To the Members,
Your Company’s Directors are pleased to present the 39th Annual Report of the Company, along with Audited Financial Statement for the year ended 31 December 2016.
1. FINANCIAL RESULTS
For the year ended 31 December 2016 (Rupees in Crores)
For the year ended 31 December 2015 (Rupees in Crores)
Profit before Depreciation, Exceptional Items & Tax
Interest Income (Net of Finance Cost)
Profit before Depreciation & Tax
Depreciation & Amortisation
Profit after Tax
Balance as per last Balance Sheet brought forward
Profit available for Appropriation
The Appropriations are:
Tax on Dividend
Tax on Final Dividend - 2014
Net surplus in the Statement of Profit & Loss
Net revenues from operations of your Company have increased by about 2% over the previous year to Rs. 3,370 Crores, mainly due to 4.4% rise in volumes driven by growth in Power Brands and personal mobility segment. Costs of materials were lower by about 4% over the previous year at Rs. 1,532 Crores mainly due to drop in input costs. operating and other expenses increased by Rs. 31.51 Crores as compared to the previous year. Profit Before Tax increased by about 10% over previous year to Rs. 1,046 Crores. Tax rate for the current year has remained at nearly the same level as that of the previous year. Profit After Tax increased by 10% over the previous year to Rs. 675 Crores.
Your Company’s performance has been discussed in detail in ‘Management Discussion and Analysis Report’.
Your Company does not have any subsidiary or associate or joint venture company.
Your Directors are pleased to recommend a final dividend of Rs. 4.50/- per equity share (2015: Rs. 5/per share) for the Financial Year ended 31 December 2016. This is in addition to the interim dividend of Rs. 4.50/- per share (2015: interim dividend Rs. 4/- per share) paid on 18 August 2016 and a special dividend of Rs. 2/- per share (2015: Nil per share) to be paid on or before 23 March 2017.
The final dividend, subject to approval of Members, will be paid within statutory period, to those Members whose names appear in the Register of Members, as on the date of book closure. The total dividend for the Financial Year ended 31 December
2016, including the proposed final dividend, amounts to Rs. 11/- per equity share (220% on paid-up equity share capital) (2015: Rs. 9/per share) and will absorb Rs. 544.01 Crores (2015: Rs. 445.10 Crores).
The dividend payout for the year under review is in accordance with your Company’s policy to pay sustainable dividend linked to long-term growth objectives of your Company to be met by internal cash accruals.
The dividend distribution policy is given as Annexure-I to this Report. The same is also available on the website of the Company at http://www.castrol.com/en_in/india/financials/ other-financial-documents-policies.html
4. TRANSFER TO RESERVE
Your Directors do not propose to transfer any amount to the General Reserves for the Financial Year ended 31 December 2016.
5. INDIAN ACCOUNTING STANDARDS (IND AS) -IFRS CONVERGED STANDARDS
Your Company will adopt Ind-AS with effect from 1 January 2017 pursuant to Ministry of Corporate Affairs’ notification dated 16 February
2015 notifying the Companies (Indian Accounting Standard) Rules, 2015.
6. SUPPLY CHAIN
Your Company’s Supply Chain function remained an important enabler for the organization. The five strategic pillars of Supply Chain continued to be:
(1) Contemporary, differentiated and competitive customer service;
(2) Premium quality - a source of enhanced customer experience;
(3) Supply Chain capabilities - assets and resources to support growth;
(4) Consistent processes;
(5) Generating value for business through efficiency initiatives.
Health, Safety, Security and Environment, along with Ethics and Values formed the core of operations.
The safety agenda continued to be driven strongly through plant safety and road safety initiatives. The Family Connect programme for heavy vehicle drivers continued to be an important forum for engagement with the drivers across multiple locations. Within plants, as part of the safe control and monitoring mechanism, Safety observations continued to be recorded and proactively addressed. The Control of Work guidelines and operating Management System processes across the plants and other Supply Chain functions continued to be strengthened.
Customer service and product availability were key priorities for Supply Chain. They were driven by proactively anticipating demand changes and variability, as well as continuous improvement in order fulfilment processes. The improvements in customer service were fully supported by plant production reliability as well as raw materials and packaging suppliers.
The team continued to focus on quality by using stringent input measures and processes - helping drive a premium image in the market. Strong inspection programmes at supplier and process levels continued through the year. As a result of continuous improvement in customer complaints, the quality complaint closure rate for the period was increased to 92.6%.
In order to support growth operations, your Company continued to invest in projects and initiatives to make the operations robust for future. The total capital investment across multiple Supply Chain projects for 2016 was about Rs. 22.5 Crores.
Throughout the year, there was strong focus on generating value through standardization and simplification. Efficient sourcing and transportation initiatives, focusing on cost optimization, were led successfully, helping deliver additional value for business.
7. DIRECTORS AND KEY MANAGERIAL PERSONNEL
At the 38th Annual General Meeting held on 5 May 2016, Members approved appointment of Mr. Omer Dormen as the Managing Director of the Company.
Mr. Ralph Hewins ceased to be a Nominee Director of the Company with effect from 31 August 2016 as your Company had received a letter from Castrol Limited UK intimating the withdrawal of his nomination, consequent to his resignation from Castrol Limited UK. Your Board places on record its appreciation for outstanding contributions made by Mr. Ralph Hewins during his tenure as the Nominee Director of the Company.
Mr. Sandeep Deshmukh resigned as Company Secretary with effect from 14 March 2016. Your Board places on record its appreciation for contributions made by Mr. Sandeep Deshmukh during his tenure as the Company Secretary of your Company.
Your Board at its meeting held on 16 December 2016 appointed Ms. Chandana Dhar, as Company Secretary and Compliance officer of the Company effective from 12 January 2017 on the recommendation made by Nomination and Remuneration Committee.
In accordance with the provisions of the Companies Act, 2013 (the "Act”) and the Articles of Association of the Company, Mr. omer Dormen and Ms. Rashmi Joshi, Directors of the Company, retire by rotation at the ensuing Annual General Meeting and being eligible have offered themselves for re-appointment.
A brief resume of each of the Directors proposed to be re-appointed at the ensuing Annual General Meeting, and the details of the Directorships held by them in other companies are given in the Corporate Governance section of this Annual Report. Appropriate resolutions for the re-appointment of the aforesaid Directors are being moved at the ensuing Annual General Meeting, which the Board recommends for your approval.
The Independent Directors of your Company have given the certificate of independence to your Company stating that they meet the criteria of independence as mentioned under Section 149 (6) of the Act.
There is no change in the composition of the Board of Directors and Key Managerial Personnel during the year under review, except as stated above.
8. BOARD EVALUATION
The Nomination and Remuneration Committee of your Company approved Board Performance Evaluation Policy (the "Policy”) during the year, which was adopted by the Board of Directors. The Policy provides for evaluation of the Board, the Committees of the Board and individual Directors, including the Chairman of the Board. The Policy provides that evaluation of the performance of the Board as a whole and the Board Committees and individual Directors shall be carried out annually.
Your Company has appointed a reputed agency that engages with the Chairman of the Board and Chairman of the Nomination and Remuneration Committee in respect of the evaluation process. The agency prepares an independent report which is used for giving appropriate feedback to the Board/Committees/Directors for discussions in the meetings.
During the year, the evaluation cycle was completed by the Company which included the evaluation of the Board as a whole, Board Committees and individual Directors. The evaluation process focused on various aspects of the Board and Committees'''' functioning such as composition of the Board and Committees, experience and competencies, performance of specific duties, obligations and governance issues. A separate exercise was carried out to evaluate the performance of individual Directors on parameters such as attendance, contribution and exercise of independent judgment.
The results of the evaluation of the Board and Committees were shared with the Board and respective Committees. The Chairman of the Board had individual discussions with each member of the Board to discuss the performance feedback based on self-appraisal and peer review. The Nomination and Remuneration Committee Chairman discussed the performance review with the Chairman of the Board.
The Independent Directors met on 14 November 2016 to review performance evaluation of Non Independent Directors and the Board of Directors and also of the Chairman taking into account views of Executive Directors and Non-Executive Directors.
Based on the outcome of the evaluation, the Board and Committees have agreed on various action points, which would result in each Director, its Committees and the Board playing more meaningful roles to increase shareholder value.
9. POLICY ON DIRECTORS’ APPOINTMENTS, REMUNERATION, ETC.
Policy on Remuneration of Directors, Key Managerial Personnel (KMP) and Senior Management Employees and Policy on Appointment of Directors, Independence of Directors and Board Diversity are given as Annexure II & III to this report.
10. BOARD AND COMMITTEES
A calendar of proposed dates for meetings is prepared and circulated in advance to the Directors. The Board met five times during the year, details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between the meetings was within the period prescribed under the Act and the SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations 2015”). Details of all the Committee of the Board have been given in the Corporate Governance Report.
11. CORPORATE GOVERNANCE
Your Company is part of BP Group which is known globally for best standards of governance and business ethics. Your Company has put in place governance practices as prevalent globally. The Corporate Governance Report and the Auditor’s Certificate regarding compliance of conditions of Corporate Governance are made part of the Annual Report.
12. CORPORATE SOCIAL RESPONSIBILITY
Your Company recognizes the need and importance of a focused and inclusive social and economic development, especially of the industries and communities within which it operates. Your Company seeks to build open and constructive relationships with all its stakeholders and wants them to benefit from your Company’s presence and this is set out in the Code of Conduct and values of your Company. over the last hundred years of the Company’s presence in India, Castrol India’s Corporate Social Responsibility (CSR) activities have evolved from charitable giving to a strategic CSR programme, working in collaboration with key stakeholders. The CSR programme of your Company aligns business risks and opportunities with the national agenda of development priorities to meet the needs and aspirations of the populace.
Your Company aims to provide a safer and better quality of life for the communities it serves, whilst ensuring the long-term sustainability of the
Company’s operations in the relevant industries where it operates. In alignment with our core skills and vision of building a safer and better quality of life, underpinned by our focus on progressive technology and in line with the aspirations of the country’s youth, the Company focuses on the following programmes:
i. Eklavya: Strengthening skills in the automotive and industrial sectors, with a focus on technology
ii. Ehtiyat: Collaborating for safer mobility
iii. Ekjut: Community Development in areas of operation and presence
iv. Ehsaas: Humanitarian aid
Corporate Social Responsibility Committee of the Board has recommended and the Board has approved a CSR Policy in line with the requirements of Section 135 of the Act.
The Corporate Social Responsibility Policy is available on the website of the Company at http://www.castrol.com/en_in/india/about-us/csr. html.
The Annual Report on CSR activities is annexed to this report as Annexure-IV.
The Business Responsibility Report also contains information on work done on CSR.
13. DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to the requirement under Sections 134(3)(c) and 134(5) of the Act, with respect to the Directors’ Responsibility Statement, it is hereby confirmed:
(a) in the preparation of the annual accounts for the year ended 31 December 2016, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same;
(b) t he Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31 December 2016 and of the profit of your Company for the year ended on that date;
(c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
(d) the Directors have prepared the annual accounts on a ‘going concern'''' basis;
(e) the Directors have laid down internal financial controls to be followed by your Company and that such internal financial controls are adequate and are operating effectively; and
(f) t he Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.
14. RISK MANAGEMENT AND ADEQUACY OF INTERNAL FINANCIAL CONTROLS
Your Company has set up a Risk Management Committee. Your Company has also adopted a Risk Management Policy, the details of which are given in the Corporate Governance Report that forms part of this Annual Report.
Your Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. We believe that these internal control systems provide, among other things, a reasonable assurance that transactions are executed with Management authorisation and that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles and that the assets of your Company are adequately safe-guarded against significant misuse or loss. An independent Internal Audit function is an important element of your Company''''s internal control system. The internal control system is supplemented through an extensive internal audit programme and periodic review by Management and Audit Committee.
Your Company has in place, adequate Internal Financial Controls with reference to Financial Statements. During the year, such controls were tested and no reportable material weaknesses in the design or operation were observed.
15. RELATED PARTY TRANSACTIONS
Your Company has adopted a Related Party Transactions Policy. The Audit Committee reviews the Policy from time to time and also approves and reviews all Related Party Transactions, to ensure that the same are in line with the provisions of applicable law and the Policy. The Committee approves the Related Party Transactions and wherever it is not possible to estimate the value, approves limit for the Financial Year, based on best estimates. All Related Party Transactions are reviewed by an independent accounting firm to establish compliance with law and limits approved.
All Related Party Transactions entered during the year were in Ordinary Course of the Business and on Arm''''s Length basis. No Material Related Party Transactions were entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions as required under Section 134(3)(h) of the Act, in Form AOC-2 is not applicable to your Company.
In conformity with the requirements of the Act, read with SEBI Listing Regulations, 2015 the policy to deal with Related Party Transactions is also available on Company’s website at http:// www.castrol.com/en_in/india/about-us/financials/ other-financial-documents-policies.html
Your Company has not accepted any Fixed Deposits under Chapter V of The Act during this Financial Year and as such, no amount on account of Principal or Interest on Deposits from Public was outstanding as on 31 December 2016.
17. PARTICULARS OF LOANS GIVEN, INVESTMENTS MADE, GUARANTEES GIVEN AND SECURITIES PROVIDED
Particulars of loans, guarantees and investments made by your Company pursuant to Section 186 of the Act, are given in the Notes to the Financial Statement which forms part of the Annual Report.
18. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, RESEARCH & DEVELOPMENT (R&D) AND FOREIGN EXCHANGE EARNING AND OUTGO
The particulars relating to conservation of Energy, Technology Absorption, Foreign Exchange Earnings and outgo, as required to be disclosed under the Act, are provided as Annexure-V.
19. MATERIAL CHANGES OCCURRED AFTER END OF FINANCIAL YEAR
Except as disclosed elsewhere in this Annual Report, no material changes and commitments which could affect your Company’s financial position have occurred between the end of the Financial Year of your Company and date of this Annual Report.
M/s. SRBC & Co. LLP, Chartered Accountants, retire as Statutory Auditors of the Company from the conclusion of the ensuing Annual General Meeting. The Audit Report given by the Auditors on the financial statements of your Company is part of the Annual Report. There has been no qualification, reservation or adverse remark given by the Auditors in their Report.
I n accordance with Section 139 of the Act, listed companies cannot appoint or re-appoint the auditor for more than two terms of five consecutive years, if the auditor is an audit firm. Existing companies, which are covered under auditor rotation requirement, should comply with these requirements within three years from the date of commencement of the Act.
SRBC & Co, LLP, Chartered Accountants (ICAI Firm Registration No. 324982E), Mumbai have been the Auditors of your Company since 2001 and have completed a term of sixteen years (including three years of transitional period). It is now proposed to appoint M/s. Deloitte Haskins & Sells LLP, Chartered Accountants (Firm Registration Number 117366W-100018) as Statutory Auditors of your Company. Further, M/s. Deloitte Haskins & Sells LLP have consented to be appointed as Statutory Auditors of the Company and have confirmed that their appointment, if made, would be in compliance with the provisions of Sections 139 and 141 of the Act and Rules framed there under.
The Audit Committee and the Board, at their respective meetings held on 21 February 2017, have recommended appointment of M/s. Deloitte Haskins & Sells LLP, Chartered Accountants (Firm Registration Number 117366W-100018), as Statutory Auditors of the Company, from the conclusion of ensuing Annual General Meeting until conclusion of 44th Annual General Meeting.
M/s. Kishore Bhatia & Associates, Cost Accountants carried out the Cost Audit for applicable business segment. It is proposed to re-appoint them as Cost Auditors for the Financial Year ending 31 December 2017.
The Board had appointed M/s. S. N. Ananthasubramanian & Co., Company Secretaries in Whole-time Practice, to carry out Secretarial Audit under the provisions of Section 204 of the Act, for the Financial Year 2016. The Secretarial Audit report is annexed to this report marked as Annexure-VI.
The qualification made by the Secretarial Auditor in the Secretarial Audit Report is pertaining to non-appointment of Company Secretary within the statutorily permitted period of six months from the vacancy of office of the whole-time Key Managerial Personnel pursuant to Section 203(4) of the Companies Act, 2013 for which your Company has filed a suo-moto application for compounding of the contravention of said provision of the Act before the Hon''''ble National Company Law Tribunal, Mumbai Bench.
Your Board has appointed Ms. Chandana Dhar as Company Secretary with effect from 12 January 2017.
21. EXTRACT OF THE ANNUAL RETURN
Details forming part of the extract of the Annual Return in Form MGT 9 as per provisions of the Act, and rules thereto are annexed to this report as Annexure VII.
22. PARTICULARS OF EMPLOYEES
Disclosures with respect to the remuneration of Directors and employees as required under Section 197 of the Act, and Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 have been annexed to this report as Annexure-VIII.
Details of employee remuneration as required under provisions of Section 197 of the Act, and Rule 5(2) & 5(3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, form part of this Report. As per the provisions of Section 136 of the Act, the Report and Financial Statement are being sent to the shareholders of your Company and others entitled thereto, excluding the statement on particulars of employees. Copies of said statement are available at the Registered office of the Company during the designated working hours up to 21 days before the Annual General Meeting. Any Member interested in obtaining such details may also write to the Secretarial Department at the Registered Office of the Company.
23. PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE
Your Company firmly believes in providing a safe, supportive and friendly workplace environment - a workplace where our values come to life through the supporting behaviours. Positive workplace environment and a great employee experience are integral part of our culture. Your Company believes in providing and ensuring a workplace free from discrimination and harassment based on gender.
Your Company educates its employees as to what may constitute sexual harassment and in the event of any occurrence of an incident constituting sexual harassment, your Company provides the mechanism to seek recourse and redressal to the concerned individual subjected to sexual harassment.
Your Company has a Sexual Harassment -Prevention and Grievance Handling Policy in place to provide clarity around the process to raise such a grievance and how the grievance will be investigated and resolved. An Internal Complaints Committee has been constituted in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
During the year there was one complaint of sexual harassment that was reported which was reviewed by the Internal Complaints Committee. Pursuant to the review, disciplinary action was taken against the employee accused of sexual harassment.
24. VIGIL MECHANISM
Your Company has a very strong whistle blower policy viz. ‘Open Talk’. All employees of your Company also have access to the Chairman of the Audit Committee in case they wish to report any concern. Your Company has provided a dedicated e-mail address for reporting such concerns. All cases registered under Whistle Blower Policy of your Company are reported to and are subject to the review of the Audit Committee.
25. GENERAL DISCLOSURES
Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review:
1. I ssue of Equity Shares with differential rights as to dividend, voting or otherwise.
2. Issue of Shares (including Sweat Equity Shares) to employees of your Company under any scheme. Your Company has not resorted to any buy back of its shares during the year under review.
3. Neither the Managing Director nor the Whole time Directors of your Company receive any remuneration or commission from any of its subsidiaries.
4. 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.
The Board wishes to place on record its sincere appreciation of the efforts put in by your Company’s employees for achieving encouraging results under difficult conditions. The Board also wishes to thank its members, distributors, vendors, customers, bankers, government and all other business associates for their support during the year.
on behalf of the Board of Directors
omer Dormen Rashmi Joshi
Managing Director Director Finance &
DIN: 07282001 Chief Financial Officer
Place : Mumbai
Date : 21 February 2017