Take Solutions Ltd Management Discussions.

Global economic overview

Following growth of 3.8% in 2017, the global economy slowed in the second half of 2018, reflecting a confluence of factors affecting major economies like the failure of Brexit negotiations, tightened financial conditions, geopolitical tension and higher crude oil costs. As a result, the global economy grew around 3.6% in 2018 and is projected to grow at 3.3% in 2019. Crude prices remained volatile since August 2018 as a result of multiple factors including the American policy pertaining to Iranian exports and softening global demand. Oil prices dropped from a four-year peak of USD 81 per barrel in October 2018 to USD 61 per barrel in February 2019.

Economic confidence and sentiment indicators in the United States of America are near historical highs. The impact of ongoing trade disputes on the domestic economy has been offset by major fiscal stimulus measures introduced in 2018, including a 200 bps drop in income tax rates, steep decline in the corporate tax rate and a rise in federal government consumption spending, especially on defence. This has supported strong jobs growth and buoyant economic activity. The expansionary fiscal stance accelerated the pace of interest rate rises by the United States Federal Reserve, sparking episodes of turbulence in the global financial markets and asset price adjustments.

Indian economic overview

India emerged as the sixth-largest economy, retaining its position as the fastest-growing trillion-dollar economy. After growing 7.2% in 2017-18, the Indian economy grew at 6.8% in 2018-19. The principal developments comprised a sustained increase in per capita incomes, decline in inflation, steadying interest rates and weakened consumer sentiment starting from the second half of the financial year. In 2018, the country attracted more foreign inflows than China - ~USD 38 billion, higher than Chinas USD 32 billion. India witnessed a 23-notch jump to a record 77th position in the World Banks latest report on the Ease of Doing Business that captured the performance of 190 countries. The commencement of the US-China trade war opened a new opportunity for India, particularly in the agro sector. Inflation (including food and energy prices) was pegged at 2.6% on an annual basis, one of the lowest in years. The rupee rebounded after touching a low of H74.45 to a dollar to close the financial year at H69.57. During the fiscal under review, the Indian Government continued to invest deeper in digitisation, renewable energy capacity generation and infrastructure building.

Outlook

Assuming no major global and domestic political shocks, Indias markets are expected to perform better due to a projected earnings revival in 2019. (Sources: CSO, Fitch, Economic Times, Business Standard, IBEF, Business Today, India Today)

Global pharmaceutical industry

According to the Global Use of Medicines report from the IQVIA Institute for Human Data Science, the global market for pharmaceuticals reached USD 1.2 trillion in 2018, up USD 100 billion from 2017. The market is expected to exceed USD 1.5 trillion by 2023, growing at a CAGR of 4-5% over the next five years. The overall share of Gross Domestic Product allocated to health is expected to be at 10.5% for the year 2019. Increasing research and development expenditures, relatively declining approvals related to new drugs and decline in research and development efficiency are emerging issues. In 2018, the US spend was USD 485 billion which is 5.2% more than the previous year. It is expected that US spending would be around USD 625-655 billion, representing a 4-7% CAGR over five-year period. US is going forward with a number of product launches, offsetting the loss of exclusivity related to many new drugs.

The spending on therapies in Japan totaled USD 86 billion in 2018, but this spending is expected to decline by -3 to 0% on a constant dollar basis but grow by about 1% on a variable dollar basis through 2023. The largest growth drivers are expected to comprise a shift in spending to specialty drugs, including oncology medicines and an aging population.

United Kingdom is a major exporter of the pharmaceutical products. Pharmaceutical sales are rising around 5% annually. It is expected that all the developed countries will show slower growth over the next five years than in the past five.

Global pharmaceutical spending is expected to surpass overall healthcare spending. Global prescription drug sales are expected to rise from USD 900 billion to USD 1.2 trillion by 2024. The main challenges that are faced by this industry include payer scrutiny, sales losses due to genericisation and competition from biosimilars. In 2019, around USD 19 billion in prescription sales could be at risk due to patent expiries with approximately half resulting in lost sales.

[Source: IQVIA Institute for human data science; Deloitte]

Biotech

Biotechnology product offtake is expected to contribute steadily to sales. Sales are expected to rise to 52% of the top 100 product sales by 2024 from 49% in 2017. By the end of 2019 it is expected that biotech could represent around 27% of the global market and 31% by 2024.

Orphan drugs, next generation cell and gene therapies

By 2024, the orphan drugs sector is expected to almost double and account for 20% of prescription sales. The first two CAR-T immunotherapies, as well as a novel gene therapy targeting a disease caused by mutation in a specific gene received US Food and Drug Administration approval in 2017. These therapies received Priority Review, Breakthrough Therapy, and Orphan Drug designations, demonstrating the FDAs commitment to expediting the development and review of these groundbreaking treatments. Cellular and gene therapy-related research and development are expanding in United States and China, where hundreds of trials are underway. In 2019, safety, efficiency and costs are expected to be challenging. About 10% of prescription drug spending is on orphan indications, or about 1% of approximately USD 3.7 trillion in US health care spending for 2018.

Biosimilars

Biosimilars have been on the market in Europe for more than a decade. Europe approved around 65 biosimilars and India has over 50 approved biosimilars on the market. United States made its first approval in 2017. To develop the biosimilars segment, FDA is accelerating the approval process through its biosimilars Action Plan launched in July 2018. The World Health Organization (WHO) is harmonizing global standards for biosimilars. In 2017, it launched a pilot prequalification program for biosimilars to make expensive treatments for cancer more widely available in low- and middle-income countries.

Generics

Governments worldwide are attempting to boost access to affordable medicines. From 2018 to 2024, USD 251 billion in drug revenues are at risk from patent expiries with established pharma giants unlikely to compete adequately with generics. United States: The country accounts for the largest generics market. Generic drugs accounts for a majority of pharmaceutical sales. Some companies and hospitals are partnering and manufacturing their generics due to shortage and high drug costs. In 2019, generic drug shortages are likely to continue due to issues related to manufacturing quality and capacity. Europe: The European Medicines Agency is clearing marketing approvals for innovative drugs and generics faster.

India: India accounts for approximately 20% of the global generics output; generic drugs account for three-quarters of the Indian market by volume. Local production of generic drugs and vaccines keeps prices low, while Indian companies take advantage of low labor and research costs to export generics.

Japan: Japan targets to achieve around 80% market share of generics by September 2020. The government is encouraging Japanese companies to develop generic drug production facilities in lower-cost Asian countries.

Latin America: Governments are focusing more on spending on generics. Latin America is also seeking to restrict the import of expensive medicines.

Therapeutic focus

Oncology is expected to remain the dominant therapy segment. It has been estimated that this segments sales have grown to USD 129 billion and expected to reach USD 233 billion by 2024. Immunosuppressants are expected to report the highest CAGR gain during this period (2017–2024) at 15.7%, followed by Dermatologicals (13%), Oncology (12.2%) and Antianemics (11%).

Personalized medicine

The global personalized medicine market is expected to increase over 11% CAGR for the period 2017-2024. The most pressing challenges for personalized medicine are reimbursement, clinical utility, data connectivity and access. Around 30% of personalized medicine is focused on oncology. [Source: Deloitte]

Indian pharmaceutical industry

India is the worlds tenth largest pharmaceutical market in US dollar terms. Private expenditure is the main growth driver for this industry. The increased use of online pharmacies is creating a demand for advanced and expensive medicines among Indias growing middle-class.

Life Sciences industry

Digitization has influenced most industries. The healthcare, pharmaceutical, biotech life sciences research industry are embracing new e-business models following impressive progress in utilizing e-commerce tools.

Big data analytics applied to large, complex healthcare databases can provide critical information. Artificial intelligence uses smart algorithms to analyze datasets. Machine learning is a subset of artificial intelligence and goes further by using self-learning algorithms to refine the way big data is analyzed.

Application of Artificial Intelligence and Machine Learning is expected to address complexities. Their application could increase sensitivity around the use of personal health information of patients, data security, patient privacy as well as the ownership and custody of data (handled differently in different countries).

Over the next five years, Life Sciences companies could increase their use of digital technologies and deep learning programs to assess preclinical compounds, identify potential targets based on real world data and drive efficiency in clinical development.

Most companies are leveraging AI in the discovery of new drugs. A number of pharmaceutical companies are entering into strategic alliances with AI-driven companies to explore opportunities and are equally active in growing internal AI capabilities. AI is implemented at each stage of the safety value chain to improve quality and compliance. AI in the pharmaceutical industry is transforming processes from the initial R&D level to after consumption.

Company overview

TAKE Solutions began its journey in 2000, with a team of 20 founding members to 1,595 members today, with 100% core leadership team still part of the team. TAKE Solutions is a publicly listed company on the Bombay Stock Exchange and the National Stock Exchange, the only listed technology-driven Clinical Research Organization in India. The Companys operations are spread across North America, Europe, Asia and South America. TAKE Solutions delivers domain-intensive services in Life Sciences and Supply Chain management. In the fast-growing Life Sciences space, TAKE Solutions offers clients a unique combination of full service Clinical, Regulatory and Safety services with unique technology expertise. The Companys services span clinical trials to regulatory submissions to post-marketing strategy with insights derived through proprietary industry network forums. The Companys team of experts in Life Sciences help deliver successful outcomes for global clients in large and small innovator biopharmaceutical companies and generics manufacturers.

The Company continued to expand its global reach as it recently acquired Dataceutics Holdings Inc and KAI Holdings Inc. KAI Holdings Inc was absorbed under Navitas Inc. while Dataceutics Holdings Incs business was taken over under TAKE Innovations Inc. (to function as a Data Science company). The acquisition of these entities, which already have established business in the Life Sciences domain, would strengthen the Companys global delivery capabilities.

In the business of Supply Chain Management, TAKE Solutions focuses on high-margin niches in engineering services and supply chain collaboration. The Companys IP-led approach enables clients to automate supply chain processes, track, trace and control at the item level, mandate supplier compliance and streamline material shipment movement.

Business highlights Life Sciences

TAKE assists drug companies in bringing their products to the market and maintain drugs throughout their market life cycle. The Companys client base comprises innovator and generic pharma companies as well as biotechnology companies. The Companys services comprise support for clinical trials to enabling regulatory submissions to executing post-marketing safety initiatives. All services and solutions are backed by insights derived through proprietary industry network forums and more than 16 years of benchmark data. At present, 92.23% of the Companys revenues are derived from Life Sciences. The Company acquired Ecron Acunova in 2016 and this acquisition is expected to create an addressable market of around USD 40 billion by 2020.

The Company has completed around 1,000+ successful Bioavailability / Bioequivalence studies. The Company runs 10 proprietary life sciences industry networks with 120+ members having subscribed to these network forums. Eight unique technology IPs have so far been introduced tailored for life sciences. Capacity was expanded by moving to larger facilities in Princeton and Bangalore. Bioanalytical facilities at Bangalore and Manipal successfully passed USFDA inspections with no observations.

Clinical trials

Clinical trials are medical research studies performed on individuals and aimed at evaluating medical, surgical or behavioral intervention. These trials represent the primary means through which researchers appraise if a new treatment is effective with less harmful side-effects than the standard treatment.

Other clinical trials test ways to trace disease before symptoms. A clinical trial also seeks ways to make life better for people suffering from life-threatening diseases. Before the U.S. Food and Drug Administration (FDA) approve a clinical trial to begin, scientists perform laboratory tests and studies on animals to test a potential therapys safety and efficacy. Only when these studies indicate favourable results does the FDA provide an approval for the intervention to be tested on humans. Around 34.82% of the Companys Life Sciences revenues are derived from clinical trials. TAKE Solutions Enterprise conducted Clinical Trials for the first stem cell product in India. The Company invested in three clinical pharmacology units comprising 204 beds to conduct clinical studies for generic companies. These bed facilities in Mangalore, Manipal and Chennai help conduct generic drug studies in addition to a state-of-the-art analytical lab in Bengaluru.

By the close of the last financial year, the Company had performed around 400+ successful clinical trials. The Company is still at a development stage in the clinical trial business where it is investing in assets upfront with the prospect of generating follow-on revenues. The Company is strengthening global delivery capabilities. It is capitalizing on global cost arbitrage opportunities: it is getting work done out of low-cost geographies, while billing is completed in a profitable geography. This model maximizes the profits while globalised processes ensure a standard quality of deliverables, irrespective of the geography from which they are delivered.

Regulatory Submission business

The Companys IP-backed technological platforms complement the Regulatory Submission business. With close to 6.13% for 2012-19 of USFDA regulatory submission being our market share of business in the recent past and with over 90% of continuing clientele, the Company foresees a promising future in this line of business.

Safety

Along with the increasing maturity and evolving global regulations, Life Sciences companies need an effective pharmacovigilance (PV) system to address the requirements and mandates of regulators and markets.

Supply chain management

The Companys Supply Chain business includes clients from the technology, consumer packaged goods, oil and gas and automotive sectors. The Company provides functional services and software solutions related to enterprise mobility, material tracking, value chain collaboration, business services sourcing, global trade management and engineering design. The three parts of the Companys Supply Chain Management business comprised a 100% owned unit in the US, joint venture in the Middle East (the WJ Towell Group in Oman) and joint venture in India with APA Engineering. The Company successfully exited the first two and is seeking a suitable transaction for the third. The Company enjoys a sound relationship with its joint venture partners, maintaining complete transparency of strategic imperatives and seeking mutually acceptable solutions. APA Engineering Private Limited is the Companys supply chain management joint venture in which it acquired 58% stake in 2006. The business is profit-making, debt-free business with cash surplus marked by healthy dividend pay-out.

Engineering services

The Companys engineering services (engineering, sourcing and technology) help clients design and build quality products, benefit from a global smart sourcing platform and transform businesses through the latest technologies.

Financial review

The financial statements of TAKE Solutions Ltd and its subsidiaries (collectively referred to as ‘TAKE or the ‘Company) are prepared in compliance with the Companies Act, 2013 and Indian Accounting Standards (Ind AS). Details of Significant Accounting Policies used for the preparation of the financial statements are presented in the notes to the consolidated financial statements appended later in this Annual Report. The discussions below relate to the Consolidated Statement of Profit & Loss for the year ended March 31, 2019 and the Consolidated Balance Sheet as at March 31, 2019. The consolidated results are relevant for understanding the financial performance of TAKE, which has global operations and a significant presence outside India.

Results of operations

The Company continued to focus in the niche segment of Life Sciences for long-term growth and margins. The five-year financial summary of the Company is provided below:

In Rs million
PARTICULARS FY19 FY18 FY17 FY16 FY15
OPERATIONS
Income from Operations 20,390 15,872 13,446 10,301 7,304
Operating EBITDA 3,835 3,065 2,622 2,133 1,494
Net Profit/ (Loss) for the period after Minority Interest 1,773 1,605 1,431 1,197 699
Basic Earnings per Share 12.13 12.19 11.22 9.97 5.82
Diluted Earnings per Share 12.09 12.15 11.19 9.85 5.82
FINANCIAL POSITION
Working Capital (excluding Bank borrowings) 8,832 10,310 6,319 4,576 4,168
Total Assets 23,339 18,436 13,727 12,150 9,224
Total external borrowings 4,739 3,226 2,372 3,358 2,085
Trade Receivables 5,254 4,692 4,362 3,013 2,405
Unbilled Receivables 1,779 629 700 556 355
DSO Days (TR + UBR) 126 122 137 126 138
Shareholders Equity 15,182 13,283 9,109 6,378 5,244
OTHER DATA
Net Fixed Assets excluding Goodwill 5,948 3,151 2,715 2,167 1,693
Goodwill on Acquisition 3,063 764 680 733 183
Goodwill on Consolidation 2,315 2,396 2,354 2,555 1,875

The Company crossed H20,000 million in revenues during the year under review to reach H20,390 million, a 28.46% year-on-year growth in rupee terms and a 18.57% growth in dollar terms. The Company reported unadjusted EBITDA of H3,942 million and adjusted EBITDA of H4,280 million. The unadjusted EBITDA grew 25.99% year-on-year, while the adjusted EBITDA (operating) grew by 36.79% year-on-year.

Revenue by segment

Revenue from the Life Sciences segment continued to report strong growth – by 34.49% from H13,982 million in FY18 to H18,805 million in FY19. In USD terms, revenue from Life Sciences grew 24.13% in FY19 year-on-year. The Supply Chain management business of the Company reported 16.14% de-growth from H1,890 million in FY18 to H1,585 million in FY19. This was on account of divestment of the US and Middle-east businesses during the year.

Revenue by vertical (H million)

Segment FY19 FY18 Change (%)
Life Sciences 18,805 13,982 34.49%
Supply Chain 1,585 1,890 (16.14%)

Revenue by geography

US continued to drive revenues, accounting for 83.60% of the Companys revenue in FY19 (80.10% in FY18), followed by Asia-Pac and Europe. The Company reported H836 million of revenues from Europe, a 19.46% de-growth from FY18, which was primarily on account of the restructuring activities in the region. Revenue from Asia-Pac grew 17.86% over FY18 to H2,508 million in FY19.

Revenue by geography (H million)

Geography FY19 FY18 Change (%)
USA 17,046 12,707 34.15%
Asia-Pac 2,508 2,128 17.86%
Europe 836 1,038 (19.46%)

Cost analysis

Total cost during the year grew 30.47% from H14,057 million in FY18 to H18,341 million in FY19. Total cost as a proportion of income grew 128 bps from 88.20% in FY18 to 89.48% in FY19. Direct Costs are those that are required to be incurred for purposes of completing the contractual obligations entered with customers - Employee and Contracted Resources compensation costs as well as technology licenses, subscriptions and such related costs necessary for the delivery of contracted services. As such, direct costs are closely correlated to revenue growth. Total direct cost in absolute terms increased from H4,567 million in FY18 to H5,740 million in FY19 owing to growth in business (28.46% revenue growth in FY19).

Particulars FY19 FY18
Amount (H million) % of Total Income Amount (H million) % of Total Income
Employee Costs 5,916 28.87% 4,467 28.03%
Other Direct Costs 5,740 28.00% 4,567 28.66%
TOTAL DIRECT COST 11,656 56.87% 9,034 56.69%
SGA expenses 4,899 23.90% 3,773 23.68%
Amortization of Capitalized Software Costs 966 4.71% 662 4.15%
Depreciation 569 2.78% 380 2.38%
Finance Expenses 250 1.22% 208 1.30%
TOTAL COST 18,341 89.48% 14,057 88.20%

Employee cost

The Companys employee benefits cost increased 32.44% from H4,467 million in FY18 to H5,916 million in FY19 owing to an increase in employees, salary increments and bonus. As a percentage of total cost, employee cost was 28.86% in FY19 against 28.03% in the previous year.

Depreciation

Depreciation and amortization expense for the Company increased 47.46% from H1,041 million in FY18 to H1,535 million comprising 7.49% of the income in FY19 compared to 6.53% in FY18. While write-off of purchased intangibles and tangibles is treated as depreciation, IP developed by the Company is amortized.

Finance cost

Finance cost comprised interest charges on credit facilities availed by the Company as well as the impact of forex rate fluctuations pertaining to interest payments in other currencies incurred by subsidiary companies and related expenses like processing charges. Interest costs increased in FY19 by 20.24%, as it stood at H250 million against H208 million in FY18. The interest coverage ratio remains healthy at 9.62x in FY19 compared to 10.06x in FY18.

While most of the debt obligations of the group are denominated in USD, the income from investment of funds (other income) is in INR, resulting in the slight dip in interest cover as at year end.

Taxation

Total tax liability for the year stood at H373 million against H281 million in FY18. The effective tax rate for the Company stood at 17.29% during the year under review.

Earnings per share

Following an increase in net profit by 10.49%, the Companys earnings per share decreased marginally from H12.19 per share in FY18 to H12.13 in FY19. While we had a capital infusion at the end of last year, this capital had been put to effective use only by end of this year, resulting in the slight dip in EPS.

Foreign currency transactions

The Company generated substantial part revenues from outside India, especially the USA. The accounting treatment for reporting financial performance and position at the end of the year was in consonance with the requirements of the IndAs. In conformance to this, the Statement of Profit and loss for the year reflected a 8.34% increase in average USD exchange rates over the previous year in Revenues and Expenses. The performance of international subsidiaries was translated at the average USD to INR rate for the current financial year at H69.93 as against H64.54 in FY18. However, on account of a significant natural hedge for risks associated with foreign currency fluctuations by virtue of international operations both in terms of revenues and costs, there was no significant impact on operations.

While conforming to Ind AS in Balance Sheet reporting (requiring reporting at the closing rate on the last date of the year), there would be an impact of about 6.91% increase in closing rates of the Indian Rupee as at March 31, 2019 vis-a-vis March 31, 2018 respectively. The Balance Sheet reported a closing USD to INR rate of 69.57 in FY 2019 as against 65.07 in FY 2018.

Share capital

The equity share capital of the Company comprised 147.93 million equity shares of H1 each as at March 31, 2019. There has been no fresh issue of shares during the FY 19.

Reserves and surplus

Reserves and surplus of the Company increased 14.46% from H13,137 million as on March 31, 2018 to H15,036 million as on March 2019. The increase was owing to increased retained earnings derived on account of superior growth in net profit reported by the Company. Around 51% of the Companys reserves are free reserves which could be used for growth purposes.

Borrowings

Borrowed funds of the Company increased 46.90% from H3,226 million as on March 31, 2018 to H4,739 million as on March 31, 2019 owing to additional borrowing for expanded operations of the Company. Long term borrowing for the Company stood at H576 million as on March 31, 2019 as against H692 million as on March 31, 2018. The Companys net debt-equity ratio stood at a comfortable 0.27 in FY19 compared to (0.01) in FY18.

Working capital

Trade receivables as on March 31, 2019 stood at H5,254 million against H4,692 million as on March 31, 2018, showing an increase of 11.99%. The Debtors cycle increased to 94 days in FY19 from 93 days in FY18. Debtors outstanding for more than six months comprised of 5.01% in FY19 compared to previous years 5.09%. Unbilled Revenue is the quantification of work done but for which the billing milestone/time cycle has not yet been reached. These Unbilled Receivables stood at H1,779 million as at March 31, 2019 as against a mere H629 million as at March 31, 2018. This steep increase is on account of some of our large projects not reaching the billing milestones as at close of financial year.

Current investments of the Company decreased 93.17% standing at H36 million as on March 31, 2019 as compared to H530 million as on March 31, 2018, largely owing to liquidation of the Companys investments in debentures and mutual funds.

Loans and advances increased from H1 million as on March 31, 2018 to H22 million as on March 31, 2019. This increase is largely on account of the assets coming out of the acquisition of Dataceutics Holdings Inc. and KAI Holdings Inc.

The total Current Liabilities increased 74.52% from H4,147 million March 31, 2018 to H7,237 million as on March 31, 2019, owing to increase in working capital facilities and other financial liabilities. The trade payables of the Company decreased from H493 million March 31, 2018 to H143 million as on March 31, 2019 thus implicating a decline of 71.03%.

Cash and bank balance

The cash and bank balance decreased 79.57% as it stood at H696 million as on March 31, 2019 compared to H3,409 million as on March 31, 2018. The unusually large balance of cash and bank balances as at close of last year was on account of the Preferential Allotment of equity in March 2018, which was held as cash as at close of last year.

Ratio Analysis

In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018) (Amendment) Regulations, 2018, The Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector-specific financial ratios. The Company has identified the following ratios as key financial ratios:

Ratio FY19 FY18 Formula
(i) Debtors Turnover 4.10 3.51 Turnover/Average Trade Receivables
(ii) Interest Coverage Ratio 9.62 10.06 EBIT/Interest Expense
(iii) Current Ratio 1.62 2.84 Current Assets/Current Liabilities
(iv) Debt Equity Ratio 0.27 (0.01) Net debt/Shareholders equity
(v) Operating Profit Margin (%) 18.81% 19.31% Operating EBITDA/Operating Revenue
(vi) Net Profit Margin (%) 8.75% 10.07% PAT/Operating Revenue
(vii) Return on Net Worth (%) 12.53% 14.28% PAT/Average Net worth

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios are as follows: a) Current Ratio dropped to 1.62 as at close of FY19 from 2.84 as at close of FY18 (42.98% decline). This was on account of the capital infusion in March 2018, which was held as cash as at end of FY18. This unusual cash position settled down as at FY 19 end, which is reflected in the dip in current ratio. b) Net Debt Equity Ratio has gone up as at end of FY19 from the end of the previous year. This is because of increase in loan funds and simultaneous decrease in cash and cash equivalents during the year.

Cash _ow statement

The cash flow statement comprises cash flow from operations and cash flow from investing / financing activities. The cash flow from operations indicates the health of the core business of the Company. Cash flow from operations has always been positive in the last 10 years, utilised to invest in capex. As a CRO business, the Company needs to invest upfront to generate prospective revenues, similar to any manufacturing business where the infrastructure needs to be built to generate future revenues. The cash flow from investment and financing activities indicate long-term planning. The investment in fixed assets has been largely funded through internal cash accruals. The Company made two capital issues since 2006 - one in 2016 by way of a Qualified Institutional Placement and the other in 2018 by way of a Preferential Allotment of equity to the promoters. The proceeds of these capital issues were used for funding the acquisitions of Ecron Acunova, KAI Holdings Inc and Dataceutics Holdings Inc. The Company invests its cash, which otherwise would have been available as free cash, in growing the business organically and inorganically.

Working capital cycle

Our Trade receivables stands at around 94 days. This is well in-line with the trend observed in other CRO Companies and also consistent with last years closing DSO of 93 days.

The Unbilled Revenue, which is the revenue for which the billing milestone/ time cycle has not yet been reached has seen a steep increase as at end of current year, as compared to end of last year. The working capital of the Company is further pushed-up on account of not seeking large up-front payments for studies (as established competitors do). This is a part of the value delivered to customers, where superior cost-efficiency helps present customers with a compelling value proposition. The Company has also been working on smaller projects marked by relatively low upfront payment. To grow to the level of peers, the Company will have to grow to a scale (expected in the next couple of years) to provide a better control over receivables.

Further, the customers days of payment outstanding (DPO) was around the Companys receivables cycle, validating that clients did not take longer to pay the Company than it took to pay our industry peers.

Dividend

TAKE delivered value consistently to shareholders in terms of wealth creation and dividend payout. The Company declared 100% dividend since FY11, validating the managements commitment to remunerate stakeholders.

The Company declared two interim dividends of 30% each and a final dividend of 40% (total 100%) since FY 13. In FY18, in addition to the usual interim and final dividend, the Company declared a onetime additional dividend of 60% to mark a decade since its going public.

YEAR DIVIDEND
FY09 20%
FY10 20%
FY11 100%
FY12 100%
FY13 100%
FY14 100%
FY15 100%
FY16 100%
FY17 100%
FY18 160%
FY19 100% (proposed)

Risk management

TAKE views Risk Management as an organization wide function with participation from all cross sections of its management, supporting our objective of sustainable growth and generating value for its customers, shareholders, employees and other stakeholders.

Risk Governance: The Board of Directors approves, and acts as the rudder in ensuring focus towards attaining our Organizational objectives. An Executive Director is also the Chief Risk Officer with special focus on identifying, evaluation, mitigation and monitoring of the different classes of risks working closely with business units, supporting functions including Quality & internal audit teams. The Chief Risk Officer reports to the Chairman of the Audit Committee as well as to the Board of Directors on movements in the classification of risks, highlighting significant events, if any. Being a highly regulated industry, there is a culture of risk-awareness further reinforced by appropriate policies & standard operating procedures.

Key risks of the Organization have been classified into Strategic, Operational, Legal & Financial and Compliance Risks. Disruptive Technology offerings, Talent Sourcing & Management, Project Performance, Infrastructure, Information & Data security are key risks to be monitored, alongside the Compliance management that is fundamental to sustainable business.

The Company is in the process of significant transformation, and the Industry itself is dynamic with high innovations in drug development & administration as well as in clinical trial management processes & technologies. This adds to the significance of strategy formulation and execution, as a key area of focus. The Company has clearly laid out strategic goals for the near term as well as the long term, that include financial performance, Market penetration & range of Offerings, differentiated solutions, operational efficiency and Talent Management as key to Sustainability. Operational Risks cover those factors that impact the successful and efficient delivery of services to our customers, and include core operations teams as well as business support functions. These include internal as well as external factors, are addressed by a robust set of policies, procedures, trained personnel and appropriate technology. These aspects are embedded in detailed Standard Operating Procedures, with regular internal reviews by a robust Quality team and Internal Audit team.

Financial Risks include both internal and external factors that affect our financial performance including Capital efficiency, Credit risks and Currency fluctuations. Compliance Risk Management entails ensuring compliance to all regulations relevant to the Life Sciences industry in which we operate as well as the Laws of the countries in which we operate. During the year, we ensured compliance with General Data Protection & Regulation (GDPR) standards mandated by the EU and are EU-US & Swiss-US Privacy Shield Policy Certified. Other highlights for the Year include successful completion of over 95 audits by Regulatory Agencies, Customers, Vendors and Certification Agencies, and an assessment by a Big Four Audit firm, rating the maturity of our information & cyber security processes.

Internal control systems and their adequacy

The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and transactions are authorised, recorded and reported correctly. The internal control is exercised through documented policies, guidelines and procedures that are adequate for our size and scale of our operations. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements and for maintaining accountability of persons. It is supplemented by an extensive program of internal audits conducted by in-house internal audit department. The audit observations and corrective action taken thereon are periodically reviewed by the audit committee to ensure effectiveness of the internal control system. The Audit Committee also interacts directly with the Statutory Auditors and Internal Auditors regularly in dealing with matters within its terms of reference.

Human resources

The Company provides equal opportunities to employees. The Company has created a meritocracy, using a Balanced Scorecard to appraise employee performance. The Company reinforced capabilities through intensive in-house training and job-specific training. As of 31st March, 2019, the Company had 1,595 employees on its payroll.

Cautionary statement

The information and opinion expressed in this report and as well as Directors Report describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in the infrastructure spend in the country, significant changes in political and economic environment in India, volatility in the prices of major raw materials and its availability, tax laws, exchange rate fluctuations, interest and other costs.

THE MANAGEMENTS DISCUSSION AND ANALYSIS CONTAINS CERTAIN "FORWARD- LOOKING STATEMENTS" CONCERNING OUR FUTURE OPERATIONS, PROSPECTS, STRATEGIES, FINANCIAL CONDITION, FUTURE ECONOMIC PERFORMANCE (INCLUDING GROWTH AND EARNINGS), DEMAND FOR OUR PRODUCTS AND SERVICES AND OTHER STATEMENTS OF OUR PLAN, BELIEFS, EXPECTATIONS ETC.

THESE FORWARD LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY WORDS OR PHRASES SUCH AS "AIM", "ANTICIPATE", "BELIEVE", "TARGET", "EXPECT", "ESTIMATE", "INTEND", "OBJECTIVE", "PLAN", "PROJECT", "SHALL", "WILL", "WILL CONTINUE", "WILL PURSUE", "CAN", "COULD", "MAY", "SHOULD","WOULD" OR OTHER WORDS OR PHRASES OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE OUR OBJECTIVES, PLANS OR GOALS ARE ALSO FORWARD LOOKING. THESE FORWARD LOOKING STATEMENTS WE MAKE ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO VARIOUS ASSUMPTIONS, RISKS AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SUGGESTED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE AMONG OTHERS, THOSE SET FORTH BELOW. FORWARD-LOOKING STATEMENTS THAT WE MAKE OR THAT ARE MADE BY OTHERS ON OUR BEHALF ARE BASED ON KNOWLEDGE OF OUR BUSINESS AND THE ENVIRONMENT IN WHICH WE OPERATE. WE CANNOT ASSURE YOU THAT THE RESULTS OR DEVELOPMENTS ANTICIPATED BY US WILL BE REALIZED OR, EVEN IF SUBSTANTIALLY REALIZED, THAT THEY WOULD HAVE THE EXPECTED CONSEQUENCES TO OR EFFECTS ON US OR ON OUR BUSINESS OPERATIONS.