DIRECTORS' REPORT We are pleased to present the report on our business and operations for the year ended December 31, 2015 COMPANY'S OPERATIONAL PERFORMANCE: Detailed operational working of your Company is provided in the Management Discussion and Analysis Report forming part of this Report. During the financial year ended December 31,2015, your Company achieved a turnover of Rs. 9,083.2 Million as against a turnover of Rs. 8,324.5 Million in the previous year, registering a growth of 9. l°/o. During the year under report, the Pharmaceuticals segment showed an increase in turnover of 14.5°/o, the Chemicals segment registered decrease of 2.0% as compared to the respective segment turnover achieved during the previous financial year. The profit after tax has increased by 23.9% during the year 2015 over the profit after tax of previous financial year, 2014. The export turnover of your Company during the year 2015 was Rs. 802.0 Million as against Rs. 677.4 Million achieved in the previous year. SHARE CAPITAL: Share Capital Audit as per the directives of the Securities and Exchange Board of India is being conducted on a quarterly basis by M/s. K.G. Saraf £t Company, Practicing Company Secretaries. The Share Capital Audit Reports are duly forwarded to the BSE Limited and National Stock Exchange of India Limited where the equity shares of your Company are listed. During the year ended December 31, 2015 there was no change in the issued and subscribed capital of your Company, the outstanding capital as on December 31, 2015 is Rs. 166.0 million comprising of 16 million equity shares of Rs. 10/- each. DIVIDEND: Your Board of Directors has recommended a dividend of Rs. 7.50/- (Rupees Seven and Fifty paise only) per equity share for the year ended December 31, 2015. This is subject to approval of the Members at the forthcoming Annual General Meeting. TRANSFER TO RESERVES: The Company proposes to transfer Rs. 53.6 million to the general reserve out of the amount available for appropriation and an amount of Rs. 2,270.0 million is proposed to be retained in the profit and loss account. FIXED DEPOSITS: Your Company has not accepted any public deposits from the public or the Members during the year 2015 and no amount on account of principal or interest on public deposits was outstanding as on the date of the balance sheet. CORPORATE SOCIAL RESPONSIBILITY A brief outline of the Corporate Social Responsibility (CSR) Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure I of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. The Corporate Social 1 Responsibility Policy is available on the website of the 1 Company, www.merck.co.in <http://www.merck.co.in> i DIRECTORS' RESPONSIBILITY STATEMENT: In accordance with Section 134(5) of the Companies Act, 2013, (the'Acf) your Directors, to the best of their knowledge and belief, confirm that: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) such accounting policies have been selected and applied consistently and made judgments 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; (c) 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; (d) the annual accounts have been prepared on a going concern basis; (e) they have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; (f) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. DIRECTORS: Mr. Brijesh Kapil, Executive Director, Consumer Health Care, will retire by rotation at the forthcoming Annual General Meeting of the Company and being eligible offers himself for re-appointment as Director of the Company. Board recommends his re-appointment. During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company. Mr. Bradley Simpson was appointed as a Non-Executive Director nominated by Merck KGaA w.e.f. May 21, 2015 in place of Mr. Peter Ulrich Mannheimer whose nomination was withdrawn by Merck KGaA. Mr. Mannheimer ceased to be a director w.e.f. March 6, 2015. The Directors place on record their appreciation for valuable contributions made by Mr. Mannheimer during his tenure as member of the Board. Mr. S.N. Talwar, Mr. H.C.H. Bhabha and Mrs. Rani Ajit Jadhav are the Independent Directors on the Board of the Company. They have confirmed to the Company that they meet the criteria of independence as prescribed under Section 149(6) of the Act. NUMBER OF MEETINGS OF THE BOARD: Six meetings of the board were held during the year. For details of the meetings of the Board and its committees, please refer to the Corporate Governance Report, which forms part of this report. BOARD EVALUATION: Pursuant to the provisions of the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board and Nomination ft Remuneration Committee have carried out an annual evaluation of performance of the Board, its committees and individual performance of directors. The performance of the Board and Committees was evaluated by the Board at its meeting held on February 26, 2016. The Board also assessed the performance of Independent Directors. The Nomination ft Remuneration Committee at its meeting held on February 26, 2016 evaluated the performance of the executive directors of the Company. The Board sought response from all members of the Board by way of questionnaires regarding performance of the Board and individual members. Directors were also asked to do their self-evaluation. Additionally the Chairman's performance was also evaluated on key aspects of his role and responsibilities. AUDITORS AND THEIR REPORT: M/s. BSREt Co. LLP, Chartered Accountants, retires as Statutory Auditors of the Company at the conclusion of the forthcoming Annual General Meeting and has confirmed their eligibility and willingness to accept the office of the Auditors for the year 2016, if re-appointed. A certificate, confirming that their appointment as Statutory Auditors, if made, would be according to the terms and conditions prescribed under Section 139 and 141 of the Companies Act, 2013 and rules framed thereunder, has been received. The Board and Audit Committee of your Company has recommended the re-appointment of M/s. B S R £t Co. LLP, Chartered Accountants, as Statutory Auditors of your Company, to hold office as such from the conclusion of the forthcoming Annual General Meeting until the conclusion of next Annual General Meeting to be held during 2017. COST AUDIT: Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the Central Government has prescribed cost audit of the accounts to be maintained by your Company concerning its bulk drugs and formulations divisions. To conduct the cost audit of these divisions, M/s. Joshi Apte ft Associates, Cost Accountants, were re-appointed as Cost Auditors of your Company for the year 2015. The Cost Audit Report for the financial year ended December 31, 2014 was due to be filed on June 30, 2015 which was filed on June 30, 2015. CHANGE OF REGISTERED OFFICE: In order to consolidate the Company's operations and administration, which were scattered at various locations in Mumbai including Worli, Prabhadevi and Shirwane, the Company shifted its corporate office to a new premises, at Godrej One, 8th Floor, Pirojshanagar, Eastern Express Highway, Vikhroli (E), Mumbai, 400079. Subsequently, the Company shifted its registered office to the same address. As such new registered office address of the Company with effect from December 31, 2015 has changed from Shiv Sagar, A, Dr. Annie Besant Road, Mumbai - 400018 to Godrej One, 8th Floor, Pirojshanagar, Eastern Express Highway, Vikhroli (E), Mumbai, 400079. SECRETARIAL AUDITORS AND THEIR REPORT: Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit has been carried out by M/s. Kanj ft Associates, Practising Company Secretaries, and their report is annexed as Annexure II. At the Audit Committee Meeting held on May 07, 2015 the quorum as per the Companies Act, 2013 was present. However, one independent director could attend the said Audit Committee Meeting instead of two independent directors, as required under Clause 49 (III)(B) of the listing agreement, since other independent directors were traveling and not reachable. Subsequently, the independent directors confirmed the minutes of May 07, 2015 audit committee meeting. INTERNAL CONTROLS AND THEIR ADEQUACY: The Company has an Internal Control System commensurate with the size, scale and complexity of its operations. AUDIT COMMITTEE RECOMMENDATIONS: During the year all the recommendations of the Audit Committee were accepted by the Board. The Composition of the Audit Committee is as described in the Corporate Governance Report, which forms part of this report. RISK MANAGEMENT: The Board of the Company has formed a Risk Management Committee to frame, implement and monitor the risk mitigation plan for the Company. The committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The audit committee has additional oversight in the area of financial risks and controls. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The development and implementation of risk management policy has been covered in the Management Discussion and Analysis Report, which forms part of this report. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS: The particulars of loans, guarantees and investments have been disclosed in the financial statements. RELATED PARTY TRANSACTIONS: The Company has implemented a Related Party Transactions policy for the purposes of identification and monitoring of such transactions. The policy on related party transactions as approved by the Board is uploaded on the Company's website www.merck.co.in <http://www.merck.co.in> All related party transactions are placed before the Audit Committee for approval. Prior omnibus approval of the Audit Committee is obtained on a annual basis, which is reviewed and updated on quarterly basis. The details of the related party transactions as required under Section 13(3)(h) read with Rule 8 of the Companies (Accounts) Rules, 2014, is attached as Annexure III. VIGIL MECHANSIM AND WHISTLE BLOWER POLICY: In terms of the provisions of Section 177(9) of the Companies Act, 2013 the Company has implemented a vigil mechanism which include implementation of the whistle blower policy. No employee has been denied access to the Chairman of the audit committee. The Company in conjunction with the Corporate Disclosure and Investigation policy of its ultimate holding Company has informed its employees that any non-compliant behavior of directors or employees including the non-compliance of its code of conduct shall be brought to the notice of the management for investigation and necessary action, using the speak-up line number provided therein. Whistle blower complaints and their redressal are discussed at the audit committee of the Company. NOMINATION AND REMUNERATION POLICY: The Company has a Nomination and Remuneration Policy in compliance with the provisions of Sections 134(3)(e) and 178 of the Companies Act, 2013 Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Company's Remuneration Policy provides a framework to support the implementation of the Merck Total Rewards Philosophy, specifically, it is intended to provide more detailed clarification on the guiding principles so as to support their implementation; guidance as to design of reward programs; and explanation as to roles, responsibilities and governance for program design, administration and communication. PARTICULARS OF EMPLOYEES: The information required under Section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below: b) The percentage increase in remuneration of each Director, Managing Director, Chief Financial Officer, Company Secretary in the financial year: The Managing Director, Mr. Anand Nambiar, Executive Directors, Mr. Ali Slieman and Mr. Brijesh Kapil joined the Board during the financial year under review, as such this section is not applicable to this extent. The percentage increase in the remuneration of Mr. N. Krishnan, Executive Director - Finance and Chief Financial Officer, was 9.0°/o and Mr. Vikas Gupta, Company Secretary, was 9.0%. (c) The percentage increase in the median remuneration of employees in the financial year: 9.0% (d) The number of permanent employees on the rolls of Company: 1554 (e) The explanation on the relationship between average increase in remuneration and Company performance: During the year under review, on an average, employees received an annual increase of 9.0%, individual increment varied between 5.0% to 13.0%. The increase in remuneration is in line with the market trends. Each employee's remuneration has variable component which is partly linked to his/her performance and partly related to the Company's overall performance. As such the Company's performance is reflected in the annual increase of employees. (f) Comparison of the remuneration of the Key Managerial Personnel against the performance of the Company: During the financial year ended December 31, 2015, your Company registered an increase of 9.1°/o and 23.9% in its turnover and profit after tax respectively over the turnover and profit after tax during the preceding financial year. The remuneration of the Key Managerial Personnel increased by 9% and was based on their individual performance and overall company performance. (g) Variations in the market capitalization of the Company, price earnings ratio as at the closing date of the current financial year and previous financial year: The market capitalization as on December 31, 2015 and December 31, 2014 was Rs. 12,892 million and Rs. 13,193 million respectively, on the basis of closing price prevailing on BSE Limited as on that date. On the same dates price earning ratio of the Company was Rs. 24.04 and Rs. 30.52 respectively. (h) Percentage increase or decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the last public offer: (i) Average percentile increase already made in the salaries of employees other than the managerial personnel in the lastfinancial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration During the year under review the employees' salary increase was in the range of 5% to 13% as against the average increase in managerial remuneration of 9%. The average increase to all employees was based on merit and performance criteria and is in line with the industry trends. k) The key parameters for any variable component of remuneration availed by the directors: The Board of Directors decides the commission payable to its non-executive independent directors on annual basis. The Board at its meeting held on February 26, 2016 has taken the decision to pay commission to non-executive independent director for the year 2015 on the basis of their participation and attendance at the meetings of the Board, committee meetings, their inputs into the strategic decisions and time spent by them. The aggregate commission paid to non-executive independent directors is within the overall limit of 1% of the profits of the Company. (1) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: There is no employee of the Company who is receiving remuneration in excess of the remuneration paid to highest paid executive directors. (m) Affirmation that the remuneration is as per the remuneration policy of the Company: It is hereby confirmed that the remuneration paid during the year is as per the Remuneration Policy of the Company. The statement containing particulars of employees as required under Section 197( 12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in a separate annexure forming part of this report. Further, the report and the accounts are being sent to the members excluding the aforesaid annexure. In terms of Section 136 of the Companies Act, 2013, the said annexure is open for inspection at the Registered Office of the Company. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: The particulars as prescribed under Section 134(3) (m) of the Companies Act, 2013, read with Rule 8 of the Companies (Accounts) Rules, 2014, are set out in Annexure TV. EXTRACTS OF ANNUAL RETURN: Extracts of Annual Return in the prescribed format under the Companies Act, 2013 forms part of this Report as Annexure V. CORPORATE GOVERNANCE: A Report on the compliance of Corporate Governance Code along with certificate from Secretarial Auditor thereon, as stipulated under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, is annexed to this Report. DISCLOSURE AS PER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013. The Company has zero tolerance towards sexual harassment at the workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Rules there under. During the year ending December 31, 2015, the Company has received 02 complaints of sexual harassment, both of which have been disposed off by taking appropriate actions. GREEN INITIATIVE: Your Company has taken the initiative of going green and minimising the impact on the environment. The Company has been circulating the copy of the Annual Report in electronic format to all those Members whose email address is available with the Company. Your Company would encourage other Members also to register themselves for receiving Annual Report in electronic form. Kindly refer the contact details and ways to register your email address given under the heading 'Request to the Members' at the end of the notice of the Annual General Meeting. ACKNOWLEDGEMENTS: Your Directors thank and express their gratitude to the Company's employees, customers, vendors, investors, and institutions for their continued support to the Company. Your Directors also thank the State Government and concerned Government Departments/ Agencies for their co-operation. Your Directors also register sincere thanks and infinite appreciations to the contributions made by every Member of the Merck family globally. On behalf of the Board of Directors S. N. Talwar Chairman Place : Mumbai, date : February 26, 2016 |