TO THE MEMBERS OF TATA CHEMICALS LIMITED
The Directors hereby present their seventy eighth Annual Report together with the audited financial statements for the Financial Year (FY) ended 31 March, 2017.
Rs, in crore
Year ended 31 March, 2017
Year ended 31 March, 2016
Year ended 31 March, 2017
Year ended 31 March, 2016
Revenue from operations
Profit from ordinary activities before depreciation and finance costs
Depreciation and amortization expense
Profit from ordinary activities before finance costs
Profit before share of profit of an associate and joint ventures and tax
Share of profit / (loss) of an associate and joint ventures
Profit before tax
Profit for the year from continuing operations after tax
Profit from discontinued operation after tax
Profit for the year
- Equity shareholders of the Company
- Non-controlling interests
Other Comprehensive Income (''''OCI'''')
Total Comprehensive Income
Balance in Retained earnings at the beginning of the year
Profit for the year (attributable to equity shareholders of the Company)
Remeasurement of defined employee benefit plans
Dividends including tax on dividend
Acquisition of non-controlling interests
Transferred to General reserve
Balance in Retained earnings at the end of the year
For the year under review, the Directors have recommended a dividend of Rs, 11 per share (110%) on the Ordinary Shares of the Company (previous year Rs, 10 per share). If declared by the members at the ensuing Annual General Meeting (AGM), the total dividend outgo during FY 2017-18 would amount to Rs, 280.23 crore excluding dividend tax (previous year Rs, 254.76 crore excluding dividend tax).
The Company has entered into an Agreement with Yara Fertilizers India Private Limited (''''Yara India'''') to transfer its urea and customized fertilizer business at Babrala, Uttar Pradesh, by way of a slump sale, on a going concern basis, for a consideration of Rs, 2,670 crore (subject to certain adjustments) through a Scheme of Arrangement. Final approval on the Scheme of Arrangement from the Hon''''ble National Company Law Tribunal is awaited. The effect of the transfer will be reflected in the financial results of the period in which the deal is consummated post receipt of all the requisite regulatory and statutory approvals. Hence, urea and customized fertilizer business is classified as discontinued operation in the financial statements for the year ended 31 March, 2017.
The consolidated revenue from the continuing operations decreased from Rs, 15,220.23 crore to Rs, 13,288.92 crore, a decrease of 12.69% over the previous year. Earnings before interest, tax, depreciation and amortization (''''EBITDA'''') from continuing operations has increased from Rs, 2,091.73 crore to Rs, 2,223.62 crore, an increase of 6.31% over the previous year. Profit before tax from continuing operations has increased from Rs, 1,180.33 crore to Rs, 1,456.60 crore, an increase of 23.41% over the previous year. Profit after tax from the continuing operations has increased from Rs, 931.95 crore to Rs, 1,099.27 crore, an increase of 17.95% over the previous year. Profit for the year (continuing operations and discontinued operation) has increased from Rs, 1,006.16 crore to Rs, 1,234.10 crore, an increase of 22.65% over the previous year. Profit for the year attributable to equity shareholders of the Company has increased from Rs, 770.58 crore to Rs, 993.11 crore, an increase of 28.88% over the previous year.
The revenue from the continuing operations decreased from Rs, 8,469.50 crore to Rs, 6,470.92 crore, a decrease of 23.60% over the previous year. EBITDA from continuing operations has increased from Rs, 971.41 crore to Rs, 984.37 crore, an increase of 1.33% over the previous year. Profit before tax from continuing operations has increased from Rs, 767.12 crore to Rs, 794.03 crore, an increase of 3.51% over the previous year. Profit for the year (continuing operations and discontinued operation) has increased from Rs, 666.20 crore to Rs, 692.71 crore, an increase of 3.98% over the previous year.
Tata Chemicals Limited''''s (''''TCL'''' or ''''the Company'''') operation is organized under four segments i.e. (1) Inorganic Chemicals comprising Soda Ash, Salt, Sodium Bicarbonate, Marine Chemicals, Caustic Soda and Cement, (2) Fertilizers comprising Fertilizers and other traded products, (3) Other Agri-inputs including Rallis India Limited''''s operations and (4) Others comprising Pulses, Spices, Water Purifier, Nutritional Solutions. Performance review of these businesses is as under:
1. INORGANIC CHEMICALS SEGMENT
1.1 INDIA OPERATIONS:
During the year, the Inorganic Chemicals business posted a revenue on standalone basis of Rs, 3,556.83 crore against Rs, 3,638.06 crore in the previous year, down by 2.23%.
The Indian Chemical Operations registered another year of healthy financial performance with profit before tax higher than the previous year, in a mixed business environment. An increased focus on cost, driven through several operational efficiency programs, enabled this
performance in an environment characterised by pricing pressures.
The production volumes of all major products; soda ash, sodium bicarbonate and salt exceeded previous year levels. However, increased imports and domestic capacity addition led to soda ash prices coming under pressure during the year. Operational costs, both fixed and variable cost, were kept under strict control. Higher manufacturing volumes and lower costs helped overcome pricing pressure in the market and led to an overall improvement in the profitability levels.
In contrast to almost flat demand witnessed in FY 2015
16, the soda ash domestic market grew at ~ 7% during the year under review, driven by the two key consuming industries of glass and detergents. The manufacturing volumes at Mithapur also went up marginally from 8.10 lakh tonnes per annum to 8.16 lakh tonnes per annum. The soda ash production volume at Mithapur was supplemented by sourcing from TCL group companies and others leading to a total sales volume of 7.08 lakh tonnes per annum for the year under review (part of the domestic production was also used for conversion into sodium bicarbonate at Mithapur). Prices remained under pressure due to higher import and domestic volumes.
The Company believes in the long-term volume and value growth potential of the domestic sodium bicarbonate market. The demand is estimated to have grown by ~ 7% in FY 2016-17, consistent with its long-term growth trend. Sodium bicarbonate production at Mithapur rose from 97,555 tonnes to 1,01,210 tonnes for the year. Sales volume of 94,338 tonnes for the year under review showed a similar trend which helped the Company maintain its market share in excess of 50%. Although sodium bicarbonate prices were under pressure during the year, the Company continues to focus on value-driven growth by expanding its portfolio of value added offerings for high-end applications in the domestic market.
The business environment for cement continued to remain challenging during the year with subdued demand growth and pricing pressures resulting in downward pressure on both the sales volume and realizations throughout the year. Cement production volumes were at 5,15,685 tonnes for the year against 5,27,232 tonnes during the previous year. Cement sales during the year were at 5,17,721 tonnes against 5,34,230 tonnes during the previous year. However, the Company''''s continued focus on driving profitability in this business by strict cost control and operating in low freight zones would assist in driving superior performance going forward.
Iodized salt production in Mithapur was 9,19,850 tonnes, up by 7.34% over the previous year. Overall, branded salt sales grew by 2.30% over the previous year and stood at 10,73,215 tonnes in FY 2016-17.
Tata Salt grew by 4.27% in sales volume over the previous year to reach sales volume of 9,04,158 tonnes in FY 2016 17. It continues to be the largest distributed brand with a reach of 16.7 lakh retail outlets across India.
Tata Salt Lite grew by 10.65% in sales volume and achieved volumes of 19,619 tonnes in FY 2016-17.
I-Shakti salt continued to address the iodization movement, complimenting Tata Salt with a sale of 1,20,194 tonnes in FY 2016-17.
1.2 OVERSEAS OPERATIONS 1.2.1 Tata Chemicals North America Inc. (TCNA)
TCNA production volumes were higher by 4.43% during the year due to reliability programme initiated at the site. Sales volumes were higher by 6.11% during the year. TCNA posted gross revenue of US$ 476.11 million (Rs, 3,193.48 crore) for the year ended 31 March, 2017 against US$ 460.47 million (Rs, 3,014.66 crore) in the previous year. Revenue increased during the year due to higher sales volumes partially offset by adverse sales mix and pricing.
TCNA registered EBITDA of US$ 95.85 million (Rs, 642.91 crore) against US$ 98.10 million (Rs, 642.25 crore) in the previous year. Favorable sales and production volumes and favorable plant costs were offset by adverse sales price and mix.
Profit before tax and profit after tax and non-controlling interest for the year were at US$ 67.15 million (Rs, 450.40 crore) and US$ 31.56 million (Rs, 211.69 crore) respectively against US$ 68.50 million (Rs, 448.46 crore) and US$ 33.48 million (Rs, 219.19 crore) respectively during the previous year.
1.2.2 Tata Chemicals Europe Holdings Limited (TCEHL)
TCEHL is the holding company for Tata Chemicals Europe Limited with operations in soda ash, sodium bicarbonate and energy businesses as well as British Salt Limited which carries on the business of manufacturing and sale of industrial salt.
TCEHL''''s overall turnover for the year was GBP 180.22 million (Rs, 1,578.21 crore) against GBP 167.40 million (Rs, 1,652.93 crore) in the previous year. The group companies maintained their share of UK markets in all key products during the year. Production of soda ash and sodium bicarbonate increased by 2.59%, continuing the positive trend seen in recent years and accompanied by improved manufacturing efficiencies. Sales volume of soda ash were down by 2.24%, sodium bicarbonate up by 5% and salt up by 2.45%. Export sales volume were below 2016 levels but margins improved due to the weakness of Sterling against Euro and US Dollar. Electricity sales were higher as a result of the full year contribution from the new steam turbine commissioned in the third quarter of 2016. The businesses also benefited from the successful delivery of the final phase of a fixed cost reduction programme which was launched in 2014. The defined benefit pension scheme of Tata Chemicals Europe Limited was closed to future accrual in May, 2016.
EBITDA for the year was GBP 26.83 million (Rs, 234.95 crore) against GBP 17.72 million (Rs, 174.97 crore) in the previous year, up by 51.41% mainly due to underlying profitability improvements across the product range. The profit on ordinary activities before taxation was GBP 11.28 million (Rs, 98.78 crore) against loss of GBP 4.61 million (Rs, 45.52 crore) in the previous year after taking into account credits in respect of derivative mark-to-market adjustments of GBP 2.47 million (Rs, 21.63 crore) against charges of GBP 3.12 million (Rs, 30.81 crore) in the previous year.
While there was no current tax charge for the year (2016: Nil) but movements in deferred tax resulted in a charge of GBP 2.21 million (Rs, 19.35 crore) against credit of GBP 0.95 million (Rs, 9.38 crore) in the previous year.
The profit after tax was GBP 9.07 million (Rs, 79.43 crore) against the loss of GBP 3.66 million (Rs, 36.14 crore) in the previous year.
1.2.3 Tata Chemicals Magadi Limited (TCML)
During the year, TCML soda ash production volume and sales volume were both down by 3.54% and 11.40% respectively.
TCML posted total sales of US$ 59.77 million (Rs, 400.90 crore) against US$ 74.05 million (Rs, 484.80 crore) during the previous year.
TCML achieved gross profit of US$ 35.75 million (Rs, 239.79 crore) for the year against US$ 43.48 million (Rs, 284.66 crore) in the previous year. EBITDA for the year was US$ 5.70 million (Rs, 38.23 crore) against US$ 17.55 million (Rs, 114.90 crore) in the previous year. The major contributing factors for the lower EBITDA performance were mainly lower sales volume, selling prices, product quality challenges and poor plant efficiencies.
The year under review registered a profit after tax of US$ 1.08 million (Rs, 7.22 crore) compared to US$ 10.52 million (Rs, 68.87 crore) in the previous year.
1.2.4 Tata Chemicals International Pte Limited (TCIPL)
TCIPL is a wholly owned subsidiary of Tata Chemicals Limited based in Singapore. The primary activities of the company constitute of trading and holding investments in overseas subsidiaries. TCIPL is trading soda ash of different grades in South East Asia and Middle East and also exploring opportunities in allied products in these markets.
During the year under review, TCIPL expanded its business portfolio by engaging in procurement of coal from Indonesia. During the year, TCIPL''''s revenue was US$ 78.18 million (Rs, 524.39 crore) and other income includes dividend from wholly owned subsidiary of US$ 10.73 million (Rs, 71.97 crore). TCIPLRs,s profit after tax for the year was US$ 2.55 million (Rs, 17.11 crore).
2. FERTILISER SEGMENT
CROP NUTRITION AND AGRI BUSINESS (CNAB)
CNAB, which is part of our Farm Essentials business has two fertiliser manufacturing units; Babrala plant; manufacturing Urea and Customised Fertiliser and the Haldia plant; producing Phosphatic Fertilisers such as Di-ammonium Phosphate (DAP), NPK and Single Super Phosphate (SSP). In addition to these facilities, the Company imports and sells bulk fertilisers like DAP and Muriate of Potash (MOP). The Company also supplies other products like Specialty Fertilisers, Organic Fertilisers, Seeds and Pesticides.
During the year, the CNAB posted sales of Rs, 2,288.33 crore against Rs, 4,113.03 crore in the previous year. Sales revenue of discontinued operation (urea and customized fertilizer business) for the year was Rs, 1,982.96 crore against Rs, 2,304.07 crore in the previous year.
The unfavorable cost structure at Haldia, when compared to imported alternatives as well as the delay in finalizing phosphatic acid prices during first half of the year, impacted the performance of Haldia plant.
While the revenue was down, EBITDA grew to Rs, 376.50 crore during the year from Rs, 283.36 crore in the previous year. The PBT grew sharply to Rs, 160.57 crore for the year from Rs, 6.81 crore in the previous year despite tough market conditions.
The Urea manufacturing plant at Babrala produced 12,13,843 tonnes in FY 2016-17 against 12,30,819 tonnes, lower by 16,976 tonnes compared to the previous year. Lower production is attributed to 20 days annual turnaround. The specific energy consumption level of the plant was 5.164 GCal / tonnes against 5.170 GCal / tonnes in the previous year.
Complex Fertilizers (DAP / NPK / SSP)
The Phosphatic fertilizers manufacturing facility at Haldia achieved a combined production volume of 4,95,299 tonnes of DAP, NPKs and SSP during the year against the previous year''''s production of 6,66,731 tonnes, lower by 25.71%. This was primarily due to non-finalization of phosphate acid prices in the first half and partial shut down for re-routing of the Ammonia pipeline. The Ammonia Pipeline shifting project has been successfully completed.
The sales of DAP, NPKs and SSP from the Haldia plant was 5,18,020 tonnes against 7,25,852 tonnes in the previous year, down by 28.63%.
Imported Products (DAP / MOP)
To fulfill market demand, the Company sold 2,08,820 tonnes of imported DAP during the year against 4,15,145 tonnes in the previous year. Considering the price volatility and exchange rate fluctuations, the Company has reduced its exposures to DAP imports. MOP sales were at 83,107 tonnes against the previous year''''s sale of 1,10,986 tonnes.
Specialty Crop Nutrients and Agri Inputs
During the year, Specialty Crop Nutrients and other Agri Inputs recorded revenues of Rs, 527.92 crore against Rs, 689.34 crore in the previous year.
The performance of traded business was in line with the strategy to scale down the business.
The customised fertiliser manufacturing plant at Babrala manufactures three grades of fertilisers applicable to Paddy, Potato and Sugarcane. The sales of customised fertilisers during the year were 16,461 tonnes against 23,327 tonnes in the previous year. Customised fertiliser being a new concept, needs to be promoted in a phased manner and will gradually gain acceptance.
3. OTHER AGRI INPUTS
3.1 During the year, the other agri-inputs recorded revenues on standalone basis of Rs, 316.39 crore against Rs, 410.82 crore in the previous year, down by 22.99%.
3.2 Rallis India Limited (Rallis)
Rallis achieved a total revenue of Rs, 1,782.98 crore compared to Rs, 1,627.79 crore in the previous year. The Company’s profit before exceptional items and tax was Rs, 221.56 crore compared to Rs, 186.11 crore in the previous year, registering an increase of 19%. Exceptional items of Rs, 158.39 crore comprises profit on assignment of leasehold rights to a plot of land in the MIDC area, Turbhe, Navi Mumbai. Rallis earned a net profit of Rs, 138.68 crore (excluding exceptional item of Rs, 158.39 crore), down 5.72% compared to a net profit of Rs, 147.09 crore in the previous year.
Rallis'''' Domestic Formulations Business achieved a revenue growth of 8% during the year with a higher increase in the underlying volume growth. In response to market changes and to meet farmers'''' expectations for advanced chemistries and new technologies, the unit introduced three new products during the year; Epic, an improved and advanced Water Dispersible Granules (WDG) formulation of Hexaconazole, launched in paddy; Summit, an advanced new generation insecticide, effective against thrips and almost all caterpillar pests; and Neonix, the first ever seed treatment product in India to control both soil insects and soil borne diseases in groundnut and wheat crops.
Rallis'''' International Business division achieved a revenue growth of 10.19% during the year, growing to Rs, 440.83 crore, against Rs, 400.05 crore for the previous year. Ten new registrations were obtained during the year and the company commercialized three products in different geographies. In agri services, sales of GeoGreen increased by about 10% over the previous year. A new product Geo Green P plus was introduced during the year, which has been well accepted by the market. Sales were impacted in Southern India due to severe drought conditions. Metahelix Life Sciences Limited, a 100% subsidiary of Rallis achieved a revenue of Rs, 286.55 crore, up 13.30% over the previous year and clocked a net profit of Rs, 32.34 crore during the year.
During the year, the ''''Others'''' segment including pulses, spices, water purifiers, nutritional solutions achieved a total revenue of Rs, 374.83 crore against Rs, 458.15 crore in the previous year, down by 18.19%.
Tata Sampann pulses business faced a downward trend in the commodity cycle due to the Government interventions in regulating stock movement and pricing restrictions. The business increased its focus on Tata Sampann Low Oil Absorb Besan in FY 2016-17 as well as high margin value added products with a pilot launch of Tata Sampann Pakoda Mix in three cities.
After the successful launch in northern markets, Tata Sampann spices has expanded its footprint across
16 states throughout the country in FY 2016-17. Tata Sampann spices launched across Gujarat, Maharashtra, West Bengal and Tripura in the year with a portfolio of 8 blended spices and 4 pure spices.
The water purifier business continues to expand its footprint in affordable drinking water segment through alternate marketing channels including NGOs and with introduction of more cost effective products.
FY 2016-17 was the second full year of operations of the greenfield proof-of-concept manufacturing unit at Sriperumbudur, near Chennai. During the year, the unit produced several grades of Fructo-oligosaccharides (FOS) and FOS based formulations and sold a total of 680 tonnes of FOS across India. Although a new product, it garnered wide acceptance as a prebiotic healthy sweetener for categories such as dairy, bakery and confectionery. Based on market requirements and formulation capabilities, the Company has introduced new variants of healthier and natural sweeteners that are alternatives to cane sugar for both institutional and retail segments. Additionally, at the request of key customers and to leverage synergies with company manufactured products and formulations, complementary products were added to the product portfolio.
In FY 2016-17, the business achieved a sales turnover of Rs, 26.95 crore against Rs, 8.10 crore during the previous year.
During the year, the Board has sanctioned an investment of Rs, 270 crore for a Greenfield commercial-scale manufacturing unit for FOS and Galacto Oligosaccharide (GOS) at Nellore district in Andhra Pradesh. The Company has also initiated research at Yale University to clinically understand the mechanisms and pathways through which FOS and GOS improves human health.
During the year under review, the Company repaid, upon maturity, external commercial borrowing of US$ 60 million (Rs, 325.17 crore), raised during FY 2011-12.
Working capital funding requirements were met through a mixture of buyers'''' credit, suppliers'''' credit, commercial paper and working capital demand loans. The outstanding balance of subsidy receivables as on 31 March, 2017 was Rs, 1,684.40 crore (including discontinued operation) (31 March, 2016: Rs, 1,901.33 crore). As a result of the Special Banking Arrangement (SBA) announced by the Department of Fertilizers, Government of India, during fourth quarter of the Financial Year, the Company had availed loans against subsidy receivables for an aggregate amount of Rs, 456.66 crore.
The outstanding balance of working capital borrowings including loans under SBA as on 31 March, 2017 aggregated to Rs, 893 crore (31 March, 2016: Rs, 1,566 crore).
Through various initiatives, the Company has been able to achieve a significant reduction in the levels of net working capital during the year. This, coupled with funding from competitive sources, has supported a reduction in interest costs during the year.
Rallis, a subsidiary of the Company and IMACID, a joint venture, paid dividends of Rs, 24.34 crore (FY 2015-16: Rs, 14.60 crore) and Rs, 21.02 crore (FY 2015-16: Rs, 19.25 crore) respectively to the Company. Tata Chemicals North America Inc., step down subsidiary of the Company, paid a dividend of US$ 10 million (Rs, 67.07 crore) (FY 2015-16: Rs, 130.94 crore) which has been mainly utilised towards operational requirements and to pay external finance costs at TCIPL, Singapore.
As on 31 March, 2017, the Company had the following credit ratings, standing at levels similar to 31 March, 2016:
- A Corporate Family Rating of Ba1/Stable from Moody''''s Investors Service.
- Foreign Currency Long-Term Issuer Default Rating (IDR) of BB with Stable outlook from Fitch Ratings.
- INR denominated Non-Convertible Debentures of Rs, 250 crore are rated at CARE AA by CARE Ratings and BWR AA (Stable) by Brickwork Ratings.
- Long term bank facilities (i.e. fund based working capital facilities) of Rs, 1,005 crore and short term bank facilities of Rs, 3,340 crore are rated at CARE AA and CARE A1 , respectively, by CARE Ratings.
- Short term debt programme (including Commercial Paper) of Rs, 600 crore is rated at CRISIL A1 by CRISIL Ratings.
TCNA had the following credit ratings outstanding as on 31 March, 2017:
- A Corporate Family Rating of Ba3/Stable from Moody''''s Investors Service.
- A Corporate credit rating of B / Positive (Outlook revised from ''''Stable'''' to ''''Positive'''' during July 2016) from S&P Global.
Indian Accounting Standards
The Ministry of Corporate Affairs (''''MCA''''), vide its notification in the official gazette dated 16 February, 2015, has made applicable the Indian Accounting Standards (''''Ind AS'''') to certain classes of companies. For the Company, Ind AS is applicable from 1 April, 2016 with a transition date of 1 April, 2015. The financial results have been prepared in accordance with the recognition and measurement principles laid down under Ind AS as presented under Section 133 of the Companies Act, 2013 (''''the Act'''') read with the relevant rules issued there under and the other accounting principles generally accepted in India as applicable.
Your Company evolves and follows corporate governance guidelines and best practices sincerely, not just to boost long-term shareholder value, but also to respect minority rights. The Company considers the same as its inherent responsibility to disclose timely and accurate information regarding its operations and performance, as well as the leadership and governance of the Company.
During the second half of the year under review, the Company faced challenges owing to leadership change at Tata Sons Limited (Promoter of the Company). The Board would like to impress upon the members that the Company has robust systems and processes in place to ensure compliance with applicable rules and regulations. The Board confirms that your Company has acted in accordance with the applicable regulatory framework at all times.
Certain allegations were made against the Company in relation to the acquisition of the soda ash operations of the Brunner Mond Group in Europe and Africa. Further, questions were raised about financial support by the Company to its overseas businesses and assets.
In this regard, the Directors would like to place on record that as per the corporate governance practice of the Company, the Risk Management Committee, Audit Committee and Board of Directors of the Company reviews and evaluates the risk associated with its investments and all operating entities on a regular basis and discusses steps to mitigate the risks. Actions are taken to mitigate the risks as per discussions with the committees and the Board of Directors. The Company''''s Annual Report 2015-16 specifically dealt with the risks associated with each of its business and business entities. The risks associated with all the businesses, including those of Europe and Africa were periodically reviewed, evaluated and discussed in detail at the Risk Management Committee meetings. Additionally, the Board of Directors at their meetings while discussing the performance of each operating business entities also reviewed the risks pertaining to those business entities. Major restructuring activities undertaken at Europe and Africa operations have started showing positive operating and financial results in recent times.
In addition to the above, the Directors would like to reiterate that the accounting policies of Tata Chemicals are in due compliance with the relevant accounting standards under IGAAP and Ind AS. These are regularly reviewed by the Audit Committee and Statutory Auditors of the Company and are appropriately disclosed in the financials of the Company.
The Board of Directors closely monitored the events that unfolded during the leadership transition and the allegations that followed. The Audit Committee of the Board (''''Committee'''') reviewed the aforementioned issues including the correspondence between the Regulators and the Company and the queries raised in the representations made by Mr. Cyrus P. Mistry and Mr. Nusli N. Wadia in terms of Section 169 of the Act. The Committee also reviewed the Company''''s interventions, the processes implemented and followed with respect to various compliances and disclosures and the rigour applied when such strategic investment decisions were taken. After due deliberations with relevant stakeholders and review of relevant documents, the Committee expressed its confidence in the Company''''s processes to ensure compliance with the provisions of SEBI rules and regulations related to Stock Exchanges. The Committee noted that appropriate procedures were followed by your Company in preparing its financial statements and addressing the business risk issues and that there has been compliance with all legal requirements and corporate governance standards. It follows, therefore, that the aforesaid allegations in the various proceedings, representations and public statements against your Company were incorrect and such statements were made without exercising proper and due care.
Pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (''''Listing Regulations''''), the Corporate Governance Report and the Auditor''''s Certificate regarding compliance of conditions of Corporate Governance are part of this Annual Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Pursuant to Regulation 34 of the Listing Regulations, the Management Discussion and Analysis is presented in a separate section forming part of this Annual Report.
BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 34(2)(f) of the Listing Regulations, the Business Responsibility Report initiatives taken from an environmental, social and governance perspective in the prescribed format is available as a separate section of this Annual Report and also available on the Company''''s website www. tatachemicals.com.
RELATED PARTY TRANSACTIONS
All transactions with related parties were reviewed and approved by the Audit Committee. Prior omnibus approvals are granted by the Audit Committee for related party transactions which are in repetitive nature, entered in the ordinary course of business and are on arm''''s length basis in accordance with the provisions of the Act read with the Rules issued there under and the Listing Regulations. The transactions entered into pursuant to the omnibus approval so granted are reviewed by the internal audit team and a statement giving details of all related party transactions is placed before the Audit Committee on a quarterly basis.
All related party transactions entered into during FY 2016-17 were on an arm''''s length basis and in the ordinary course of business and were in compliance with the applicable provisions of the Act and the Listing Regulations. Further, there were no transactions with related parties which qualify as material transactions under the Listing Regulations.
The policy on materiality of related party transactions and dealing with related party transactions as approved by the Board is available on the Company''''s website at the link: http:// tatachemicals.com/upload/content_pdf/tcl_rpt_policy.pdf There are no transactions to be reported in Form AOC-2.
The details of the transactions with related parties are provided in the accompanying financial statements.
RISK MANAGEMENT POLICY
The Risk Management policy of the Company lays down the framework of Risk Management promoting a proactive approach in reporting, evaluating and resolving risks associated with the business. Mechanisms for identification and prioritization of risks include scanning the business environment and Internal risk factors. Analysis of the risks identified is carried out by way of focused discussion at the meetings of the empowered Risk Management Group (Senior Leadership team) and Risk Management Committee of the Board.
Identified risks are used as one of the key inputs for the development of strategy and business plan. The respective risk owner selects a series of actions to align risks with the Company''''s risk appetite and risk tolerance levels to reduce the potential impact of the risk should it occur and/or to reduce the expected frequency of its occurrence. Mitigation plans are finalized, owners are identified and progress of mitigation actions are monitored and reviewed.
Although non-mandatory, the Company has constituted a Risk Management Committee (RMC) to oversee the risk management efforts in the Company under the chairmanship of Dr. Y.S.P. Thorat, Independent Director. Risk assessment update is provided to the RMC on periodical basis. RMC assists the Audit Committee and the Board of Directors in overseeing the Company''''s risk management processes and controls. Some of the risks identified are set out in the Management Discussion and Analysis which forms part of this Annual Report.
DIVIDEND DISTRIBUTION POLICY
SEBI vide its notification dated 8 July, 2016 has inserted Regulation 43A in Listing Regulations and has made it mandatory for the top 500 listed entities, based on market capitalization, as on 31 March of every financial year to formulate a Dividend Distribution Policy (''''Policy'''') and disclose the same in the Annual Report and on the website of the Company at http:// www.tatachemicals.com/upload/content_pdf/tcl-dividend-distribution-policy.pdf.
Accordingly, the Board of Directors of the Company has adopted the Policy which endeavors for fairness, consistency and sustainability while distributing profits to the shareholders. The Policy is attached to this Annual report as Annexure 1 and same is available on the Company''''s website under the ''''Investors'''' section.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
The CSR, Safety and Sustainability Committee has formulated and recommended to the Board, a Corporate Social Responsibility Policy (''''CSR Policy'''') indicating the activities to be undertaken by the Company as approved by the Board.
The Company has taken up specific need based CSR activities with the goal of sustainable development in the neighboring area and ensuring participation of key stakeholders like community, NGOs, government departments etc. The Company also reaches out to remote geographic areas which are underdeveloped and require immediate attention in the development parameters like education, health, environment etc.
The Company''''s overall CSR initiatives called Beacon focuses on the following sectors and issues:
Blossom : Promotion and development of traditional handicrafts to create employment opportunities for women artisans
Enhance : Poverty Alleviation, livelihood enhancement and infrastructure support to improve quality of life of people
Aspire : Education programs to ensure zero dropout and vocational skill development programs for providing employment opportunities to unemployed youth
Conserve : Environment sustainability by investing in biodiversity, natural resource management and mitigation of climate change impacts
Nurture : Health care, nutrition, sanitation and safe drinking water
In addition, the Company will promote inclusion of marginalized population and women''''s empowerment along with responding to any disasters, depending upon where they occur and its ability to respond meaningfully.
The CSR policy is available on the Company''''s website at http://sustainability.tatachemicals.com/assets/pdf/csr-policy_20161012071424.pdf.
The Annual Report on CSR activities is annexed as Annexure 2 to this report.
WHISTLEBLOWER POLICY AND VIGIL MECHANISM
The Company has adopted a Whistleblower Policy and Vigil Mechanism to provide a formal mechanism to the Directors, employees and its stakeholders to report their concerns about unethical behavior, actual or suspected fraud or violation of the Company''''s Code of Conduct or Ethics Policy. Protected disclosures can be made by a whistleblower through several channels. The policy provides for adequate safeguards against victimization of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee. It is affirmed that no personnel of the Company has been denied access to the Audit Committee. The details of the policy are given in the corporate governance report and also posted on the website of the Company viz. www.tatachemicals. com.
PREVENTION OF SEXUAL HARASSMENT (POSH)
The Company is conscious about gender diversity and promotes equal opportunity employment to have a work where employees hold their head high with dignity.
The Company has zero tolerance towards sexual harassment at workplace and gives minor to major recommendations for action against the accused persons to the senior management, depending on the severity of the issue. The Company has adopted a Policy on prevention, prohibition, and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules made there under.
Five complaints of sexual harassment were received during the year for which the Company has taken appropriate actions ranging from minor (counseling) to major actions (including terminations). More than 50 POSH classroom training sessions were conducted across locations covering over 2,000 permanent, contractual / third party employee / interns. Two sessions were conducted for capability building of POSH committee members.
TATA CODE OF CONDUCT
During a routine review of operating processes, the Company observed potential breaches of the Tata Code of Conduct relating to the effectiveness of Sales Promotion expenses. Management has completed a detailed review of the issues raised and initiated appropriate changes in its business processes. The investigation, reviewed by the Audit Committee of the Board, revealed instances of inappropriate conduct and ethical breaches by some employees and channel partners, which have been dealt with in accordance with the Company''''s HR policies - actions ranging from minor (counseling) to major (terminations). The breaches were assessed as not material in relation to the overall financial performance of the Company, as defined in the Company''''s Policy on Determination of Materiality for Disclosures of events or information. The Company has taken appropriate action and reaffirms its commitment to uphold the highest standards of ethical conduct.
PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS
The Company has not given any loans during the year. The details of investments made during the year are given hereunder -
Sr. No. Name of the Party
Nature of Transaction
(Rs, in lakh)
During the year, the Company did not provide any additional corporate guarantees.
Details of loans, guarantees and investments covered under the provisions of Section 186 of the Act are given in the notes to the financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its subsidiaries for FY 2016-17 are prepared in compliance with the applicable provisions of the Act, and as stipulated under Regulation 33 of Listing Regulations. The audited consolidated financial statements together with the Auditor''''s Report thereon form part of this Annual Report.
Pursuant to the provisions of Section 136 of the Act, the financial statements of the Company, consolidated financial statements along with relevant documents and separate audited accounts in respect of subsidiaries are available on the website of the Company.
The annual accounts of the subsidiaries and related detailed information will be kept at the registered office of the Company, and also at the registered offices of the respective subsidiary companies and will be available to investors seeking information till the date of the AGM. The same will also be available at the venue of the AGM.
SUBSIDIARY COMPANIES, JOINT VENTURES AND ASSOCIATE COMPANIES
As on 31 March, 2017, the Company had 41 (direct and indirect) subsidiaries (4 in India and 37 overseas) and 4 joint venture companies.
During the year, General Chemical Canada Holding Inc. was dissolved with effect from 25 July, 2016.
The Company''''s policy on material subsidiaries, as approved by the Board, is uploaded on the Company''''s website at http:// tatachemicals.com/upload/content_pdf/material_subsidiary.pdf
A report on the financial position of each of the subsidiaries and joint venture companies as per the Act is provided in Form AOC-
1 attached to the Financial Statements.
SCHEME OF ARRANGEMENT
In pursuance of the strategic directions set by the Board of Directors for the Company, the Board at its meeting held on 10 August, 2016 had approved the sale of urea and customized fertilizer business to Yara India, a subsidiary of Yara International ASA, Norwegian multinational fertilizer company subject to requisite regulatory and other approvals and sanction by the Hon''''ble National Company Law Tribunal (NCLT).
Accordingly, the Company had entered into an Agreement with Yara India on 10 August, 2016 for sale of urea and customized fertilizer business as a going concern, on a slump sale basis. The urea and customized fertilizer business along with the assets, liabilities, contracts, deeds etc. shall be transferred and vested with Yara India pursuant to the Scheme becoming effective on a slump sale basis in exchange of a lump sum consideration to be paid by Yara India to the Company, on the terms and conditions as agreed by the Company and Yara India. The transaction is to be implemented through a Scheme of Arrangement (''''Scheme'''') under Sections 230 to 232 and other applicable provisions of the Act. Yara India will pay the lump sum consideration of '''' 2,670 crore to the Company pursuant to the Scheme being approved subject to certain adjustments after closing, as agreed between the parties in terms of the definitive agreements and the Scheme.
The Scheme was approved by the Equity Shareholders of the Company by requisite majority at their Meeting held on 8 May, 2017. The Company Petition has been filed with the NCLT and the final order of the NCLT for approval of the Scheme is awaited.
DETAILS OF SIGNIFICANT MATERIAL ORDERS
No significant and material orders were passed by the regulators or the courts or tribunals impacting the going concern status and Company''''s operations in future.
INTERNAL FINANCIAL CONTROLS
Internal financial control systems of the Company are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable accounting standards and relevant statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies. The Company has a well-defined delegation of authority with specified limits for approval of expenditure, both capital and revenue. The Company uses an established ERP system to record day to day transactions for accounting and financial reporting.
The Audit Committee deliberated with the members of the management, considered the systems as laid down and met the internal auditors and statutory auditors to ascertain, inter-alia, their views on the internal financial control systems. The Audit Committee satisfied itself as to the adequacy and effectiveness of the internal financial control system as laid down and kept the Board of Directors informed.
Details of internal control system are given in the Management Discussion and Analysis Report, which forms part of this Annual Report.
DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors
In accordance with the Tata Group retirement policy for the Board of Directors, Mr. E. A. Kshirsagar, Independent Director on the Board, retired on 10 September, 2016, after attaining the retirement age of 75 years. The Board of Directors placed on record their sincere appreciation for the contributions made by Mr. Kshirsagar as a Director of the Company.
Dr. Nirmalya Kumar, Non-Executive Director of the Company, resigned from the services of the Company with effect from 31 October, 2016. Also, Mr. Bhaskar Bhat, Non-executive Director of the Company, resigned from the services of the Company with effect from 10 November, 2016.
Mr. Cyrus P. Mistry resigned as Chairman and Director from the Board of the Company with effect from 19 December, 2016.
Based on the requisition of the promoter company, Tata Sons Limited, an Extraordinary General Meeting (''''EGM'''') of the Company was convened on 23 December, 2016 at which the members passed a resolution for removal of Mr. Nusli N. Wadia as the Director. Accordingly, Mr. Nusli N. Wadia ceased to be the Director of the Company with effect from 23 December, 2016.
At the EGM of the Company held on 23 December, 2016, Mr. Bhaskar Bhat and Mr. S. Padmanabhan were appointed as Non-Executive Directors of the Company by the shareholders pursuant to Section 160 of the Act.
In accordance with the provisions of the Act and the Articles of Association of the Company, Mr. S. Padmanabhan, Non-Executive Director of the Company, retires by rotation at the ensuing AGM, and being eligible, has offered himself for re-appointment.
The Independent Directors hold office for a fixed term of five years or until their completing 75 years, whichever is earlier and are not liable to retire by rotation in terms of Section 149 (13) of the Act. In accordance with Section 149(7) of the Act, each Independent Director has given a written declaration to the Company confirming that he/she meets the criteria of independence as mentioned under Section 149(6) of the Act and the Listing Regulations.
Details of the Familiarization Programme for Independent Directors are provided separately in the Corporate Governance Report.
Key Managerial Personnel (KMP)
Pursuant to the provisions of Section 2(51) and Section 203 of the Act, Mr. R Mukundan, Managing Director & CEO, Mr. John Mulhall, Chief Financial Officer and Mr. Rajiv Chandan, General Counsel & Company Secretary are the KMP of the Company.
The Company has adopted the Tata Group Guidelines on Board Effectiveness (''''Governance Guidelines'''') to fulfil its corporate governance responsibility towards its stakeholders. The Governance Guidelines cover aspects related to composition and role of the Board, Chairman and Directors, Board diversity, definition of independence, Director term, retirement age and Committees of the Board. It also covers aspects relating to nomination, appointment, induction and development of Directors, Director remuneration, subsidiary oversight, code of conduct, Board effectiveness review and mandates of Board committees.
Procedure for Nomination and Appointment of Directors
The Nomination and Remuneration Committee (NRC) is responsible for developing competency requirements for the Board based on the industry and strategy of the Company. The Board composition analysis reflects in-depth understanding of the Company, including its strategies, environment, operations, financial condition and compliance requirements.
NRC conducts a gap analysis to refresh the Board on a periodic basis, including each time a Director''''s appointment or reappointment is required. The Committee is also responsible for reviewing the profiles of potential candidates vis-a-vis the required competencies and meeting potential candidates, prior to making recommendations of their nomination to the Board. At the time of appointment, specific requirements for the position, including expert knowledge expected, is communicated to the appointee.
Criteria for Determining Qualifications, Positive Attributes and Independence of a Director
The NRC has formulated the criteria for determining qualifications, positive attributes and independence of Directors in terms of provisions of Section 178 (3) of the Act and the Listing Regulations. The relevant information has been given in Annexure 3 which forms part of this report.
The Board has carried out the annual performance evaluation of its own performance, and that of its Committees and Individual Directors for the year pursuant to the provisions of the Act and the corporate governance requirements prescribed under the Listing Regulations.
The performance of the Board and individual Directors was evaluated by the Board after seeking inputs from all the directors. The criteria for performance evaluation of the Board was based on the Guidance Note issued by SEBI on Board evaluation which included aspects such as Board composition and structure, effectiveness of Board processes, contribution in the long term strategic planning, etc. The performance of the committees was evaluated by the Board after seeking inputs from the committee members. The criteria for performance evaluation of the committees was based on the Guidance Note issued by SEBI on Board evaluation which included aspects such as composition of committees, effectiveness of committee meetings, etc.
In a separate meeting of Independent Directors, performance of Non-Independent Directors and performance of the board as a whole was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the Board Meeting that followed the meeting of the Independent Directors, at which the feedback received from the Directors on the performance of the Board and its Committees was also discussed.
The Company has in place a Remuneration Policy for the Directors, KMP and other employees pursuant to the provisions of the Act and the Listing Regulations which is set out in Annexure 4 which forms part of this report.
DIRECTORS'''' RESPONSIBILITY STATEMENT
Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory, cost and secretarial auditors and external consultant(s), including audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by the Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company''''s internal financial controls were adequate and effective during the FY 2016-17.
Accordingly, pursuant to Section 134 (5) of the Act, the Board of Directors, to the best of their knowledge and ability, confirm that:
(a) i n the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
(b) t hey 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 of the Company for that period;
(c) they 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 the Company and for preventing and detecting fraud and other irregularities;
(d) they have prepared the annual accounts on a going concern basis;
(e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and
(f) t hey have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
INFORMATION TECHNOLOGY (IT)
The Company''''s IT infrastructure is continuously reviewed and renewed in line with the business requirements and technology enhancements. The Company has implemented common Enterprise Resource Planning (ERP) system across all its wholly owned operating subsidiaries. Various digitization initiatives are taken by the Company to focus on improve efficiency, enhance stickiness with customer and have better informed analytics. A Customer Relationship Management (CRM) and Document Management System (DMS) are being implemented for chemicals business to enhance customers experience. A restructuring of the business intelligence data warehouse to support business decision making is also being implemented.
To support growth of consumer business, the Company has taken various initiatives like warehouse management system and dealer management system. The Company has implemented a cloud based collaboration platform across the enterprise for its employees.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
The particulars relating to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed pursuant to the provisions of Section 134 of the Act read with the Companies (Accounts) Rules, 2014, are provided in Annexure 5 to this report.
PARTICULARS OF EMPLOYEES
Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are enclosed as Annexure 6 to this report.
The statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. Further, the Report and the Accounts are being sent to the members excluding the aforesaid statement. In terms of Section 136 of the Act, the said statement is open for inspection at the Registered Office of your Company. Any members interested in obtaining such particulars may write to the General Counsel & Company Secretary at the Registered Office of the Company.
I. Auditors and their report:
As per the provisions of Section 139 of the Act, read with the Companies (Audit and Auditors) Rules, 2014, the term of office of Deloitte Haskins & Sells LLP, Chartered Accountants (Firm Registration Number 117366W/W-100018), as Statutory Auditors of the Company will conclude from the close of the forthcoming AGM of the Company. The Board of Directors places on record its appreciation for the services rendered by Deloitte Haskins & Sells LLP as the Statutory Auditors of the Company. Subject to the approval of the members, the Board of Directors of the Company has recommended the appointment of B S R & Co. LLP, Chartered Accountants (Firm Registration Number 101248W/W-100022) as the Statutory Auditors of the Company pursuant to Section 139 of the Act.
The Company has received a written consent and certificate from B S R & Co. LLP, confirming that they satisfy the criteria provided under Section 141 of the Act and that the appointment, if made, shall be in accordance with the applicable provisions of the Act and rules framed there under.
The report given by Deloitte Haskins & Sells LLP, Chartered Accountants, on the financial statement of the Company for FY 2016-17 is a part of the Annual Report. There has been no qualification or adverse remarks in their report.
II. Cost Auditors and Cost Audit report:
The Board on the recommendation of the Audit Committee has appointed D. C. Dave & Co., Cost Accountants (Firm Registration No. 000611) and Ramanath Iyer & Co., Cost Accountants (Firm Registration No. 000019) as the Cost Auditors of the Company for FY 2017-18 under Section 148 and all other applicable provisions of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014.
D. C. Dave & Co. and Ramanath Iyer & Co., have confirmed that they are free from disqualification specified under Section 141(3) and proviso to Section 148(3) read with Section 141(4) of the Act and that their appointment meets the requirements of Section 141(3)(g) of the Act. They have further confirmed their independent status and an arm''''s length relationship with the Company. N I Mehta & Co., Cost Accountants (Firm Registration No. 000023), who were earlier the Cost Auditors of the Company have given their ''''No Objection'''' for the appointment of D. C. Dave & Co., Cost Accountants (Firm Registration No. 000019), as the Cost Auditors for the FY 2017-18.
The remuneration payable to the Cost Auditors is required to be placed before the members in a general meeting for their ratification. Accordingly, a Resolution for seeking members'''' ratification for the remuneration payable to D. C. Dave & Co., Cost Auditors and Ramanath Iyer & Co., Cost Auditors, is included at item No. 5 of the Notice convening the AGM.
III. Secretarial auditor
In terms of Section 204 of the Act and Rules made there under, Parikh & Associates, Practicing Company Secretaries, have been appointed as Secretarial Auditors of the Company. The report of the Secretarial Auditors is enclosed as Annexure 7 to this report. The report is self-explanatory and do not call for any further comments.
I. Details of Board meetings
During the year, 9 (nine) Board meetings were held and the details of which are provided in the Corporate Governance Report.
II. Composition of Audit Committee
The Audit Committee comprises 3 (three) Members out of which 2 (two) are Independent Directors and 1 (one) is a Non-Executive Director. During the year, 10 (ten) Audit Committee meetings were held and the details of which are provided in the Corporate Governance Report.
III. Composition of CSR, Safety and Sustainability Committee