The Directors are pleased to present the Third Annual Report on the business and operations of the Company and the accounts for the Financial Year ended 31st March, 2017.
The table below depicts the financial performance of your Company for the year ended 31st March, 2017.
Rs. in crores
Year ended 31st March, 2017
Year ended 31st March, 2016*
Sales/Income from operations (Net of excise duty)
Profit before Exceptional Items and Tax
Profit before Tax
Tax expenses (including deferred Tax)
Profit after Tax
* The financials for 2015-16 reflect the business performance from 1st October, 2015 (appointed date for demerger) to 31st March, 2016.
OVERVIEW OF COMPANY’S FINANCIAL PERFORMANCE:
Revenue grew 10.8 % to Rs.3975.90 crores. Operating Profit (PBIT before Corporate expenses and Exceptional Items) at Rs.592.97 crores was up by 21.9 % versus last year. As mentioned in the MDA, for comparison purposes we have considered the segment profit reported by Crompton Greaves Ltd. (Now known as CG Power & Industrial Solutions Ltd.) for the period 1st April, 2015 to 30th September, 2015.
Finance costs of Rs.66.53 crores represent the interest cost on the Non Convertible Debentures of Rs.650 crores and the interest paid on the term loan from 1st April, 2016 to 24th June, 2016 (the date of the repayment of the loan).
Expenses of Rs. 2.52 crores incurred for the demerger have been classified as Exceptional Item.
Profit Before Tax “PBT” was Rs. 430.62 crores and Profit After Tax “PAT” was Rs. 290.69 crores. PBT margin was 10.8 % and PAT margin was 7.3%.
Your Directors are pleased to recommend a dividend of Rs. 1.50 per Ordinary (Equity) Share of the face value of Rs. 2 each, payable to those Shareholders whose names appear in the Register of Members as on the Book Closure Date. The equity dividend outgo, inclusive of tax on distributed profits would absorb a sum of f 113.15 crores.
The Company has approved a Dividend Distribution Policy and the same is available on the website of the Company.
Under the Companies Act, 2013, there is no requirement to transfer any sum to General Reserve in relation to the payment of dividend. Accordingly, the entire undistributed Profit after Tax is carried forward in the Profit and Loss Account.
NON CONVERTIBLE DEBENTURES:
During the year under review, your Company issued Non Convertible Debentures (NCDs) aggregating to Rs.650 crores on private placement basis. These debentures are listed on Debt Segment of National Stock Exchange of India Ltd. The proceeds of Non Convertible Debentures were used for repaying the Company’s term loan.
The Company repaid on 24th June, 2016 the entire term loan outstanding of Rs.608.26 crores by using the proceeds from the NCD issue. This resulted in reduction in interest costs by approximately Rs.8.50 crores p.a.
Your Company shifted its registered office to “Tower 3, 1st Floor, East Wing, Equinox Business Park, LBS Marg, Kurla (West), Mumbai - 400 070” with effect from 1st December, 2016.
EMPLOYEE STOCK OPTIONS:
The Members of the Company approved grant of options to eligible employees of the Company, vide special resolution passed by the members through a Postal Ballot on 22nd October, 2016, under the following plans:
1. Employee Stock Option Plan 2016 (ESOP 2016)
2. Performance Share Plan - 1 2016 (PSP 1)
3. Performance Share Plan - 2 2016 (PSP 2)
The applicable disclosures as stipulated under SEBI (Share Based Employee Benefits) Regulations, 2014 are provided in Annexure 1 to this report.
CHANGES IN PROMOTERS:
During the year under review, Avantha Holdings Limited, the erstwhile promoters transferred its entire shareholding of 21,54,42,496 shares, aggregating to 34.38% of the paid up capital of the Company to Amalfiaco Ltd. “Amalfiaco” (Special Purpose Vehicle managed by Advent International Corporation, USA) and MacRitchie Investments Pte Ltd. “MacRitchie” (wholly owned subsidiary of Temasek Holdings (Pvt) Ltd). Amalfiaco was transferred 14,00,37,623 equity shares and MacRitchie was transferred 7,54,04,873 equity shares of your Company.
MacRitchie is a person acting in concert with Amalfiaco and Nirsinia Ltd. MacRitchie has entered into an Inter se Agreement dated 23rd April, 2015 with Amalfiaco and Nirsinia (“Inter-Se Agreement”). Pursuant to the said Agreement, MacRitchie does not have control rights and will not be exercising control over your Company.
The present promoters of your Company are Amalfiaco Ltd. and Nirsinia Ltd.
National Stock Exchange of India Ltd. and BSE Ltd. vide their letters dated 24th November, 2016 and 28th November, 2016, respectively have approved the re-classification of Promoters.
HUMAN RESOURCES & EMPLOYEE RELATIONS:
All leadership team and most other key positions are now fully staffed. The strategy is to develop talent from within organisation, with selective external hires. With a view to promote this strategy, a series of initiatives were launched to establish robust career development and leadership development processes. In line with the strategic business priorities, key development interventions to enhance customer and consumer focus were also executed. This included training the front-end sales team towards active Go To Market (GTM) pursuit.
Based on the feedback from the Employee Engagement survey, a series of interventions were undertaken to enhance engagement levels in the area of rewards and recognition, employee communication and performance management. A revamped performance-appraisal process was launched. The Crompton Employee Behaviour framework was also rolled out during the year to identify the competencies necessary to succeed.
The overall employee relations scenario remained stable and productive with key long-term settlements getting concluded.
The Baroda Plant signed a settlement with the internal workers union for a period of 5 years effective from 1st March, 2017. This settlement has established a benchmark practice in the region cum Industry being a 5-year tenure whereas most of the other organisations are on 3 to 4 year settlement tenures. The settlement was signed within a week of the expiry of the existing settlement.
As of 31st March, 2017 the employee strength was 1616.
DIRECTORATE & KEY MANAGERIAL PERSONNEL:
The appointment and remuneration of Directors is governed by the Nomination and Remuneration Policy of the Company which also contains the criteria for determining qualifications, positive attributes and independence of Directors. The detailed Nomination and Remuneration Policy is contained in the Corporate Governance section of the Annual Report.
The Company’s Board comprises eight members. The Chairman, Mr. H. M. Nerurkar is an Independent Director. Mr. Shantanu Khosla is the Managing Director. Mr. D. Sundaram and Mr. P. M. Murty are Independent Directors. Ms. Shweta Jalan, Mr. Sahil Dalal, Mr. Ravi Narain and Mr. Promeet Ghosh are Non-Executive Directors.
On 16th August, 2016, the Board was expanded and Ms. Shweta Jalan, Mr. Sahil Dalal, Mr. Ravi Narain and Mr. Promeet Ghosh were appointed as Additional Directors. Mr. H. M. Nerurkar was appointed as the Chairman of the Board on 25th October, 2016.
As per section 161 of the Companies Act, 2013 Ms. Shweta Jalan, Mr. Sahil Dalal, Mr. Ravi Narain and Mr. Promeet Ghosh being Additional Directors hold office upto the date of the ensuing Annual General Meeting (AGM) and are eligible to be appointed as Directors of the Company. The Company has received notices in writing from members along with the deposit of requisite amount under section 1 60 of the Act proposing their candidature. The resolutions seeking their appointment have been included in the Notice of the Annual General Meeting together with their brief details as required under Regulation 36 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Secretarial Standards on General Meetings.
Ms. Sonia N. Das resigned from the Board w.e.f. 16th August, 2016. The Board places on record their appreciation of the valuable advice and guidance given by Ms. Sonia N. Das while she was a Director of the Company.
As per section 152(6) of the Companies Act, 2013 (the “Act”), two-thirds of the total number of Directors of a public company shall be persons whose period of office is liable to determination by retirement by rotation. One-third of such of the Directors for the time being liable to retire by rotation shall retire from office at every Annual General Meeting. The Directors who retire by rotation at every Annual General Meeting shall be those who have been longest in office since their last appointment. For the purpose of this provision, the total number of Directors shall exclude Independent Directors and Additional Directors. Therefore, Mr. Shantanu Khosla, Managing Director, being longest in office shall retire by rotation at the ensuing Annual General Meeting of the Company and being eligible, has offered himself for reappointment.
All Independent Directors have submitted declarations that they continue to meet the criteria of Independence as laid down under section 149(6) of the Companies Act, 2013 read with the rules thereof.
Mr. Sandeep Batra resigned as Company Secretary and Compliance Officer on 18th May, 2016 and continues to be the Chief Financial Officer. Ms. Pragya Kaul was appointed as Company Secretary and Compliance Officer with effect from 19th May, 2016.
The Board of Directors met eight (08) times during the year 2016-17. The details of the meetings and the attendance of the Directors are mentioned in the Corporate Governance Report.
The Board has established Committees as a matter of good corporate governance practice and as per the requirements of the Companies Act, 2013. The Committees are Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee and Stakeholders’ Relationship & Share Transfer Committee. The composition, terms of reference, number of meetings held and business transacted by the Committees is given in the Corporate Governance Report.
The Board of Directors of the Company has carried out the annual evaluation of its own performance as well as the evaluation of the working of its Committees and individual Directors. This exercise was carried out through structured questionnaires prepared separately for Board, Committee and Individual Directors. Individual and peer assessment of Directors was done based on parameters such as knowledge, contribution, level of engagement, communication/ relationship with Board and Senior Management. These assessments were received by the Chairman of the Nomination and Remuneration Committee of the Company for providing individual feedback. The questionnaire for Board evaluation was prepared taking into consideration various aspects of the Board functioning such as adequacy of the composition of the Board, reporting process, risk management systems, external relationships, ethics and governance framework. Committee performance’s were evaluated on the basis of its composition, effectiveness in carrying out its mandate, relevance of its recommendations and allocation of adequate time to fulfill its mandate.
The report of performance evaluation so arrived at was then noted and discussed by the Nomination and Remuneration Committee and Board Members at their Meetings held on 26th May, 2017.
The performance evaluation of the Non-Independent Directors, Chairman and the Board as a whole were carried out by the Independent Directors in their Meeting held on 28th December, 2016.
The Board acknowledged certain key improvement areas emerging through this exercise and action plans to address these are in progress. The Directors have expressed their satisfaction with the evaluation process and its result.
The Company has put in place an induction and familiarisation programme for all its Directors including the Independent Directors.
The familiarisation programme for Independent Directors is in accordance with the provisions of Regulation 46(2) (i) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and is uploaded on the website of the Company.
SUBSIDIARY COMPANIES, ASSOCIATES & JOINT VENTURES:
Your Company has no subsidiaries, associates and joint ventures.
RELATED PARTY TRANSACTIONS:
All contracts or arrangements or transactions with related parties were at arms’ length basis. There were no material contracts or arrangements or transactions with related parties, therefore Form AOC-2 does not form part of this report.
Policy on Materiality of and dealing with Related Party Transaction of the Company is available on the website of the Company and can be accessed at the web link: www.crompton.co.in .
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS:
There were no Loans, Guarantees and Investments made by the Company under section 186 of the Companies Act, 2013.
A Risk Management policy has been developed and implemented by the Company for identification of risk elements, which in the opinion of the Board may threaten the existence of the Company. The key elements of the Company’s risk management framework have been captured in the risk management policy which details the process for identifying, escalating, prioritizing, mitigating and monitoring key risk events and action plans. The assessment of the risks covers business risks, operational risks, physical risks, regulatory risks, fraud risks, people risk, information risk and IPR risk. There are appropriate assurance and monitoring mechanisms in place to monitor the effectiveness of the risk management framework including the mitigation plans identified by the Management for key risks identified through the risk management exercise.
INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has a well placed, proper and adequate Internal Financial Control “IFC” system which ensures that all assets are safeguarded and protected and that the transactions are authorised, recorded and reported correctly. The Company’s IFC system also comprises due compliances with Company’s policies and standard operating procedures, supplemented by internal audit checks from Grant Thornton, the internal auditors of the Company. During the year, the internal auditors have been engaged for providing assistance in reviewing and testing the IFC framework.
To ensure effective Internal Financial Controls the Company has laid down the following measures:
- All operations are executed through Standard Operating Procedures (SOPs) in all functional activities for which key manuals have been put in place. The manuals are updated and validated periodically.
- The Company follows a robust internal audit process:
- Management/Strategic/Proprietary audits are conducted on regular basis throughout the year as per agreed audit plan.
- The Audit Reports for the above audits are compiled and submitted to Audit Committee for review and necessary action.
- The Company’s Books of Accounts are maintained in SAP and transactions are executed through SAP (ERP) setups to ensure correctness/ effectiveness of all transactions, integrity and reliability of reporting.
- The Company has a robust mechanism of building budgets at an integrated cross- functional level. The budgets are reviewed on a monthly basis so as to analyze the performance and take corrective action, wherever required.
- The Company has in place a well-defined Whistle Blower Policy/ Vigil Mechanism.
- Compliance of secretarial functions is ensured by way of secretarial audit.
RESEARCH AND DEVELOPMENT:
Your Company has come out with India’s first Anti dust ceiling fan with a special coating which helps to drastically reduce the deposition of dust on the fan. Since its launch in October, 2016 this product has gained encouraging acceptance from consumers and channel partners.
Research and Development efforts in Pumps were focused on developing energy efficient pumps for a variety of applications to enhance ease and convenience of use and conserve water. Some of the products introduced in the year were:
- Pressure pump booster “IP” series with an intelligent controller “Intellipress” to offer trouble free and noiseless performance while efficiently delivering constant high pressure water.
- High pressure washing pump “CPW” series with pressure up to 110 bars for high pressure applications like cleaning of car, bike, floor, building facade etc. This pump requires significantly less water as compared to alternate pumps.
- An automatic, compact, noiseless and light weight, inline circulating pump (“CIL”) series for localized pressure boosting applications for shower, washing machine, geyser, solar water heater applications.
Research and Development efforts in Lighting were concentrated towards developing innovative products in LED consumer lighting using state of art design tools and techniques covering thermal, optical and electronics aspects. Some of the new products were:
- Colour changing LED lamps and battens which enable multiple light options as per the preference of the consumer.
- Dimmable battens
- High performance, aesthetic and energy efficient products with higher lumen in streetlight, floodlight and highbay series.
R&D efforts helped your Company in winning major orders for various prestigious projects like Delhi Metro, Bengaluru International Airport, Chennai Municipal Corporation and Tirumala Tirupati Devasathanam.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:
As required by the Companies Act, 2013, read with the Companies (Accounts) Rules, 2014, the relevant data pertaining to conservation of energy, technology absorption and foreign exchange earnings and outgo is given in the prescribed format as Annexure 2 to this Report.
ENVIRONMENT, HEALTH & SAFETY (EHS):
Your Company won the Frost and Sullivan’s Project Evaluation & Recognition Program (PERP) award for Operational Excellence Leadership category in the Manufacturing sector for its Baroda Factory. Baroda Factory also won National Energy Conservation Award - 2016 in the category of Tubular Fluorescent Lamps.
Your Company has revised its EHS policy to reaffirm its commitment to environment, safety & health of all employees and stakeholders and to minimize adverse environmental impact from its activities.
The EHS Policy, inter alia, covers and ensures safety of public, employees, plant and equipment, ensures compliance and imparts training on safety and sustainability.
Each plant has displayed and communicated the EHS Policy to all its stakeholders. To eliminate/minimise unsafe acts, awareness amongst employees is being enhanced by imparting EHS related training. Work permit system, SOP and detailed work instructions are used to reduce operational risks. A focused safety initiative “Kavach” is being deployed across the Company.
At each plant location, annual events are organised and commemorated like Road Safety Week, National Safety Day/ Week and Safety Audits/Inspections. Safety culture is being demonstrated through “Safety Crusade”, and “Waste to Wealth” programs in all manufacturing plants. Occupational health check-up of your Company’s employees, associates and health-friendly sustainable activities are promoted as per the guidelines.
At Baroda factory, the utilisation of STP-ETP treated water increased by 10% compared to 2015-16, resulting in reduction of fresh water intake by 3%. The centralised STP water system also helped to reduce 300 KWH of power usage every month. Hazardous waste generation reduced by 37% over last year at Baroda.
Rain water harvesting was done at Ahmednagar plant for effective utilization of water collected from the office terrace and factory roofs. This water, after due filtering, is used for replenishment of underground tanks with the overflow being used to recharge nearby bore wells. 4 soak pits were dug up at different locations in the factory premises to recharge the ground water levels. Approximately 20 lakh litres of rain water harvesting was done under this project.
A fire hydrant system was installed at Unit 2 Baddi as a part of emergency preparedness for fire fighting.
CORPORATE SOCIAL RESPONSIBILITY (CSR):
Your Company’s commitment towards CSR initiatives endeavours to embrace responsibility for its corporate actions and achieve fruitful impact of its business actions not only on its stakeholders, but also the society at large.
2016-17 was the first full year of the operations of the Company post demerger. During the year the Company carried out a detailed assessment of the areas where the CSR activities should be focused so as to maximise societal good. Based on interactions with a wide cross section of stakeholders - internal and external - the Company has identified the following as the focus areas for its CSR activity(ies):-
a. Promoting education and vocational skills;
b. Projects for conservation of water.
Due to the time taken to finalise the priority areas, the Company was able to spend on CSR an amount of Rs.0.10 crores which is 0.04% of PAT. In the current year the Company endeavours to increase the spending on CSR and be in line with the norms in this area.
Your Company’s CSR Policy statement and annual report on the CSR activities undertaken during the financial year ended 31st March, 2017, in accordance with section 135 of the Companies Act, 2013 and Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed to this report as Annexure 3.
Electronic copies of the Annual Report and Notice of the 3rd Annual General Meeting will be sent to all members whose email addresses are registered with the Company/Depository Participant(s). For members who have not registered their email addresses, physical copies of the Notice and Annual Report will be sent in the permitted mode. [Members requiring physical copies can send a request to the Company]. The physical copies of the aforesaid documents will also be available at the Company’s Registered Office for inspection during normal business hours on all working days, excluding Saturdays.
MATERIAL CHANGES AND COMMITMENT AFFECTING FINANCIAL POSITION OF THE COMPANY:
There are no material changes and commitments affecting the financial position of your Company which have occurred between the end of the financial year of the Company i.e. 31st March, 2017 and the date of the Board Report.
Based on the recommendation of the Audit Committee, the Board had appointed Ashwin Solanki & Associates as Cost Auditors, for 2016-17 and 2017-18.
As required under the Act, the necessary resolution seeking member’s ratification for the remuneration payable to the Cost Auditors is included in the notice convening the 3rd Annual General Meeting.
The Cost Audit report in respect of financial year 2016-17 will be filed within the due date.
Your Company has appointed Mehta and Mehta, Practicing Company Secretaries to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit for 201617 is annexed here with as Annexure 4 to the Report.
MATERIAL ORDERS OF REGULATORS/COURTS/TRIBUNALS:
No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company’s operations in future.
SHARE REGISTRAR & TRANSFER AGENT:
Karvy Computershare Pvt. Ltd. (“Karvy”), a SEBI registered Registrar & Transfer Agent (“RTA”) has been appointed as the Company’s RTA for shares and NCD’s. The contact details of Karvy are mentioned in the Report on Corporate Governance.
No public deposits have been accepted by your Company during the year under review.
PARTICULARS OF EMPLOYEES:
The Company had seven employees who were in receipt of remuneration of not less than Rs.1,02,00,000 if employed for the full year or not less than Rs.8,50,000 per month if employed for any part of the year.
Disclosures with respect to the remuneration of Directors, KMPs and employees as per section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in Annexure 5 to this Report. Your Directors affirm that the remuneration is as per the remuneration policy of the Company.
Details of employee remuneration as required under provisions of section 197(12) of the Companies Act, 2013 read with Rule 5(2) & 5(3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are available at the Registered Office of the Company during working hours, 21 days before the Annual General Meeting and shall be made available to members on request.
BUSINESS RESPONSIBILITY REPORT:
A Business Responsibility Report as per Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, detailing the various initiatives taken by your Company on the environmental, social and governance front forms an integral part of this report.
COMPLAINTS RELATING TO SEXUAL HARASSMENT:
Your Company has in place an Anti-Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this Policy. The Policy is gender neutral.
During the year under review, one complaint with allegations of sexual harassment was reported which was investigated by the committee (including an external member) as defined under the Policy and appropriate action was taken in the said case.
Your Company has formulated a Vigil Mechanism and Whistle Blower Policy with a view to providing a mechanism for employees to report violations and assure them of the process that will be followed to address the reported violation. The Policy also lays down the procedures to be followed by Senior Management for tracking of complaints, giving feedback, conducting investigations and taking disciplinary actions. It also provides assurances and guidelines on confidentiality of the reporting process and protection from reprisal to complainants. No personnel have been denied access to the Audit Committee.
Whistleblower Policy of the Company is available on the website of the Company and can be accessed at the web link: www.crompton.co.in .
The Company’s Statutory Auditors, M/s. Sharp & Tannan, who were appointed at the 2nd Annual General Meeting of the Company, for a term of 5 (five) years hold office up to the conclusion of the Seventh Annual General Meeting, subject to the ratification by the Members at every Annual General Meeting. At the ensuing Annual General Meeting, their appointment is proposed to be ratified by the shareholders.
Your Company has received written consent and certificate of eligibility in accordance with Sections 139, 141 and other applicable provisions of the Companies Act, 2013 and Rules issued thereunder (including any statutory modification(s) or re-enactment(s) for the time being in force), from M/s. Sharp & Tannan.
During the year no frauds have been reported by the auditors under sub-section (12) of Section 143 of the Companies Act, 2013 either to Audit Committee of the Company or to the Central Government.
The equity shares of your Company were listed on BSE Ltd. and National Stock Exchange of India Ltd. on 13th May, 2016. The Non Convertible Debentures of the Company were listed on the Debt Segment of National Stock Exchange of India Ltd on 30th June, 2016. The Company has paid the Listing fees for both the Stock Exchanges for the F.Y. 2017-18.
EXTRACT OF ANNUAL RETURN:
The details forming part of the extract of the Annual Return in Form MGT 9 is annexed herewith as Annexure 6.
DIRECTORS’ RESPONSIBILITY STATEMENT:
Your Directors would like to assure the Members that the Financial Statements for the year under review conform in their entirety to the requirements of the Companies Act, 2013. Your Directors confirm that:
- the Annual Accounts have been prepared in conformity with the applicable Accounting Standards
- the Accounting Policies selected and applied on a consistent basis, give a true and fair view of the affairs of the Company and of the profit for 2016-17
- sufficient care has been taken that adequate accounting records have been maintained for safeguarding the assets of the Company; and for prevention and detection of fraud and other irregularities
- the Annual Accounts have been prepared on a going concern basis
- the internal financial controls laid down in the Company were adequate and operating effectively
- the systems devised to ensure compliance with the provisions of all applicable laws were adequate and operating effectively
Your Directors wish to convey their gratitude and appreciation to all of the Company’s employees at all its locations for their tremendous personal efforts as well as their collective dedication and contribution to the Company’s performance.
The Directors would also like to thank the employee unions, shareholders, customers, dealers, suppliers, bankers, government and all other business associates, consultants and all the stakeholders for their continued support extended to the Company and the Management.
On behalf of the Board of Directors
For Crompton Greaves Consumer Electricals Ltd.
H. M. Nerurkar
Date: 26th May, 2017