DirectorsYour Directors have pleasure in presenting their 32nd Annual Report togetherwith the Audited Accounts of the Company for the 15 Months period ended March 31, 2011.
Financial Results
| | (Rs. in Mio) |
| Particulars | 2010-11 (15 months)* | 2009 |
| Sales and Other Income | 6003 | 4024 |
| Profit Before Tax | 1010 | 884 |
| Provision for Taxation | | |
| - Income Tax | 415 | 310 |
| - Adjustment for Deferred Tax | (46) | (6) |
| - Fringe Benefit Tax | 369 | 3 |
| | 307 |
| Profit after Taxation | 641 | 577 |
| Surplus brought forward from the previous year | 948 | 409 |
| Total amount available for appropriation | 1589 | 986 |
| Appropriation made by Directors | | |
| Transfer to General Reserve | 64 | 58 |
| Transfer from Debenture Redemption Reserve | _ | (312) |
| Appropriation recommended by Directors | | |
| Dividend | 250 | 250 |
| Tax on proposed Dividend | 40 | 42 |
| Surplus carried over | 1235 | 948 |
*Consequent to the change in the Accounting year of the Company from January-December'to 'April-March', the last accounting period was for a period of 15 months.
Dividend
The Directors are pleased to recommend payment of a Dividend of 500% (Rs.10/- perEquity share of the face value of Rs.2/- each), which, if approved by Members at theAnnual General Meeting will involve an outflow of Rs.250 Mio towards Dividend and Rs40
Mio as Dividend Distribution Tax resulting in a total outflow of Rs.290 Miorepresenting distribution of 45% of the net profits of the Company for the year.
Sales and Marketing
The Company registered sales of Rs.5339.2 Mio (excluding export sales) in the 15 monthsperiod ended March 31, 2011.
The Company grew by 14% during the calendar year 2010 (Jan - Dec 2010). However, inQuarter 1 of 2011 (Jan - Mar 2011) the Company grew by 35% over same period last year.
The growth during the period under review, was broad based with all the therapy areasregistering good growths.
The Company has a strong portfolio of established and originator brands wellcomplemented with the launch of branded generics products in 2009 and 2010. Our powerbrands - Crestor, Seloken, Selomax, Meronem, Neksium and Linctus Codeinae witnessed robustgrowth and provided strong momentum to the Company's performance. The AstraZeneca originalresearch brand, Crestor (Rosuvastatin) launched in 2009 (in Cardiovascular TherapeuticArea) was a huge success and achieved over Rs.100 Million sales in the first 9 months of2010.
Branded Generics products launched in 2009 and 2010 made significant contribution tothe Company's sales and growth. Seloram and Actamase recorded strong growth and are theleading brands in their respective categories. The Company launched 6 new products -Olways and Valfect in the Cardiovascular therapy area, Diprivan, Naropin and Enclere inthe Infection therapy area and Bricacef in the Respiratory therapy area.
During the Financial Year 2011-12, your Company will focus on driving growth in itsestablished power brands along with launch of new branded generics products in its keytherapy areas. In the coming years, the Company's product portfolio and performance willbe further strengthened by the launch of AZ patented innovator products.
Sales Force Effectiveness (SFE)
SFE team partnered with business units (BU) in aiding the Company's performance bydriving new sales training initiatives & embedding SFE metrics across a newlyrecruited field Force.
A large scale segmentation & targeting (S&T) exercise was planned and executedto assist the primary care BU expand their reach and customer coverage. Restructuring thespeciality care (SC) team into sub-teams and driving a new S&T strategy forCardiovascular (CV) team helped drive business efficiencies.
By imparting cutting edge training to our field force has enhanced the usage of oure-learning platform AZLEARN' and also improved the efficiency in reporting andcommunication. To manage the challenge of selling many brands together with the newlaunches, enhanced selling skill models like Multi Product Selling (MPS) were introduced.
Medical, Regulatory and Clinical Trials
During the period under review, medical and regulatory support was provided for thelaunch of several new products.
The Regulatory team ensured early registration of new products and also obtainedadditional indication approvals and product registration renewals in time.
Strategic medico-marketing initiatives such as setting up and conducting of AdvisoryBoard meetings, Web casts, scientific meetings and symposium in order to disseminatescientific knowledge to the medical fraternity were undertaken. Pharmacovigilanceworkshops were conducted across the country with a view to increasing the awareness onadverse event reporting amongst the healthcare professionals.
Your company saw increased participation in, and contribution to, pivotal globalclinical trials as per Good Clinical Practice (GCP) norms for AstraZeneca pipeline andapproved products in the therapy areas of Respiratory, Oncology, Cardiovascular andDiabetes in accordance with local and global standards.
Manufacturing
The Company's Operation team supported the launch of new products during the year.Productivity continues to improve both in terms of value & volume at it'smanufacturing plant.
The Company also continued with its initiatives towards better-cost management throughpurchasing efficiency, improved Overall Equipment Effectiveness and pack rationalizations.Product pack security features were introduced as an anti-counterfeit measure for theproducts manufactured at the plant.
The manufacturing plant successfully underwent AstraZeneca's global current GoodManufacturing Practices (cGMP) audit. Further the plant received AstraZeneca's regionaland global recognition for its operational excellence.
The new tablet manufacturing facility involving an outlay of Rs.700 Mio, is expected tobe completed by end of this year as per schedule-Safety Health and Environment (SHE)
During the period under review the Company's manufacturing site was re-certified forOccupational Health Safety Assessment Series (OHSAS) 18001 for health and safety and ISO14001 for the environment by M/s Germanischer Lloyd, Germany. The site achieved 2 millionaccident free man hours during the period under review.
Highest safety standards are being observed at the construction site for the new Tabletmanufacturing facility.
All suppliers of formulations and Active Pharmaceutical Ingredients (APIs) areregularly evaluated on AstraZeneca's global quality and safety standards.
Human Resources and Employee Relations
Attracting, retaining and developing talent continued to be a focus area for theCompany. The increased focus on capability enhancement and employee engagement had apositive impact on talent retention as reflected in the lower attrition levels. TheCompany has a total employee strength of 1705.
A settlement with field union was signed on February 4, 2011, for three years effectiveJanuary 1, 2010. Employee Relations continued to be cordial at all levels.
Factory Land at Yelahanka
In the last Directors Report members were informed that the National HighwaysAuthorities of India (NHAI) had acquired a portion of the factory land at Yelahanka forexpansion of the Hyderabad -Bangalore Highway. The Special Land Acquisition Officer (SLAO)had awarded compensation of Rs.23,709,554/- for the said acquisition. The SLAO reduced theabove amount of compensation awarded to Rs.4,98,879/-, on the basis of a directionreceived from the Government of Karnataka. The Company has not accepted the amended awardand has disputed the same. The Company has invoked the arbitration provisions under theNational Highways Act, 1956. The Company has further filed a Writ Petition challenging theabove direction given by the Government of Karnataka and for directing the SLAO to paycompensation as per the original amount awarded.
The Writ Petition filed by the Company is part heard before the Hon'ble High Court ofKarnataka.
In this connection reference may be made to note No.2 in Schedule 17 of the Accountsfor the 15 months period under review.
Open Public Offers made by Astra Pharmaceuticals AB, Sweden to the Shareholders of theCompany
Members have been advised of the Writ Petitions filed by the under mentionedshareholder challenging the First Open Public Offer made pursuant to the Letter of Offerdated May 11, 2002, by Astra Pharmaceuticals AB, Sweden (APAB). The status of the same asof March 31, 2011 continues to remain unchanged, in that the suit filed by Ms. Annie Koshyin the Kerala High Court, Kochi, is still pending hearing before the Court.
Directors Responsibility Statement
Pursuant to Section 217 (2AA) of the Companies Act, 1956 (the Act), the Board ofDirectors states that- (A) In the preparation of the Company's Annual Accounts, theapplicable accounting standards have been followed and proper explanations have beenprovided for material departures, wherever applicable, (B) It has selected such accountingpolicies which have been applied consistently and made judgments and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs of theCompany as at the end of the 15 Months period ended March 31, 2011 and of the profit ofthe Company for that period, (C) It has taken proper and sufficient care for themaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities, and (D) The financial statements have been prepared on a goingconcern basis.
Board's Response to Audit Observations
The observation made by the Auditors under para (xxi) of the annexure to the AuditorsReport is self explanatory. The management has since then strengthened the controls toprevent the occurance of such incidents in future.
Information Pursuant to Section 217 of the Companies Act, 1956
Information required under Section 217 (1)(e) of the Companies Act, 1956, read with theCompanies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988,is given in Annexure-I and forms part of this Report.
Information required under Section 217 (2A) of the Companies Act, 1956, read with theCompanies (Particulars of the Employees) Rules, 1975, forms part of this Report. However,as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report andthe Accounts are being sent to all shareholders, excluding the Statement of Particularsunder Section 217(2A). Any shareholder, desirous of obtaining a copy of this Statement,may kindly write to the Company Secretary.
Corporate Social Responsibility
Your Company continues to contribute meaningfully to local communities throughcharitable donations, sponsorships and other initiatives that help make a difference topeople's lives.
The Company continued its community activities focused on making the KatigenahalliPrimary School, Yelahanka, a better place to study for the children. Your Company alsocontinues to contribute to the monthly operating cost of the emergency ambulance service'Operation Sanjeevini' run by the Comprehensive Trauma Care Consortium, Bangalore.
Your Company, with a view to address the need for adolescent healthcare amongst theurban poor, embarked on a 3 year program in partnership with PLAN India (a multinationalNGO) to improve the health of adolescents in five disadvantaged communities of Delhi. Theprogram will reach around 31,000 households and indirectly influence an estimatedpopulation of 190,000, including policy makers, educators, and health professionals in thecommunities in which these young people live. This program aims at dissemination ofinformation on healthcare, hygiene and sanitation to create awareness amongst adolescents.
Corporate Governance Report
The Company has taken steps to ensure that all mandatory provisions of CorporateGovernance as prescribed by the Listing Agreement of the Stock Exchanges on which theCompany shares are listed, have been complied with.
The Management Discussion and Analysis is attached as Annexure-ll and forms partof this Report.
A Report on Corporate Governance forming part of the Directors' Report, along with acertificate from the Statutory Auditors' confirming compliance, is annexed as Annexure-IIIand forms part of this Report.
Directors
Mr. Francis McNamara III resigned as Director with effect from September 30, 2010. TheBoard places on record its appreciation of the services rendered and contribution made byMr. Francis McNamara III to the Company, during his tenure as a Director.
In accordance with the provisions of the Companies Act 1956 and the Company's Articlesof Association,
Mr. D. E. Udwadia & Mr. Ian Brimicombe, Directors will retire by rotation at theensuing Annual General Meeting. Being eligible, they offer themselves for reelection. YourBoard of Directors has recommended their re-election.
Auditors
The present Auditors M/s. BSR & Co., Chartered Accountants, retire at the ensuingAnnual General Meeting. However, being eligible, they offer themselves for re-appointment.
Acknowledgements
Your Directors take this opportunity to thank AstraZeneca Pharmaceuticals AB, Swedenand AstraZeneca PLC, for their continued support to the Company's operations.
Your Directors thank the Central and the State Governments, various other Statutory andRegulatory Authorities, the Company's Bankers, the Medical Profession and Trade, Vendors& Business Associates and the Shareholders for their continued interest in, and valuedsupport to the Company's operations.
Your Directors place on record their sincere appreciation of the significantcontribution made and the continued support extended, by the employees at all levels tothe Company's operations during the period under review.
| On behalf of the Board of Directors |
| Place: Bangalore | D E UDWADIA |
| Date: May 13, 2011 | Chairman |
Annexure I to Directors' Report Form A
1. Disclosure of Particulars with Respect to Conservation of Energy
| SI No. | Particulars | 2010-11 | 2009 |
| | Jan - Mar | Jan-Dec. |
| A | Power and Fuel Consumption | | |
| 1 | Electricity | | |
| purchased | | |
| unit(kwh) million | 3.21 | 2.48 |
| Total amount (in INR mio) | 17.77 | 12.47 |
| Rate per unit | 5.54 | 5.02 |
| (i) Own Generation | | |
| Through Diesel Generation | 0.385 | 0.21 |
| Unit (Kwh) Million | 2.75 | 2.84 |
| Unit per Litre of Diesel | 12.39 | 10.80 |
| Cost/Unit (Rs.) | | |
| (ii) Through Steam Turbine/Generator | | |
| Units | NIL | NIL |
| Unit per Litre of Fuel | | |
| Oil/Gas | | |
| Cost/Unit (Rs.) | | |
| 2 | Coal (including Agro Husk & Briquettes) | | |
| Quantity (Tonne) | 1461 | 1059.04 |
| Total Cost (Rs. Million) | 6.72 | 4.97 |
| Average Rate (Rs. /Tonne) | 4600.87 | 4693.94 |
| 3 | Furnace Oil | | |
| Quantity (Kilo Litre) | | |
| Total Amount (Rs. Million) | NIL | NIL |
| Average Rate | | |
| 4 | Other/Internal Generation | | |
| Quantity (Kilo Litre) | | |
| Total Amount | NIL | NIL |
| Average Rate | | |
| B | Consumption per Unit of Production | | |
| Standards* (if any) | 2010 - 2011 | 2009+ |
| | Jan-Mar | Jan-Dec. |
| (i) Electricity | | |
| (ii) Furnace Oil | | |
| (iii) Coal | | |
| (iv) Others | | |
Form B
2. Disclosure of Particulars with Respect to Technology Absorption, Research &Development (R&D)
| 1 Specific areas in which R&D was carried out by the company. | The Research and Development (R&D) activities are continued by the company in the therapeutic area like: Gastroenterology formulations Cardiovascular formulations Respiratory therapeutic area formulations. Drug substance Carboprost Tromethamine & Dinoprostone. |
| 2 Benefits derived as a result of the above R&D | The key benefits expected are launch of additional products in the market which will add revenue to the top and bottom line of the Company |
| 3 Future plan of action | There will be greater efforts to scale up the process and commercialization of products after necessary approval. In case of Carboprost and Dinoprostone, increased efforts will be made to reduce costs and bring about yield improvement. |
| 4 Expenditure on R&D | |
| Capital | Rs. 5,575,742 |
| Recurring | Rs. 32,177,960 |
| Total | Rs. 37,753,702 |
| Total R&D expenditure as a percentage of total | |
| sales. | 0.66% |
| 5 Technology absorption , adaption and innovation Efforts in brief made towards technology absorption, adaption and innovation | The proposed new products are developed through dry granulation technology which will result in substantial reduction in usage of energy and in the manufacturing lead time. |
| 6 Benefits derived as a result of the above efforts e.g., product development, import substitution etc. | The technology has been fully absorbed and initial commercial scale trails are successful. |
| 7 In case of imported technology (imported during the last five years reckoned from the beginning of the financial year.), following information may be furnished. | AstraZeneca Pharmaceuticals AB, Sweden, the Company's foreign promoter continue to extend from time to time additional know -how for the following products licensed by them to the Company. Such technical know-how is adapted and absorbed as ongoing activity. |
| Technology Imported | Vancomycin CP inj. |
| Year of Import | 2006 -2007 |
| 8 Has technology been fully absorbed, areas where this has not taken place, reasons therefore and future plan of action. | Technologies have been fully absorbed. |
Foreign Exchange Earnings and Outgo
1. Activities relating to Exports, etc.:
The Company has exported goods of a value of Rs 404,423,483 during the 15 months periodended March 31, 2011.
2. Total foreign exchange used and earned:
The Company used foreign exchange amounting to Rs.1,321,139,015 and earnedRs.69,133,993.
Management Discussion & Analysis Report
Industry structure and developments
During the calendar year ended December 31, 2010, the total Indian Pharmaceuticalmarket was over Rs.516,417 Mio and has grown by 17.5%. The IMS ORG Report shows that yourCompany has a market share of about 0.76%. (Source: IMS ORG SSA+HSA MAT DEC 2010)
Opportunities and threats / Risk and concerns
The efforts made by the industry bodies to bring in certain amendments to the PatentAct are yet to materialise. Regulatory Data Protection, the other long term demand ofResearch based companies is pending and the Central Government is still to take action onthe report submitted by Inter-ministerial Committee. The proposal in the draft Pharmapolicy to expand the number of drugs covered by Drug Price Control Order (DPCO) byincluding drugs listed in national list of essential medicines, if accepted could be anarea of serious concern for the pharmaceutical Industry in India. The draft Pharma Policyis under review by Group of Ministers. It is hoped that the Government would take rightsteps to encourage innovation in the country by suitably revising the relevant policiesand guidelines in this area.
Risk Management
The Company has a formal Risk Management process and the risk register is establishedand updated periodically. A Business Continuity plan has been established which isreviewed on an ongoing basis.
Segment-wise or product-wise performance
The Company has three business segments, namely:
• Healthcare
• Clinical Trial Services
• Co-promotional Services
The healthcare division engages in the manufacture and sale of pharmaceutical products.During the 15 months period, the healthcare division generated total revenue of Rs.5746million out of which domestic sales contributed Rs.5341.6 million and exports salesRs.404.4 million.
The clinical trial division renders clinical trial services on pharmaceutical productsto its group companies. During the 15 months period the division generated revenue ofRs.69.13 million from export of services.
The co- promotional services division renders co-promotion services for pharmaceuticalsproducts to its customers. During the 15 months period the division generated an income ofRs.127.5 Million.
Separate disclosures as required under Accounting Standard 17 - Segment Reporting, arebeing made in the financial statements.
Outlook
In 2009, the Company embarked on a growth strategy to expand its product portfolio bylaunching both AZ Global brands as well as local brands coupled with expansion in thefield force over the next two to three years.
In 2010, the company continued on its growth strategy, launching 6 new products withfurther expansion in field force. These initiatives paid good dividends with the companyrecording 2nd half growth of 20% (July - Dec 2010).
During the financial year 2011-12, the Company intends to continue expanding itsproduct portfolio by introducing both AZ Global and local brands for the Indian market.
Internal control systems and their adequacy
The Company has a robust system of internal control comprising authority levels andpowers, supervision, checks and balances, policies, procedures and internal audit. Thesystem is reviewed and updated on an on-going basis. The Company is continuously upgradingits internal control systems by measures such as strengthening of Information Technologyinfrastructure and use of external management assurance services. The Group Internal Auditteam (GIA) of AstraZeneca continues to support the internal audit function. During theyear 201011, the scope of Deloitte the internal auditors has been extended to cover theaudit of Depots of the Company for carrying out substantial audits based on an audit planapproved by the Audit Committee. The Audit Committee and the Management have reviewed therecommendations of the Internal Auditors and suitable steps have been taken to implementtheir recommendations.
Discussion on financial performance with respect to operational performance
During the 15 months period ended March 31, 2011, the Company's total sales increasedto Rs.5,744 million as compared to Rs.3,855 million in the financial year (12 monthsperiod) ended December 31, 2009. With the launch of the new products and continuedinvestment in the major therapy areas, the total cost has increased toRs.4,993 millionduring the 15 months period as compared to Rs.3,140 million in the financial year (12months period) ended December 31, 2009. The PBT and PAT have increased to Rs.1,010 millionand Rs.641 million respectively during the 15 months period as compared to Rs.884 millionand Rs.576 million in the financial year (12 months period) ended December 31, 2009.
Material developments in Human Resources/Industrial Relations front, including numberof people employed
Employee relations at all levels continued to remain cordial. As on March 31, 2011, theCompany had 1705 employees on its rolls.