of the Company effective from May 1 2017 for a tenure of fiveyears and the same has been approved by the shareholders at the 24th Annual GeneralMeeting held on July 28 2017.
The Board also appointed Vinita Bali as an Independent Director (Additional) on theBoard of the Company effective from July 31 2017 who shall hold office up to the date ofthe ensuing AGM. Thereafter subject to shareholders approval she will be appointedas an Independent Director for a term of three years commencing from the date of theBoards appointment till the conclusion of the AGM proposed to be held in 2020 andshe will not be liable to retire by rotation.
The shareholders at the AGM held on June 30 2016 had appointed Suresh Talwar as anIndependent Director for a tenure of three years i.e. commencing from the date ofboards appointment till the conclusion of 25th AGM scheduled on July 25 2018.
The Board at its meeting held on April 25 2018 had reappointed Suresh Talwar as anIndependent Director for an another term of five years commencing from the conclusion ofthe 25th AGM till the conclusion of the 30th AGM proposed to be held in 2023 and he willnot be liable to retire by rotation.
The brief resumes of the Directors seeking appointment/ re-appointment at the ensuingAGM in pursuance of Regulation 36(3) of SEBI Listing Regulations are annexed to the AGMNotice.
John Shaw shall retire by rotation at the ensuing AGM and is eligible forre-appointment. The Board recommends his re-appointment and the same forms part of the AGMNotice.
KEY MANAGERIAL PERSONNEL
Pursuant to Section 203 of the Companies Act 2013 the Key Managerial Personnel (KMP)of the Company are Kiran Mazumdar Shaw Managing Director; Jonathan Hunt Whole-timeDirector and CEO; M. B. Chinappa Chief Financial Officer and Mayank Verma CompanySecretary.
POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION
The Companys policy on Directors appointment and remuneration includingthe criteria for determining qualifications independence and other matters as providedunder Section 178(3) of the Companies Act 2013 is annexed to this Report as Annexure 7.
DECLARATION BY INDEPENDENT DIRECTORS
The Company has received declarations from all the Companys Independent Directorsconfirming that they meet with the criteria of independence as prescribed under Section149 (6) & (7) of the Companies Act 2013 and SEBI Listing Regulations.
A diverse Board enables efficient functioning through differences in perspectives andskills and fosters differentiated thought processes at the back of varied industrial andmanagement expertise gender knowledge and geographical background. The Board recognisesthe importance of a diverse composition and has adopted a Board DiversityPolicy which sets out the approach to diversity. The Board Diversity Policy of theCompany is available at http://www.syngeneintl.com/investor-relations/corporate-governance.
Pursuant to the provisions of the Companies Act 2013 and SEBI Listing Regulations theannual performance of the Board its Committees Chairperson and Individual Directorsincluding Independent Directors was evaluated as per the criteria laid down by theNomination and Remuneration Committee. The details of said evaluation has been enumeratedin the Corporate Governance Report that forms part of this Annual Report. The outcome ofthe Board evaluation for FY18 was discussed by the Independent Directors the Nominationand Remuneration Committee and the Board at their meeting held on January 23 2018.
NUMBER OF MEETINGS OF THE BOARD
The Board met four (4) times during the year under review. The details of Boardmeetings and attendance of the Directors is provided in the Corporate Governance Report.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee has reviewed the accounts for the year ended March 312018. The Board accepted all recommendations made by the Audit and Risk Committee.
The members of the Audit and Risk Committee are Paul Blackburn (Chairman) RussellWalls and Suresh Talwar. The list and composition of the various other Board-levelCommittees are provided in the Corporate Governance Report.
ADEQUACY OF INTERNAL FINANCIAL CONTROL
The Company had laid down certain guidelines policies processes and structures toenable implementation of appropriate internal financial controls across the organisation.These control processes enable and ensure the orderly and efficient conduct of theCompanys business including safeguarding of assets prevention and detection offrauds and errors the accuracy and completeness of the accounting records and timelypreparation of reliable financial information. There are control processes both in manualand IT applications including ERP applications wherein the transactions were approvedand recorded. Review and control mechanisms are built in to ensure that such controlsystems are adequate and operating effectively.
Because of the inherent limitations of internal financial controls including thepossibility of collusion or improper management override of controls materialmisstatements in financial reporting due to error or fraud may occur and may not bedetected. Also evaluation of the internal financial controls is subject to the risk thatthe internal financial control may become inadequate because of changes in conditions orthat the compliance with the policies or procedures may deteriorate.
The Company has in all material respects an adequate internal financial controlssystem and such internal financial controls were operating effectively based on theinternal control criteria established by the Company considering the essential componentsof internal control stated in the guidance note on audit of internal control overfinancial reporting issued by the Institute of Chartered Accountants of India.
RISK MANAGEMENT POLICY
Syngene has in place an enterprise-wide risk management architecture that provides aholistic approach to the best of its capabilities. The Company identifies assesses andmitigates risks that could materially impact its performance in achieving the statedobjectives. The Audit and Risk Committee on a quarterly basis reviews critical risksalong with its mitigation plans. The Committee also ensures that the Company is takingappropriate measures to achieve prudent balance between risk and reward in both ongoingand new business activities. The Committee on a regular basis reviews the Companysportfolio of risks and examines it under the light of the Companys Risk Appetite.The Committee also recommends changes to the risk management technique associatedframeworks processes and practices of the Company.
DIRECTORS RESPONSIBILITY STATEMENT
Based on the framework of internal financial controls established and maintained by theCompany work performed by the internal statutory and secretarial auditors reviewsperformed by the management and the relevant Board Committees the Board in concurrencewith the Audit and Risk Committee is of the opinion that the Companys internalfinancial controls were adequate and effective as on March 31 2018.
In compliance with Section 134(5) of the Companies Act 2013 the Board to the best oftheir knowledge hereby confirm the following:
(a) In the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures.
(b) The Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent to give a true and fairview of the state of affairs of the Company at the end of the financial year and of theprofit and loss of the Company for that period.
(c) The Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities.
(d) The Directors had prepared the annual accounts on a going concern basis.
(e) The Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and operating effectively.
(f) The Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.
AUDITORS Statutory Auditors
M/s. B S R & Co. LLP Chartered Accountants (ICAI Registration No.101248W/W-100022) were appointed as Statutory Auditors of the Company at the 23rd AGM heldon June 30 2016 to hold office from the conclusion of the 23rd AGM till the conclusionof the 28th AGM proposed to be held in 2021.
The Auditors Report on the financial statements of the Company for the year ended March31 2018 does not contain any qualification reservation or adverse remark. The AuditorsReport enclosed with the financial statements forms part of the Annual Report.
The Board at its meeting held on October 20 2016 had appointed M/s. Ernst &Young LLP as the Companys Internal Auditors for a period of three years.
Pursuant to Section 204 of the Companies Act 2013 the Board had appointed M/s. V.Sreedharan & Associates Practicing Company Secretaries as Secretarial Auditors toconduct the Secretarial Audit of the Company for FY18. The Secretarial Audit Report doesnot contain any qualification reservation or adverse remark and is annexed to this Reportas Annexure 8.
REPORTING OF FRUAD BY AUDITORS
During the year under review neither the statutory auditors nor the secretarialauditors have reported to the Audit and Risk Committee any instances or material fraud onthe Company by its officers or employees under Section 143(12) of the Companies Act 2013the details of which need to be provided in this Report.
EXTRACT OF ANNUAL RETURN
In compliance with Section 92 and Section 134(3)(a) of the Companies Act 2013 readwith applicable Rules made thereunder an extract of the Annual Return in Form MGT-9 isannexed to this Report as Annexure 9.
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
As required under Regulation 34 of SEBI Listing Regulations the Management Discussionand Analysis Report forms part of this Annual Report.
CORPORATE SOCIAL RESPONSIBILITY
As per Section 135 of the Companies Act 2013 the Company constituted a CorporateSocial Responsibility Committee comprising Dr. Bala S Manian (Chairman) Suresh TalwarDr.fiVijay Kuchroo Vinita Bali and Prof. Catherine Rosenberg. The Committee monitors andoversees various CSR initiatives of the Company.
The Companys CSR initiatives are based on the principle of making a long-termimpact through programmes that promote social and economic inclusion. The Company iscommitted to innovation and access to affordable healthcare. In line with this commitmentand as a socially responsible organisation the Company invested in CSR programmes aimedat making a difference to the lives of marginalised communities.
The Companys CSR activities are executed through Biocon Foundation whichdevelops and implements programmes in the areas of healthcare education infrastructureprojects rural development promotion of art and culture gender equality and safety ofthe vulnerable sections of the society.
The Companys CSR policy is available on its website at http://www.syngeneintl.com/investor-relations/corporate-governance. A detailed report on CSRactivities is annexed to this Report as Annexure 10.
BUSINESS RESPONSIBILITY REPORT
In compliance with Regulation 34(2)(f) of the SEBI Listing Regulations the BusinessResponsibility Report ("BRR") forms part of this Annual Report. The BRR containsa detailed report describing the initiatives taken by the Company on businessresponsibilities vis--vis the nine principles of the National Voluntary Guidelines onSocial Environmental and Economic Responsibilities of Business framed by the Ministry ofCorporate Affairs.
WHISTLE BLOWER POLICY/VIGIL MECHANISM
The Companys Whistle Blower Policy allows employees Directors and otherstakeholders to report matters such as genuine grievances corruption fraud misconductmisappropriation of assets non-compliance of code of conduct of the Company or any otherunethical practices. The Policy provides adequate safeguard against victimisation to theWhistle Blower and enables them to raise concerns to the Integrity Committee and alsoprovides an option of direct access to the Chairperson Audit and Risk Committee. Syngenehas engaged "In Touch India Ernst & Young" to provide online platform toraise complaints by the whistle blower. During FY18 none of the personnel have beendenied access to the Chairman of the Audit and Risk Committee.
The Whistle Blower Policy is available on the Companys website athttp://www.syngeneintl.com/investor-relations/corporate-governance.
DISCLOSURE UNDER SECTION 22 OF THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTIONPROHIBITION AND REDRESSAL) ACT 2013
Syngene has a strict Prevention of Sexual Harassment (POSH) Policy in accordance withthe statutory requirements of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013. The Policy is applicable to all employees includingthe Companys contractual employees. The Company is committed to providing aworkplace that is free from discrimination harassment and victimisation regardless ofgender race creed religion place of origin and sexual orientation of a person employedor engaged with the Company. The Internal Committee (IC) has been constituted to considerand redress all complaints of sexual harassment at workplace. Employee sensitisationprogrammes on POSH were conducted during the year under review. In FY18 one case wasreported and resolved under POSH as on March 31 2018.
SIGNIFICANT AND MATERIAL ORDERS BY THE REGULATORS OR COURTS OR TRIBUNALS
During FY18 there have been no significant and material orders passed by theregulators or courts or tribunals impacting the going concern status and theCompanys operations in future.
None of the Directors of the Company are disqualified as per provisions of Section164(2) of the Companies Act 2013. Your Directors have made necessary disclosures asrequired under various provisions of the Act and SEBI Listing Regulations.
SECRETARIAL STANDARD DISCLOSURE
The Company has complied with the provisions of applicable secretarial standard issuedby The Institute of Company Secretaries of India ("ICSI").
We request all the shareholders to support the Green Initiative of theMinistry of Corporate Affairs and Syngenes continuance towards greener environmentby enabling service of Annual Report AGM Notice and other documents electronically toyour email address registered with your Depository Participant/ Registrar and ShareTransfer Agent.
We also request all the investors whose email id is not registered to take necessarysteps to register their email id with the Depository Participant/ Registrar and ShareTransfer Agent.
We place on record our gratitude to our employees at all levels who have contributed tothe growth and sustained success of the Company through their dedication hard workcooperation and support. We would like to thank all our clients vendors bankersinvestors media and other business associates for their continued support andencouragement during the year.
We also thank the Government of India; the Government of Karnataka; the Ministry ofInformation Technology and Biotechnology; the Ministry of Commerce and Industry; theMinistry of Finance and Corporate Affairs; the Department of Scientific and IndustrialResearch; Central Board of Indirect Taxes and Customs; the Reserve Bank of India; theCentral Board of Direct Tax; SEZs (Special Economic Zones) BIRAC (National BiopharmaMission) and all other government agencies for their support during FY18 and look forwardto their continued support in future.
| ||For and on behalf of the Board |
|Date: April 25 2018 ||Kiran Mazumdar Shaw |
|Place: Bengaluru ||Managing Director |
| ||DIN: 00347229 |