About the company Dynamic Pharma Limited (DPL), is a pharmaceutical company established in Pune and having an overall turnover of ₹2,400 Crores in the financial year 2021-22. It is a listed company in India and in the United States of America. DPL has eight manufacturing facilities in various locations in India and four manufacturing facilities outside India. Out of DPL's total revenue, exports to USA constitute 70%. Since DPL's major market is in the USA, it had to obtain approvals from Food & Drug Administration (FDA) before it manufactures or markets any of its drugs in USA. Due to the incidence of COVID-19, the Company's applications for approval of new drugs were pending with the FDA for a long period of time, on account of which the Company is unable to launch new products in USA in recent past. The company has a Risk Management Function headed by its Chief Risk Officer. The function has a team of twenty five people working for all the functions/businesses in an ERM centric environment. The ERM team works independently and the ownership of implementation of Risk management is with the risk management team. Expansion plans of the company During the financial year 2021-22, DPL procured Active Pharmaceutical Ingredient (APIs) aggregating to ₹ 750 Crores by importing from European countries where payments were made in USD. These APIs are predominantly used in the generic medicines for treating patients affected with Oncology, Immunology, Anti-diabetics etc. As a strategic move, DPL's board has suggested to setup an API plant in Cyprus to manufacture & reduce the imports to India from European suppliers. The management team has also evaluated the associated Country and Political risks. The following benefits were noticed: Free trade agreement between India and Cyprus is in force, wherein all the API imports from Cyprus attracts Nil import duty, whereas imports from European countries attracts 16% duty. Cyprus government has extended the following benefits to the project: Leasehold land in an industrial zone for 25 years. Contract labour upto 1500 labourers can be engaged at the Unit. Uninterrupted supply of water & electricity. Permission to have bank accounts outside of Cyprus and no restrictions on repatriation of Funds. However, the following obligations to be complied by DPL were also identified: Labour and environmental laws to be followed. Local suppliers to be used. Insurance cover to be sourced from local insurance companies Create employment opportunities in Cyprus and Expats strength should not increase above 400 at the Unit. Issues emerged at Cyprus Based on the approvals, the management team has initiated the capex projects of setting up the API manufacturing facility in Cyprus. Six months after the start of these major capex projects in Cyprus, the company started receiving multiple whistle blower complaints with respect to misappropriation of funds in capex projects, contracts issued for civil, mechanical & instrumentation works. One of the employees at the project misappropriated cash by an act of Phishing. The contracts were being allotted to the relatives of one of the senior officers in the company. The complaints also included non-payment of salaries on a timely basis to the contract workmen by the contractors. There is no finance head to manage the Cyprus project. All finance related transactions are also handled by the project manager. Other issues faced by DPL The Company was also facing certain delays in receiving payments against the sales made to its US customers. Four of the major customers constituting 20 % of USA sales, have defaulted their payments to the company. In the background of multiple complaints, the Chief Financial Officer (CFO) recommended slowing down the payment towards capex projects in Cyprus. As the Cyprus currency is highly fluctuating compared to US$, the CFO proposed to take Credit default swaps to address the default risks faced by the Company, and sought approval of the Board. In the recent Board meeting, Managing Director has updated the status of the above challenges faced by the company covering USA FDA challenges, New API plant in Cyprus, customer defaults, etc. and invited suggestions for solution. On the date of discussion of the default and intimation to the stock exchange there was a sudden fall in the stock prices of the Company listed on the US & Indian stock exchanges. Being a listed company, the Company is required to comply with the listing agreement norms and include integrated reporting in its annual disclosures. Multiple Choice Questions Choose the most appropriate answer from the given options.