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Glenmark Pharma

BSE: 532296|NSE: GLENMARK|ISIN: INE935A01035|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '18

NOTE 1 - BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. COMPANY INFORMATION

Glenmark Pharmaceuticals Limited (the “Company”) is a public limited company incorporated in Mumbai, India. The registered office of the Company is at B/2, Mahalaxmi Chambers, 22 Bhulabhai Desai Road, Mumbai - 400026, India.

The Company is primarily engaged in the business of development, manufacture and marketing of pharmaceutical products, both formulation and active pharmaceutical ingredients. The Company’s research and development facilities are located at Mahape, Sinnar, Turbhe and Taloja in India and manufacturing facilities are located at Nasik, Colvale, Baddi, Nalagarh, Ankleshwar, Mohol, Kurkumbh, Sikkim, Indore, Dahej and Aurangabad.

The Company’s shares are listed on BSE Limited (“BSE”) and the National Stock Exchange of India (“NSE”).

2. CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENT IN APPLYING ACCOUNTING POLICIES

When preparing these financial statements, management undertakes a number of judgments’, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses.

In the process of applying the Company’s accounting policies, the following judgements have been made apart from those involving estimates, which have the most significant effect on the amounts recognised in the financial statements. Judgements are based on the information available at the date of balance sheet.

Leases

The Company has evaluated each lease agreement for its classification between finance lease and operating lease. The Company has reached its decisions on the basis of the principles laid down in Ind AS 17 “Leases” for the said classification. The Company has also used Appendix C to Ind AS 17 for determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and based on the assessment whether:

a) fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset); and

b) the arrangement conveys a right to use the asset.

Deferred tax

The assessment of the probability of future taxable profit in which deferred tax assets can be utilised is based on the Company’s latest approved budget forecast, which is adjusted for significant non-taxable profit and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable profit indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Research and developments costs

Management monitors progress of internal research and development projects by using a project management system. Significant judgement is required in distinguishing research from the development phase. Development costs are recognised as an asset when all the criteria are met, whereas research costs are expensed as incurred.

Management also monitors whether the recognition requirements for development costs continue to be met. This is necessary due to inherent uncertainty in the economic success of any product development.

2.1 Estimation Uncertainty

The preparation of these financial statements is in conformity with Ind AS and requires the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management estimates are based on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Estimates of life of various tangible and intangible assets, and assumptions used in the determination of employee-related obligations and fair valuation of financial and equity instrument, impairment of tangible and intangible assets represent certain of the significant judgements and estimates made by management.

Useful lives of various assets

Management reviews the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets to the Company. The useful life are specified in note 2.5 and 2.7

Post-employment benefits

The cost of post-employment benefits is determined using actuarial valuations.

The actuarial valuation involves making assumptions about discount rates, expected rate of return on assets, future salary increases and mortality rates. Due to the long term nature of these plans such estimates are subject to significant uncertainty.

Fair value of financial instruments

Management uses valuation techniques in measuring the fair value of financial instruments where active market quotes are not available. In applying the valuation techniques, management makes maximum use of market inputs and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date.

Impairment

An impairment loss is recognised for the amount by which an asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results. These assumptions relate to future events and circumstances. The actual results may vary, and may cause significant adjustments to the Company’s assets.

In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.

Current and deferred income taxes

Significant judgments are involved in determining the provision for income taxes including judgment on whether tax positions are probable of being sustained in tax assessments. A tax assessment can involve complex issues, which can only be resolved over extended time periods. The recognition of taxes that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.

Expected credit loss

The Company applies expected credit losses (ECL) model for measurement and recognition of loss allowance on the following:

i Trade receivables.

ii Financial assets measured at amortised cost other than trade receivables.”

In case of trade receivables, the Company follows a simplified approach wherein an amount equal to lifetime ECL is measured and recognised as loss allowance. In case of other assets (listed as ii above), the Company determines if there has been a significant increase in credit risk of the financial asset since initial recognition. If the credit risk of such assets has not increased significantly, an amount equal to twelve month ECL is measured and recognised as loss allowance. However, if credit risk has increased significantly, an amount equal to lifetime ECL is measured and recognised as loss allowance.

The financial statements have been prepared using the measurement basis specified by Ind AS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

3 Standards issued but not yet effective: Appendix B to Ind AS 21, Foreign currency transactions and advance consideration :

On 28 March 2018, Ministry of Corporate Affairs (‘MCA’) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of transaction for the purpose of determining the exchange rate to use on initial recognition of the related assets, expense or income, when an entity has received or paid advance consideration in a foreign currency

The amendment will come into force from 1 April 2018. The Company is evaluating the requirement of the amendment and impact on the financial statements. The effect on adoption of Ind AS 21 is expected to be insignificant.

Ind AS 115 Revenue from contracts with customers :

In March 2018, the MCA notified the Companies (Indian Accounting Standards) Amended Rules, 2018 (“amended rules”). As per the amended rules, Ind AS 115 “Revenue from contracts with customers” supercedes Ind AS 18, “Revenue” and is applicable for all accounting periods on or after 1 April 2018.

Ind AS 115 introduces a new framework of 5 steps model for the analysis of revenue transactions. The model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Further, the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty or revenue and cash flows arising from the entity’s contracts with customers. The new revenue standard is applicable to the Company from 1 April 2018.

The standard permits 2 possible methods of transition :

- Retrospective approach

Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8 “Accounting policies, changes in accounting estimates and errors”

- Retrospectively with cumulative effect of initially applying the standard recognised at the date of initial application (cumulative catch-up approach)

The Company is evaluating the requirements of the amendment and the impact on the financial statements. The effect on adoption of the Ind AS 115 is expected to be insignificant.

Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses :

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the changes in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods beginning on or after 1 April 2018. The Company will adopt the new standard on the required effective date. The Company is evaluating the requirement of the amendment and impact on the financial statements. The effect on adoption of the these amendment is expected to be insignificant.

At the year end, the intangible with indefinite or interminable lives were tested for impairment based on conditions at that date. In performing the impairment testing management considers various factors such as the size of the target market, competition, future possible price/volume erosion.

Discount Rates and Long Term Growth Rates

The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each asset. The present value of the expected cash flows of each asset is determined by applying a discount rate of 7.80%. and terminal growth rate of 2%.

In assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. The amount of the deferred tax assets considered realisable, however, could be reduced in the near term if estimates of future taxable income in the future periods are reduced.

Refer note 14(i) for hypothecation of stocks of raw materials, packing materials, finished goods and work-in-process.

The Company recorded inventory write down (net) of Rs.628.72 ( 2017 - Rs.930.50). This is included as part of cost of materials consumed and changes in inventories of finished goods, work-in-progress and stock -in- trade in the statement of profit and loss.

The trade receivables have been recorded at their respective carrying amounts and are not considered to be materially different from their fair values as these are expected to realise within a short period from the date of balance sheet. All of the Company’s trade receivables have been reviewed for indications of impairment. Certain trade receivables were found to be impaired and an allowance for credit losses of Rs.41.50 (2017 - Rs.1,558.21) has been recorded. The above amounts includes Rs.28,807.62 (net of provision) pertaining to related parties (refer note 27). The movement in the expected credit losses is as follows:

Note 1 - Dividend accounts represent balances maintained in specific bank accounts for payment of dividends. The use of these funds is restricted and can only be used to pay dividends. The corresponding liability for payment of dividends is included under other current financial liability in note 14(iii).

Note 1 - Security deposits represent trade deposits given in the normal course of business realisable within twelve months from the reporting date.

a) Ordinary shares

The Company presently has only one class of ordinary shares. For all matters submitted to vote in the shareholders meeting, every holder of ordinary shares, as reflected in the records of the Company on the date of the shareholders’ meeting, has one vote in respect of each share held. All shares are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the Company.

The Company has an authorised share capital of 2,370,000,000 equity shares of Rs.1 each.

b) Dividends

Indian statutes mandate that dividends be declared out of distributable profits in accordance with the regulations. Should the Company declare and pay dividends, such dividends are required to be paid in INR to each holder of equity shares in proportion to the number of shares held. Dividend tax is borne by the Company.

The Company had declared dividend payout of Rs.2/- per share (2017 - Rs.2/- per share)

c) Reserves

Securities premium reserve - The amount received by the Company over and above the face value of shares issued is shown under this head.

Capital redemption reserve - The capital redemption reserve had been created as per the requirement of earlier provision of Companies Act 1956. Such reserve is not currently available for distribution to the shareholders.

General reserve - The Company has transferred a portion of the net profit of the Company before declaring dividend to general reserve pursuant to the earlier provisions of Companies Act 1956. Mandatory transfer to general reserve is not required under the Companies Act 2013.

Retained earnings - Accumulated earnings include all current and prior period profits as disclosed in the statement of profit and loss.

Stock compensation reserve - stock compensation reserve consists of employee compensation cost allocated over the vesting period of options granted to employees. Such cost is recognised in statement of profit and loss and is credited to the reserve. Upon exercise of options, such reserves are reclassified to equity share capital and security premium.

(III) As at 31 March 2018, pursuant to Employee Stock Option Scheme 2003, no options were outstanding. Pursuant to Employee Stock Options Scheme 2016, 569,686 options were outstanding, which upon exercise are convertible into equivalent number of equity shares.

(IV) Right, Preference and restriction on shares

The Company presently has only one class of ordinary equity shares. For all matters submitted to vote in the shareholders meeting, every holder of ordinary equity shares, as reflected in the records of the Company on the date of the shareholders’ meeting, has one vote in respect of each share held. All shares are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the Company.

(V) In the period of five years immediately preceeding 31 March 2018, the Company has not allotted any shares as fully paid up pursuant to contracts without payment being received in cash. Further, the Company has neither issued bonus shares nor bought back any shares during the aforementioned period.

(VI) Employee Stock Option Scheme, 2003 and 2016 (ESOS)

The Company has formulated an Employee Stock Option Scheme 2003 and Employee Stock Option Scheme 2016 (‘ESOS’) namely ESOS 2003 and ESOS 2016 respectively under which it has made grants on various dates from time to time. Each grant has a vesting period which varies from 1 - 6 years from the date of grant depending on the terms of the grant. The grants are made at the market price of the equity shares of the Company on either the date of the grant or the closing price of the date prior to the day of the grant or the price decided by the Nomination & Remuneration Committee of the Board. Pursuant to ESOS 2003, 47,000 options were cancelled during the year and as at 31 March 2018, no options were outstanding. Pursuant to ESOS 2016, 569,686 options were outstanding, which upon exercise are convertible into equivalent number of equity shares.Employee stock compensation charged during the year is Rs.90.64.

All of the above options outstanding as of 31 March 2018 are unvested.

All share based employee payments would be settled in equity. The Company has no legal or constructive obligation to repurchase or settle the options.

The fair value of options granted are determined using the Black-Scholes valuation model. Significant inputs into the calculation are:

*AII figures have been accordingly adjusted for

- Split of face value from Rs.10 to Rs.2in October 2003.

- 1:1 bonus issue in April 2005 and split of face value from Rs.2 to Rs.1 in September 2007.

The underlying expected volatility was determined by reference to historical data, adjusted for unusual share price movements. No special features inherent to the options granted were incorporated into the measurement of fair value.

In the year 2016, the Company had issued U.S. $ 200,000,000, 2.00% Resettable Onward Starting Equity-linked Securities (Bonds) and U.S.$ 200,000,000, 4.5% Senior Notes (Notes), the brief description of the same is provided herein below:

U.S. $ 200,000,000, 2.00 % Resettable Onward Starting Equity-linked Securities (Bonds):

The Company had issued Bonds on 28 June 2016. The Bonds becomes convertible at the option of the holders’ of the Bonds (the “Bondholders”) after 1 December 2017 and upto the close of business on 18 June 2022 into equity shares. Each Bond will be convertible at the option of the holder thereof into fully paid equity shares at the initial conversion price determined on 30 November 2017.

On 30 November 2017 the Company set the initial conversion price (i.e. the price at which the ordinary shares of the Company will be issued upon conversion of Bonds, subject to any further adjustments according to conditions) at Rs.861.84 as determined in accordance with condition 6.1.3 of the Trust deed.

As of 31 March 2018, none of the Bondholders have opted for the conversion option.

On 30 November 2017 the Company confirmed the fixed exchange rate as INR 64.5238 in accordance with the condition 6.1.1 (b) of the Trust Deed dated 28 June 2016 which provides that the fixed exchange rate shall be the FX rate (INR per US$ 1) based on Bloomberg’s “BFIX” USD/INR spot mid price rate 12.00 (Hongkong time) on 30 November 2017.

Unless previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed on 28 June 2022 (Maturity date) at 126.42% of their principal amount, together with accrued interest (if any), calculated upto but excluding the Maturity Date. The Company may, at its own discretion, redeem the Bonds in whole, but not in part, subject to satisfaction of certain conditions.

Each Bondholder has the right to require the Company to redeem in whole or in part, such Bondholder’s Bonds, on 28 July 2021, at a price equal to 121.78% of its outstanding principal amount of Bonds, together with interest (if any) accrued but unpaid on 28 July 2021.

The Bonds are listed on the Singapore stock exchange.

U.S. $ 200,000,000, 4.5% Senior Notes (Notes) :

The Company issued Notes on 1 August 2016. The Notes will mature on 2 August 2021.

The interest on Notes will be payable semi-annually in arrears on 1 February and 1 August each year. The final interest payment and the payment of principal will occur on 2 August 2021.

The Notes are redeemable at any time on or after 2 August 2019, all or part of the Notes by paying the redemption price, subject to fulfilment of certain conditions. The Company, at its discretion, may redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount, plus the applicable redemption premium, and accrued and unpaid interest and additional amounts, if any

The Notes are listed on the Singapore stock exchange.

Working capital facilities are secured by hypothecation of stocks of raw materials, packing materials, finished goods, work-in-process, receivables and equitable mortgage on fixed assets at certain locations.

The Company has not defaulted on repayment of loan and interest during the year.

The Company has taken working capital facility / term loans from banks at interest rates ranging between 0.40% to 9.70 % p.a.

Note (i) Based on the information available with the Company, no creditors have been identified as “supplier” within the meaning of “Micro, Small and Medium Enterprises Development (MSMED) Act, 2006”. Accordingly, no disclosure under the MSMED Act has been given.

NOTE 4 - EMPLOYEE POST - RETIREMENT BENEFITS

The following are the employee benefit plans applicable to the employees of the Company.

a) Gratuity (defined benefit plan)

In accordance with the applicable laws, the Company provides for gratuity, a defined benefit retirement plan (“the Gratuity Plan”) covering eligible employees. The Gratuity Plan provides for a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment of amounts that are based on salary and tenure of employment. Liabilities with regard to the gratuity plan are determined by actuarial valuation.

A feature all plans have in common is that the discount rate has a significant impact on the present value of obligations. The other assumptions have varying impacts on the different plans in different geographic regions. In the breakup presented below, the varying impact of changes in the key assumptions is shown as below.

b) Compensated leave of absence plan (other long term benefit plan)

The Company permits encashment of leave accumulated by their employees on retirement and separation. The liability for encashment of privilege leave is determined and provided on the basis of actuarial valuation performed by an independent actuary at the date of the balance sheet .

A feature all plans have in common is that the discount rate has a significant impact on the present value of obligations. The other assumptions have varying impacts on the different plans in different geographic regions. In the breakup presented below, the varying impact of changes in the key assumptions is shown below.

c) Provident fund and others (defined contribution plan)

Apart from being covered under the gratuity plan described earlier, employees participate in a provident fund plan; a defined contribution plan. The Company makes annual contributions based on a specified percentage of salary of each covered employee to a government recognised provident fund. The Company does not have any further obligation to the provident fund plan beyond making such contributions. Upon retirement or separation an employee becomes entitled for this lump sum benefit, which is paid directly to the concerned employee by the fund. The Company contributed approximately Rs.429.25 (2017 - Rs.270.94) towards the provident fund plan during the year ended 31 March 2018.

Note 5 RELATED PARTY DISCLOSURES

a) Parties where direct/indirect control exists

i) Subsidiary companies

Glenmark Pharmaceuticals (Europe) R&D Ltd., U.K.

Glenmark Pharmaceuticals Europe Ltd., U.K.

Glenmark Pharmaceuticals S.R.O., Czech Republic Glenmark Pharmaceuticals SK, s.r.o., Slovak Republic Glenmark Pharmaceuticals S. A., Switzerland Glenmark Holding S. A., Switzerland Glenmark Pharmaceuticals S.R.L., Romania Glenmark Pharmaceuticals SP z.o.o., Poland Glenmark Pharmaceuticals Inc., USA Glenmark Therapeutics Inc., USA Glenmark Farmaceutica Ltda., Brazil Glenmark Generics SA., Argentina Glenmark Pharmaceuticals Mexico, S.A. DE C.V, Mexico Glenmark Pharmaceuticals Peru SAC., Peru Glenmark Pharmaceuticals Colombia SAS, Colombia Glenmark Uruguay S.A., Uruguay

Glenmark Pharmaceuticals Venezuela., C.A , Venezuela

Glenmark Dominicana, SRL, Dominican Republic

Glenmark Pharmaceuticals Egypt S.A.E., Egypt

Glenmark Pharmaceuticals FZE., United Arab Emirates

Glenmark Impex L.L.C., Russia

Glenmark Philippines Inc., Philippines

Glenmark Pharmaceuticals (Nigeria) Ltd., Nigeria

Glenmark Pharmaceuticals Malaysia Sdn Bhd., Malaysia

Glenmark Pharmaceuticals (Australia) Pty Ltd., Australia

Glenmark South Africa (Pty) Ltd., South Africa

Glenmark Pharmaceuticals South Africa (Pty) Ltd., South Africa

Glenmark Pharmaceuticals B.V., Netherlands

Glenmark Arzneimittel Gmbh., Germany

Glenmark Pharmaceuticals Canada Inc., Canada

Glenmark Pharmaceuticals Kenya Ltd, Kenya

Glenmark Therapeutics AG, Switzerland

Viso Farmaceutica S.L.U., Spain Glenmark Specialty S A, Switzerland

Glenmark Pharmaceuticals Distribution S.R.O, Czech Republic Glenmark Pharmaceuticals (Thailand) Co. Ltd., Thailand Glenmark Pharmaceuticals Nordic AB, Sweden Glenmark Ukraine LLC, Ukraine Glenmark-Pharmaceuticals Ecuador S.A., Ecuador Glenmark Pharmaceuticals Singapore Pte. Ltd., Singapore

ii) Enterprise over which key managerial personnel excercise significant influence

Glenmark Foundation Glenmark Aquatic Foundation Trilegal

b) Related party relationships where transactions have taken place during the year Subsidiary Companies/Enterprise over which key managerial personnel excercise significant influence

Glenmark Farmaceutica Ltda., Brazil

Glenmark Philippines Inc., Philippines

Glenmark Pharmaceuticals (Nigeria) Ltd., Nigeria

Glenmark Pharmaceuticals S.A., Switzerland

Glenmark Pharmaceuticals Malaysia Sdn.Bhd.,Malaysia

Glenmark Impex L.L.C., Russia

Glenmark Holding S.A., Switzerland

Glenmark Pharmaceuticals Peru SAC., Peru

Glenmark Pharmaceuticals Venezuela., C.A , Venezuela

Glenmark Pharmaceuticals FZE., United Arab Emirates

Glenmark Pharmaceuticals Egypt S.A.E., Egypt

Glenmark Generics SA., Argentina

Glenmark Pharmaceuticals (Europe) R&D Ltd., U.K.

Glenmark Pharmaceuticals Europe Ltd., U.K.

Glenmark Pharmaceuticals Inc., USA Glenmark Pharmaceuticals s.r.o., Czech Republic Glenmark Therapeutics Inc., USA

Glenmark Pharmaceuticals (Thailand) Co. Ltd., Thailand Glenmark Dominicana SA., Dominican Republic Glenmark Pharmaceuticals SP z.o.o., Poland

Glenmark Pharmaceuticals South Africa (Pty) Ltd., South Africa

Glenmark South Africa (Pty) Ltd., South Africa

Glenmark Pharmaceuticals Kenya Ltd, Kenya

Glenmark Pharmaceuticals Colombia SAS, Colombia

Glenmark Pharmaceuticals Mexico, S.A. DE C.V., Mexico

Glenmark Specialty S A, Switzerland

Glenmark Pharmaceuticals Canada Inc., Canada

Glenmark Pharmaceuticals S.R.L., Romania

Glenmark Therapeutics AG, Switzerland

Glenmark Uruguay S.A., Uruguay

Glenmark Pharmaceuticals Distribution S.R.O, Czech Republic

Glenmark Ukraine LLC, Ukraine

Glenmark-Pharmaceuticals Ecuador S.A., Ecuador

Glenmark Pharmaceuticals (Australia) Pty Ltd., Australia

Glenmark Pharmaceuticals B.V, Netherlands

Viso Farmaceutica S.L.U., Spain

Glenmark Foundation

Glenmark Aquatic Foundation

Trilegal

c) Key Management Personnel

Mr. Glenn Saldanha (Chairman & Managing Director)

Mrs. Cherylann Pinto (Executive Director)

Mr V. S. Mani (President & Global Chief Financial Officer with effect from 16 November 2017)

Mr. Rajesh Desai (Executive Director upto close of working hours on 31 March 2017 and with effect from April 1, 2017 as Non-executive Director)

Mr. Murali Neelakantan (Executive Director from 11 May 2017 to 29 May 2018)

Mr. P.Ganesh (President & Chief Financial Officer upto close of working hours on 15 November 2017)

Mr. Harish Kuber (Company Secretary & Compliance Officer with effect from 2 February 2017)

Mr. Sanjay Kumar Chowdhary (Company Secretary & Compliance Officer upto 31 October 2016)

Mrs. B. E. Saldanha (Non-executive Director)

Mr. D. R. Mehta (Non-executive Director)

Mr. Bernard Munos (Non-executive Director)

Mr. J. F. Ribeiro (Non-executive Director)

Dr. Brian W. Tempest (Non-executive Director)

Mr. Sridhar Gorthi (Non-executive Director)

Mr. Milind Sarwate (Non-executive Director)

Note 6- Research and Development Expenses

During the year, the Company’s expenses on research and development is Rs.4,536.81 (2017 - Rs.4,623.41).

Note 7 - Earnings Per Share (EPS)

The basic earnings per share for the year ended 31 March 2018 has been calculated using the net profits attributable to equity shareholders.

Note 8 - Commitments and Contingencies

Out of the above an amount of Rs.89.05 are at various courts under litigation.

(a) In January 2014, the National Pharmaceutical Pricing Authority (NPPA) issued a demand notice of Rs.122.30 as overcharging liability of product “Doxovent 400 mg tab” for the period February 2010 to May 2013. The notice also envisaged a payment of Rs.33.30 towards interest @15% p.a. on the overcharged amount up to 31 January 2014. The Company has filed a petition under Article 32 with the Hon’ble Supreme Court of India (Hon’ble Court), challenging the issue of the above mentioned demand notice on various grounds. This petition has been tagged along with other petitions filed by other pharmaceutical companies as well, pending before Hon’ble Court relating to the inclusion criteria of certain drugs including “Theophylline” in the schedule of the DPCO, 1995. The matters are sub-judice before the Hon’ble Court.

The Hon’ble Court passed an ad-interim order stating that no coercive steps be taken against the Company towards the said demand.

The Hon’ble Court has constituted a Special bench to hear the petition (along with other petitions filed in this regard) and the matter is expected to be listed in due course.

The Company based on legal advice, has an arguable case on merits as well as with regard to mitigation of the demand. Hon’ble Court heard Glenmark’s petition and ordered the petition to be transferred back to Hon’ble Delhi High Court to be heard on merits subject to deposit of 50% of the overcharged claimed amount. Glenmark has deposited Rs.61.15 (50% of the overcharged claimed amount). The matter is pending to be listed in Hon’ble Delhi High Court for hearing.

(b) On 10 March 2016 Ministry of Health and Family Welfare issued notifications prohibiting manufacture for sale, sale and distribution for human use of several Fixed Dose Combination (“FDC”) with immediate effect.

Several products of the Company are also covered in the notified prohibited “FDC’s”. The Company has filed five writ petitions in Hon’ble Delhi High Court challenging the notifications issued. The Hon’ble Delhi High Court has granted interim relief to the Company by staying the notifications banning the FDC’s. The Company based on legal advise, has an arguable case on merits though the liability in this case cannot be computed. In an adverse scenario, the Company would be restricted from manufacturing, selling and marketing the impacted FDC’s.

The matter was clubbed with other petition of other companies before the Supreme Court of India (Hon’ble Court). The Hon’ble Court directed the Drug Technical Advisory Board (DTAB) as subcommittee to examine the ban of drugs. DTAB appointed an expert committee under the chair of Dr. Nilima Kshirsagar to examine the list of banned FDC. The committee has submitted its report to the Ministry of Health. Further communication is awaited from the Ministry of Health and Family Welfare.

The Company has revised the composition of the FDC’s and market the revised products.

(ii) Commitments

(a) Estimated amount of contracts remaining to be executed on capital account, net of advances, not provided for as at 31 March 2018 aggregate Rs.1,053.51 (2017 - Rs.727.02)

(b) Estimated amount of contracts remaining to be executed on other than capital account, net of advances, not provided for as at 31 March 2018 aggregate Rs.5,611.47 (2017 - Rs.5,236.30)

Note 9 - Leases

The Company has taken on lease/leave and license godowns/residential & office premises at various locations.

i) The Company’s significant leasing arrangements are in respect of the above godowns & premises (including furniture and fittings therein, as applicable). The aggregate lease rentals payable are charged to the statement of profit and loss as rent, is presented in Note 25.

ii) The leasing arrangements which are cancellable between 11 months to 5 years are usually renewable by mutual consent on mutually agreeable terms. Under these arrangements, generally refundable interest free deposits have been given towards deposit and unadjusted advance rent is recoverable from the lessor.

iii) The Company has entered into operating lease agreements for the rental of its office premises for a period of 3 to 5 years.

iv) Future obligations on non-cancellable operating lease

The management considers that the carrying amount of trade and other receivables approximates their fair value.

Bank balances and cash comprise cash and short-term deposits held by the Company. The carrying amount of these assets approximates their fair value.

Trade and other payables principally comprise amounts outstanding for trade purchases and on-going costs. The management considers that the carrying amount of trade payables approximates to their fair value.

The Bonds are interest bearing instrument with an embedded derivative instrument of conversion option, accordingly, the instrument has been classified as amortised cost, since the value of embeded derivative is zero.

Fair value hierarchy :

Level 2 : All FVTPL financial assets and liabilities are classified under level 2 of fair value hierarchy except certain investments amounting to Rs.1.02 which are classified as level 1 inputs.

Level 3 : All amortised cost financial assets and liabilities are classified under level 3 of fair value hierarchy.

NOTE 10- NOTE ON EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY

Following is the information regarding projects undertaken and expenses incurred on CSR activities during the year ended 31 March 2018:

i Gross amount required to be spent by the Company during the year - Rs.384.79 (2017 - Rs.232.23)

ii Amount spent during the year on: (by way of contribution to the trusts and projects undertaken)

Note 11- Risk Management Objectives and Policies

The Company is exposed to a variety of financial risks which results from the Company’s operating and investing activities. The Company focuses on actively securing its short to medium term cash flows by minimising the exposure to financial markets.

The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options.

Financial assets that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, accounts receivables, other receivables, investment securities and deposits. By their nature, all such financial instruments involve risk including the credit risk of non-performance by counter parties.

The Company’s cash equivalents and deposits are invested with banks.

The Company’s trade and other receivables are actively monitored to review credit worthiness of the customers to whom credit terms are granted and also avoid significant concentrations of credit risks.

The Company’s interest-rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the Company to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Company to fair value interest-rate risk.

Foreign Currency sensitivity

The foreign currency sensitivity analysis has been performed in relation to US Dollar (USD), Euro (EUR) and Russian ruble(RUB).

US Dollar conversion rate was Rs.64.65 at the beginning of the year and scaled to a high of Rs.65.74 and to low of Rs.63.07. The closing rate is Rs.64.82. Considering the volatility in direction of strengthening dollar upto 10% , the sensitivity analysis has been disclosed at 10% movements on strengthening and weakening effect for presenting comparable movement due to currency fluctuations.

Foreign currency denominated financial assets and liabilities, translated into USD at the closing rate, are as follows.

EUR conversion rate was Rs.68.85 at the beginning of the year and scaled to a high of Rs.80.51 and to low of Rs.67.95. The closing rate is Rs.79.87. Considering the volatility in direction of strengthening EUR upto 10% , the sensitivity analysis has been disclosed at 10% movements on strengthening and weakening effect for presenting comparable movement due to currency fluctuations.

RUB conversion rate was Rs.1.15 at the beginning of the year and scaled to a high of Rs.1.16 and to low of Rs.1.05. The closing rate is Rs.1.13. Considering the volatility in direction of strengthening RUB upto 10% , the sensitivity analysis has been disclosed at 10% movements on strengthening and weakening effect for presenting comparable movement due to currency fluctuations.

Interest rate sensitivity

The Company’s policy is to minimise interest rate cash flow risk exposures on long-term borrowings. The Company has taken several short term borrowings on fixed rate of interest. Since, there is no interest rate risk associated with such fixed rate loans; an interest rate sensitivity analysis has not been performed.

The Company has outstanding borrowings of USD Nil (2017 - USD 9 million). In case of LIBOR/Benchmark prime lending rate (BPLR) increases by 25 basis points then such increase shall have the following impact on:

The bank deposits are placed on fixed rate of interest of approximately 4% to 7.45%. As the interest rate does not vary unless such deposits are withdrawn and renewed, sensitivity analysis is not performed.

Credit risk analysis

The Company’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the date of the balance sheet, as summarised below:

Trade receivables are usually due within 60-180 days. Generally and by practice most customers enjoy a credit period of approximately 180 days and are not interest bearing, which is the normal industry practice. All trade receivables are subject to credit risk exposure. However, the Company does not identify specific concentrations of credit risk with regard to trade and other receivables, as the amounts recognised represent a large number of receivables from various customers.

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has always been managed by each business segment through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors such as default risk of industry, credit default swap quotes, credit ratings from international credit rating agencies and historical experience for customers.

The Company continuously monitors defaults of customers and other counterparties, identified either individually or by the Company, and incorporates this information into its credit risk controls. The Company’s policy is to deal only with creditworthy counterparties.

The Company’s management considers that all the above financial assets that are not impaired for each of the reporting dates and are of good credit quality, including those that are past due. None of the Company’s financial assets are secured by collateral or other credit enhancements.

In respect of trade and other receivables, the Company’s credit risk exposure towards any single counterparty or any group of counterparties having similar characteristics is considered to be negligible. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

Liquidity risk analysis

The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for longterm financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly.

The Company maintains cash and marketable securities to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets.

Note 12- Capital Management Policies and Procedures

The Company objectives when managing capital are to safeguard their ability to continue as a going concern so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal structure to reduce the cost of capital. In order to maintain or adjust the Capital structure, the Company may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell new assets to reduce debt.

Net Debt = total borrowings less cash and cash equivalent. Total ‘equity’ as shown in the balance sheet.

(ii) Dividends not recognised at the end of the reporting period.

In addition to the above dividends, since year end the Board of Directors have recommended the payment of a final dividend of Rs.2 (2017 - Rs.2) per fully paid up equity share. This proposed dividend is subject to the approval of shareholders in the ensuing annual general meeting.

Note 13

The Government of India introduced the Goods and Service Tax (GST) with effect from 1 July 2017 which subsumes excise duty and various other indirect taxes. As required under Ind AS 18, revenue for the year ended 31 March 2018 is reported net of GST. The revenue for year ended 31 March 2018 includes excise duty up to 30 June 2017. Accordingly, income from operations for the year ended 31 March 2018 and 31 March 2017 are not comparable.

Note 14

Certain prior year amounts have been reclassified for consistency with the current year presentation. As a result, certain line items have been amended in the financial statements. These reclassifications had no effect on the reported results of operations. Comparative figures have been adjusted to conform to the current year’s presentation.

Note 15 - Exceptional Items

Exceptional items for year ended 31 March 2017 represents impairment loss relating to Investment, Share application money and Trade receivables from the Company’s subsidiary Glenmark Pharmaceuticals Venezuela., C.A in Venezuela . The Company has not received approvals from the Venezuelan government to repatriate any amounts during the year ended 31 March 2017 and considering the uncertainty around repatriation, the Company believes it is appropriate to impair such investments, share application money and trade receivables pertaining to the said subsidiary.

Note 16 - Authorisation of Financial Statements

The financial statements for the year ended 31 March 2018 were approved by the Board of Directors on 29 May 2018.

Source : Dion Global Solutions Limited
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