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REPORT OF THE DIRECTORS
Your Directors have pleasure in presenting the Annual Report of the Company, together with the audited accounts for the financial year ended on 31st March, 2016.
During the financial year ended 31st March, 2016, the Company achieved net consolidated revenue from operations of Rs. 4634.12 crores as against Rs. 4322.06 crores in the previous year registering a growth of 7.2 %. The profit before depreciation, interest and tax was Rs. 689.87 crores as against Rs. 546.74 crores in the previous year, recording an improvement of 26.2 %. The profit before tax was Rs. 560.85 crores (2014 – 15 : Rs. 404.10 crores) and the profit after tax was Rs. 369.77 crores (2014 – 15 : Rs. 264.70 crores), representing an increase of 38.8% in profit before tax and 39.7% in profit after tax.
MANAGEMENT DISCUSSION AND ANALYSIS PAINT INDUSTRY STRUCTURE AND DEVELOPMENT
Paint industry is classified into two broad categories viz., Decorative and Industrial. Decorative paints include higher end acrylic exterior and interior emulsions, medium range exterior and interior paints, low end distempers, wall putty, wood coatings, cement paints, primers, thinners and putties – accounting for over 70% of the paint market in India and growing at a faster pace than Industrial paints. These are either water based or solvent based. Water based paints (or emulsions) are increasingly preferred by customers because of better aesthetics, durability and environmental reasons and constitute the fastest growing segment.
Industrial paints essentially comprise general industrial, automotive, protective and powder coatings. The Company is present in all these areas. In addition, there are smaller segments such as automotive refinish coatings, coil coatings, can coatings and marine coatings. The Company is present in the coil coatings segment as well, through its joint venture – Berger Becker Coatings Private Limited.
The paint industry continues to outperform the overall GDP growth, mainly because of the continued thrust of the major paint manufacturers to popularise paints and the still relatively low per capita paint consumption of around 2.7 kg in India. However, India has been one of the few countries where there has been a consistent overall GDP growth (at a 5–year CAGR of more than 6%) and an industrial GDP growth (of about 8.5%). These have helped the paint industry to increase its volume. The Company believes that continued urbanisation, with support for the agriculture sector, will continue to provide the right impetus for the industry to perform even better in the future.
Over the previous years (FY 11–12 to FY 15–16), the Company has consistently performed well, as will be evident from the following :
• 5 year CAGR (Compounded Annual Growth Rate) of Revenue: 14.42%
• Identified as one of the top 7 Listed Companies in India in terms of 5 year CAGR of market capitalization (41%) by Forbes India magazine in their 27th May, 2016 edition
• The Company's rank moved from 138 to 120 in Business Today's list of 500 India's most valuable companies of the year, as published in the 8th November, 2015 issue.
While the decorative business continued to be the consistent performer, in the year under review, all the Businesses registered growth. This was possible through individual focus on the strengths of the respective Businesses, introduction of innovative products in all areas, higher sale of value added products, increase of customer base and corresponding enhancement of production capabilities at minimum possible cost, judicious deployment of and reduction in working capital, lowering of borrowing costs and decrease in average borrowing. The Chief Financial Officer of the Company was recognized among the top 30 CFOs in India at the inaugural YES BANK BW–Business World Best CFO Awards, 2016.
In line with the trend in the country, the Company's decorative business constitutes more than 70% of its overall business. All the products of the Company including its flagship brands such as Silk, Weathercoat All Guard and Easy Clean continued to receive support from the customers. Others such as Bison, Butterfly, Walmasta and Luxol HiGloss performed well. The Company introduced domestic floor coating under the name of Weathercoat Floor Protector. Tartaruga Smooth – an elastomeric primer, which can be applied with roller and protects the exterior against cracks – was a new introduction. The new Tech Guard System offers tough protection combined with a pleasing finish with Tartaruga Smooth as base coat and All Guard XP Advanced as top coat, for discerning clientele. In the wood coatings segment, in addition to Imperia, a high polyurethane 2 pack system, the Company introduced Imperia water based luxury polyurethane range for exteriors, interiors and floor coat. In the water–based wood coatings range, Exterior PU has 3 components – Impregnator, Sealer and Top Coat. Interior PU is a single pack system which acts as a multi–coat. Parquet floor coat is a single pack system for wooden floors. All these were received with enthusiasm by the market. The Company's construction chemicals business continued to grow. The Company is in the process of launching paintable wallpapers.
In the previous year, the Company had launched Express Painting™ (XP™) – a hassle free solution for painting houses, which is 40 per cent faster than traditional painting and can be carried out at the same cost. This year, the Company introduced XP Advanced™, with specially formulated paints, for providing better coverage, smoothness and lustre, which are best suited for use with XP™ automatic machines. The XP™ sales include the sale of a large array of tools such as sanding machine, mixer, high pressure washer, auto roller and airless paint sprayer. The services comprise an eco–system of painters, who are trained to carry out the sophisticated application work, dealers and Company trained contractors to offer unique solution to the customers. The services are being rolled out gradually to various areas and the response from the customers has been very positive.
The growth in the Company's General Industrial and Automotive Business fulfilled expectation. Introduction of new shades and products, identification of customer needs and specific resolution of their problems, addition of new customers in the areas of two wheelers, commercial vehicles and other industrial customers as well as development of new customers helped the Business to gain traction. The powder coating business also performed well.
The Company's leadership position in the Protective Coatings Business continued and the Business registered satisfactory growth during the year. The Company has a wide variety of products including chlororubber, epoxies, inorganic zinc products, polyurethane, poly–siloxanes, high temperature resistant coatings, anti–carbonation coatings, road marking, airfield marking, concrete coatings, rebar coatings, heavy duty floor coatings and green coatings. It continues to be the preferred supplier for project related work in all sectors of the economy.
All the factories of the Company operated at a satisfactory level and provided the required support to the Businesses. The operations are continuously fine–tuned to cater to the Businesses, improve processes for savings in time and costs and are benchmarked against best practices across all plants and outside the Company. As a result of these, Pondicherry factory and the Beepee Coatings factory in Vallabh Vidya Nagar (VVN) near Ahmedabad are now also utilised for producing General Industrial and Automotive and Protective Coatings products also. The process time in the plants is continuously reduced through installation of the latest equipment. Steps were taken to improve productivity and reduce wastage at all stages beginning from addition of raw materials to filling of paints and storing the containers in cartons.
There was a declining trend in costs of most raw materials for the better part of the year – attributable mainly to lower crude prices and the lacklustre performance of the international economies, though the raw material prices did not move exactly in tandem with crude. The Company effected decreases in paint prices. However, the prices of major raw materials such as titanium dioxide, phthalic anhydride and emulsion materials have been again on the upswing in 2016. Exploration of alternate sources, informed and intelligent buying and effective negotiation continue to provide savings.
FOCUS AND OUTLOOK FOR 2016–17
The provisions for this year's Union Budget are expected to revive rural consumption, which has been subdued for the past two years primarily due to poor monsoon and untimely rains, with a dampening effect on consumption. Moreover, the move to create unified agricultural market e–platforms should make procurement processes easier and more transparent. Added to these, the permission for 100 per cent FDI in marketing of food products as well as allowing foreign multi–brand retailers to set up food–only retail stores is expected to bring in more investments into the food processing sector, especially the downstream supply chain. All these, together with setting up of smart cities, revival of the MGNREGA Scheme, One Rank One Pension (OROP) Policy and the recommendations of the seventh pay commission, are likely to considerably enhance demand, both in the rural and non–rural markets. Much of the immediate effect will also depend on a better than normal rainfall, as predicted by the meteorological department.
In the long term, with almost Rs. 2,18,000 crores allocated for roads and railways, physical linkages are expected to improve significantly, which will help expand distribution across India, especially in rural markets, and reduce transit losses by improving connectivity. These are supported by a slew of measures to boost up infrastructure including reforms and investments in the areas of smart cities, gas production, nuclear power generation and PPP Projects.
All the above measures are likely to augment demand for paints. To cater to these requirements, the Company will enhance capacity in phases taking advantage of its multiple locations all over India, introduce new products, strengthen servicing capabilities and bolster logistics, distribution and storage capability.
PROJECTS AND EHS
The Company is setting up an integrated paint plant at Naltoli in the Nagaon District of Assam near Tezpur. The initial annual capacity of the plant is currently proposed to be 24,000 KL per annum of water based paints and 13,200 KL per annum of solvent based paints together with corresponding resin manufacturing facility.
In addition, the British Paints Division of the Company is setting up a distemper and putty manufacturing facility in Nalbari near Guwahati with a capacity of 1,200 MT and 6,000 MT per annum respectively.
Both the plants will have the latest environment protection and safety related measures and will commence production in the current financial year.
Emulsions are major raw materials for water based paint. The Company had successfully set up the first emulsion manufacturing plant at Vallabh Vidya Nagar under the aegis of Beepee Coatings Private Limited. In order to furnish emulsion to the Eastern Region plants, the Company will set up an emulsion plant in Rishra, West Bengal. The implementation of the first phase will be completed in the year 2017–18.
The Company has set up a powder coating plant with a capacity of 75 MT/month in Jejuri, near Pune in Maharashtra. The capacity of the powder plant will be increased to 165 MT/month in 2016–17. Further, the Company will set up an industrial paint plant with a capacity of 9,000 KL per annum with resin manufacturing facility in Jejuri by March 2017.
Development of warehouse capabilities in Howrah, Rishra, Jammu, Goa and Vallabh Vidya Nagar Plants are on track.
The Company is proud to receive " GreenPro" certificate from CII–Green Products and Services Council in respect of various water based and solvent based products including Silk, Weathercoat Allguard and Easy Clean. "GreenPro" assesses 'how green a product' is, based on a holistic framework and highlights the way forward to achieve excellence in environmental performance. The certification system guides the manufacturers to position their products as green and eco–friendly. The GreenPro certification system adopts cradle to cradle approach for evaluation, at par with international standards.
The Company's Environment, Health and Safety, (EHS) initiatives encompass year long and sustained activities through all its locations including audits, EHS reporting through web portal, mock drills, competitions and awards. The VVN Gujarat Plant was recognized as the Best Safety Organisation by the Gujarat Safety Council for the 3rd consecutive year. Rishra Plant of the Company ranked 3rd in Inter Plant Mock Drill competition conducted by the West Bengal Directorate of Factories. Various energy saving measures adopted by the Company, including replacement of HSD for thermic fluid heaters by bio–briquettes, are given in Annexure 5 to the Report.
OPPORTUNITIES AND THREATS
Recent data suggest that India's economy ended 2015–16 on a high note and possibly grew at the fastest pace since FY 2010 and the highest in the world. India's economy is the 10th or 11th largest in the world and is forecast to reach third, after USA and China, in less than 15 years. Industrial production rebounded in February and the PMIs signalled improving economic conditions in March. The key to maintaining strong growth momentum going forward lies in enacting meaningful economic reforms including smooth implementation of GST. Rains supporting, the economy is expected to grow over 8% in the current fiscal. The Government aims to reduce subsidies through the JAM (Jan Dhan–Aadhaar–Mobile) initiative, and its actions in improving the transfer of subsidies by plugging leakages may help reduce expenditures and aid long–term fiscal deficit consolidation plans. The interest regime is also conducive for the economic growth now as the Reserve Bank has cut the benchmark interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead earlier this month. According to IMD, monsoon will be 106 per cent of the long period average (LPA) and there is 94 per cent probability that monsoon will be normal to excess this year for most parts of the country. If that happens, agriculture, which contributes about 16 per cent to the country's GDP and employs about 60 per cent of the population, will register a robust performance.
It is estimated that the Indian workforce will grow to 900 million strong by 2020. Because economic growth results from the combination of capital goods, like factories and computer systems, with labour, a growing labour force can be a huge boon for an economy.
The resulting onrush of demand will favourably impact the paint business and the Company has taken all possible steps to meet the same. Growing urbanisation is expected to create an eco–system for aesthetically superior and environmentally more acceptable varieties of water based paints. At the same time, as the world will more and more look towards this country, for their industrial needs, the Company will be ready to face the challenge with improved business intelligence, logistics solutions, better distribution network, manufacturing capacities and services.
RISKS AND CONCERNS
The Company has devised a risk policy approved by the Business Process and Risk Management Committee, Audit Committee and the Board of Directors. The Policy seeks to identify risks inherent in the business operations of the Company and lays down the mitigation methods which are periodically reviewed and modified in a manner commensurate with the size and complexity of the business. The Policy can be viewed at the following weblink : <https://www.bergerpaints.com/about–us/risk–management–policy>. html.
Based on the Policy, the Business Process and Risk Management Committee regularly monitors the various risks facing the Company through a Risk Matrix Mechanism, discusses the risks involved in business processes in detail and steps taken to mitigate the same, covering each of the business processes of the Company in turn.
One of the major components of the risk management system is a secure IT (information technology) environment. Steps have been taken to digitise the Information Technology Infrastructure covering all database and major transactions and secure the data and protect its intellectual property.
India's rise is certainly unlikely to be linear and uniform in an immensely diverse country of 1.3 billion. Close attention is to be paid to infrastructure and a deep skills deficit and care has to be taken to lessen inequality, unrealisable debts and environmental degradation in the long term. Faster, equitable and growth oriented decision making, implementation of the necessary reform measures with simpler legislation and rules coupled with uniform enforcement will be the key to success. Whatever the impediments, the huge wealth generated over the past years cannot be denied and the powerful motors of urbanisation and aspiration are likely to rev at faster gears in the coming years. The performance of the paint industry is always likely to invite more competition – both domestic and international and the Company is always upgrading itself to face such challenges.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Company is committed to ensure that its operations are carried out within a well defined internal control framework. Good governance, robust systems and processes, a vigilant Finance function and an independent Internal Audit function are the foundations of the internal control systems. The Company has an established internal control system, commensurate with its size and spread, with defined guidelines on compliance, which enable it to run its factories, offices and depots with a reasonable degree of comfort. The control environment ensures commitment towards integrity and ethical values and independence of the Board of Directors from the management. The control activities incorporate, among others, continuous monitoring, routine reporting, checks and balances, purchase policies, authorization and delegation procedures, audits including compliance audits, which are periodically reviewed by the Audit Committee and the Business Process and Risk Management Committee. The Internal Audit Department maintains a regular surveillance over the entire operations. The data generated is shared with the Board and various committees, evaluated and corrected and recommendations are implemented.
The Company's Enterprise Resource Management Systems with Standard Operating Procedures based on work flows and process flow charts also provide the backbone on which the various control systems operate. The Company is fully geared to implement any statutory recommendation which may be made in this regard.
INDIAN ACCOUNTING STANDARDS (Ind AS) – IFRS Converged Standards
The Ministry of Corporate Affairs vide – its notification dated 16th February, 2015 has notified the Companies (Indian Accounting Standard) Rules, 2015. Companies having a net worth of Rs. 500 crores or more (as per the standalone financial statements as on 31st March, 2014) are required to comply with Ind AS (Accounting Standards converged with the International Financial Reporting Standards – IFRS) in the preparation of their financial statements for accounting periods beginning on or after 1st April, 2016, with the comparatives for the periods ending 31st March, 2016, or thereafter. In pursuance of the above notification, the Company, its subsidiaries and joint venture will adopt Ind AS with effect from 1st April, 2016. The implementation of Ind AS is a change process for which the Company has established a project team and is dedicating appropriate resources. The impact of the change on adoption of Ind AS on the Company's reported reserves and surplus and on the net profit for the relevant periods is being assessed.
ADEQUACY OF INTERNAL FINANCIAL CONTROLS RELATED TO FINANCIAL STATEMENTS
The Company has policies and procedures for ensuring orderly and efficient conduct of its business, including adherence to the Company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of accounting records and the timely preparation of reliable financial disclosures, which are reviewed by the Board and the Audit Committee from time to time.
EMPLOYEE STOCK OPTION SCHEME
Your Company had framed an Employee Stock Option (ESOP) Scheme for its employees and some of its Directors. The Board had formulated the ESOP Scheme in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the shareholders had approved the ESOP scheme at the Annual General Meeting held on 29th July, 2010 to issue shares not exceeding 5% of the paid up capital of the Company as on 31st March, 2010. In practice, ESOP is granted to employees and whole time Directors. Pursuant to the aforesaid scheme, no fresh options were granted to any employee or Directors during the year under review (2013–2014 : 1,41,945 options and 2012–13 : 1,91,397 options). During the year 2015–16, 1,93,792 equity shares were allotted to 135 employees on exercising their options. This included 6,378 equity shares to Mr. Abhijit Roy, 5,676 equity shares to Mr. Srijit Dasgupta and 3,786 equity shares to Mr. Aniruddha Sen. The equity shares as mentioned herein are of face value of Rs. 1/–(Rupee one only) each fully paid.
It has been decided that the ESOP Scheme will be re–introduced with effect from 2016 to reward eligible employees. Since the earlier SEBI Guidelines have been replaced by the SEBI (Share Based Employee Benefits) Regulations, 2014 ("ESOP Regulations") with effect from 28th October, 2014, the Company will need fresh approval of the members. Accordingly, your approval is sought in respect of Berger Paints India Limited Employee Stock Option Plan 2016 and for grant of Stock Options to the eligible employees/ Directors of the Company and that of its subsidiary company(ies). A special resolution for the aforesaid purpose is included in the notice for the forthcoming Annual General Meeting for your approval.
The information required to be disclosed in terms of the provisions of the SEBI (Share Based Employee Benefits) Regulations, 2014 is enclosed as per Annexure A to this report.
The Company believes that people are its most valuable assets. To this extent, the Company provides a fair and inclusive environment that encourages new ideas, respect for the individual and provides equal opportunity to succeed. Experience, merit and performance, leadership abilities, strategic vision, collaborative mindset, teamwork and result orientation are actively promoted and rewarded through an objective appraisal process.
Recruitment, retention and training are the greatest challenges facing the Indian industry and the three are interconnected. The Company adopts various recruitment processes including employee reference and will continue to provide greater attention to training. Being a multicultural and multi–location company, diversity is fostered.
The number of people employed as on 31st March, 2016 was 2802 (31st March, 2015 : 2666). The Industrial Relations were satisfactory during the year.
Your Company wishes to put on record its deep appreciation of the co–operation extended and efforts made by all employees.
SEXUAL HARASSMENT POLICY
Your Company has framed a policy on Sexual Harassment of Women at workplace which commits to provide a workplace that is free from all forms of discrimination, including sexual harassment. The Policy can be viewed at the following weblink : <https://www>. bergerpaints.com/about–us/sexual–harassment–policy.html As per the Policy, any complaint received shall be forwarded to an Internal Complaint Committee ("ICC") formed under the Policy for redressal. The investigation shall be carried out by ICC constituted for this purpose. There was no such complaint during the year. ICC comprises the following members as appointed by the Board :
1. Ms. Rishma Kaur (The Presiding Officer)
2. Mr. Srijit Dasgupta
3. Mr. Aniruddha Sen
4. Ms. Suparna Mitra (NGO representative).
AGREEMENT WITH BNB COATINGS INDIA PRIVATE LIMITED
The Company has entered into a business transfer agreement with BNB Coatings India Private Limited ("BNB") for transfer of the Company's paints division relating to 4 wheeler passenger cars and SUV, three wheeler and related ancillaries. BNB is a joint venture company where Nippon Paint Automotive Coatings Co., Limited of Japan holds 51% and the Company holds 49% of the paid–up capital. BNB is currently engaged in the business of coatings for plastic substrates of automobiles.
The turnover of the Division which is to be transferred is about Rs. 29 crores (0.85% of the total turnover of the Company). The division will be transferred on a slump sale basis at a consideration of Rs. 90 crores, payable in cash, within a period of 180 days from the date of the agreement. The buyer i.e. BNB Coatings India Private Limited ("BNB"), do not belong to the promoter group. By virtue of being an associate company where Berger Paints India Limited holds 49% of the paid up share capital, BNB may be deemed to be a related party and the transaction has been done on an arm's length basis with approvals of the Audit Committee and the Board.
BNB is understood to have entered into a similar agreement with Nippon Paint (India) Private Limited ("NPI") for transfer of NPI's 4 wheeler passenger car body paint business. Upon consummation of the transactions, BNB will carry out 4 wheeler passenger car body paint business and 3 wheeler automotive coatings business in addition to its existing business of coatings for plastic substrates. Berger Paints India Limited will continue to carry on 2 wheeler, commercial vehicles and related ancillaries coatings business.
SUBSIDIARY AND JOINT VENTURES
Your Company has the following 4 wholly–owned subsidiaries :– (i) Beepee Coatings Private Limited ("Beepee Coatings") in Gujarat; (ii) Berger Jenson & Nicholson (Nepal) Private Limited ("BJN–Nepal") in Nepal; (iii) Berger Paints (Cyprus) Limited ("Berger Cyprus") in Cyprus; (iv) Lusako Trading Limited ("Lusako Trading") in Cyprus.
The following companies are wholly–owned subsidiaries of the Company's above named subsidiaries: – (i) BJN Paints India Limited – wholly–owned subsidiary of Beepee Coatings; (ii) Bolix S.A., Poland – wholly–owned subsidiary of Lusako Trading; (iii) Berger Paints Overseas Limited ("BPOL"), Russia – wholly–owned subsidiary of Berger Cyprus. Bolix S.A. Poland has 3 subsidiaries, viz.: Bolix UKRAINA sp. z.o.o, Ukraine, BUILD–TRADE BIS sp. z o.o, Poland, and the recently formed wholly owned subsidiary, Soltherm External Insulations Limited, UK for the purpose of marketing of Bolix Products and providing related services in the UK. Build Trade sp z o.o., an erstwhile wholly owned subsidiary of Bolix was merged with Bolix on 31st March, 2016.
The statement relating to the above companies as specified in Sub–section (3) of Section 129 of the Companies Act, 2013 is attached to the Report and Accounts of the Company.
Results of BJN–Nepal, a wholly owned subsidiary of the Company, were encouraging and the company, with two factories and a distribution network, continues to flourish. During the year under review, BJN–Nepal achieved a turnover of Rs. 102.16 crores and net profit of Rs. 17.29 crores.
There was improvement in margin for Bolix S.A. The net profit posted by Bolix S.A. during the year was Rs. 4.35 crores.
The performance of Beepee Coatings, a wholly owned subsidiary with its entire manufacturing facilities dedicated to processing the Company's products, was satisfactory. The company posted a net profit of Rs. 2.00 crores.
Berger Paints Cyprus Limited is a special purpose vehicle for the purpose of making investments in your Company's interests abroad. So is Lusako Trading Limited.
Berger Paints Overseas Limited (BPOL) in Russia was impacted by political turmoil resulting in a plummeting Rouble.
Berger Becker Coatings Private Limited, the Company's joint venture with Becker Industrifarg, Sweden, posted a net profit of Rs. 7.38 crores (48.98 % of the same is considered in the consolidated accounts of your Company).
BNB Coatings India Private Limited (BNB), the Company's joint venture with Nippon Paint Automotive Coatings Co., Limited (earlier – Nippon Bee Chemicals Co. Ltd.) of Japan (NPAU) for manufacture of coatings for plastic substrates performed well and posted a Net Profit of Rs. 4.05 crores during the year (49 % of the same is considered in the consolidated accounts of your Company). Effective 31st March, 2015, the Company was converted into a private limited company.
Pursuant to Regulation 16(c) of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, a material subsidiary in a year shall be a subsidiary whose income or net worth exceeds 20% of the consolidated income or net worth respectively of the Company and its subsidiaries, in the immediately preceding accounting year. At present, there is no such material subsidiary of the Company within the meaning of the above Regulation.
CONSOLIDATED FINANCIAL STATEMENTS
The duly audited Consolidated Financial Statements as required under the Accounting Standards 21 and 27, provisions of Regulation 36 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Section 136 of the Companies Act, 2013, have been prepared after considering the audited financial statements of the Company's subsidiaries and appear in the Annual Report of the Company for the year 2015–16.
Your Company re–affirms its commitment to the standards of corporate governance. This Annual Report carries a Section on Corporate Governance and benchmarks your Company with the provisions of Regulation 17 to 27, clauses (b) to (i) of sub–regulation (2) of Regulation 46 and Para C, D and E of Schedule V of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Annexures–B & C).
During the year under review, your Company has carried out the Secretarial Audit pursuant to Section 204 of the Companies Act, 2013. The Secretarial Audit Report is attached as Annexure 4 to this Report.
TECHNICAL LICENSE AGREEMENT
Your Company has a Technical License Agreement with Axalta Coating Systems India Private Limited, LLC in the area of Automotive Coatings.
The Company had earlier discontinued acceptance of fixed deposits since 2002 and accordingly, no fresh deposit was accepted during the year. As per the provisions of Section 125 of the Companies Act, 2013, all unclaimed deposits have been transferred to Investor Education and Protection (IEPF) Account.
EXTRACT OF ANNUAL RETURN
Pursuant to Section 92 (3) of the Companies Act, 2013, extract of Annual Return is attached as Annexure 1 to the Directors' Report. MEETINGS OF THE BOARD OF DIRECTORS AND ATTENDANCE THEREAT
The details of meetings of the Board and attendance of Directors are given in the Report on Corporate Governance – Annexure B.
A. AUDIT COMMITTEE
The details of Audit Committee are given in the Report on Corporate Governance – Annexure B. The Board has accepted and implemented all recommendations of the Audit Committee.
Pursuant to Section 177 of the Companies Act, 2013 the Company, along with its subsidiaries, have complied with the laws and the codes of conduct applicable to them and have ensured that the business is conducted with integrity and that the Company's financial information flow is accurate. In case of any violation or complaint, a report may be made under the Vigil Mechanism system established by the Company. The said policy is uploaded on the Company's website and can be accessed at : <https://> www.bergerpaints.com/about–us/whistleblower–policy.html
B. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
The Company has constituted a Corporate Social Responsibility Committee in accordance with the terms of reference of Section 135 of the Companies Act, 2013. The details of the Committee are given in the Report on Corporate Governance –Annexure B. The required details as specified in Companies CSR Policy Rules, 2014 is given in Annexure 2.
C. COMPENSATION & NOMINATION & REMUNERATION COMMITTEE
The details of the Committee are given in the Report on Corporate Governance – Annexure B.
D. SHAREHOLDERS' COMMITTEES
The details of the Committees are given in the Report on Corporate Governance – Annexure
B. DIRECTORS' RESPONSIBILITY STATEMENT
Your Directors wish to inform that the Audited Accounts containing Financial Statements for the financial year ended 31st March, 2016 are in full conformity with the requirements of the Act. They believe that the Financial Statements reflect fairly, the form and substance of transactions carried out during the year and reasonably present your Company's financial condition and results of operations.
Your Directors further confirm that in preparation of the Annual Accounts:
i) The applicable accounting standards have been followed and wherever required, proper explanations relating to material departures have been given;
ii) The Directors have 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 or loss of the Company for that period;
iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv) The Accounts have been prepared on a going concern basis;
v) The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively;
vi) The Directors have devised proper systems to ensure proper compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
STATEMENT OF DECLARATION BY INDEPENDENT DIRECTORS
The following are the Independent Directors of your Company :–
1) Mr. Pulak Chandan Prasad
2) Mr. Kamal Ranjan Das
3) Mr. Dhirendra Swarup
4) Mr. Gopal Krishna Pillai
5) Mr. Naresh Gujral.
The Company has received declarations from all the Independent Directors confirming that they meet the criteria for independence in the required format under the Companies Act, 2013.
POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS, KEY MANAGERIAL PERSONNEL AND OTHER EMPLOYEES
The Company has formulated a Remuneration Policy pursuant to the provisions of Section 178 and other applicable provisions of the Companies Act, 2013 and Rules thereof. The Remuneration Policy has been approved by the Compensation and Nomination and Remuneration Committee.
The Policy is available at the following weblink : www.bergerpaints.com/about–us/remuneration–policy.html
QUALIFICATION OR RESERVATIONS IN STATUTORY AUDIT REPORTS
Your Board has the pleasure in confirming that no qualification, reservation, adverse remark or disclaimer has been made by the Statutory Auditors or Company Secretary in Practice in their Audit Reports issued to the Company.
LOANS, GUARANTEES OR INVESTMENTS
Particulars of loans given, investments made, guarantees given and securities provided, if any, along with the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient are provided in the standalone financial statement (please refer Notes 11,14 and 18 of the standalone financial statement).
RELATED PARTY TRANSACTIONS
The Company has always been committed to good corporate governance practices, including matters relating to Related Party Transactions (RPTs). Endeavour is consistently made to have only arm's length transactions, unless otherwise necessary for advancement of the Company's business, with Related Parties. The Board of Directors of the Company has adopted the Related Party Transaction Policy regarding materiality of related party transactions and also on dealings with Related Parties in terms of Regulation 23 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 with Stock Exchanges and Section 188 of the Companies Act, 2013. The policy is available at the following weblink : <https://www>. bergerpaints.com/about–us/rpt–policy.html All related party transactions have been carried out at arm's length basis, in ordinary course of business and no material related party transaction, i.e., transaction exceeding ten percent of the annual consolidated turnover as per the last audited financial statements were entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions as required under section 134(3)(h) of the Companies Act, 2013 in Form AOC–2 is not applicable.
As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has framed a policy for determination of materiality, based on criteria specified in the Regulations. The Policy is available at the following weblink:–<https://> www.bergerpaints.com/about–us/policy–determine–material–events.html
POLICY FOR PRESERVATION OF DOCUMENTS
As per Regulation 9 of SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015, the Company has framed a policy for preservation of documents, based on criteria specified in the said Regulations. The Policy is available at the following weblink : <https://www.bergerpaints.com/about–us/policy–preservation–documents.html>.
During the Financial Year 2015–16, no significant change has taken place which could have an impact over the financial position of the Company.
TRANSFER TO RESERVE AND DIVIDEND
The net profit of the Company available for appropriation is Rs. 1,149 crores. The amount brought forward from the previous year is Rs. 794.13 crores.
The Company has paid an interim dividend of Rs. 0.65 per share of Rs. 1/– (Rupee one each) only i.e. @ 65%, for the year under review, on 29th February, 2016 and your Directors recommend a final dividend of Rs. 1 per share i.e. @ 100% for the year under review. Together with the interim dividend, this would mean a total dividend of Rs. 1.65 per share, i.e. 165% for the Financial Year 201516. This, if approved, will absorb an amount of Rs. 114.43 crores (compared to Rs. 86.66 crores in the previous year), net of Dividend Distribution Tax, based on the current paid–up capital of the Company and will be paid to those members holding shares in the physical mode whose names appear in the Register of Members as on 3rd August, 2016 and for shares held in electronic form, to those whose names appear in the list of beneficial holders furnished by respective Depositories as at the end of business hours on 27th July, 2016.
In terms of the provisions of Section 124 of the Companies Act, 2013, your Company has transferred an amount of Rs. 16,50,033 to the Investor Education and Protection Fund, in respect of dividend amounts lying unclaimed / unpaid for more than seven years from the date they became due i.e., for the year ended 31st March, 2008.
Pursuant to the provisions of the Investor Education and Protection Fund (Uploading of Information Regarding Unpaid and Unclaimed Amounts Lying with Companies) Rules, 2012, the Company has filed the necessary form and uploaded the details of unclaimed amounts lying with the Company, as on 30th October, 2015 with the Ministry of Corporate Affairs.
Conservation of Energy & Technology Absorption
Information pursuant to Section 134(3)(m) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, is annexed to Annexure 5 of this report.
Foreign Exchange Earnings and Outgo
The Company earned foreign exchange of Rs. 2.72 crores from export of goods and consultancy fees/royalty. Details of foreign exchange earnings and outgo appear in note 39 of the standalone financial results.
Particulars of Employees
In terms of the provisions of Section 134 read with Rule 5 (2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, particulars of certain category of employees have been set out in Annexure 3 of this report.
STATEMENT OF EVALUATION OF BOARD OF DIRECTORS AND COMMITTEES THEREOF
The Company follows the provisions of the Companies Act, 2013 and Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations") in relation to Directors' appointments, qualifications and independence.
Pursuant to Section 178(3) of the Companies Act, 2013 and Regulation 17(10) of Listing Regulations, the Compensation and Nomination and Remuneration Committee is entrusted with responsibility of formulating criteria for determining qualifications, positive attributes and independence of a Director. The same is available at the following weblink : <https://www.bergerpaints.com/> about–us/criteria–policy.html.
The Compensation and Nomination and Remuneration Committee have laid down the following criteria for evaluating the performance of the Board of Directors :
1. Board members support and debate the organisation's strategy and values, enabling them to set the tone from the top.
2. Board members have a clear understanding of the organisation's core business, its strategic direction and the financial and human resources necessary to meet its objectives.
3. The Board sets the Company's targets and measures its performance against them.
4. Board meetings encourage a high quality of debate with robust and probing discussions.
5. Board members make decisions objectively and collaboratively in the best interests of the organisation and feel collectively responsible for achieving organisational success.
6. The Board communicates effectively with shareholders.
7. Board members recognise the role which they and each of their colleagues is expected to play and have the appropriate skills and experience for that role.
8. Board members actively contribute at meetings.
9. The Board has open channels of communication with executive management and others and is properly briefed.
10. The Board is aware of steps taken to assess and mitigate risks through Business Process and Risk Management Committee.
11. The Board is the right size and has the good mix of skills to ensure its optimum effectiveness.
12. The Board's committees are properly constituted, perform their delegated roles and report back clearly and fully to the Board.
13. The Board meets sufficiently often, and with information of appropriate quality and detail, such that agenda items can be properly covered in the time allocated.
14. Information is received in sufficient time to allow for proper consideration, with scope for additional briefing, if necessary.
SIGNIFICANT AND MATERIAL ORDER PASSED BY REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND OPERATIONS OF THE COMPANY
Pursuant to Section 134(3)(q) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, it is stated that no material order has been passed by any regulator, court or tribunal impacting the Company's operations and its going concern status during the Financial Year 2015–16.
Pursuant to Article 112 of the Articles of Association of the Company, Mr. Kuldip Singh Dhingra retires by rotation and being eligible, offers himself for re–appointment.
Mr. Kuldip Singh Dhingra is an industrialist and promoter of the Company. He has over 45 years of experience in paint and related industries. Mr. Dhingra is a science graduate from Hindu College, University of Delhi.
Mr. Abhijit Roy, Managing Director and Chief Executive Officer was appointed as Director and Chief Operating Officer at the Annual General Meeting held in 2011 and appointed as the Managing Director and Chief Executive Officer at the Annual General Meeting held in 2012 with effect from 1st July, 2012 for a period of 5 years. In terms of section 196 of the Companies Act, 2013 no reappointment of the Managing Director can be made earlier than one year before the expiry of the term. Accordingly, pursuant to Sections 196, 197 and 203 read with Schedule V and all other applicable provisions of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (including any statutory modification(s) or re–enactment thereof for the time being in force), Mr. Roy is proposed to be re–appointed as Managing Director and Chief Executive Officer of the Company for a period of 5 years with effect from 1st July, 2017, not liable to retire by rotation. A separate resolution for re–appointment and payment of remuneration to Mr. Roy has been put up in the Notice of Annual General Meeting as a part of the special business for your approval.
Mr. Roy is a Bachelor of Engineering (Mechanical) from Jadavpur University, Kolkata and holds Diploma in Management from Indian Institute of Management, Bangalore. Mr. Roy has long and rich experience of over 24 years in paint industry. The Board believes that Mr. Roy's knowledge, experience and expertise would greatly benefit the Company and accordingly, recommends the resolution for approval of the members
FAMILIARISATION PROGRAMME OF INDEPENDENT DIRECTORS
The Company believes that the best training is imparted when dealing with actual roles and responsibilities on the job. To this extent, the Company arranges detailed presentation by Business and Functional Heads on various aspects including the business environment, economy, performance of the Company, industry scenario, sales and marketing, production, raw materials, research and development, financial controls, the Company's strategy, etc. Visits to factories are also undertaken from time to time. This can be seen at the following weblink : <https://www.bergerpaints.com/about–us/familiarization–program.html>.
INFORMATION AS TO REMUNERATION OF DIRECTORS AND EMPLOYEES
Pursuant to Section 197 of the Companies Act, 2013 read with Companies ( Appointment and Remuneration of Managerial Personnel) Rules, 2014, the following disclosures are made
2) Percentage (%) increase in remuneration during the Financial Year 2015–16 : Please see (1) above
3) Percentage (%) increase in the median remuneration of employees during the Financial year 2015–16 : 6.94
4) Number of permanent employees on the rolls of the Company as on 31st March, 2016 – 2,802
5) Explanation on the relationship between average increase in remuneration and Company's performance – These are based on growth in sales and earnings.
6) Comparison of the remuneration of the Key Managerial Personnel against the performance of the Company : For 2015–16, the Key Managerial Personnel were paid 1.06% of the Profit after tax of 2015–2016.
7) Variations in the market capitalisation of the Company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the last public offer
The Company's shares are listed on The Calcutta Stock Exchange Ltd., BSE Ltd. and National Stock Exchange of India Ltd. Since there was no trade in The Calcutta Stock Exchange Ltd during the year ended 31.03.2015 and 31.03.2016, no Closing Price is available of the same.
8) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration – The average percentile increase of employee was 13.87% as compared to an average percentile increase of 27.41% of managerial remuneration. The increase of managerial remuneration is based on growth criteria.
9) Comparison of each remuneration of the Key Managerial Personnel against the performance of the Company – The ratio of remuneration of each KMP to the PAT of the Company is given below :
Name of Key Managerial Personnel
1) Mr. Abhijit Roy – 0.005:1
2) Mr. Srijit Dasgupta – 0.003:1
3) Mr. Aniruddha Sen – 0.002:1
10) Key parameters for any variable component of remuneration availed by Directors –The key parameters are KPI set at the beginning of the year and those evolving during the year based on business scenario.
11) Ratio of the remuneration of the highest paid Director to that of the employees who are not directors but receive remuneration in excess of the highest paid Director during the year– Nil
12) Pursuant to the requirement of Sec 197(14), the following disclosure is made in respect to remuneration received by Directors:–
It is hereby affirmed by the Chairperson of the Company that the remuneration paid to all the employees, Directors and Key Managerial Personnel of the Company during the Financial Year 2015–16 are as per the Remuneration Policy framed by the Compensation and Nomination and Remuneration Committee of the Company.
LISTING WITH STOCK EXCHANGES
Your Company is listed with The Calcutta Stock Exchange Limited, BSE Limited and The National Stock Exchange of India Limited and the Company has paid the listing fees to each of the Exchanges. As per Regulation 109(2) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 every issuer or the issuing company which has previously entered into agreement(s) with a recognised stock exchange to list its securities shall execute a fresh listing agreement with such stock exchange within six months of the date of notification of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.The Company executed fresh agreements with the following Stock Exchanges where its shares are listed :
NSE : On 17th December, 2015
BSE : On 4th January, 2016
CSE : On 17th February, 2016. The addresses of these Stock Exchanges and other information for shareholders are given in this Annual Report.
The Board of Directors has re–appointed/appointed M/s N.Radhakrishnan & Co., 11A, Dover Lane, Flat B1/34, Kolkata – 700 029, for conducting cost audit at Howrah, Rishra, Goa, Puducherry and Jejuri factories and Hindupur factory of the Company's British Paints Division and for filing of cost audit report and M/s Shome & Banerjee & Co., 2nd Floor, 5A, Narulla Doctor Lane, West Range, Kolkata – 700 017, for conducting cost audit at its Jammu factory and at the factories of British Paints Division at Jammu, Surajpur and Sikandrabad under Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 subject to the approval of the Central Government for the year 2016–17. The due date for filing Cost Auditors' report for the year 2014–15 was 25th October, 2015. The said reports for the year 2014–15 were filed on 14th October, 2015.
The Statutory Auditors, Messrs. S. R. Batliboi & Co. LLP, Chartered Accountants, were appointed pursuant to the provisions of Sections 139, 142 and the Rules made thereunder from the conclusion of the 91st Annual General Meeting upto the conclusion of the Sixth Annual General Meeting to be held after the 91st Annual General Meeting. This year's notice includes a proposal for ratification of such appointment.
Your Directors place on record their deep appreciation of the assistance and guidance provided by the Central Government and the Governments of the States of India, its suppliers, technology providers and all other stakeholders. Your Directors thank the financial institutions and banks associated with your Company for their support as well. Your Directors also thank the Company's dealers and its customers for their unstinted commitment and valuable inputs.
Your Directors acknowledge the support received from you as shareholders of the Company.
On behalf of the Board of Directors
Kuldip Singh Dhingra
Place : Kolkata
Dated : 30th May, 2016