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Updated:20 Sep, 2019, 15:44 PM IST

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Updated:20 Sep, 2019, 16:01 PM IST

Directors’ report

Dear Members,

The Board of Directors are pleased to present their report of the business and operations of your Company along with the audited financial statements for the year ended 31 March 2016.

Business Environment

Growth in GDP for FY 2015–16, as per advance estimates, is expected at 7.6% compared to the previous year’s 7.2%. Headline inflation based on Consumer Price Index was 4.8% in March 2016, vs previous year’s 6.3%. Taking cognisance of these developments, the Reserve Bank of India has been dropping interest rates in a gradual manner, while taking measures to enhance liquidity in the economy.

The Forex reserves have shown growth during the year, an indicator of the confidence of international investors in India. The estimate of fiscal deficit and revenue deficit for 2015–16 at 3.9% and 2.5% respectively also showed an improving trend.

The year saw declining prices of crude oil and its derivatives for the most part. The benefits from such a decline was seen in the cost structure of the Company, though a significant part has been setoff by the adverse movement in exchange rates, which depreciated 6% during the year and price reductions in response to market developments.

All the above factors taken together, point to a favourable business environment for your Company to progress with its growth plans with optimism.

Finance and Accounts

Revenue for the year at Rs. 27,401 million is 8% ahead of previous year, with contribution from all segments. EBITDA from business operations at 3,049 million grew 17% over the previous year. After considering exceptional income and tax, the profit after tax for the year at Rs. 2,021 million showed a growth of 8%, over previous year’s Rs. 1,863 million, mainly on account of improved business performance.

Dividend

Keeping in view the current year’s performance and other relevant considerations, the Board is pleased to recommend a dividend of Rs. 20 per share for the financial year 2015–16, plus a Special Dividend of Rs. 50 per share, compared with the dividend of Rs. 20 per share in the previous year.

Public Deposits

Your Company has not accepted any public deposits during the year, and no amount on account of principal or interest on public deposits was outstanding as on the date of the balance sheet.

Management Discussion and Analysis

Industry structure

The Company is present in Coatings and Specialty Chemicals segments.

The Coatings industry has two main components:

Decorative Paints and Performance Coatings and is served by both organised and unorganised sectors.

Decorative Paints account for a major part of the industry. The main drivers for the growth of this sector have been shortening of the repainting cycle and increased demand from smaller towns. Another important driver for demand of Decorative paints is the new homes backed by easy availability of finance.

Performance Coatings is essentially a B2B business and is technology intensive with a diverse set of growth drivers, which include key customer relationships, sustained focus on R&D and innovation and strong emphasis on selling a solution rather than a product.

In Specialty Chemicals segment, the Company operates in Polymer Chemistry and Surface Chemistry businesses, which cater to oil & gas, personal care and agrochemical industries.

Business Performance

Coatings

Overall market for Coatings faced several challenges from delays in project completion and liquidity issues, with low crude oil prices acting as a cushion. Notwithstanding the difficult market conditions your Company was able to grow its revenue and profit.

Coatings business recorded revenue of Rs. 25,554 million during the year 2015–16, compared to the previous year’s Rs. 24,153 million, a growth of 6%. Profit, however, improved by 18% to Rs. 2,499 million, reflecting impact of cost control and soft input prices partially set off by currency depreciation. Intensity of competition is being addressed by tightening the cost structure and differentiating the Company’s products and services through product innovations and sustainable solutions to customer needs.

Supply security is ensured through a judicious mix of global and local contracts. Global contracts with key suppliers ensure availability as well as competitive pricing for inputs.

Supplier partnership approach with key local vendors ensures business continuity against supply risks and leveraging supplier inputs for innovation pipeline.

Key focus area for the sourcing and technical functions has been localization of raw materials which will provide further impetus to supply security and sustainability. This will also enable structural cost competitiveness and insulation from exchange risks in the long run.

Your Company follows a Risk Management policy under which all material foreign currency exposures are hedged through forward covers, to protect against swings in exchange rates.

Your Company continued to pursue its long–term objectives through investment in strengthening the brands, R&D, distribution expansion and capability building.

Cost reduction and value creation initiatives have been institutionalised in the business processes.

Your Company has acquired a land parcel in Mysuru, Karnataka state, to cater to future expansion requirements.

Your Company will continue to stay focused on growing ahead of the market, with emphasis on serving its consumers through innovative technical solutions and continuous efforts to expand footprint in its areas of strength.

Highlights of different businesses within Coatings segment are given below:

Decorative Paints business continued to focus on building a lean cost structure across functions and capitalize on cost saving opportunities.

Projects business witnessed slow–down in New Build segment, though growth in other areas was encouraging.

During the year your Company has started export of some of its products to countries in South East Asia and South Asia. Your Company is actively pursuing growth opportunities in the mid–tier segment, leveraging its strength in the premium segment.

In pursuance of its core principle on sustainability, doing more with less, the business continued its focus on driving operational eco–efficiency in all manufacturing sites with y–o–y reduction in energy & water consumption and waste generation. Your Company reaffirmed its consumer centric innovation in the super premium category with the launch of Dulux Velvet Touch Diamond Glo & Dulux Weathershield Powerflexx.

Your Company’s flagship brand Dulux retained its status as a SuperBrand, while Dulux SuperCover – Colours of the World, won the product of the year award in the Paints category.

Protective Coatings business provides coating solutions to sectors like oil and gas, infrastructure (such as airports and stadia), power, mining and minerals, among others. Several new products were introduced during the year to cater specialized applications with significant sustainability features, viz., Interzone 1020 ( for use by Coastal Industrial assets using sea water), Resicoat (which can cope with extreme weather conditions and completely solvent–free) and Interchar 1120 (chlorine–free).

Marine Coatings business provides coating solutions for ships, trawlers, supply vessels and coastal fishing boats. The business continued its focus on comprehensive coating solutions to new ship construction, as well as maintenance and repair. Difficult market conditions persisted throughout the year, putting pressure on both volumes and margins. Initiatives to expand into new avenues to propel growth, as well as de–risking were continued.

Powder Coatings business catering mainly to architecture, white goods, automotive and general industry, registered a healthy growth.

Metal Coatings business saw low growth during the early part of the year as domestic steel production was impacted adversely by low cost imports of coated steel. Government initiated measures to curb these low cost imports have partially mitigated the impact.

Vehicle Refinishes business showed positive growth as compared to the previous year, with major contribution from commercial vehicles.

Specialty Chemicals

This segment, consisting of Polymer Chemistry and Surface Chemistry businesses, recorded a turnover of Rs. 1,847 million, compared to previous year’s Rs. 1,117 million, a growth of 65%. The growth is attributable mainly to a change in business model where the Company has taken up the distribution of products sourced from other AkzoNobel units to benefit the Indian customers. Profit from the segment improved by 17% to Rs. 152 million over previous year.

Corporate Governance

A report on Corporate Governance, along with a certificate from a practicing Company Secretary confirming compliance with the conditions of corporate governance, is attached as Annexure I to this report.

Responsible Care / Corporate Social Responsibility

Your Company is committed to conduct its business in a socially and environmentally responsible way for the benefit of all its stake–holders. Planet Possible is your Company’s approach to sustainability, which focuses on creating more value from fewer resources across the whole value chain. It is also about increasing our resource efficiency and working together with both customers and suppliers to develop sustainable solutions for the challenges people face every day.

A Business Responsibility Report in line with the National Voluntary Guidelines on social, environmental and economic responsibilities of business, as notified by the Ministry of Corporate Affairs, Government of India is attached as Annexure II A.

During the year, your Company implemented several CSR initiatives on its own with employee volunteers, as well as in partnership with implementing agencies. Such activities were mainly executed in the areas of health, education, skill development and environment protection. A report on the CSR activities and initiatives undertaken by your Company is attached as Annexure II B.

Conservation of Energy, Technology Absorption and Forex Earnings and Outgo

Your Company continues to use its research and development base to bring consumers new products with improved performance features and products for special applications. Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, pursuant to section 134 of the Companies Act, 2013, are given in Annexure III to this report.

Information Technology

Your Company continues to leverage IT for efficient management of its business operations and enhancing customer experience.

During the year your Company’s sales force has been integrated with a Customer Relationship Management (CRM) application through mobile devices. This has helped the sales team to work more closely with the customers and deliver customized solutions in a timely manner. It has also provided the management with real time information on the progress in the field.

Towards the end of 2015, your Company launched version 2.0 of the award–winning Visualizer app, which includes additional features such as the ability to use the Visualizer on exterior walls. It also has enhanced photo functionality (allowing users to share ideas on social media), scrapbook registration and improved color visualization.

Your Company continued to leverage its access to global ERP solutions to have synergy and cost benefits on the assets and resources, shared across locations and businesses.

Human Resources

Your Company had cordial relations with employees across all locations during the year. Your Company’s Human Resource agenda for the year was focused on strengthening the following key areas:

– harmonisation of employee remuneration system and benefits across businesses,

– building a robust and diverse talent pipeline; and,

– driving greater employee engagement.

The total number of employees on the rolls of the Company as at 31 March 2016 was 1830 (previous year 1792).

Information as per Section 197 of the Companies Act, 2013, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this Report. However, as permitted under the provisions of Section 137 of the Act, the Report and Accounts are being sent to the members excluding the statement containing the said information.

Any member interested in obtaining such particulars may inspect the same at the Registered Office of the Company or write to the Company Secretary for a copy.

Internal Control Systems

Your Company has an effective risk management framework, which helps the Board to monitor the state of controls in key business processes. Your Company has well–established procedures for internal controls, commensurate with its size and operations. The organisation is appropriately staffed with qualified and experienced personnel for implementing and monitoring the internal control environment.

Policy Against Sexual Harassment

Your Company has formulated a policy for the prevention of sexual harassment within the Company. It ensures prevention and deterrence of acts of sexual harassment and communicates procedures for their resolution and settlement. Internal Complaints Committees have been constituted in accordance with the requirements under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, which ensures implementation and compliance with the law. There were no cases/ complaints reported in this regard during 2015–16. A copy of the Policy against sexual harassment is posted on the Company website and available at www.akzonobel.com/in/corporate_governance/ policies.

Related Party Transactions (RPTs)

Your Company enters into various transactions with related parties as defined under Section 2(76) of the Companies Act, 2013 in the ordinary course of business. All the RPTs are undertaken in compliance with the provisions set out in Companies Act, 2013 and the Listing Regulations.

Your Company has a robust process for RPTs and the transactions with Related Parties are referred to the Audit Committee for its approval at the scheduled quarterly meetings or as may be called upon from time to time along with all relevant and stipulated information of such transaction(s).

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company’s website at www. akzonobel.com/in/corporate_governance/policies.

All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm’s length basis. During the year, the Company had not entered into any contract / arrangement / transaction with related parties, which could be considered material in accordance with the policy of the Company on materiality of related party transactions.

Your Directors draw attention of the members to Note 5.15 to the financial statement which sets out related party disclosures.

Loans, Guarantees & Investments

There are no loans given or guarantees issued that are covered under Section 186 of the Act read with the Rules made thereunder. Details of investments made under the said section are covered in Notes 3.9 and 3.12 of the financial statements.

Extracts of the Annual Return

As required under section 134(3)(a) of the Act, read with the Companies (Management and Administration) Rules, 2014, an extract of the Annual return in the prescribed form is attached as Annexure IV.

Directors & Key Management Personnel

Mr Himanshu Agarwal, Wholetime Director, resigned from the Board with effect from 19 August 2015.

Mr Pradip Menon was appointed as a Wholetime Director with effect from 1 February 2016. His appointment and remuneration are subject to approval by the shareholders at the forthcoming Annual General Meeting.

Mr Arabinda Ghosh will be retiring by rotation at the forthcoming Annual General Meeting, and is eligible for re–appointment.

A brief resume of Mr P Menon and Mr A Ghosh, as required under Regulation 36 of the Listing Regulations, is given in the notice convening the Annual General Meeting.

The Board wishes to place on record its deep appreciation of the contribution of Mr Himanshu Agarwal during his tenure with the Company.

Declaration by Independent Directors

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 Act and the Listing Regulations.

Auditors

Statutory Auditors

M/s B S R & Associates LLP will retire as the Auditors of the Company at the conclusion of the forthcoming Annual General Meeting (‘AGM’) and have conveyed that they do not wish to be considered for re–appointment. The Auditors’ Report for the financial year 2015–16, does not contain any qualification, reservation or adverse remark.

The Company had approached M/s Price Waterhouse Chartered Accountants LLP who have conveyed their eligibility and willingness to function as the Company’s Auditors, if appointed. Accordingly, necessary resolution is being placed at the AGM for shareholder approval.

Cost Auditors

In terms of section 148 of the Companies Act 2013, Cost Audit was conducted for the year 2015–16 by M/s. Chandra Wadhwa & Associates, New Delhi. Their report has been filed with MCA within the stipulated time.

The Board has re–appointed M/s Chandra Wadhwa & Associates as the Cost Auditors for conducting Cost Audit for the financial year 2016–17, whose remuneration is subject to the approval of the shareholders at the AGM.

Secretarial Auditors

In terms of section 204 of the Companies Act 2013, a Secretarial Audit was conducted for the year 2015–16 by M/s A K Labh & Co, Kolkata. Their report is appended.

The Board has re–appointed M/s A K Labh & Co, Kolkata to conduct a Secretarial Audit for the financial year 2016–17.

Directors’ Responsibility Statement

As required under section 134 (5) of the Companies Act 2013, the Board states 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 had 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 Directors had prepared the annual accounts 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; and

(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

General

Your Directors state that no disclosure or reporting is required in respect of the following items, as there were no transactions on these items during the year under review:

1. The Company has issued only one class of equity shares with equal rights.

2. The Company has not issued any shares during the year, under ESOPs or Sweat Equity or otherwise.

3. The Company does not have any subsidiary; hence, the question of the Managing Director or Wholetime Directors of the Company receiving any remuneration or commission from any of its subsidiaries does not arise.

4. No significant or material orders were passed by the Regulators or Courts or Tribunals, which could impact the going concern status and the Company’s operations in future.

Cautionary Statement

Some of the statements in this report, describing your Company’s objectives and expectations expressed in good faith, may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results might differ materially from those, in the event of changes in the assumptions/ market conditions.

Acknowledgment

The Directors wish to convey their gratitude and appreciation to all the employees of your Company for their valuable contribution during the year. They also wish to place on record their appreciation of our Company’s customers, shareholders, investors, bankers, agents, suppliers, distributors and other business associates for their cooperation and support.

On behalf of the Board

N Kaviratne CBE

Chairman

13 May 2016

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