The Board of Directors hereby present the 24th Annual Report of your Company (the Company) along with the Audited Financial Statements and the Auditors’ Report for the financial year ended March 31, 2017.
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.
Rs. In Million
March 31, 2017
March 31, 2016
Profit before interest depreciation and tax
Depreciation & Interest
Profit before tax
Provision for tax
Profit after tax
Total Profit available for Appropriation
The highlights of the Company’s financial performance during FY 2016-17 are as under:
- Revenue increased by 14% (from Rs.11,133 million to Rs.12,716 million)
- Earnings before interest tax depreciation and amortisation (EBITDA) increased by 24% (from Rs.3,867 million to Rs.4,783 million)
- Profit after tax (PAT) increased by 19% (from Rs.2,408 million to Rs.2,873 million)
A detailed financial performance analysis is provided in the Management Discussion & Analysis Report which is part of this annual report.
In order to build its capabilities in the niche but highly promising area of bioinformatics, Syngene acquired the systems biology and pharma services practice of Strand Life Sciences Private Limited along with a team of highly experienced scientists and data analysts. We also established an integrated, multi-disciplinary drug discovery and development center for Amgen Inc. and a Nutrition Research and Development Lab for Herbalife Nutrition. With this, the company now has five dedicated centers i.e. for Bristol-Myers Squibb, Abbott Nutrition, Baxter Inc., Amgen Inc. and Herbalife Nutrition. We have also commissioned Phase I of our new Formulation facility that is capable of manufacturing clinical supplies as well as commercial supplies of small volume niche technology products and complies with regulatory requirements of the USFDA, EMA and other regulatory authorities.
During December 2016, there was a fire incident at one of the company’s research facilities at Biocon Park in Bengaluru. This facility, including office and lab space, makes up approximately 20% of our total revenues and 12% of our net block. There was no injury or loss of life due to this incident and the company immediately implemented its Business Continuity Plan (BCP) to minimize impact on operations. Further, Industrial All Risk Insurance Policy has helped the Company to minimize the financial impact on account of damage to assets and loss of profits. The said facility has since been non-operational. We are in the process of obtaining necessary statutory approvals to commence the refurbishing activities.
Paid Up Capital
During the financial year, the equity shares paid up capital stood at Rs.2000 million.
Employees are the cornerstone of our business. The Company has a co-operative work culture. We have an experienced and qualified team of scientists across multiple disciplines. As on March 31, 2017 we have 3,492 full time employees including 3,053 scientists. With our strong intellectual strength and deep knowledge base, we intend to continue to drive significant growth in the years to come.
During the financial year, the Board of Directors (“the Board”) has adopted the Dividend Distribution Policy as mandated under Regulation 43A of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015 (SEBI Listing Regulations, 2015). The objective of this policy is to help the Board to appropriately reward the shareholders by striking a balance between dividend pay-outs and long term capital appreciation. The “Dividend Distribution Policy” of the Company is available at http://www.syngeneintl.com/investor-relations/corporate-governance and is annexed to this report as Annexure 1.
The Board has recommended a final dividend of Rs.1.00 (i.e. 10%) per equity share for the financial year ended March 31, 2017, entailing a dividend pay-out of Rs.24 crores (including dividend distribution tax) subject to shareholders’ approval at the ensuing Annual General Meeting.
The record date for reckoning the eligible shareholders for the purpose of dividend pay-out will be Friday, July 21, 2017 and dividend will be paid on August 3, 2017.
Transfer of unpaid and unclaimed amount to Investor Education and Protection Fund
Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, dividend which remains unpaid or unclaimed for a period of seven years from the date of its transfer to the Unpaid Dividend Account is required to be transferred by the Company to the Investor Education and Protection Fund (IEPF), established by the Central Government under the provisions of Section 125 of the Companies Act, 2013. During the financial year, there was no amount due for transfer to IEPF.
Employee Stock Option Plan
Syngene Employee Stock Option Plan (“the Plan”) is administered by the Syngene Employee Welfare Trust under the instructions and superintendence of Nomination and Remuneration Committee of the Board. During the financial year ended March 31, 2017, a total of 166,000 options were granted to eligible employees and 1,405,694 equity shares were transferred to eligible employees on exercise of stock options by the Syngene Employee Welfare Trust. Further, the Company has obtained a certificate from the statutory auditors of the Company that the scheme has been implemented in accordance with these regulations and in accordance with the resolution passed by the shareholders.
As required under Regulation 14 of Securities and Exchange Board of India (Share Based Employee Benefits) Regulation 2014, the applicable disclosure as on March 31, 2017 is annexed to this report as Annexure 2. The details of the Plan form part of the notes to accounts of the financial statements in this Annual Report.
There is no material change in the Plan and the Plan is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulation 2014.
Material Changes and Commitments
No material changes and commitments have 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 organisation (CRO) in the country.
Loans, Guarantees or Investments
Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 forms part of the notes to the financial statements.
During the financial year, the company did not accept any deposits covered under chapter V of the Companies Act, 2013.
CRISIL has maintained it’s ‘CRISIL AA/Stable’ rating on the banking facilities availed by Syngene from various banks/ financial institutions. The rating on the short-term facilities was reaffirmed at ‘CRISIL A1 ’.
During the financial year, the Board has appointed Jonathan Hunt as Chief Executive Officer (CEO) of the Company effective from April 1, 2016.
The Board of your Company, at its meeting held on April 27, 2017, has appointed Jonathan Hunt, Chief Executive Officer, as a Whole-time Director of the Company for a period of five years commencing from May 1, 2017, not liable to retire by rotation, subject to shareholder’s approval in the ensuing Annual General Meeting.
The Board has also appointed Dr. Vijay Kuchroo as an Additional Independent Director on the Board of the Company effective from March 1, 2017, who shall hold office up to the date of ensuing Annual General Meeting. Thereafter, subject to shareholder’s approval, he will be appointed as an Independent Director for a term of three years commencing from the date of Board’s appointment till the conclusion of Annual General Meeting proposed to be held in 2020 and not liable to retire by rotation.
The shareholders at its Annual General Meeting held on July 23, 2014 had appointed Russell Walls as an Independent Director for a tenure of three years i.e. till the conclusion of Annual General Meeting proposed to be held in the year 2017. Now, Russell Walls tenure will come to an end at this Annual General Meeting.
The Board at its meeting held on April 27, 2017, had reappointed Russell Walls, as an Independent Director for another term of three years commencing from the conclusion of the ensuing Annual General Meeting till the conclusion of the Annual General Meeting proposed to be held in 2020 and not liable to retire by rotation.
The brief resumes of the Directors seeking appointment/ re-appointment at the ensuing Annual General Meeting, in pursuance of Regulation 36(3) of SEBI Listing Regulation, 2015, are annexed to the Annual General Meeting Notice.
Prof. Catherine Rosenberg, shall retire by rotation at the ensuing Annual General Meeting and is eligible for reappointment. The Board recommends her re-appointment and the same forms part of Annual General Meeting Notice.
Peter Bains, Non-Executive Director and former CEO of your Company, has stepped down from the Board with effect from the conclusion of the Board meeting held on April 27, 2017. Peter has been associated with the Company since 2010 and was instrumental in driving its growth and a successful Initial Public Offer (IPO).
Key Managerial Personnel (KMP)
Pursuant to Section 203 of the Companies Act, 2013, the Key Managerial Personnel of the Company are Kiran Mazumdar Shaw, Managing Director, Jonathan Hunt, Chief Executive Officer, M B Chinappa, Chief Financial Officer and Mayank Verma, Company Secretary. During the financial year, Jonathan Hunt has been appointed as Chief Executive Officer of the Company with effect from April 1, 2016.
Declaration by Independent Directors
The Company has received necessary declaration from the Independent Directors in accordance with the requirements of Section 149(7) of the Companies Act, 2013, that they meet the criteria of independence as laid out in sub-section (6) of Section 149 of the Companies Act, 2013 and the SEBI Listing Regulation, 2015.
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 Section 178(3) of the Companies Act, 2013, is annexed to this report as Annexure 3.
Meetings of the Board
A calendar of board meetings is prepared and circulated in advance to the Directors. During the financial year, the Board met five times, details of which are given in the Corporate Governance Report that forms part of this Annual Report.
The intervening gap between the two Board meetings were within the period as prescribed under the Companies Act, 2013 and the SEBI Listing Regulations, 2015.
The Audit Committee of the Company comprises entirely of Independent Directors. The members of the Committee are Russell Walls, Chairman, Paul Blackburn and Suresh Talwar. The Board has accepted all the recommendations made by the Audit Committee during the financial year.
The composition and other relevant details of other Board level committees i.e. Audit and Risk Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and Corporate Social Responsibility Committee are disclosed separately in the Corporate Governance Report which forms part of this annual report.
A diverse Board enables efficient functioning through differences in perspectives and skills, and also fosters differentiated thought processes on 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. The “Board Diversity Policy” of the Company is available at http://www.syngeneintl.com/investor-relations/ corporate-governance.
As per the provisions of the Companies Act, 2013 and SEBI Listing Regulations, 2015, the annual evaluation was carried out as per the criteria laid down by the Nomination and Remuneration Committee to review performance of the Board, its Committees, Chairperson and Individual Directors. The details of said evaluation has been enumerated in the Corporate Governance Report that forms part of this annual report. The outcome of the Board evaluation for the financial year 2016-17 was discussed by the Nomination and Remuneration Committee and the Board at their meeting held on January 24, 2017.
Director’s Responsibility Statement
Based on the framework of internal financial controls established and maintained by the Company, work performed by the internal, statutory, and secretarial auditors, reviews performed by the management and the relevant Board Committees, the Board, in concurrence with the Audit and Risk Committee, is of the opinion that the Company’s internal financial controls were adequate and effective as on 31 March 2017.
In Compliance with section 134(5) of the Companies Act, 2013, the Board, to the best of their knowledge, hereby confirms 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.
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 Annual General Meeting held on June 30, 2016, to hold office from the conclusion of 23rd Annual General Meeting till the conclusion of 28th Annual General Meeting proposed to be held in 2021, subject to annual ratification of their appointment by the shareholders.
As required under the provisions of section 139(1) of the Companies Act, 2013, the Company has received a written consent from B S R & Co. LLP Chartered Accountants to their appointment and a eligibility certificate, to the effect that their appointment, if made, would be in accordance with the Companies Act, 2013 and the Rules framed thereunder and that they satisfy the criteria provided in section 141 of the Companies Act, 2013.
Accordingly, the appointment of M/s. B S R & Co. LLP Chartered Accountants, as Statutory Auditors of the Company, is placed for ratification of the shareholders and forms part of the Annual General Meeting Notice.
The tenure of M/s. Price Waterhouse Coppers & Co. (PwC) LLP Chartered Accountants, as Internal Auditors of the Company, had come to an end in October 2016. Based on the recommendation of Audit and Risk Committee, the Board at its meeting held on October 20, 2016, has appointed M/s. Ernst & Young LLP as new Internal Auditors of the Company for a period of three years.
Pursuant to 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 appointed M/s. V. Sreedharan & Associates, Practicing Company Secretaries, as Secretarial Auditors to conduct the Secretarial Audit of the Company for the Financial Year 2016-17. The report does not contain any qualification, reservation or adverse remarks. The Board at its meeting held on April 27, 2017, has appointed M/s. V Sreedharan & Associates, Practicing Company Secretaries, as Secretarial Auditors to conduct Secretarial Audit of the Company for the Financial Year 2017-18. The Secretarial Audit Report of the Company for the financial year 2016-17 is annexed to this report as Annexure 4.
Board’s Response on the remarks made by Secretarial Auditors and Statutory Auditors
There were no qualifications, reservations or adverse remarks made by the Statutory Auditors in their report and by the Company Secretary in practice in their Secretarial Audit Report.
Corporate Governance Report
The Company’s philosophy on Corporate Governance is to consistently follow sound Corporate Governance practices based on fairness, integrity, transparency, professionalism, honesty and accountability in all its business practices and dealings. The Company’s corporate governance framework focuses on adequate & timely disclosures, transparent & robust accounting policies and a strong & Independent Board in order to maximise shareholders benefit.
The Company’s report on Corporate Governance for the financial year ended March 31, 2017, as per regulation 34(3) read with Schedule V of the SEBI Listing Regulation, 2015, forms part of this annual report.
Auditors’ Certificate on Corporate Governance
As required under Schedule V(E) of SEBI Listing Regulation, 2015, the auditors’ certificate on compliance with the requirement of corporate governance is enclosed as Annexure 5 to this report. The auditors’ certificate for financial year 2016-17 does not contain any qualification, reservation or adverse remarks.
Management Discussion and Analysis Report
As required under Regulation 34 of SEBI Listing Regulation, 2015, the Management Discussion and Analysis Report forms part of this annual report.
Business Responsibility Report
Regulation 34(2)(f) of the SEBI Listing Regulation, 2015, mandates inclusion of the Business Responsibility Report as part of the Annual Report for top 500 listed entities based on market capitalization. The Business Responsibility Report contains a detailed report describing the initiatives taken by the Company on business responsibilities vis-a-vis the nine principles of the National Voluntary Guidelines on social, environmental and economic responsibilities of business framed by the Ministry of Corporate Affairs. In compliance with the regulation, the Company’s first Business Responsibility Report forms part of this annual report.
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, Suresh Talwar, Dr. Vijay Kuchroo and Prof. Catherine Rosenberg. The Committee monitors and oversees various CSR initiative activities of the Company.
The Company’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 executed through Biocon Foundation. Biocon Foundation develops and implements programs in the area of healthcare, education, infrastructure, rural development, promotion of art and culture, gender equality and development of vulnerable sections of the 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 6.
Adequacy of Internal Financial Control
The Company had laid down certain guidelines, policies, processes and structures to enable implementation of appropriate internal financial controls across the organisation. These control processes enable and ensure the orderly and efficient conduct of the 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 of reliable financial information.
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.
Because of the inherent limitation of internal financial controls, including the possibility of collusion or improper management override of controls, material misstatements in financial reporting due to error or fraud may occur and not be detected. Also, evaluation of the internal financial controls are subject to the risk that the internal financial control may become inadequate because of changes in conditions, or that the compliance with the policies or procedure may deteriorate.
Risk Management Policy
The Company has 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, on a quarterly basis, reviews critical risks along with its mitigation plans. The Committee also 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 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, associated frameworks, processes and practices of the Company.
Whistle Blower Policy/Vigil Mechanism
The Company’s Whistle Blower Policy, allows employees, directors and other stakeholders to report matters such as genuine grievances, corruption, fraud & misconduct, misappropriation of assets and non-compliance of Code of Conduct of the Company or any other unethical practices. 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 financial year, none of the personnel has been denied access to the Chairman of the Audit Committee.
The Whistle Blower 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
Your company is committed to providing a workplace that is free from discrimination, harassment and victimization, regardless of gender, race, creed, religion. The Company has a policy in place on Prevention, Prohibition and Redressal of Sexual Harassment at Workplace in compliance with the requirements of “The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013”.
The object of this policy is to ensure prevention of sexual harassment and provide a safe working environment. The Policy is applicable to all employees including contractual employees of the Company. The Internal Complaints Committee (“ICC”) has been constituted to consider and redress all complaints of sexual harassment at workplace. The policy has set guidelines on the redressal and enquiry process that is to be followed by complainants and the ICC while dealing with issues related to sexual harassment at workplace against any employee. During the financial year, two cases were reported under prevention of sexual harassment policy and both of them were satisfactorily addressed and resolved.
Significant and Material orders by the Regulators or Courts or Tribunals
During the financial year, there have been 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.
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 2016-17 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 the report.
The company formulated the policy on “Materiality of Related Party Transactions and Dealing with Related Party Transactions’’ and the same is available http://www. syngeneintl.com/investor-relations/corporate-governance.
The details of related party disclosures forms part of note to the financial statements provided 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 2013, read with Rule 8(3) of the Companies (Accounts) Rules 2014 are annexed to this report as Annexure 7.
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 8.
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 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 shareholders 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 shareholder 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
In compliance with Section 92 and Section 134(3)(a) of the Companies Act 2013 read with applicable Rules made thereunder, an extract of the annual return in Form MGT-9 is annexed to this report as Annexure 9.
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 Act and SEBI Listing Regulations 2015.
We place on record our gratitude to our employees at all levels who have contributed to the growth and sustained success of the Company through their dedication, hard work, cooperation and support. We would like to thank all our clients, vendors, bankers, investors, media and other business associates for their continued support and encouragement during the year.
We also thank the Government of India, the Government of Karnataka, the Ministry of Information Technology and Biotechnology, the Ministry of Commerce and Industry, the Ministry of Finance and Corporate Affairs, the Department of Scientific and Industrial Research, the Customs and Excise Departments, the Reserve Bank of India, the Income Tax Department, SEZs (Special Economic Zones), LTU Bengaluru and all Other Government Agencies for their support during the year and look forward to their continued support in the future.
For and on behalf of the Board
Date: April 27, 2017 Kiran Mazumdar Shaw
Place: Bengaluru Managing Director