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Letter to the Shareholders
To Our Shareholders
Guided strongly by the Company Vision, Mission, six Core Values, and five Personality Traits, your Company continued to demonstrate dependable performance in a year that was marked by economic uncertainties. The Company's Personality Traits – Decisive, Driven to Win, Agile, Passionate and Caring, play a critical role in influencing the many decisions taken to continue the legacy of positively influencing the lives of our stakeholders.
Staying true to these five traits, all the four businesses of your Company –Industrial, Automotive, Power Generation and Distribution, performed well in difficult times. I am pleased to share the performance of your Company, Cummins India Limited, for the fiscal year 2012–13.
Managing challenges and emerging as a great institution requires strong decision making capabilities. Your Company continued to do well in this regard taking decisions focused on long–term profitable growth, while balancing short term deliverables, based on strong customer relationships, technology leadership, service support and people talent. It is with pride that I report the performance of Cummins India Limited for a year that has had opportunities and challenges.
In 2012–13, net sales for Cummins India Limited at Rs. 4,509 Crores, represented an increase of 11.3 percent over last year. Net profit before tax (excluding exceptional items) at Rs. 989.74 Crores, represented a 28 percent increase over the previous year. The Company generated significant amounts of cash, strengthened its balance sheet and financial position and most importantly continued to return value to its shareholders.
Your Company had disbursed an interim dividend of 250 percent (Rs. 5 per fully paid–up equity share of Rs. 2 each) in February 2013. The 2012–13 financial year concluded with recommending a final dividend of 400 percent (Rs. 8 per fully paid–up equity share of Rs. 2 each) aggregating to 650 percent (Rs. 13 per fully paid–up equity share of Rs. 2 each), subject to your approval at our forthcoming Annual General Meeting. Over the last five fiscal years, the total return has been 19 percent on a compounded annual growth basis.
Despite significant pressure on margins due to inflation and slower economic growth, your Company has sustained its profitable growth story.
Continuing to build capabilities despite adverse market conditions also signifies your Company's decisiveness. An example of this continues to be the Cummins Megasite at Phaltan. Subsequent to starting operations at three facilities in early 2011, the India Parts Distribution Center became fully operational in 2012 and has since been able to achieve and sustain record world–class levels of spare parts fill rates for customers.
The year also saw the opening of the Phaltan Midrange Upfit Center, the fifth facility at the Megasite. The Upfit Center has been established to assemble, upfit, test and paint diesel and natural gas engines, both mechanical and electronic, ranging in size from 2.8 litres to 8.9 litres. This range will cater to various power generation, industrial and on highway applications. Designed to manufacture 80 engines per day in two shifts, and expand production capacity when needed with minimal investment, this facility allows us to leverage operational efficiencies along with the existing facilities at the Megasite.
Another facility, also the first on the Special Economic Zone (SEZ) of the Megasite, for manufacturing generator sets and G–drives for exports in the low and medium horsepower range will commence production later this summer. The second factory on the SEZ, for manufacturing high horsepower engines in the 19 litre to 60 litre range, is in progress and is expected to be ready to commence operations later this calendar year. We also broke ground for the third plant of Tata Cummins Limited at the Megasite. This plant will manufacture B5.9 mechanical, ISB and QSB5.9, ISB and QSB6.7, ISL and QSL8.9 engines in addition to being the only plant in India to manufacture the L series engines, to be used by your Company in applications ranging from automotive, power generation and industrial.
Our plans to substantially expand the laboratories and engineering facilities at our Kothrud site into a global, full–fledged Technical Center that will support all Cummins business units are progressing well. Geared towards strengthening your Company's capability to design technologies for the future, the Cummins Technical Center India will house over 2,500 engineers and is expected to become fully operational over the next two years.
Positioning itself for long–term success, your Company continued to expand its capabilities in technology, product and capacity enhancements. This was evidenced by Rs. 149 Crores in capital investments in the current fiscal as compared to Rs. 136 Crores in the previous fiscal. We believe these will better prepare the Company for decisive growth upon market recovery.
Sustaining and growing our cost efficiency, we continued to reduce the Total Cost of Ownership for direct materials through the ACE (Accelerated Cost Efficiency) program. ACE, lasted from 2005 through 2008, then got replicated with ACE II in 2008 through 2011, and was replicated yet again with ACE III in 2011 through 2014. During the fiscal year 2012–13, a total of 250 projects helped generate annualized savings of Rs. 44 Crores for your Company as compared to 300 projects and 57 Crores in savings generated in the previous year. Upon successful completion in 2014, this program is expected to generate savings of approximately Rs. 230 Crores for your Company, depicting a 20 percent reduction over a period of three years.
Driven to win
With the Central Pollution Control Board regulating towards cleaner emission norms for engines used in generators, your Company has evaluated numerous technologies and products and developed 'Fit for Market' solutions to best meet emissions regulations cost effectively. As we prepare to take advantage of new opportunities emanating from the implementation of the new norms, we also continue to invest in next generation technologies and products that will allow us to stay ahead in the markets we serve.
In being driven to win, your Company had embarked upon the 'Fit for Market' initiative. Since then, products such as the mechanically controlled 5.9 litre engine for automotive and construction segments, the 19 litre engine with enhanced operational efficiency and improved costs for rail power cars, and lower kilowatt generator sets have been helping your Company continue to win.
Fit for market, fit for future growth: Cummins' 'Fit for Market' solutions enable the Company to foray into markets which it hasn't served in the past.
In early 2012, furthering our dealership operational excellence, your Company had successfully launched a joint venture with one of its existing dealers, SVAM Power Plants Private Limited, to form 'Cummins SVAM Sales and Service Limited'. As this association takes our customer experience and loyalty to the next level of performance, this new venture, spanning areas of NCR and parts of Western Uttar Pradesh, will also provide a greater understanding of market dynamics and help drive improvement in the dealership network to better serve our customers.
The agility demonstrated by your Company in adapting to changing market conditions has helped it sustain its profitable growth story, even in difficult times. The Company has demonstrated agility to counter economic uncertainties and instituted measures across all aspects of our business, which included, driving cost control programs more aggressively than ever, plant block closures, and working capital reductions in line with reduced growth rates. One such program instituted thirteen years ago, Six Sigma, has generated savings of Rs. 48 Crores for your Company. This year, of the 399 projects completed, collectively by the 1,180 belts, 78 projects focused on customers and 43 on suppliers, engaging and deepening our relationships with them. Additionally, Six Sigma has also proven to be an effective tool in building and enhancing leadership skills and driving zero–defect results across the organization. Continuing to leverage the multi–fold benefits of Six Sigma, we have now made it mandatory for our employees to complete at least one project successfully within the performance year in order to get categorized as high performers.
Another cost reduction program, TRIMS, launched in 2010, to reduce the Total Cost of Ownership in indirect materials and services by 10 percent every year over a period of three years generated combined bottom line savings (along with purchasing projects in the indirect spend space) of Rs. 7.52 Crores with an avoidance savings of Rs. 22.9 Crores for your Company. Additionally, the program has also helped consolidate the indirect materials and services supply base while better leveraging our expenditure.
All these actions continue to contribute significantly to the bottom line.
Your Company's passion is most visible in its endeavour to serve the customer and help them succeed. Helping us realize this is the philosophy outlined for Customer Support Excellence (CSE).
As part of our CSE efforts, significant investments have been made towards continuously enhancing the end–user experience. As a result, the year saw the opening of three new training facilities – the Global Training Center at Greater Noida, the Cummins Comprehensive Technical Training facility in Pune and the Chhindwara Center of Excellence in Madhya Pradesh. Improved service capability owing to these new facilities will further the dependability quotient of your Company.
The Global Training Center, in partnership with our OEM, Jakson Power Solutions, has been set up to bridge the technology divide by providing comprehensive training to technicians working in our distributor network. This Center will provide training to approximately 1,000 engineers and technicians annually, on a broad range of Cummins manufactured products. The new state–of–the–art Cummins Comprehensive Technical Training facility in Pune encompasses the entire range of products, manufactured and supported by the Cummins Group in India. Built with the objective of providing both theoretical training, as well as practical experience, this facility encompasses an exclusive station for filters and a lube station from Valvoline Cummins Limited, a joint venture between Ashland Inc. and your Company. The Chhindwara Center of Excellence in Madhya Pradesh, built in collaboration with the Confederation of Indian Industry (CII), has been designed to impart in–depth knowledge and understanding of latest technologies and products to people from rural areas, so as to subsequently absorb them in our dealerships across the country.
Our progress in CSE is best measured via the Net Promoter Score (NPS) that gives a definitive indication of where our customer loyalty levels stand. Owing to numerous initiatives and improved processes, your Company's NPS has increased from 53 percent in 2011–12 to 63.17 percent in 2012–13. Another significant initiative has been the Common Dealer Operating System (CDOS), a Customer Relationship Management (CRM) platform which will integrate all aspects of dealer operations and information systems with those within your Company, thereby improving the way your Company interacts with the customer. This platform is designed to deliver a paradigm shift in the overall customer service experience.
Your Company's passion for bringing best–in–class products, translated into many awards and recognition for Cummins:
For its outstanding contributions towards developing the CNG series hybrid system, Cummins was awarded the Tata Motors Technology and Innovation Award 2012.
Cummins received the Engineering Export Promotion Council's National Award in the category of Engines, Turbines and Parts: Large Enterprise, for the 24th successive year.
The power Generation Business was presented the Silver Award in the 27th Annual Chapter Convention on Quality Concept.
The Automotive Business received the 'Long Association Award' for its continued support and association since 2005, by one of India's established On Highway Commercial Vehicle OEMs – Asia Motor Works.
Your Company continues to be as passionate about its people as it is about its products and services. Understanding the significance of Diversity at workplace, the Company has been focusing on improving in particular, gender representation, for many years now. Receiving the Best Employer for Women in Corporate India Award by the WILL Forum India (Forum for Women in Leadership) is the finest endorsement of the efforts that your Company has been making in this significant area. The WILL Forum benchmarks and evaluates companies for their practices and policies around building a positive ecosystem for women, advancement in career, work–life balance, diversity initiatives, gender leadership assessment, leadership commitment to gender mainstreaming and safety. Cummins is the only Company from the manufacturing sector amongst the five winners in 2012.
Your Company continues to believe that its purpose includes caring for its employees, the communities in which it operates and the environment.
In ensuring a cleaner, healthier and safer environment for employees, significant initiatives towards enhancing industrial hygiene were implemented during the year. Continuing with its commitment to the communities and environment, your Company has established various systems and procedures to track the impact of the business on both these important aspects. As a result, your Company has achieved approximately 4 percent reduction in greenhouse gases, 2.5 percent reduction in water consumption and 30 percent reduction in total waste disposal since last year.
The success of our initiatives can be gauged by the awards received in the Health, Safety and Environment category from Cummins Inc. These include the Sustainable Construction Award for the recently inaugurated Power Generation facility at the SEZ at the Megasite in Phaltan and an award for Best Practices in Energy Management to your Company's engine manufacturing facility in Pune owing to significant savings in energy and reduction of greenhouse gases.
Demonstrating care for its employees, your Company continued to deploy various initiatives to allow employees to develop, grow, and pursue long–term relationships with Cummins. We have a clear Hire–to–Develop philosophy, with multiple initiatives that develop people from entry to senior levels.
One such initiative, called the Global Leadership Development Program (GLDP), designed specifically for senior leaders, focuses on improving leadership skills in addition to providing Cummins Inc. senior leaders with an insight into India's talent. Now in its second year, this program had 13 employees graduating in 2012, geared to take on broader senior leadership roles and develop and execute strategies that drive your Company's profitable growth in a highly competitive global environment.
A second initiative entails sponsoring higher education in management and technical streams. This year, 106 employees have been sponsored for higher education, at our partner institutions such as The Kelley School of Business at the Indiana University in the US, the "Cumminized" IIM–Ahmedabad as well as S.P. Jain post graduate management programs and the Masters level program in Engineering at the ARAI–Vellore Institute of Technology. These employees will soon be ready to move into larger leadership roles within the Company.
The third initiative entails employing the right talent at the entry level and developing them for future roles within the organization. As a result, over the last couple of years, we have been gradually increasing our direct recruitment from campuses. This year, your Company hired 182 graduates. In order to enhance their experience and engagement with the organization, a structured year long module called the Young Managers Development Program (YMDP) has been instituted. This has helped us arrest attrition in these ranks to below 5 percent this year. Our plan is to introduce similar modules for MBA and M.Tech hires. We are committed to continuous engagement and development of young talent, as we view this to be critical to your Company's long–term success.
Last, but an equally important initiative under Hire–to–Develop philosophy involves presenting growth opportunities to employees to develop themselves by taking on responsibilities across functions and businesses. Approximately 312 professional employees of your Company moved into different roles or functions. Collectively, within the five fully managed Companies of the Cummins Group, close to 400 employees transitioned to new opportunities.
The above mentioned philosophy rests heavily on effective and seamless movement of talent across geographies and businesses. To facilitate this, we also introduced Global Position Profiles this year. These are standardized job profiles for all roles across functions and businesses globally. Besides enhancing our processes for recruitment, employee development and compensation benchmarking, we expect this program to provide greater visibility to our employees on the vast variety of opportunities that are present within the entire Cummins Inc. system.
Last year I spoke to you about two leadership development initiatives: the Leadership Culture Series and Building Success in Others. Both these programs provide an understanding of good leadership skills needed to facilitate career development of immediate reportees and others in the organization. We have continued to cascade both these programs at an excellent pace and momentum. The former reinforces the five leadership skills identified by the organization as being most critical: Coaching & Developing, Fostering Open Communications, Talent Management, Managing Diversity and Thinking Strategically. We began cascading 'Coaching & Developing' two years ago. With 250 leaders having undergone this session in 2012–13, we now have a total of 800 leaders having participated in this program across all the Group Companies in India, till date. We started cascading 'Fostering Open Communication' last year and have covered close to 650 managers across locations in India. The 'Building Success in Others – Leadership Essentials' has been specifically designed for first level leaders. Under this program, we launched a module titled 'Leadership Conversations'. This workshop has so far witnessed participation of 225 leaders, teaching tools and techniques that help them understand leadership behaviours and their impact on achieving business results.
On Diversity in the workplace, better gender and regional representation continue to be the ones which we have been focussing on strongly for many years now. I am proud to say that our commitment to see women comprise a large part of our workforce is visible in all areas of the organization today. With a 27.5 percent record representation amongst professional employees across Cummins' Group Companies in India, I am delighted to say that women are now playing a crucial role in contributing to your Company's success.
Taking this journey forward, we are now progressing to the next level, that of much higher inclusion and engagement. While in the past we have made changes in physical infrastructure and policies that are essential for attraction and retention of women in the organization, having adopted a more holistic approach to gender diversity, we have now started to conduct Gender Sensitization Workshops to enable our employees collaborate better with a gender diverse workforce, encourage our women employees to contribute and succeed in the organization to a greater extent and allow the organization to leverage gender diversity to the maximum. Additionally, your Company worked closely with the Government and sought permission to allow women to work in the second shift on the shop floor. Consequently, at the Megasite in Phaltan, there is close to 30 percent women representation today. Endorsing regional diversity, your Company continues to hire professional workforce from other regions (East, South and North) of India.
Continuing to strengthen our relations with the Associate Union, we integrated a monthly incentive scheme in the recently concluded wage agreement that rewards various metrics of quality, delivery and output. This will positively impact the lives of over 700 production associates at your Company's largest manufacturing plant. The Team Based Work System instituted on the shop floor at the Megasite in Phaltan further enhances the environment that we are committed to providing to our associates.
Our efforts to have all employees understand and commit to the 'Cummins Code of Business Conduct' and 'Treatment of Others' policies continue. This remains the core to providing the right environment to all our stakeholders, both inside and outside the organization.
During the course of the year, we took some time aside to honour instances of exemplary allegiance to the six Core Values of your Company, namely, Integrity, Delivering Superior Results, Global Involvement, Corporate Responsibility, Innovation and Diversity, along with Six Sigma, Customer Support Excellence and Health, Safety & Environment. The winners were recognized at the CMD (Chairman and Managing Director) Awards Function, an annual event which is now in its seventh year. During this year, our global Chairman and CEO, Tom Linebarger, and I hosted the second Management Conference and held a dedicated communication session for more than 300 senior leaders across the Cummins Group in India. This session facilitated greater understanding and alignment to our global strategies and how they apply to India. This has enabled us to continue to achieve great results for your Company.
In last year's annual report, I had mentioned about the Office Campus in Balewadi, Pune where all our professional employees with the exception of engineers would co–locate. This will create greater synergies between your Company and all other Cummins managed companies in India. Designed to house up to 6,000 employees, the new Campus integrates collaborative workspaces, which is a significant shift from traditionally isolated work spaces, with multiple options to suit ones working style and preference. We view such a work place critical for our Core Values of Innovation and Diversity to flourish. We propose to start moving to the new Campus in early 2014.
Your Company continued to channelize its efforts towards Corporate Responsibility with meaningful, sustainable projects under the focus areas of Higher Education, Energy & Environment, and Local Community Infrastructure Development. Subsequently, employees across the Cummins Group collectively devoted 40,032 hours to the Every Employee Every Community (EEEC) Program in 2012. This program requires every employee to devote up to four hours of Company paid time to community service annually. It is heartening to see our employees scale up the hours dedicated to improving the communities, year after year. The number of hours dedicated in 2012 is a significant increase over the 35,605 hours devoted in the previous year. Additionally, 99 percent of the employees at your Company contributed fully and more to the EEEC program.
Under Higher Education, the Cummins Scholarship Program, which has now become a tool to enable students from economically weak backgrounds to pursue higher education, expanded its reach. The Cummins India Foundation for the first time awarded a record 100 scholarships, up from 70 last year. Of the 100 scholars, 59 are women. Our engagement with the Cummins College of Engineering for Women (CCEW) in Pune, to establish it amongst the top 5 percent of the privately managed engineering institutes in India, has also been scaled up.
Under Energy and Environment, subsequent to implementing the 'Zero Garbage' project in the Katraj ward in Pune, work has begun to replicate the project at the second ward adopted by your Company in Balewadi, where the upcoming Office Campus is located. We are excited about making a difference to the communities even as we prepare to relocate into their neighbourhood. And finally, as part of Local Infrastructure Development, your Company has made significant in–roads in bringing holistic development to the residents of Nandal, a village in close proximity to Phaltan.
Commemorating Cummins' 50 years of operations in India, for the first time ever, all our five fully managed Companies in India collectively executed a common, nation–wide campaign for sensitizing school students about the environment. With active participation from 380 employees, we succeeded in engaging with 75,000 students, from 200 schools across 50 cities in India. Titled as 'Catch them Young', this project with its expanse and scale had in every sense of the word unleashed the power of Cummins for making people's lives better.
The impact many of our projects have had on improving the communities is evident from the recognition that has come our way:
Cummins received recognition from the Maharashtra State for our contribution to the Zero Garbage Project piloted at the Katraj Ward in Pune. This project is now ISO certified.
Six Projects submitted from India won the 2012 Environmental Challenge from a total of 15 awards given worldwide by Cummins Inc. 109 projects participated worldwide in this annual event.
Note – Information on the many other projects undertaken during the year to improve the environment and communities has been published in the Business Responsibility Report of this Annual Report.
The year 2012–13 has demonstrated that the collective Personality of being Decisive, Driven to Win, Agile, Passionate and Caring of the 3,590 employees of your Company, even in times when business conditions were not as favourable, has resulted in delivering superior results in a holistic manner. It is indeed my privilege to lead and serve a team that is so committed. I remain thankful to our Board of Directors, whose support, experience and foresight is helping us manage the short–term challenges, while ensuring we never lose sight of our bright future. Above all else, I remain grateful to you for your unstinted confidence in our capabilities.
Staying true to the Vision, Mission, Core Values, and Personality of your Company, I recommit and rededicate myself and my entire team at Cummins India Limited to continue unleashing the power of Cummins to improve the vast number of lives associated with it.
Anant J. Talaulicar