Solvay Pharma India Ltd merged Directors Report

SOLVAY PHARMA INDIA LIMITED ANNUAL REPORT 2010 DIRECTORS REPORT To, The Members, Your Directors have pleasure in presenting the Annual Report together with the Audited Statements of Accounts for the year ended December 31, 2010. FINANCIAL RESULTS Rs. in Thousands Rs. in Thousands (01.01.2010 to (01.01.2009 to 31.12.2010) 31.12.2009) Gross Sales 3,020,207 2,481,431 Profit for the year before tax and before exceptional items 758,429 594,061 Add: Exceptional item - Depreciation written Pack consequent to change in method Nil 12,530 Provision for taxation 249,939 206,311 Profit after tax 508,490 400,280 Balance of profit from previous year 1,021,702 853,457 Amount available for appropriation 1,530,192 1,253,737 Proposed dividend for the year 2010 128,768 100,994 Interim Dividend paid Nil 63,121 Dividend distribution tax thereon 21,387 27,892 General reserve 50,849 40,028 Balance carried to next year 1,329,188 1,021,702 SHAREHOLDING OF THE PROMOTER GROUP During the year, Abbott Capital India Limited (ACIL) (the acquirer, a U.K. based indirect subsidiary of Abbott Laboratories), had made an open offer vide Letter of Offer, to acquire fully paid-up equity shares representing 20% of the paid-up equity share capital of the Company. The offer was over- subscribed. Pursuant to the said open offer, ACIL acquired 1,009,942 (20%) shares on May 24, 2010. The number of shares/voting rights held before the acquisition (which represents shareholding of Solvay Healthcare Limited (now known as Abbott Healthcare Products Limited) and British Colloids Limited which are indirect subsidiaries of Abbott Laboratories, U.S.A.) was 3,476,634 (68,85%) equity shares. Thus, the Aggregate promoter shareholding of the Company is now 4,486,576 (88.85%) equity shares. Abbott Laboratories, U.S.A. have many direct and indirect subsidiaries. The Complete list of the constituent entities of Abbott Laboratories is part of Abbotts Annual report, For further information on Abbott Laboratories, please visit the corporate website www.Abbott.com. DIVIDEND The Directors are pleased to recommend payment of dividend of Rs. 25.50 (255%) per share. SIGNIFICANT DEVELOPMENTS 1. During the year the Companys turnover registered a healthy growth of 22% and crossed the 300 Crores mark turnover. 2. The Company introduced two new products Solfe(TM) an Iron supplement and Acuvert(TM) an anti-emetic and anti-nauseant, during the year. 3. On February 15, 2010 Abbott Laboratories closed its acquisition of Solvay Pharmaceuticals Global business, 4. On May 24, 2010 Abbott Capital India Limited (the Acquirer) a Company incorporated in United Kingdom and Abbott Laboratories, a Person Acting in Concert, acquired 20% of the Paid-up equity Share capital of the Company through open offer. 5. The Board of Directors of the Company, at their meeting held on November 24, 2010, had unanimously approved the draft scheme for the amalgamation of the Company into Abbott India Ltd., under Sections 391 to 394 of the Companies Act, 1956. The swap ratio for the merger is 2 : 3, In other words, every two shares of the Company will entitle their holder to three shares of Abbott India Limited. MANAGEMENT DISCUSSION AND ANALYSIS The business of the Company continues to be pharmaceuticals, its only segment of business. a. Industry structure and developments In the last two years, though most of the matured economies were adversely impacted by Global recession there was hardly any impact on Indian economy. It is expected to grow by 8.5% in 2011. Considering present scenario, the growing inflation, high fiscal deficit level, infrastructure constraints, downward trend in foreign direct investments, might affect the growth trajectory of the economy in the near future, The year 2010 was second successive year of strong growth of 16,5% for the Pharmaceutical Industry, It is now the third largest in the world in terms of volume and stands 14th in terms of value, To ensure sustained growth serious initiative are necessary to develop healthcare infrastructure for rural masses on the part of both Government and Pharma Industry b. Opportunities and threats Looking healthier on a strong dose of global alliances, Indian Pharmaceutical and healthcare sectors have repeatedly hit headlines this year on account of mergers and acquisitions, Our company was also part of those headlines. These may well be steps towards the bigger role Indian Pharma and healthcare sector seek globally in the coming years, The domestic market which is currently growing at the rate of 16+ per cent is expected to accelerate further in the coming times. Both the market segments, Acute and Chronic, are showing a healthy growth, though there is a clear trend of moving towards chronic therapies, Similarly, preventive medical care is getting increasing importance, and hence, Vaccines have emerged as one of the most lucrative segments of the industry. The domestic vaccine market has recorded a growth of 15% in the last fiscal year and is expected to grow 15-20% over the following years. The Pharma Industry in India also face challenges from factors like effects of new product patent regulations, drug price control, regulatory reforms, infrastructure development, quality management and R&D productivity. The challenge of counterfeit and spurious drugs is still daunting and remains effectively unresolved. On the broader regulatory horizon, the imminent major events like introduction of GST, new Direct Tax regime as also the Companies Act modifications are certain to pose a challenge to all the industries, Pharma included. c. Companys Performance The Company achieved sales of Rs. 302 crores in 2010. The sales for the year showed a healthy 22% growth over last year. During the year the Company introduced two new products SolfeTM an Iron supplement and AcuvertTM an anti-emetic and anti-nauseant. During the year 2010 all the products of the Company performed well. Duphastonr maintained the 1st rank contributing 23% of the total Company turnover. Personal costs and other expenses showed an upward trend from the previous year on the parameter of % to sales, Personal costs to sales ratio showed an increase of 0,4%-points over the previous period mainly driven by the expansion of the sales force while other expenses as a percentage to sales went upto 23,5% from last periods 19.9% mainly owing to higher marketing spending and to a lesser extend owing to merger process. As the exchange rates improved in favour of the company, the manufacturing costs to sales were lower as compared to the previous period costs to sales ratio. d. Outlook The Company continues to lay emphasis on sustainable growth through ethical means, While there is an element of uncertainty in the economy and business, the Companys endeavor is to accelerate operational growth in line with the industry growth both in terms of turnover and profitability, A stable and growing urban demand coupled with the unexploited market potential, especially in the rural markets, which we will try to tap in the coming years, bodes well for the future of the Company. e. Risks and Concerns Pricing pressures because of greater-than-expected increase in competition could challenge the profitability of the Pharma companies. This would remain a key risk factor for future margins. Regulatory issues can also have an impact, mainly regarding approvals for new products. The risk due to uncertainties of the future policy of the government on drug pricing, drug policy changes or revision of price controlled drug list remains. f. Internal control systems and their adequacy The Company follows a robust internal control system which helps to safeguard the Companys assets against losses of unauthorized use and improper handling. The Companys internal control and standard operating processes built in its operations are supplemented by an equally strong outsourced internal audit firm which is empowered to assess the adequacy and compliance of the internal controls systems, statutory requirements etc, The internal audit work is assigned to a well established and experienced firm, who conducts the internal audit on the basis of the areas of audit and schedule, finalized by the Audit Committee. The internal auditors submit their reports to the Audit Committee which recommends the control measures to be followed by the Company from time to time. g. Material Developments in Human Resources The Company believes in creating a work environment in which people will choose to be motivated, contributing and happy. Fostering effective methods of goal setting, communication and empowerment through responsibility, builds employee ownership of the organization. The Company establishes the organizational culture and climate in which people have the competency, concern and commitment to serve customer well. The initiatives are designed at large to ensure employee satisfaction and its philosophy revolves on recognizing the human resource as the greatest asset of the organization. The total number of employees as on December 31, 2010 was 559. FOREIGN EXCHANGE EARNINGS AND EXPENDITURE Foreign exchange earnings and outgo are provided in Item Nos. 10, 11 and 12 of the Notes forming part of the Accounts under Schedule 15, RESEARCH AND DEVELOPMENT (R & D), TECHNOLOGY, ABSORPTION, ADAPTION AND INNOVATION AND ENERGY CONSERVATION Since the manufacturing activities of the Company are carried out by different parties on loan license basis, the relevant disclosures required under Section 217(l)(e) of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988, are not applicable. DIRECTORS Mr. D. G. Rajan retires by rotation and being eligible, offers himself for re-appointment. Mr. S. N. Talwar also retires by rotation and being eligible, offers himself for re-appointment. AUDITORS Messrs. Deloitte Haskins & Sells, Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting. The Company has received a certificate from them to the effect that their appointment, if made, would be within the prescribed limits under Section 224(1-B) of the Companies Act, 1956, Accordingly, the said auditors are proposed to be re- appointed as auditors of the Company at the ensuing Annual General Meeting. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000, the Board of Directors, on the basis of statements made by the management, confirms that: (a) In preparation of the annual accounts the applicable accounting standards have been followed; (b) Appropriate accounting policies have been consistently applied and have made judgments and estimates that are reasonable and prudent, to give a true and fair view of the state of affairs of the Company as on December 31, 2010 and of the profit of the Company reported for the year under report; (c) Proper and sufficient care has been taken for the 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; (d) The Annual Accounts are prepared on a going concern basis. CORPORATE GOVERNANCE The Company has been consistently practicing the principles of good governance in letter and spirit over the years. A separate section on Corporate Governance is given separately in the Annual Report and a certificate from the Auditors of the Company regarding compliance of the conditions of Corporate Governance as stipulated under clause 49 of the listing agreement with the Bombay Stock Exchange Limited form part of this report. The Company continues to be committed to ethical values and self discipline directed at sustaining stakeholders interest and overall organisational goals. CAUTIONARY STATEMENT The statements forming the part of the Directors Report may contain certain forward looking statements within the meaning of applicable securities laws and regulations. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking statements. ACKNOWLEDGEMENTS The directors express their appreciation of the contribution by all employees of the Company and also the Unions for their co-operation and understanding. They also place on record their appreciation of the support by shareholders, the medical fraternity, vendors and other business associates. For and on behalf of the Board Niteen B. Gadgil D.G. Rajan Managing Director Director February 10, 2011. Registered Office: 271, Business Park, 6th & 7th floors, Model Industrial Colony, Off. Aarey Road, Goregaon (East), Mumbai-400 063,