KDL Biotech Ltd Directors Report.

KDL BIOTECH LIMITED ANNUAL REPORT 2011-2012 DIRECTORS REPORT To The Members, KDL Biotech Limited The Current Accounting Year is of 12 months i.e. 1st April, 2011 to 31st March, 2012. Your Directors hereby present the Twenty-fifth Annual Report together with the Audited Statement of Accounts for the aforesaid year. FINANCIAL RESULTS: (Rupees In Lacs) Current 12 Previous 12 months Period months Period from from 01.04.2011 to 01.04.2010 to 31.03.2012 31.03.2011 Net Sales/Income from Operations 2722.41 2872.87 Profit/(Loss) Before Depreciation & Tax (807.94) (2277.23) Less: Depreciation and Impairment 913.29 2234.81 Profit/(Loss) Before Tax (1721.23) (4512.04) Add: Exceptional Item - (1150.00) Less: Fringe Benefit Tax - - Add: Deferred Tax W/Off - (769.27) Profit/(Loss) after Tax (1721.23) (6431.31) Add: Prior Period Exps Add : Balance brought forward from previous year (16757.64) (10326.33) Amount available for appropriation (18478.87) (16757.64) Surplus/(Deficit) carried forward to Balance Sheet (18478.87) (16757.64) FINANCIAL PERFORMANCE For the Current Accounting Year of 12 months, the Company has achieved Sales and Other Income aggregating to Rs. 2722.41 lacs, which includes Job Work Charges amounting to Rs. 1796.35 lacs, whereas for the previous Accounting year of 12 months, the Company had achieved Sales and other Income aggregating to Rs. 2872.87 Lacs. DIVIDEND In view of the losses incurred during the period under review, no dividend has been recommended on Equity Shares. MANAGEMENT DISCUSSION & ANALYSIS CAUTIONARY STATEMENT This part of the Report deals with expectations and risk analysis about the future, which is based on certain assumptions and events. The Company can not guarantee these assumptions and expectations being accurate or will be realized nor the risks outlined exhaustive. The Company assumes no responsibility to publicly amend, modify or revise any of these statements on the basis of any subsequent developments, information or events. REVIEW OF OPERATIONS During the year there is no change in the scenario of Penicillin products. Active Pharmaceuticals Ingredients (API) suppliers in Europe and United States are facing increasing pricing pressures due to presence of low cost providers in developing markets, excess big Pharma capacity, and backward integration by certain generic companies. China is still controlling the prices of Penicillins & 6-APA resulting in fluctuations in Amoxicillin prices. Due to delays in financial restructuring the Company could not start its own production and continue the Job Work activities for Unimark Remedies Limited. OUTLOOK ON OPPORTUNITY The domestic bulk drug industry is poised to benefit from the impending patent expiries in the regulated markets leading to increase in generic penetration; thereby providing a Significant opportunity for supply of APIs to manufacturers of such generic drugs coupled with increased outsourcing of bulk drugs by multinational pharmaceutical companies. As the site is penicillin based it will be difficult for change in the product range considering regulatory concerns. Hence, in order to sustain the competitive Semi Synthetic Penicillin price, company is developing a cost effective process for the manufacturing of Amoxicillin Trihydrate. Pilot trials for the same are successfully completed & commercialization will be start by this year. Company in co-operation with Unimark Remedies Limited has completed the pilot trials of biocatalyst in our Biotech facility. OUTLOOK ON CONCERN China remains a dominant player in the global bulk drug industry given its large scale manufacturing capabilities, cost leadership and sufficient availability of intermediates due to strong technological capabilities in fermentation. This growing competition from China and from our Indian counterparts remains a challenge to survive in this business. SEGMENT WISE PERFORMANCE The Company has only one segment i.e. Pharmaceuticals. INTERNAL CONTROL SYSTEMS AND ADEQUACY The Company has adequate system of internal controls to ensure that all the assets are safeguarded and are protected. Necessary checks and balances are in place to ensure that transactions are adequately authorised and reported correctly. The Internal Auditors of the Company conduct Audits of various departments to ensure that internal controls are in place. These are being reviewed by the Audit Committee of the Board and corrective actions are taken by the Company, when needed. The Company has appointed M/s. Rege & Thakkar, Chartered Accountants as its Internal Auditors. HUMAN RESOURCES We, at KDL are driven by one common philosophy that people are our greatest assets. This has been and will continue to be the guiding force in formulating various Human Resources (HR) strategies and policies. We believe in simplicity and focus on creating strong process driven work environment and thereby enable our human capital to efficiently partner with business. Our people philosophy is woven around following tenets - 1. Innovation 2. Respect for people 3. Collaboration and leadership 4. Result focus with emphasis on providing customer delight Our vision is to feature as a Preferred Employer. The Company has continued the best HR practices to develop their employees. The Company has also organized in house & external training Programmes on various subjects. Yearly training calendar, based on the training need identification, is prepared and followed. Employees are suitably rewarded for their performance in order to motivate them. The Company has implemented & continued a system for quarterly review of performance of employees. Last year, 92 employees were rewarded for their performance. Training awards: Employees are also awarded for their maximum participation during the training session in Worker cadre, Staff cadre and Management cadre. Company has maintained a harmonious relationship with their employees along with their family members by organizing various welfare activities & various competitions. HEALTH, SAFETY & ENVIRONMENT The Company has well defined management goals for Health, Safety & Environment, which are strictly followed. For maintaining the safe operating practices and healthy working environment, the Company conducted safety audits, risk analysis, mock drills and Hazop studies regularly. To improve the Health, Safety and Environment standard company has obtained the certification of ISO 14001:2004(EMS) and BS OHSAS 18001:2007. The Company has also organized in house & external Safety training Programmes on various subjects. The National Safety week, World environment day & Fire service day are celebrated with various activities like Mock-drills, Training by external faculties with Tree plantation The housekeeping audits are being conducted quarterly & Awards are distributed to motivate employees regarding the awareness of house keeping Being a chief coordinator of the Mutual Aid Response Group (MARG) -Raigad, the Company organized the On-site mock drills with neighbouring industries and Off-site Drill at Mumbai - Pune Highway with Government Departmant. During last year company arranged special training programmes for Police department (Khalapur, Khopoli, Karjat zone) to attend the emergency while transporting hazardous goods. FINANCE It has been a constant endeavour on the part of the company to avail low cost debt by restructuring process with the banks and others. The response was slow due to the fact that the company had to depend more on job work business than its own production which affected the operation of the company as well as the restructuring process with the banks and others. The Company is negotiating with the Bankers for One Time Settlement of its Working Capital facility, which will resolve its issues effectively with the banks and the Company is hopeful of settling this issue through Onetime Settlement Scheme (OTS). The Company is a sick Company within the meaning of Section 3(1)(O) of the Sick Industrial Companies (Special Provisions) Act, 1985. The Company has made a reference to the Board for Industrial and Financial Reconstruction (BIFR) under Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 on 6th June, 2011, which has been registered by BIFR as case No. 35/2011. The case before BIFR is at a hearing stage and is pending before BIFR for determination of Sickness of the Company. The last hearing was held on 18th July, 2012. The advocate representing State Bank of India (SBI) stated that they had already filed their written submission as directed by BIFR, vide their letter dated 13th June, 2012. The Consultant representing the company stated that they had not received the copy of the written submission made by SBI. The advocate representing SBI stated that he will hand over a copy of written submission to the Company on the same day. The representative of Canara Bank stated that they had already filed their objection vide letter dated 3rd May, 2012. He handed over a copy of the same to the Consultant representing the company, during the course of hearing. The advocate representing Sales Tax Department stated that the total outstanding due against the company amounts to Rs. 9.27 crores. Having considered the submissions made and material on record, the honourable Bench directed that the case be listed for Argument. The next date of hearing in the case has been fixed on 10th September, 2012. After a constant follow-up with SBI, the Company has recieved the copy of written submission from SBI on 22nd August, 2012. The Company has filed its reply against the submission of SBI & Canara Bank before BIFR. Further, with the help of Financial Advisors, the Company is also working on the alternative mode of Finance for funding OTS. DIRECTORS In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Dr. Tushar K. Srivastava and Mr. Yogendra K. Chauhan retires by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. Brief resume of the Directors being appointed/re-appointed, is provided in the Notice convening the Annual General Meeting of the Company as required under Clause 49 of the Listing Agreement. None of the Directors of the Company are disqualified from being appointed as specified under Section 274 of the Companies Act, 1956. DIRECTORS RESPONSIBILITY STATEMENT In terms of Section 217 (2AA) of the Companies Act, 1956, in relation to financial statements of the Company for the accounting period ended 31st March, 2012, the Board of Directors state that: i) the applicable Accounting Standards have been followed in preparation of the financial statements and there are no material departures from the said standards; ii) reasonable and prudent accounting policies have been used in preparation of the financial statements and that they have been consistently applied and that reasonable and prudent judgements and estimates have been made in respect of items not concluded by the end of the Accounting period, so as to give a true and fair view of the state of affairs of the Company as at the end of the accounting period ended 31st March, 2012 and of the profit/(loss) of the company for the period under review; iii) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and iv) the financial statements for the accounting period ended 31st March, 2012, have been prepared on a going concern basis. CONSERVATION OF ENERGY, TECHNOLOGY ABSORBTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Information pursuant to Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is given in the Annexure - A to the Report. PARTICULARS OF EMPLOYEES The Ministry of Corporate Affairs has vide notification dated 31st March, 2011 enhanced the limits for the purpose of disclosure of particulars of employees in Directors Report as required under Section 217(2A) read with Companies (Particulars of Employees) Rules, 1975 from the existing limit of Rs. 24 lac per year/ Rs. 2 lac per month to Rs. 60 lac per year/ Rs. 5 lac per month. The information required to be disclosed under Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Amendment Rules, 2011, is not applicable to the Company, as none of the employee of the Company was in receipt of remuneration prescribed in Companies (Particulars of Employees) Amendment Rules, 2011. CORPORATE GOVERNANCE Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate Report on Corporate Governance and a Certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance are annexed to the Directors Report. GROUP Group means Jayant Mohanlal Parekh, Madhukanta Jayant Parekh, Mehul Jayant Parekh, Beena Mehul Parekh, Sandip Jayant Parekh, Nandini Sandip Parekh, Sonali Mehul Parekh, Pooja Mehul Parekh, Sarang Sandip Parekh, J. M. Parekh (HUF), Unimark Remedies Limited, Glade Organics Private Limited, India, Morganite Trading Company Limited, Synpac Pharmaceuticals (UK) Limited, Synpac Pharmaceuticals Limited, UK, Synpac Limited BVI, Glade Organics Private Limited, UK and Glade Remedies Private Limited, Mauritius are part of the same Group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969). FIXED DEPOSITS During the period under review, the Company has not accepted any fixed deposits. INSURANCE All Properties/Assets including Buildings, Plant and Machineries, Furnitures and Fixtures etc. and insurable interest of the Company are adequately insured. AUDITORS M/s. Khandelwal Jain & Co., Chartered Accountants, Mumbai, retires at the ensuing Annual General Meeting and are eligible for re-appointment. The Company has received confirmation from them to the effect that their re- appointment, if made, would be within the prescribed limits under Section 224(1B) of the Companies Act, 1956. The observations of the Auditors in their report on Accounts read with the relevant notes are self-explanatory and therefore do not call for any further comments. AUDITORS REPORT With regard to qualifications made by the Statutory Auditors in their report, the relevant notes appended in the Schedule of the note are Self- explanatory and requires no further explanation and elucidation. ACKNOWLEDGMENTS Your Directors would like to express their grateful appreciation for the assistance and co-operation received from the Financial Institutions, Banks, Government Authorities, Customers, Vendors, Shareholders and Employees during the period under review. For and on behalf of the Board of Directors (Dr. Rajesh Agrawal) Director - Technical Place: Mumbai Date : August 28, 2012 ANNEXURE A TO THE DIRECTORS REPORT INFORMATION PURSUANT TO THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988. A. CONSERVATION OF ENERGY: 1. Energy Conservation measure implemented in 2011-12: a) Achieved saving in electrical consumption by removing IPA collection pump and keeping under gravity flow of ML distillation column. b) Achieved saving in electrical consumption by putting smaller pump for cooling tower at intermediate plant. c) Substituted distillation of Aqueous layer of Cilastatin derivatives using RO technology 2. Additional investments & proposals for energy conservation in 2012-13: a) Installation of Bio Briquette fired boiler instead of Furnace oil fired boiler. b) Steam condensate recovery to reduce fuel consumption at boiler. c) Replacement of chilled brine compressors with energy efficient screw compressors. d) Replacement of air compressors with energy efficient compressors. e) Replacement of reactor impellors with energy efficient impellors along with gear box & motor. f) Energy saving by improvement in solvent recovery percentage. g) Replacement of liquid nitrogen tank & change of existing pipelines is planned to improve the energy consumption efficiency. 3. Impact of Measures: The energy conservation measures has resulted in reduction of total KWH whereas cost has been increased due to higher rate. 4. Total energy consumption per unit of production as per Form A. FORM A Power and Fuel consumption Current Previous Period Period a) Electricity/Internal Generation Units KWH (Lacs) 69.40 79.86 Total Amount (Rs. in Lacs) 425.33 436.55 Rate/Unit (Rs.) 6.13 5.47 b) Coal N.A. N.A. c) Furnace Oil Quantity Ltrs. (in Lacs) 7.41 1.03 Total amount (Rs. in Lacs) 244.39 28.97 Average rate (Rs.) 32.96 28.06 d) Others It is difficult to express consumption per unit because of large numbers of packs & products of bulk drugs. B. TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION: 1. Process Development of SEMI SYNTHETIC PENICILLINS and its INTERMEDIATES focus on: a) Prepare working standards. b) Trouble shooting studies related to Plant process. c) Process development studies for cost improvement. d) Vendor Development trials of Raw Materials. 2. During this period technologies for extra dried Amoxicillin Trihydrate with Potassium Clavulanate mixture and higher solubility Amoxicillin Trihydrate for veterinary use has been developed. The commercialization of extra dried Amoxicillin Trihydrate is in progress. QUALITY ASSURANCE/CONTROL Various quality management systems are adopted to assure the quality of the product. This is achieved with the help of new state of the art quality control laboratories & sophisticated analytical instruments like High- performance Liquid Chromatography (HPLC), Gas Chromatography (GC), Fourier Transform Infra Red Spectrum (FTIR), Polari meter and Head Space Analyzer etc., which are installed in the Quality Control Laboratory. Apart from this there also exists an In-Process Quality control laboratories where all the in-process control tests are carried out with the aid of dedicated sophisticated instruments. This ensures that the Company is interested not only in controlling the desired quality of Key Raw materials, Intermediates & the finished products, but also keen to know the pathway followed for being able to assure the desired quality products. Additionally, Good Laboratory Practices (GLP) systems are adhered to in the laboratory whereas cGMP is followed during manufacturing activity, Change Control system, batch review system, Out of specification Systems, Vendor Qualification systems, cleaning procedures are followed to assure total adherence to Good Manufacturing Practices (GMP). Validation Master Plan (VMP), process validation Annual product quality review is monitored as per the predefined Standard Operating Procedure (SOP). Quality assurance also helps in satisfying customer and regulatory requirements. During the accounting period, facility is approved by International companies from Philippines, Thailand, Iran, Tanzania & Canada and also various Indian companies. Annual updates are being sent to United State Food & Drug Administration (USFDA) & Medicine Health Regulatory Agency (MHRA) regularly and the Company also has World Health Organisation (WHO) approval along with GMP Certificate from Indian Food & Drug Administration (FDA). C. FOREIGN EXCHANGE EARNINGS AND OUTGO The required information in respect of Foreign Exchange Earnings and Outgo for the Accounting Period ended 31st March, 2012, has been given below: Foreign Exchange Outgo: Rs. 6,80,825/- (Previous period Rs. 7,89,665/-) Foreign Exchange Earnings: Rs. NIL (Previous period Rs. Nil) For and on behalf of the Board of Directors (Dr. Rajesh Agrawal) Director - Technical Place: Mumbai Date : August 28, 2012