DIRECTOR’S REPORT DEAR MEMBERS, We are pleased to present the 23rd Annual Report of your company on business and operations along with the Audited Financial Statements and the Auditor’s Report for the Financial Year ended March 31, 2016 State of Company’s Affairs/Performance State of Company’s Affairs/Performance Overview The highlights of the Company’s performance are as under: • Revenues increased by 28% (From Rs. 8,716 mn to Rs. 11,131 mn) • Operational Margin (EBITDA) increased by 24% i.e. from Rs. 2,928 mn to Rs. 3,639 mn • Profit after tax increased by 26% from Rs. 1,750 mn to Rs. 2,212 mn for the year. In April 2015, Syngene filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) seeking approval for an Initial Public Offer (IPO) through an offer for sale by Biocon Limited for a part of its shareholding in the Company. Subsequently, in July, 2015 the company came up with an Initial Public Offer (IPO) of 22,000,000 equity shares of face value of Rs. 10 each for cash at a price of Rs. 250 per equity share (including a premium of Rs. 240 per equity share) through an offer for sale by Biocon Limited aggregating to Rs. 5,500 mn including a reservation of 2,000,000 equity shares for subscription by Biocon shareholders for cash at a price of Rs. 250 per equity share aggregating to Rs. 500 mn. The total offer constituted 11% of Company’s post-offer paid-up equity share capital. Thereafter, the company received the listing and trading approval from the National Stock Exchange of India Limited and Bombay Stock Exchange Limited on August 11, 2015. The Board of Directors appointed Mr. Jonathan Hunt as Chief Executive Officer–Designate of the Company effective from January 4, 2016. Subsequently, on January 21, 2016 the Board approved the appointment of Mr. Jonathan Hunt as Chief Executive Officer of the Company effective from April 1, 2016, in place of Mr. Peter Bains, Chief Executive Officer who retired on March 31, 2016. Material Changes and Commitments Mr. Jonathan Hunt, resumed the responsibility as Chief Executive Officer of the Company effective from April 1, 2016 in place of Mr. Peter Bains who retired on March 31, 2016. However, Mr. Bains will continue to act as a Non-Executive Director on the Board of the Company. Apart from the above, there were no material changes and commitments that occurred subsequent to the end of the financial year till the date of this report, which affects the financial position of the Company. Change in Nature of Business There has been no change in the nature of business of the company. Your Company continues to be one of the leading Contract Research and Manufacturing Services (CRAMS) in the country. Paid up capital During the year, the equity shares paid up capital stood at Rs. 2000 mn. Employees Syngene has strong knowledge base with a total strength of 2,967 employees as on March 31, 2016. With the focused and collaborative efforts of its employees, Syngene has achieved greater heights during the year and has built a strong international reputation. Dividend The Board on March 11, 2016 approved the Interim Dividend of Re 1/- per share (10%) for the financial year ended March 31, 2016. The Interim Dividend, was subsequently paid to the shareholders on March 29, 2016 and no further dividend was recommended by the Board. Transfer of unpaid and unclaimed amount to IEPF Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, dividend and Refund of Share application Money due for refund which remains unpaid or unclaimed for a period of seven years from the date of its transfer to unpaid dividend/ unclaimed account is required to be transferred by the Company to Investor Education and Protection Fund (IEPF), established by the Central Government under the provisions of Section 125 of the Companies Act, 2013. During the year, no amount was due for transfer to IEPF. Employee Stock Option Plan As required under Securities and Exchange Board of India (Share Based Employee Benefits) Regulation 2014, the applicable disclosures as on March 31, 2016 are annexed to this Report as Annexure 1. During the financial year under review, pursuant to regulation 12(1) of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulation 2014, the Company has obtained the approval of the members through postal ballot on “Ratification of Syngene Employee Stock Option Plan 2011 (“ESOP 2011”), the pre-IPO plan. There is no material change in the Syngene Employee Stock Option Plan - 2011 (the Plan) and the Plan is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulation 2014. Loans, Guarantees or Investments There were no Loans, Guarantees and Investments covered under Section 186 of the Companies Act, 2013. Deposits During the financial year under review, the company did not accept any deposits covered under chapter V of the Companies Act, 2013. Credit Rating CRISIL upgraded its rating on the banking facilities to be availed by Syngene from various bank/financial institution to ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Positive’. The rating on the shortterm facilities were reaffirmed at ‘CRISIL A1+’. Details of Directors or KMPs appointment or resignation during the year I. Appointment During the year, Dr. Bala S Manian (DIN: 01327667) was appointed as an additional Independent director of the company effective from June 24, 2015 and who shall hold office up to the date of ensuing Annual General Meeting. Thereafter, subject to member’s approval he will be appointed for a term of 5 years commencing from the date of Board’s appointment and not liable to return by rotation. Subsequently, Mr. Suresh N Talwar (DIN: 00001456) was appointed as an additional Independent director of the company effective from October 09, 2015 and who shall hold office up to the date of ensuing Annual General Meeting. Thereafter, subject to member’s approval he will be appointed for a term of 3 years commencing from the date of Board’s appointment and not liable to return by rotation. II. Re-appointment of Managing Director At the members meeting held on December 14, 2011, Ms. Kiran Mazumdar Shaw, was appointed as Managing Director of the Company. The Board of Directors at their meeting held on April 26, 2016 approved the re-appointment of Ms. Kiran Mazumdar Shaw as Managing Director for a term of five years, subject to the member’s approval. Accordingly, approval of the members is sought for her re-appointment as Managing Director of the Company for a period of five years effective from December 14, 2016. The brief resume of the Directors seeking appointment/reappointment in the forthcoming Annual General Meeting, in Pursuance of Regulation 36(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Annual General Meeting Notice. III. Retirement During the year the tenure of Prof. Charles Cooney, as Independent Director came to an end on June 22, 2015 and Mr. Peter Bains, Chief Executive Officer retired on March 31, 2016. Mr. John Shaw, shall retire by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. Meetings of the Board A calendar of Meetings is prepared and circulated in advance to the Directors. The Board met four times during the financial year, the details of which are given in the Corporate Governance Report which is annexed and forms a part of this report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Declaration by Independent Directors The Company has received the necessary declaration from each Independent Director, in accordance with Section 149(7) of the Companies Act, 2013, that he/she met the criteria of independence as laid out in sub-section (6) of Section 149 of the Companies Act, 2013 and the Regulation 16(1)(B) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Composition of Audit Committee The Audit Committee of the Company comprises entirely of Independent members. The current members of the committee are Mr. Russell Walls, Chairman, Mr. Paul F Blackburn and Mr. Suresh N Talwar. The Board has accepted all recommendations made by the Audit Committee during the year. The composition and other relevant details of other board level committees i.e. Audit & Risk Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee & Corporate Social Responsibility Committee are disclosed separately in the Corporate Governance Report which is annexed to and forms a part of this Report. Policy on Directors’ Appointment and Remuneration The policy of the Company on Director’s appointment and remuneration, including criteria for determining qualifications, independence and other matters as provided under subsection (3) of Section 178 of the Companies Act, 2013 is annexed to this Report as Annexure 2. Board Diversity A diverse Board enables efficient functioning through differences in perspective and skill, and also fosters differentiated thought processes at the back of varied industrial and management expertise, gender, knowledge and geographical background. The Board recognises the importance of a diverse composition and has adopted a Board Diversity Policy which sets out the approach to diversity. Board Evaluation As per the provisions of the Companies Act, 2013 and SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015, the formal annual evaluation was carried out for the Board’s own performance, its committee & Individual directors. The manner and detail in which evaluation was carried out is stated in the Corporate Governance Report which is annexed and forms a part of this report. Adequacy of Internal Financial Control The Company had laid down guidelines, policies, procedures and structure to enable implementation of appropriate internal financial controls across the company. These control processes enable and ensure the orderly and efficient conduct of company’s business, including safeguarding of assets, prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and timely preparation & disclosure of financial statements. There are control processes both on manual and IT applications including ERP applications, wherein the transactions were approved and recorded. Review and control mechanisms are built in to ensure that such control systems are adequate and operating effectively. Risk Management Policy The Company had put in place an enterprise wide risk management framework. This holistic approach provides the assurance that, to the best of its capabilities, the Company identifies, assesses and mitigates risks that could materially impact its performance in achieving the stated objectives. The Audit and Risk committee ensures that the Company is taking appropriate measures to achieve prudent balance between risk and reward in both ongoing and new business activities. The Committee reviews strategic decisions of the Company and on regular basis, reviews the Company’s portfolio of risks and considers it against the Company’s Risk Appetite. The Committee also recommends changes to the Risk Management Technique and / or associated frameworks, processes and practices of the Company. Vigil Mechanism Policy The Company had implemented a vigil mechanism, whereby employees, directors and other stakeholders can report matters such as generic grievances, corruption, misconduct, fraud, misappropriation of assets and non-compliance of code of conduct to the Company. The policy safeguards the whistle blowers to report concerns or grievances and also provides a direct access to the Chairman of the Audit Committee. During the year under review none of the personnel has been denied access to the Chairman of Audit Committee. The Vigil Mechanism Policy is available on the Company’s website at http://www.syngeneintl.com/investor-relations/ corporate-governance. Disclosure under Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal), Act, 2013 The Company’s policy on prevention of sexual harassment of women provides for the protection of women employees at the workplace and for prevention and redressal of such complaints. There were no complaints pending for the redressal at the beginning of the year and no complaints received during the financial year. Corporate Governance Report The Company is committed to observe good corporate governance practices. The report on Corporate Governance for the financial year ended March 31, 2016, as per regulation 34(3) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 forms a part of this Annual Report. The requisite Certificate from the Statutory Auditors of the Company confirming compliance with the conditions of Corporate Governance is annexed to this Report. Management Discussion and Analysis Report Management Discussion and Analysis forms a part of this annual report and is annexed to this report. Director’s Responsibility Statement Based on the framework of internal financial controls established and maintained by the Company, reviews performed by Management in concurrence with the Audit Committee, is of the opinion that the Company’s internal financial controls were adequate and effective as on 31 March, 2016. In Compliance with section 134(5) of the Companies Act, 2013, the Board of Directors to the best of their knowledge and hereby confirm the following: (a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) The directors had selected such accounting policies and applied them 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 and loss of the company for that period; (c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets 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 the Company and that such internal financial controls are adequate and operating effectively. (f) The directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. Statutory Auditors Members at its 22nd Annual General Meeting held on June 22, 2015 approved the appointment of M/s. S R Batliboi & Associates LLP, Chartered Accountants, [Firm Registration Number: 101049W] as Statutory Auditors for a period of two years i.e. until the conclusion of 24th Annual General Meeting to be held in 2017. The Company had received a notice from statutory auditors stating their unwillingness to continue as statutory auditors of the Company from the conclusion of 23rd Annual General Meeting. Hence, we propose to appoint M/s. BSR & Co., LLP, Chartered Accountants, [Firm Registration Number: 101248W/W100022] as Statutory Auditors for a period of five years, from the conclusion of 23rd Annual General Meeting scheduled on June 30, 2016 till the conclusion of 28th Annual General Meeting to be held in 2021, which shall be ratified in every annual general meeting. Further, the Company received an intimation from M/s. BSR & Co., LLP, Chartered Accountants to the effect that if they will be appointed, it would be in accordance with the provisions of Section 141 of the Companies Act, 2013 and the Rules framed thereunder for appointment as Statutory Auditors of the Company. Secretarial Auditors Section 204 of the Companies Act, 2013 read with rules made thereunder inter-alia requires every listed company to annex with its Board’s report, a Secretarial Audit Report given by a Company Secretary in Practice, in the Form MR-3. The Board of Directors has appointed M/s V. Sreedharan & Associates, Practicing Company Secretaries, as Secretarial Auditor to conduct the Secretarial Audit of the Company for the Financial Year 2015-16. The report did not contain any qualification, reservation or adverse remark. The Board of Directors at its meeting held on April 26, 2016 approved the appointment of M/s V. Sreedharan & Associates, Practicing Company Secretaries, as Secretarial Auditor to conduct a Secretarial Audit of the Company for the Financial Year 2016- 17. The Secretarial Audit Report of the Company for the Financial Year 2015-16 is annexed to this Report as Annexure 3. Board’s response on the remarks made by Statutory Auditors and Secretarial Auditors There were no qualifications, reservations and adverse remarks made by the statutory auditors in their Audit Report and by the Company Secretary in practice in their Secretarial Audit report. Significant and material orders by the regulators or courts or tribunals impacting the Company’s going concern status and operations in future During the period under review, no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company’s operations in the future. Corporate Social Responsibility As per Section 135 of the Companies Act, 2013, the Company constituted a Corporate Social Responsibility Committee, which comprises of Dr. Bala S Manian, Chairman, Mr. Suresh Talwar, and Prof. Catherine Rosenberg. The Committee monitors and oversees various CSR initiatives and activities of the Company. Syngene’s CSR initiatives are based on the principle of making enduring impact through programs that promote social and economic inclusion. The Company is committed to innovation, affordability and access to healthcare. In line with this commitment and as a socially responsible organization, the Company invested in CSR programs aimed at making a difference to the lives of marginalized communities. The Company’s CSR activities are implemented through Biocon Foundation. Biocon Foundation develops and implements healthcare, educational, and infrastructure projects for marginalized sections of society. The CSR policy of the Company is available on the Company’s website at http://www.syngeneintl.com/investor-relations/ corporate-governance. A detailed report on CSR activities is annexed to this Report as Annexure 4. Related Party Contracts or Arrangements There were no materially significant related party transactions entered between the Company, Directors, management, or their relatives except for those disclosed in the financial statements. All the contracts/arrangements/transactions entered into by the Company with the related parties during the financial year 2015-16 were in the ordinary course of business and on an arm’s length basis. Accordingly, particulars of contracts or arrangements with related parties referred to in Section 188(1) along with the justification for entering into such contract or arrangement in Form AOC-2 does not form a part of this report. The company has formulated a policy on “Materiality of Related Party transactions and on dealing with Related Party Transactions’’ and the same is on the company’s website at http://www.syngeneintl.com/investor-relations/corporategovernance. The details of related party disclosure form a part of the notes to the financial statements provided in the annual report. 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(3) of the Companies (Accounts) Rules 2014 are annexed to this Report as Annexure 5. Particulars of Employees Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed to this Report as Annexure 6. Particulars of employees remuneration, as required under section 197(12) of the Companies Act, 2013, read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms a part of this report. Considering first proviso to Section 136(1) of the Companies Act, 2013, the Annual Report, excluding the said information, was sent to the members of the Company and others entitled thereto. The said information is available for inspection at the registered office of the Company during working hours up to the date of ensuing annual general meeting. Any member interested in obtaining such information may write to the Company Secretary in this regard. The said information is also available on the website of the company at www.syngeneintl. com. Extract of Annual Return An extract of the Annual Return in Form MGT-9 in compliance with Section 92 of the Companies Act 2013 read with applicable Rules made there under is annexed to this Report as Annexure 7. Statutory Disclosures None of the Directors of your Company are disqualified as per provisions of Section 164(2) of the Companies Act, 2013. Your Directors have made necessary disclosures, as required under various provisions of the Companies Act, 2013 and Listing Regulation. Acknowledgment The Board appreciates the commitment and dedication of its employees across all the levels who have contributed to the growth and sustained success of the Company. We would like to thank all our clients, vendors, bankers and other business associates for their continued support and encouragement during the year. We also thank the Government of India, Government of Karnataka, Ministry of Information Technology and Biotechnology, Ministry of Commerce and Industry, Ministry of Finance, Department of Scientific and Industrial Research, Customs and Excise Departments, Income Tax Department, CSEZ, LTU Bengaluru and all Other Government Agencies for their support during the year and look forward to the same in the future. For and on behalf of the Board Sd/- Ms. Kiran Mazumdar Shaw Managing Director DIN: 00347229 Date: April 26, 2016 Place: Bengaluru |