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Cipla

BSE: 500087|NSE: CIPLA|ISIN: INE059A01026|SECTOR: Pharmaceuticals
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Directors Report Year End : Mar '17    Mar 16

The Directors take pleasure in presenting the 81st Annual Report of the Company along with the audited financial statements for the year ended 31st March, 2017.

Company Overview

Cipla is a leading global pharmaceutical company which uses cutting-edge technology and innovation to meet the everyday needs of all patients. For over eight decades, the Company has emerged as one of the most respected pharmaceutical companies in India as well as in over 80 countries. The Company’s portfolio includes over 1500 products across a wide range of therapeutic categories with one uniform global standard of quality.

Whilst delivering a long-term sustainable business, the Company recognises its duty to provide affordable medicines. The Company’s pioneering role in HIV/ AIDS treatment in 2001 was recognised globally when it became the first pharmaceutical company to offer a triple combination anti-retroviral (ARV) therapy in Africa at less than a dollar a day, thereby ensuring access to life-saving medicines for millions of patients. The Company’s R&D focuses on developing innovative products and drug delivery systems.

Financial Summary and Company Affairs

(Rs. in Crore)

Year ended 31st March, 2016

Year ended 31st March, 2017

Standalone

Consolidated

Standalone

Consolidated

12117.72

13790.10

Gross total revenue

10974.58

14630.24

1743.97

1727.03

Profit before tax

1186.94

1222.17

1462.30

1359.99

Profit for the year

974.94

1006.39

(7.00)

(8.21)

Other comprehensive Income for the year (not to be reclassified to P&L)

6.93

7.46

5870.61

5782.98

Surplus brought forward from last balance sheet

7145.00

6953.84

-

-

Adjustment of tax on dividend of previous year

-

-

7325 92

7134 76

Profit available for appropriation

8126 87

796769

Appropriations

(160 62)

(160 62)

Dividend

(160 84)

(160 84)

(20.30)

(20.30)

Tax on dividend

(32 74)

(32 74)

7145.00

6953.84

Surplus carried forward

7933 29

7774 11

The details of the Company’s operations have been further discussed in detail in the Management Discussion and Analysis Report.

The Company adopted Indian Accounting Standards (‘Ind AS’) from 1st April, 2016 as prescribed under section 133 of the Companies Act, 2013 read with the relevant rules issued thereunder and other accounting principles generally accepted in India. The adoptions were carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards

Share Capital

During the year under review, 11,25,792 equity shares were issued and allotted under Employee Stock Option Schemes. Accordingly, the issued share capital of the Company as on 31st March, 2017 stood at Rs.161.10 crore divided into 80,55,13,469 equity shares of Rs.2/- each. The subscribed and paid-up share capital of the Company as on 31st March, 2017 stood at Rs.160.90 crore divided into 80,45,10,074 equity shares of Rs.2/- each.

Dividend

The Board recommend a final dividend of Rs.2/- per equity share (i.e. 100%) for the FY 2016-17. The dividend, if approved at the Annual General Meeting (AGM), will be paid to those members whose names appear in the Company’s Register of Members on Thursday, 27th July, 2017. The total dividend pay-out will amount to approximately Rs.161 crore (excluding dividend distribution tax) resulting in a pay-out of 16.50% of the standalone profit after tax of the Company.

General Reserve

The Company has not transferred any amount to the General Reserve for the financial year ended 31st March, 2017.

Management Discussion and Analysis Report

Pursuant to Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, (SEBI Listing Regulations) the Management Discussion and Analysis Report for the year under review, is presented in a separate section, forming part of the Annual Report.

Corporate Social Responsibility (CSR)

Cipla has remained both patient-centred and community-focused. Cipla Foundation upholds the OneCipla Credo of ‘Caring for Life’, to empower the most vulnerable in society. As a vibrant and thriving global foundation, it endeavours to minimise gaps in access and affordability in quality healthcare, education, skill advancement and disaster response initiatives. Across geographies, Cipla Foundation is united and aligned with Cipla’s commitment and approach to enhance the quality of life.

The Company’s CSR Committee complies with the requirements of the Companies Act, 2013. The composition and terms of reference of the CSR Committee are provided in the Report on Corporate Governance, which forms part of the Annual Report. The Company’s Corporate Social Responsibility Policy, is available on the Company’s website at http://www.cipla.com/templates/ home tpl/images/Corporate Social Responsibility Policy.pdf

The Annual Report on CSR initiatives as required under section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended from time to time forms part of this report as Annexure I.

Business Responsibility Report

As mandated by the Securities and Exchange Board of India (SEBI), the Business Responsibility Report (BRR) forms part of the Annual Report. The BRR contains a detailed report 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.

Corporate Governance

Pursuant to the SEBI Listing Regulations, the Report on Corporate Governance for the year under review, is presented in a separate section, forming part of the Annual Report. A certificate from M/s. BNP & Associates, confirming compliance of conditions of Corporate Governance, as stipulated under the SEBI Listing Regulations, is annexed as Annexure II to this report.

Directors’ Responsibility Statement

Pursuant to section 134(3)(c) of the Companies Act, 2013 it is confirmed that the Directors have:

i. Followed applicable accounting standards in the preparation of the annual accounts and there are no material departures for the same;

ii. Selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on 31st March, 2017 and of the profit of the Company for that period;

iii. Taken proper and sufficient care for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. Prepared the annual accounts on a going concern basis;

v. Laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

vi. Devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

The details of Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo as required under section 134(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is annexed to this report as Annexure III.

Employee Stock Option Scheme

Presently the Company has one Employee Stock Option (ESOP) scheme, namely “Employee Stock Option Scheme 2013-A which helps the Company to retain and attract the right talent. The Nomination and Remuneration Committee monitors the Company’s ESOP scheme. There is no change in the ESOP scheme during the financial year under review. The ESOP scheme is in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

As required under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, the applicable disclosures as on 31st March, 2017 are available on the Company’s website at http://www.cipla.com/en/ investor-information/shareholder-information.html

Human Resources

Details of remuneration 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 is annexed as Annexure IV.

Particulars of employee remuneration as required under section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. However pursuant to the provisions of the first proviso to section 136(1) of the Companies Act, 2013, the Annual Report is being sent to shareholders excluding the aforementioned information. The information will be available on the Company’s website www.cipla.com and is available for inspection at the registered office of the Company during working hours 21 days before the Annual General Meeting. Any member interested in obtaining such information may write to the Company Secretary at the Registered Office of the Company.

Particulars of Loans, Guarantees and Investments

Particulars of loans, guarantees and investments under section 186 of the Companies Act, 2013 are provided in Note No. 48 to the standalone financial statements.

Extract of Annual Return

As required under sections 92(3) and 134(3)(a) of the Companies Act, 2013 read with Rule 12 of Companies (Management and Administration) Rules, 2014, the extract of Annual Return in Form MGT-9 forms part of this report as Annexure V.

Secretarial Audit Report

The Board had appointed M/s. BNP & Associates, Company Secretaries, Mumbai as the Secretarial Auditor for FY 201617. The Secretarial Audit Report for the financial year ended 31st March, 2017 is annexed to this report as Annexure VI. The report, confirms that the Company is in compliance with the applicable laws and does not contain any qualification, reservation or adverse remark.

Vigil Mechanism

The Company believes in upholding professional integrity and ethical behaviour in the conduct of its business. To uphold and promote these standards, the Company has formulated a Vigil Policy which serves as a mechanism for its Directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The details of the Vigil Policy are available on the Company’s website at http://www.cipla.com/templates/ home tpl/images/Vigil Policy.pdf

A brief note on the highlights of the Vigil Policy and compliance with the Code of Conduct is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

Contract and Arrangements with Related Parties

A detailed note on procedure adopted by the Company in dealing with contracts and arrangements with related parties is provided in the Report on Corporate Governance, which forms part of this Annual Report.

All contracts, arrangements and transactions entered by the Company with related parties during FY 2016-17 were in the ordinary course of business and on an arm’s length basis. During the year, the Company did not enter into any transaction, contract or arrangement with related parties, that could be considered material in accordance with the Company’s policy on related party transactions. Accordingly, the disclosure of related party transactions in Form AOC-2 is not applicable. However detailed disclosure on related party transactions as per IND AS-24 containing name of the related party and details of the transactions have been provided under Note No. 45 of the standalone financial statements on Page No. 150.

The policy on materiality of and dealing with Related Party transactions is available on the Company’s website at http://www.cipla.com/uploads/investor/1443000127 Policy-on-Related-Party-Transactions.pdf

Material changes and commitments affecting financial position between end of financial year and date of report

No material changes and commitments have occurred after the close of the year till the date of this report which may affect the financial position of the Company.

Significant and Material Orders

No significant or material orders were passed by the regulators or courts or tribunals which could impact the going concern status of the Company and its future operations.

Internal Financial Controls

The Board has adopted policies and procedures for ensuring orderly and efficient conduct of its business, including adherence to the Company’s policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures.

Cipla has aligned its current systems of internal financial control with the requirement of Companies Act, 2013, on lines of globally accepted risk-based framework as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. The Internal Control -Integrated Framework (2013) is intended to increase transparency and accountability in an organisation’s process of designing and implementing a system of internal control. The framework requires a company to identify and analyse risks and manage appropriate responses. The Company has successfully laid down the framework and ensured its effectiveness. During testing of such controls no reportable material weaknesses in the design or operation were observed.

During the year under review, there were no instances of fraud reported by the auditors under section 143(12) of the Companies Act, 2013 to the Audit Committee or the Board of Directors.

Risk Management

Risk Management is embedded in Cipla’s operating framework. The Company has a duly approved Risk Management Policy, which lays down broad guidelines for the appropriate authority to identify, assess, categorise and prioritise risks in a timely manner and formulate plans for mitigation of such risks.

The Risk Management framework is reviewed periodically by the Board and the Investment & Risk Management Committee, which includes discussing the overall risk management framework, key risks, mitigation plans etc, with the Management. The Internal Audit function is responsible for assisting the Investment & Risk Management Committee on an independent basis with a full status of the risk assessments and management. Operationally, management process to identify key risks across the organisation and prioritise relevant action plans to mitigate these risks.

Detailed discussion on Risk Management is part of the ‘Threats, Risks and Concerns’ section of the Management Discussion and Analysis, which forms part of this Annual Report. At present, in the opinion of the Board of Directors, there are no risks which may threaten the existence of the Company. However, the top risks and their mitigation plans are set out in the Management Discussion and Analysis Report.

Deposits

During FY 2016-17, the Company did not accept any deposit within the meaning of sections 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014 and therefore no amount of principal or interest was outstanding, as on the balance sheet closure date.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and the SEBI Listing Regulations, the Board has carried out an annual performance evaluation of its own performance, the Directors individually and that of its Committees. A detailed disclosure on the manner of the Board evaluation undertaken by the Board has been provided in the Corporate Governance Report.

Subsidiaries, Associates and Joint Ventures

The Company had 54 subsidiaries, joint ventures and associates as on 31st March, 2017. Details of these subsidiaries, joint ventures and associates are set out on Page 270 of the Annual Report. Pursuant to section 129(3) of the Companies Act, 2013 read with Rule 5 of the Companies (Accounts) Rules, 2014, a statement containing salient features of the financial statement of the subsidiary, associate and joint venture companies is given on Page 270 of the Annual Report. The statement also provides details of the performance and the financial position of each of the subsidiaries, joint ventures and associates. The consolidated financial statements presented in this Annual Report include financial results of the subsidiary companies.

During FY 2016-17, Cipla BioTec South Africa (Pty) Limited and CIPLA Algerie became subsidiaries of the Company and Four M Propack Pvt. Ltd., Cipla Canada Inc. and Cipla Medpro Research and Development Proprietary Ltd., ceased to be subsidiaries of the Company.

There was no change in the joint venture / associate companies during FY 2016-17.

Copies of the financial statement of the subsidiary companies will be available on the Company’s website www.cipla.com and will also be available for inspection by any member at the registered office of the Company during business hours. Copies of the said financial statements will be made available to any member of the Company and those of the respective subsidiary companies upon request.

The Policy for Determining Material Subsidiaries is available on the Company’s website at http://www.cipla.com/ uploads/investor/1443000071 Policy-for-determining-Material-Subsidiaries.pdf

Directors and Key Managerial Personnel

Ms. Samina Vaziralli was elevated to the position of Executive Vice-Chairperson by the Board w.e.f. 1st September, 2016. In view of the change in her role and responsibilities, the Board on the recommendation of the Nomination and Remuneration Committee and subject to the approval of the shareholders, had approved revision to the terms of her appointment including remuneration structure. The Board recommends the revision in the terms of appointment of Ms. Samina Vaziralli including remuneration structure for approval of shareholders.

During the year, Mr. Subhanu Saxena resigned as Managing Director and Global Chief Executive Officer w.e.f. close of business hours on 31st August, 2016. Mr. Umang Vohra relinquished office as Global Chief Financial Officer w.e.f. 1st August, 2016 and was appointed as Managing Director and Global Chief Executive Officer w.e.f. 1st September, 2016.

Ms. Ireena Vittal and Mr. Peter Lankau were appointed as Additional Directors of the Company to hold office as Independent Directors with effect from 1st December, 2016 and 10th January, 2017, respectively. They hold office up to the date of the ensuing AGM. The Company has received requisite notice from a member proposing the appointment of Ms. Ireena Vittal and Mr. Peter Lankau as Independent Directors of the Company for a period of five years with effect from the date of their respective appointment. Mr. S. Radhakrishnan retires by rotation and, being eligible, offers himself for re-appointment. The Board recommends the appointment of Ms. Ireena Vittal and Mr. Peter Lankau as Independent Directors and re-appointment of Mr. S. Radhakrishnan as Director liable to retire by rotation.

A brief resume of the Directors seeking appointment/ re-appointment is provided in the Notice of AGM.

Mr. Kedar Upadhye was appointed as Global Chief Financial Officer w.e.f. 1st August, 2016. Mr. Mital Sanghvi relinquished office as Company Secretary w.e.f. 9th February, 2017, as part of the planned transition and has now moved into a senior business finance role in the Company. Mr. Rajendra Chopra was appointed as Company Secretary w.e.f. 9th February, 2017.

The criteria for determining qualification, positive attributes and independence of a Director have been set out as Annexure VII.

The Remuneration Policy has been disclosed in the Report on Corporate Governance.

Declaration by Independent Directors

All Independent Directors of the Company have submitted requisite declarations confirming that they continue to meet the criteria of independence as prescribed under section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the SEBI Listing Regulations. The Independent Directors have also confirmed that they have complied with the Company’s Code of Conduct.

Neither the Managing Director nor the Whole-time Directors, received any remuneration or commission from any of the Company’s subsidiaries during the previous year.

Committees of Board, Number of Meetings of the Board and Board Committees

The Board currently has six committees, namely, Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, Stakeholders Relationship Committee, Investment and Risk Management Committee and Securities Issuance Committee. All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board.

During the year under review, the Board met seven times. A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during FY 2016-17 and attendance of the Directors at each meeting is provided in the Report on Corporate Governance, which forms part of this report.

Cost Auditor

Pursuant to the provisions of section 148 of the Companies Act, 2013, Mr. D. H. Zaveri, practising Cost Accountant (Fellow Membership No. 8971) has been re-appointed to conduct the audit of Company’s cost records for the financial year ended 31st March, 2017. Pursuant to section 148(6) of the Companies Act, 2013 and Rule 6(6) of the Companies (Cost Records and Audit) Rules, 2014, the Cost Audit Report, for the year ended 31st March, 2016, was filed with the Central Government within the prescribed time.

In accordance with the provisions of section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014, since the remuneration payable to the Cost Auditors for FY 2017-18 is required to be ratified by the shareholders, the Board recommends the same for approval by shareholders at the ensuing AGM.

Auditor

Walker Chandiok & Co LLP, Chartered Accountants was appointed as the Statutory Auditor of your Company at the last AGM held on 28th September, 2016 to hold the office till the conclusion of 85th AGM. As per the provisions of section 139 of the Companies Act, 2013, the appointment of Statutory Auditor is to be ratified by members at every AGM. The Company has received a certificate from the Statutory Auditor confirming that ratification of their appointment if made, will be in accordance with the provisions of section 141 of the Companies Act, 2013. The Board recommends the ratification of the appointment of Walker Chandiok & Co LLP, Chartered Accountants as the Statutory Auditor of the Company.

The Auditor’s Report for FY 2016-17 does not contain any qualification, reservation or adverse remark.

Acknowledgements

The Board wishes to place on record its appreciation to government authorities, banks, business partners, shareholders, medical practitioners and other stakeholders for the assistance, co-operation and encouragement extended to the Company. The Board would also like to place on record its deep sense of appreciation to the employees for their contribution and services.

On behalf of the Board

Date: 25th May, 2017 Y. K. Hamied

Place: Mumbai Chairman

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