DIRECTORS’ REPORT DEAR MEMBERS, We hereby present the 30th Annual Report of your Company along with the Audited Financial Statements of the Company for the financial year ended 31 March 2015. 2. BUSINESS PERFORMANCE REVIEW During the financial year 2014-15, on a standalone basis, your Company’s revenues stood at Rs. 4,480.37 Million as against Rs. 4,503.36 Million in 2013-14. The Company posted an EBITDA of Rs. 638.37 Million in the financial year 2014-15 as against Rs. 125.26 Million in 2013-14. The Company made a net profit of Rs. 413.07 Million. On a consolidated basis, your Company’s revenue for the financial year 2014-15 stood at Rs. 4,753.23 Million as against Rs. 4,593.06 Million in 2013-14. The Company posted an EBITDA of Rs. 304.56 Million for the financial year 2014-15 as against Rs. 206.29 Million in 2013-14. On a consolidated level, the Company made a loss of Rs. 117.61 Million. A detailed analysis on the Company’s operational and financial performance for the year is covered under ‘Management’s Discussion and Analysis Report’ which forms part of the Annual Report. Animal Health Business • Positive business momentum in key molecules for the regulated markets. • Strong growth in dairy and poultry nutrition business. However, the cattle prescription business was flat during the year. • Successful completion of Vizag project thereby adding capacities to address demand for key molecules in regulated markets. Human API Business • Entered into non-exclusive licensing agreement with Gilead Sciences Inc. to produce APIs of two chronic hepatitis C drugs - Sofosbuvir and Ledipasvir. • Capacity expansion completed at Mangalore for key APIs. Reserch & Development (R&D) Enhanced focus leading to a pipeline of around 30 products under development. Corporate Actions Business overview and outlook During the financial year 2014-15, the Company completed a set of corporate actions with a long term vision of becoming a power-house in global animal health business with a portfolio of niche human APIs. • Acquisition of 60% stake in Provet Veteriner Urunleri Sanayive Ticaret Anonim Sirketi, Turkey through Alivira Animal Health Limited (“Alivira”) towards expediting Company’s foray into global finished dosage markets. Besides a strong foothold in Turkey, the acquisition provides an opportunity to expand in other regulated and semi regulated markets. The acquisition also gives the Company access to over 100 products in multiple dosage forms. • Sale of Specialty Chemicals Business to Songwon Industrial Group, Korea. • Acquisition of Shasun Pharmaceuticals Limited’s stake in Alivira resulting in Company holding 73.30% of equity capital on fully diluted basis in Alivira. On 26 May 2015 the Company successfully raised Rs. 4,000 Million from Qualified Institutional Buyers by way of Qualified Institutions Placement. The Company issued 7,476,635 equity shares to Qualified Institutional Buyers at a price of Rs. 535/- per share including a premium of Rs. 525/- per share aggregating to Rs. 4,000 Million. The Company has completed all corporate actions, which will augur well for our goal to move to profitability in the coming year. There was no change in the nature of the business of the Company during the year ended 31 March 2015. Material changes and commitments affecting the financial position of the Company, which have occurred between the end of financial year and the date of this report The following transactions / proposed transactions occurred between the end of financial year i.e 31 March 2015 and the date of this report: i) Issue of 2,200,000 convertible warrants (1,100,000 convertible warrants on 11 April 2015 and 1,100,000 convertible warrants on 13 April 2015) on preferential basis to Promoter Group Entities/ Non-promoters out of which 1,100,000 warrants have already been converted. ii) Issue of 7,476,635 equity shares to Qualified Institutional Buyers by way of Qualified Institutions Placement in compliance with SEBI Issue of Capital and Disclosure Requirements) Regulations, 2009 on 26 May 2015. iii) Approval of the Board for the consolidation of shareholding in Alivira Animal Health Limited, India, a subsidiary of the Company through proposed acquisition of minority interest by way of issue of equity shares of the Company on preferential basis in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as detailed in point no. 5 of this report. 3. DIVIDEND The Board of Directors of the Company has not recommended any dividend for the financial year ended 31 March 2015. The Company is not proposing to carry any amount to reserves. During the year 2014-15, the Company has transferred unclaimed dividend of Rs. 12,450/- to Investor Education and Protection Fund, as per Investor Education and Protection Fund (Awareness and Protection of Investor) Rules, 2001. 4. SHARE CAPITAL As on date, the authorized share capital of the Company is Rs. 500,000,000/- divided into 50,000,000 equity shares of Rs. 10/- each. The issued, subscribed and paid up equity capital of the Company as on date is Rs. 412,618,260 divided into 41,261,826 equity shares of Rs. 10/- each. During the year ended 31 March 2015, the Company allotted 750,000 and 2,400,000 equity shares of Rs. 10/- each to promoter group entities at a price of Rs. 135.25 per share (including a premium of Rs. 125.25 per share) on 8 October 2014 and 12 November 2014 respectively. Issue of Convertible Warrants (“Warrants”) on preferential basis As on date 3,900,000 Warrants which were issued on preferential basis to promoter group entities are outstanding 5. SUBSIDIARIES As at 31 March 2015, the Company has 10 subsidiaries, out of which 5 companies are wholly owned Subsidiaries and the Company did not have any Joint Ventures/ Associate Companies. Incorporation of Alivira Animal Health Limited, Ireland Alivira Animal Health Limited, Ireland was incorporated on 1 September 2014 as a wholly owned subsidiary of Alivira Animal Health Limited, India. Acquisition of 60% stake in Provet Veteriner Urunleri Sanayive Ticaret Anonim Sirketi, Turkey (“Provet”) Alivira Animal Health Limited, India acquired 60% stake in Provet through its wholly owned subsidiary Alivira Animal Health Limited, Ireland. Provet, a privately owned enterprise is amongst top 5 and the largest local company in veterinary medicines market in Turkey, with a portfolio of around 114 pharmaceutical products, pre-dominantly injectibles. Provet is promoted by Dr. Aydin who has over 28 years of experience in veterinary pharmaceutical business. Consolidation of shareholding in Alivira Animal Health Limited, India The Company has a strategic vision of emerging as a global power house in Animal Health Business. To fast track this strategic vision, the Company re-branded the business with a new entity Alivira Animal Health Limited (“Alivira”). The Company entered into a Joint Venture agreement with Shasun Pharmaceuticals Limited (“Shasun”) to acquire its new state-of-art manufacturing unit at Vizag in March 2014. Further, to meet the funding requirement, Alivira also raised capital from Unit Trust of India Investment Advisory Services Limited A/c Ascent India Fund III (“Ascent”) and Devicam Capital LLP (“Devicam”) through preferential issue/ private placement in April 2014. All these events led to a significant dilution of Company’s holding in Alivira. Given the strategic intent of value creation in Alivira, the Company decided to consolidate its holding in Alivira. On 31 March 2015, the Company acquired the entire equity shares held by Shasun in Alivira, which increased the Company’s holding to 73.30% of the equity capital of Alivira on a fully diluted basis. At the Board meeting held on 30 June 2015, the Board of Directors approved acquisition of entire shareholding by buying out the minority shareholding (i.e., 9,997,941equity shares) in Alivira held by Ascent and Devicam. Post the acquisition, Alivira will become a wholly owned subsidiary of the Company. The consideration towards such acquisition of shares from the minority shareholders of Alivira will be paid by way of issue of 2,827,679 equity shares of Rs. 10 each to Ascent and 757,734 equity shares of Rs. 10 each to Devicam at a price of Rs. 669.10 per equity share through preferential issue (“Preferential Issue”) in compliance with relevant provisions of the Companies Act, 2013 and Chapter VII of the Securities & Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. The preferential issue will be subject to approval of the members of the Company and other statutory/ regulatory approvals. Further the Preferential Issue of 2,827,679 equity shares to Ascent shall be subject to approval of Foreign Investment Promotion Board (“FIPB”). Entities which ceased to be subsidiaries during the financial year ended 31 March 2015 During the year ended 31 March 2015 Vedic Fanxipang Pharma Chemic Company Limited, Vietnam and Elysian Life Sciences (Mauritius) Limited, Mauritius ceased to be subsidiaries of the Company. Accounts of Subsidiaries In accordance with Section 129(3) of the Companies Act, 2013, the Company has prepared a consolidated financial statement of the Company and all its subsidiary companies, which is forming part of the Annual Report. Statement containing salient features of the financial statements of Company’s subsidiaries, joint ventures and associate companies as required in Form AOC-1 is enclosed as Annexure 1 to this Report. Further financial statements together with related reports and information of each of the subsidiary companies of the Company have been placed on the website of the Company www.sequent.in. 6. EXTRACT OF ANNUAL RETURN Extract of Annual Return in terms of Section 92(3) of the Companies Act, 2013 in Form MGT- 9 is enclosed as Annexure 2 to this Report. 7. PUBLIC DEPOSIT During the financial year 2014-15 the Company has not accepted or renewed any public deposits in terms of Sections 73 and 74 of the Companies Act, 2013 and rules framed thereunder. 8. BOARD OF DIRECTORS & KEY MANAGERIAL PERSONNEL As on 30 July 2015 the Board comprises of 5 Directors consisting of 2 Executive Directors, 1 Non-Executive Director and 2 Independent Directors. Chairman of the Board is an Independent Director. Dr. Kausalya Santhanam (DIN: 06999168) was appointed as an Additional Director on the Board of Directors of the Company on 28 October 2014 and members have approved her appointment as a Director and Independent Director at their Extraordinary General Meeting held on 2 March 2015. Mr. Manish Gupta (DIN: 06805265) was appointed as an Additional Director and Managing Director on 12 November 2014 and members have approved his appointment as a Director and Managing Director at their Extraordinary General Meeting held on 2 March 2015. Mr. Manish Gupta was associated with the Company as Chief Executive Officer before joining the Board of the Company. Mr. K R Ravishankar (DIN: 00084908) joined the Board of the Company on 27 April 2007, as Chairman and Managing Director. On 1 November 2013, he became a Non-Executive Chairman of the Company. Mr. K R Ravishankar was liable to retire by rotation at the 29th Annual General Meeting held on 29 September 2014 and due to health reasons, he did not seek re-appointment. Accordingly, Mr. K R Ravishankar ceased to be a Director of the Company with effect from 29 September 2014. The Directors place on record their sincere appreciation and recognition of the valuable contribution and services rendered by Mr. K R Ravishankar during his tenure as a Director and Managing Director of the Company. Mr. Kannan Ramanujam, Non-Executive Director (DIN: 00190637) retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. A brief profile of Mr. Kannan Ramanujam is given in the corporate governance report which forms part of this report. At the Board Meeting held on 30 July 2015 the Board of Directors appointed Mr. Narendra Mairpady (DIN: 00536905) as an Additional Director (Independent Director) with effect from 1 August 2015. As per Section 161 of the Companies Act, 2013 (“the Act”), an Additional Director shall hold office up to the date of next Annual General Meeting or the last date on which the Annual General Meeting should have been held, whichever is earlier and his/ her appointment as a Director of the Company has to be approved by the members of the Company. Further as per Section 149 (4) of the Act read with amended Clause 49 of the Listing Agreement, the Company proposes to appoint Mr. Mairpady as an Independent Director to hold the office for a period of 5 (Five) years from 1 August 2015. Board is of the opinion that Mr. Mairpady fulfills the criteria of independence as provided under section 149(6) of the Act and the Rules framed thereunder and is independent of the management. The Company has received a declaration from him that he meets with the criteria of independence as prescribed under Section 149(6) of the Act. A proposal will be placed before the members at the ensuing Annual General Meeting for the appointment of Mr. Narendra Mairpady and reappointment of Mr. Kannan Ramanujam. Your directors recommend their appointment/ reappointment to the members of the Company. As on date the Company has the following Key Managerial Personnel: - Mr. Manish Gupta – Managing Director (DIN: 06805265) - Dr. Gautam Kumar Das – Joint Managing Director (DIN: 02920990) - Mr. Kannan P R, Chief Financial Officer - Mr. Preetham Hebbar, Company Secretary Mr. Manish Gupta, Managing Director, Dr. Gautam Kumar Das, Joint Managing Director, Mr. Kannan P R, Chief Financial Officer and Mr. Preetham Hebbar, Company Secretary were designated as Key Managerial Personnel on 28 May 2014 in compliance with Section 203 of the Companies Act, 2013 read with rules framed thereunder. The Company has received necessary declarations from each Independent Director that he/ she meets the criteria of independence laid down in Section 149 (6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. Detailed data on composition of Board of Directors, Committees of Board of Directors, Meeting details, charter for each committee and attendance details forms part of the Corporate Governance Report. 9. MEETINGS OF THE BOARD During the year ended 31 March 2015, 11 (Eleven) Board Meetings were held. These meetings were held on 23 April 2014 (2 meetings), 28 May 2014, 18 June 2014, 13 August 2014, 15 September 2014, 8 October 2014, 12 November 2014, 20 January 2015, 11 February 2015 and 2 March 2015. 10. POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION The Directors of the Company are appointed by members at the General Meetings of the Company. As regards the appointment and tenure of Independent Directors, the Company has adopted the provisions of the Companies Act, 2013 read with Clause 49 of the Listing Agreement. The Nomination and Remuneration Committee has adopted a policy namely Sequent Policy on Nomination and Remuneration (“the Policy”) in adherence to Section 178(3) of the Companies Act, 2013 and Clause 49 (IV) (B) (4) of the Listing Agreement as entered with stock exchange. The policy acts as a guideline on matters relating to the remuneration, appointment, removal and evaluation of performance of the Directors, Key Managerial Personnel and other employees of the Company. The policy is enclosed as Annexure 3 to this report. 11. EVALUATION OF BOARD OF DIRECTORS Pursuant to provisions of the Companies Act, 2013, Schedule IV of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Company has formulated a policy called as Sequent Board Performance Evaluation Policy (“the Policy”). Based on this the Company has prepared a questionnaire to carry out the evaluation of performance of every Director including the Independent Directors at regular intervals and at least on an annual basis. The questionnaire is structured to embed various parameters based on which the performance of a Board can be evaluated. Customized questionnaires are formulated for evaluating Independent Directors, Non-Executive Directors, Whole-time Directors, Chairperson of the Board and the Board, as a whole. Based on the Policy the evaluation was conducted by the Company. 12. AUDIT COMMITTEE The Composition of Audit Committee of the Company as on 30 July 2015 is given below: a. Dr. Gopakumar G Nair – Chairman b. Mr. Kannan Ramanujam – Member c. Dr. Kausalya Santhanam - Member Board of the Company has accepted all recommendations given by the Audit Committee. 13. SECRETARIAL AUDIT REPORT Pursuant to the provisions of Section 204 (1) of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s. B.G & Associates, Practicing Company Secretaries to carry out the Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report is annexed as Annexure 4 to this Report. There are no qualifications, observations or adverse remarks in the Secretarial Audit Report. 14. STATUTORY AUDITORS At the Annual General Meeting held on 29 September 2014, M/s. Deloitte Haskins & Sells, Chartered Accountants, (Firm Registration Number 008072S) were appointed as Statutory Auditors of the Company for a period of 5 years from 29th Annual General Meeting till the conclusion of 34th Annual General Meeting. In terms of the first proviso to Section 139(1) of the Companies Act, 2013 (“the Act”), the appointment of auditors shall be placed for ratification at every Annual General Meeting. Accordingly, the appointment of M/s. Deloitte Haskins & Sells, Chartered Accountants, as Statutory Auditors of the Company will be placed for ratification by the members in the ensuing Annual General Meeting of the Company. Pursuant to Section 148(3) of the Act and Companies (Cost records and audit) Rules, 2014, Mr. Girish Kambadaraya, Cost Accountant, has been appointed as the Cost Auditor for the financial year 2014-15. The due date for filing the Cost Audit Reports in XBRL mode for the financial year ended 31 March 2014 was 30 September 2014 and the Cost Audit reports were filed by the Cost Auditor on 22 September 2014. The due date for filing the Cost Audit Reports for the financial year ended 31 March 2015 is 30 September 2015. The Board at its meeting held on 30 July 2015 on recommendation of Audit Committee has appointed Mr. Girish Kambadaraya, Cost Accountant, as the Cost Auditor for the financial year 2015-16 in terms of Section 148(3) of the Act and Companies (Cost records and audit) Rules, 2014 as amended. As per the requirement of Companies Act, 2013 remuneration payable to Cost Auditors shall be placed for ratification of at the ensuing Annual General Meeting of the Company. A proposal will be placed before the members for the ratification of remuneration payable to Mr. Girish Kambadarya, Cost Auditor of the Company for the year 2015-16. 15. AUDIT REPORT There are no qualifications, observations or adverse remarks in the Audit Report issued by the Statutory Auditors of the Company for financial year ended 31 March 2015. 16. PARTICULARS OF EMPLOYEES The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided as an Annexure 5 to this report except the report as per Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. In terms of Section 136 of the Companies Act, 2013 the said report is open for inspection at the Registered Office of the Company during working hours and any member interested in obtaining a copy of the same may write to the Company Secretary at the registered office of the Company. 17. VIGIL MECHANISM / WHISTLE BLOWER POLICY The Board of Directors of the Company at its meeting held on 28 May 2014 has approved the implementation of Whistle Blower Policy namely “Sequent Whistle Blower Policy” (“the Policy”) throughout the Company in order to curb the unethical or improper behaviour/ practices or alleged wrongful conduct or violation of Code of Conduct of the Company or applicable laws, frauds, bribery, corruption, employee misconduct, illegality, health, safety & environmental issues or misappropriation of Company funds or assets within the Company or by the Company. This policy helps in providing a mechanism for personnel to report to the Authority concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. The Policy ensures that strict confidentiality is maintained whilst dealing with concerns and also that no discrimination will be meted out to any person for a genuinely raised concern. The Policy covering all employees, Directors and other persons having association with the Company is hosted on the Company’s website at www.sequent.in. 19. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All the transactions entered with related parties are in the ordinary course of business and on arm’s length basis. Further, there are no materially significant related party transactions with its Promoters, the Directors, the Management, their subsidiaries or relatives etc. that may have potential conflict with the interests of the Company at large. The particulars of material contracts or arrangements with related parties referred to in Section 188(1), as prescribed in Form AOC-2 of the Rule 8(2) of Companies (Accounts) Rules, 2014 is given as an Annexure 6 to this Report. All transactions with the related parties are disclosed in Note 28.2 (B) to the financial statements in the Annual Report. 20. CORPORATE SOCIAL RESPONSIBILITY The provisions of Section 135 of the Companies Act, 2013 were not applicable to the Company for the financial year 2014-15. 21. RISK MANAGEMENT Company has a risk management framework for identification and managing risks. Additional details are provided in the ‘Management Discussion and Analysis’’ report forming part of this Report. 22. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS There are no significant and material orders passed by the Regulators, Courts or Tribunals that would impact the going concern status of the Company and its future operations. 23. DIRECTORS’ RESPONSIBILITY STATEMENT In accordance with Section 134(5) of the Companies Act, 2013, the Board of Directors of your company confirms that: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (d) the annual accounts of the Company have been prepared on a going concern basis; (e) the Directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. (f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 24. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS/ OUTGO AND RESEARCH & DEVELOPMENT The particulars as prescribed under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is enclosed as an Annexure 7 to this Report. Detailed write-up on Research and Development activity also forms part of this annexure. 25. CORPORATE GOVERNANCE The Company has complied with all the mandatory requirements of Corporate Governance specified by the Securities and Exchange Board of India under Clause 49 of the Listing Agreement as entered with the Stock Exchange (“Listing Agreement”).As required by the said clause, a separate Report on Corporate Governance forms part of the Annual Report of the Company. A certificate from the Statutory Auditors of the Company regarding compliance with Corporate Governance requirements as stipulated in Clause 49 of the Listing Agreement also forms part of the Annual Report. 26. MANAGEMENT DISCUSSION AND ANALYSIS Pursuant to clause 49 of the Listing Agreement entered into with the Stock Exchange, Management Discussion and Analysis Report forms part of this Report. 27. EMPLOYEE STOCK OPTION SCHEME The Company has formulated an Employee Stock Option Plan titled ‘SSL ESOP Scheme 2010’ and the scheme is administered through a trust. As on date 700,000 shares have been issued to the trust. During the financial year 2014-15 the Compensation Committee has granted 380,000 options to identified employees, and 60,000 options lapsed due to resignation of employees. As at 31 March 2015, 772,500 Stock options are outstanding. The ESOP scheme of the Company is in Compliance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. Further disclosure under Section 62 of the Companies Act, 2013 read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 and SEBI (Share Based Employee Benefits) Regulations, 2014 is enclosed as an Annexure 8 to this Report. 28. APPRECIATION Your Directors would like to express their appreciation for the excellent support and cooperation received from the Members, Customers, Financial Institutions, Banks, Government Authorities, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Manufacturers and Suppliers to the Company. We would like to place on record our sincere appreciation for the total commitment, dedication, untiring efforts and hard work put in by the employees at all levels of the Company in realisation of the corporate goals in the years ahead. For and on behalf of the Board of Directors Dr. Gopakumar G Nair Chairman Place: Bangalore Date: 30 July 2015 |