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Akzo Nobel India Ltd.

BSE: 500710 Sector: Consumer
NSE: AKZOINDIA ISIN Code: INE133A01011
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OPEN 1424.00
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VOLUME 761
52-Week high 1740.00
52-Week low 1204.00
P/E 31.50
Mkt Cap.(Rs cr) 6763.37
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1424.00
CLOSE 1415.05
VOLUME 761
52-Week high 1740.00
52-Week low 1204.00
P/E 31.50
Mkt Cap.(Rs cr) 6763.37
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Akzo Nobel India Ltd. (AKZOINDIA) - Director Report

Company director report

Dear Members

The Board of Directors are pleased to present their report of the business andoperations of your Company along with the audited financial statements for the year ended31 March 2016.

Business Environment

Growth in GDP for FY 2015-16 as per advance estimates is expected at 7.6% compared tothe previous year’s 7.2%. Headline infiation based on Consumer Price Index was 4.8%in March 2016 vs previous year’s 6.3%. Taking cognisance of these developments theReserve Bank of India has been dropping interest rates in a gradual manner while takingmeasures to enhance liquidity in the economy. The Forex reserves have shown growth duringthe year an indicator of the confidence of international investors in India. The estimateof fiscal deficit and revenue deficit for 2015-16 at 3.9% and 2.5% respectively alsoshowed an improving trend.

The year saw declining prices of crude oil and its derivatives for the most part. Thebenefits from such a decline was seen in the cost structure of the Company though asignificant part has been setoff by the adverse movement in exchange rates whichdepreciated 6% during the year and price reductions in response to market developments.

All the above factors taken together point to a favourable business environment foryour Company to progress with its growth plans with optimism.

Finance and Accounts

Revenue for the year at Rs 27401 million is 8% ahead of previous year withcontribution from all segments. EBITDA from business operations at 3049 million grew 17%over the previous year. After considering exceptional income and tax the profit after taxfor the year at Rs 2021 million showed a growth of 8% over previous year’s Rs 1863million mainly on account of improved business performance.

The highlights of the performance during the year are:

( Rs million)
2015-16 2014-15
Revenue from operations 27401 25270
Operating profit 3049 2613
Depreciation (535) (526)
Other Income net of Finance costs 386 635
Exceptional item – income 99 27
Profit before tax 2999 2749
Tax (978) (886)
Profit after tax 2021 1863
Surplus brought forward from previous year 2316 1763
Total available for appropriation 4337 3626
Appropriations
Transfer to general reserve (210) (190)
Proposed dividend (933) (933)
Proposed special dividend (2333) -
Tax on proposed dividend (665) (187)
Balance carried to Balance Sheet 196 2316

Dividend

Keeping in view the current year’s performance and other relevant considerationsthe Board is pleased to recommend a dividend of Rs 20 per share for the financial year2015-16 plus a Special Dividend of Rs 50 per share compared with the dividend of Rs 20per share in the previous year.

Public Deposits

Your Company has not accepted any public deposits during the year and no amount onaccount of principal or interest on public deposits was outstanding as on the date of thebalance sheet.

Management Discussion and Analysis Industry structure

The Company is present in Coatings and Specialty Chemicals segments.

The Coatings industry has two main components:

Decorative Paints and Performance Coatings and is served by both organised andunorganised sectors.

Decorative Paints account for a major part of the industry. The main drivers for thegrowth of this sector have been shortening of the repainting cycle and increased demandfrom smaller towns. Another important driver for demand of Decorative paints is the newhomes backed by easy availability of finance.

Performance Coatings is essentially a B2B business and is technology intensive with adiverse set of growth drivers which include key customer relationships sustained focuson R&D and innovation and strong emphasis on selling a solution rather than a product.

In Specialty Chemicals segment the Company operates in Polymer Chemistry and SurfaceChemistry businesses which cater to oil & gas personal care and agrochemicalindustries.

Business Performance

Coatings

Overall market for Coatings faced several challenges from delays in project completionand liquidity issues with low crude oil prices acting as a cushion. Notwithstanding thedifficult market conditions your Company was able to grow its revenue and profit.

Coatings business recorded revenue of Rs 25554 million during the year 2015-16compared to the previous year’s Rs 24153 million a growth of 6%. Profit howeverimproved by 18% to Rs 2499 million refiecting impact of cost control and soft inputprices partially set off by currency depreciation.

Intensity of competition is being addressed by tightening the cost structure anddifferentiating the Company’s products and services through product innovations andsustainable solutions to customer needs.

Supply security is ensured through a judicious mix of global and local contracts.Global contracts with key suppliers ensure availability as well as competitive pricing forinputs. Supplier partnership approach with key local vendors ensures business continuityagainst supply risks and leveraging supplier inputs for innovation pipeline.

Key focus area for the sourcing and technical functions has been localization of rawmaterials which will provide further impetus to supply security and sustainability. Thiswill also enable structural cost competitiveness and insulation from exchange risks in thelong run.

Your Company follows a Risk Management policy under which all material foreign currencyexposures are hedged through forward covers to protect against swings in exchange rates.

Your Company continued to pursue its long-term objectives through investment instrengthening the brands R&D distribution expansion and capability building. Costreduction and value creation initiatives have been institutionalised in the businessprocesses.

Your Company has acquired a land parcel in Mysuru Karnataka state to cater to futureexpansion requirements.

Your Company will continue to stay focused on growing ahead of the market withemphasis on serving its consumers through innovative technical solutions and continuousefforts to expand footprint in its areas of strength.

Highlights of different businesses within Coatings segment are given below: DecorativePaints business continued to focus on building a lean cost structure across functionsand capitalize on cost saving opportunities.

Projects business witnessed slow-down in New Build segment though growth in otherareas was encouraging. During the year your Company has started export of some of itsproducts to countries in South East Asia and South Asia. Your Company is actively pursuinggrowth opportunities in the mid-tier segment leveraging its strength in the premiumsegment.

In pursuance of its core principle on sustainability doing more with less thebusiness continued its focus on driving operational eco-efficiency in all manufacturingsites with y-o-y reduction in energy & water consumption and waste generation. YourCompany reaffirmed its consumer centric innovation in the super premium category with thelaunch of Dulux Velvet Touch Diamond Glo & Dulux Weathershield Powerfiexx.

Your Company’s fiagship brand Dulux retained its status as a SuperBrand whileDulux SuperCover - Colours of the

World won the product of the year award in the Paints category.

Protective Coatings business provides coating solutions to sectors like oil andgas infrastructure (such as airports and stadia) power mining and minerals amongothers. Several new products were introduced during the year to cater specializedapplications with significant sustainability features viz. Interzone 1020 ( for use byCoastal Industrial assets using sea water) Resicoat (which can cope with extreme weatherconditions and completely solvent-free) and Interchar 1120 (chlorine-free).

Marine Coatings business provides coating solutions for ships trawlers supplyvessels and coastal fishing boats. The business continued its focus on comprehensivecoating solutions to new ship construction as well as maintenance and repair. Difficultmarket conditions persisted throughout the year putting pressure on both volumes andmargins. Initiatives to expand into new avenues to propel growth as well as de-riskingwere continued.

Powder Coatings business catering mainly to architecture white goods automotiveand general industry registered a healthy growth.

Metal Coatings business saw low growth during the early part of the year asdomestic steel production was impacted adversely by low cost imports of coated steel.Government initiated measures toficurb these low cost imports have partially mitigated theimpact.

Vehicle Refinishes business showed positive growth as compared to the previousyear with major contribution from commercial vehicles.

Specialty Chemicals

This segment consisting of Polymer Chemistry and Surface Chemistry businessesrecorded a turnover of Rs 1847 million compared to previous year’s Rs 1117million a growth of 65%. The growth is attributable mainly to a change in business modelwhere the Company has taken up the distribution of products sourced from other AkzoNobelunits to benefit the Indian customers. Profit from the segment improved by 17% to Rs 152million over previous year.

Corporate Governance

A report on Corporate Governance along with a certificate from a practicing CompanySecretary confirming compliance with the conditions of corporate governance is attachedas Annexure I to this report.

Responsible Care / Corporate Social Responsibility

Your Company is committed to conduct its business in a socially and environmentallyresponsible way for the benefit of all its stake-holders. Planet Possible is yourCompany’s approach to sustainability which focuses on creating more value from fewerresources across the whole value chain. It is also about increasing our resourceefficiency and working together with both customers and suppliers to develop sustainablesolutions for the challenges people face every day.

A Business Responsibility Report in line with the National Voluntary Guidelines onsocial environmental and economic responsibilities of business as notified by theMinistry of Corporate Affairs Government of India is attached as Annexure II A.

During the year your Company implemented several CSR initiatives on its own withemployee volunteers as well as in partnership with implementing agencies. Such activitieswere mainly executed in the areas of health education skill development and environmentprotection. A report on the CSR activities and initiatives undertaken by your Company isattached as Annexure II B.

Conservation of Energy Technology Absorption and Forex Earnings and Outgo

Your Company continues to use its research and development base to bring consumers newproducts with improved performance features and products for special applications.Particulars in respect of conservation of energy technology absorption and foreignexchange earnings and outgo pursuant to section 134 of the Companies Act 2013 are givenin Annexure III to this report.

Information Technology

Your Company continues to leverage IT for efficient management of its businessoperations and enhancing customer experience.

During the year your Company’s sales force has been integrated with a CustomerRelationship Management (CRM) application through mobile devices. This has helped thesales team to work more closely with the customers and deliver customized solutions in atimely manner. It has also provided the management with real time information on theprogress in the field.

Towards the end of 2015 your Company launched version 2.0 of the award-winningVisualizer app which includes additional features such as the ability to use theVisualizer on exterior walls. It also has enhanced photo functionality (allowing users toshare ideas on social media) scrapbook registration and improved color visualization.

Your Company continued to leverage its access to global ERP solutions to have synergyand cost benefits on the assets and resources shared across locations and businesses.

Human Resources

Your Company had cordial relations with employees across all locations during the year.Your Company’s Human Resource agenda for the year was focused on strengthening thefollowing key areas:

- harmonisation of employee remuneration system and benefits across businesses

- building a robust and diverse talent pipeline; and

- driving greater employee engagement.

The total number of employees on the rolls of the Company as at 31 March 2016 was 1830(previous year 1792).

Information as per Section 197 of the Companies Act 2013 read with the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 forms part of thisReport. However as permitted under the provisions of Section 137 of the Act the Reportand Accounts are being sent to the members excluding the statement containing the saidinformation.

Any member interested in obtaining such particulars may inspect the same at theRegistered Office of the Company or write to the Company Secretary for a copy.

The following disclosures are made in terms of Rule 5 of the ‘Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014:

(i) (ii)
Name Status Ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the financial year 2015-16 Percentage increase in remuneration during 2015-16
Mr Nihal Kaviratne CBE Non Executive 1.2 Nil
Mr Jayakumar Krishnaswamy Managing Director 27.5 A one time payment equivalent to 5% of Base salary in lieu of salary increase
Mr Himanshu Agarwal (resigned from the Board with effect from 19 August 2015) Wholetime Director 14.5 (on annualised basis) A one time payment equivalent to 2.5% of Base salary in lieu of salary increase
Mr Pradip Menon Wholetime Director 16.1 (on annualised basis) NA - joined the Board with effect from 1 Feb 2016
Mr R Gopalakrishnan Non Executive 1.3 Nil
Mr Amit Jain Non Executive - Nil
Mr Arabinda Ghosh Non Executive - Nil
Mr Raj S Kapur Non Executive 1.4 Nil
Dr Sanjiv Misra Non Executive 1.3 Nil
Ms Kimsuka Narsimhan Non Executive 1.3 Nil
Mr Arvind Uppal Non Executive 1.3 Nil
Mr R Guha Company Secretary NA A one time payment equivalent to 2% of Base salary in lieu of salary increase

 

Description Remarks
(iii) Percentage increase in the median remuneration of employees in the financial year 9.0%
(iv) Number of permanent employees on the rolls of the Company 1830 as on 31 March 2016
(v) Explanation on the relationship between average increase in remuneration and the Company performance Company PAT improved by 8% in 2015-16 compared to previous year.
Increase in remuneration levels is in line with the improvement in PAT and takes into account relevant market factors while determining remuneration levels.
(vi) Comparison of the remuneration of the Key Managerial Personnel against the performance of the Company Company PAT improved by 8% in 2015-16 compared to previous year.
Increase in remuneration levels of KMPs is far less than improvement in PAT as well as the percentage increase at the median remuneration of the employees.
(vii) Variations in the market capitalisation of the Company price earnings ratio as at the closing date of the current financial year and previous financial year As on 31 March 2016 the market capitalization of the Company’s was Rs 64 billion compared to Rs 66 billion on 31 March 2015. PE ratio was 32 times as on 31 March 2016 compared to 31 March 2015 (35 times)
Increase or Decrease in the market quotations of the shares of the Company in comparison with the last public offer The market quote (on NSE) of the Company’s share was Rs 1364 as on 31 March 2016 and the last public offer was made at a price of Rs 10 in 1967. An amount of Rs 1000 invested in the said public offer would be worth Rs 1.8 lakh as on March 31 2016 which translates into a Compounded Annual Growth Rate of 11% taking into account the bonus shares issued and dividends paid during the period.

 

Description Remarks
(viii) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration Average percentage increase in base salary of non-managerial personnel is 9% which is higher than the increase in the managerial remuneration
(ix) Comparison of the each remuneration of the Key Managerial Personnel against the performance of the Company Company PAT improved by 8% in 2015-16 compared to the previous year. Remuneration changes for each KMP are explained above
(x) Key parameters for any variable component of remuneration availed by the Directors • Business profitability
• Business cash generation
• Sustainability parameters
• Specific personal goals
(xi) Ratio of the remuneration of the highest paid Director to that of the employees who are not Directors but receive remuneration in excess of the highest paid Director during the year There is no employee drawing a base remuneration higher than a Director.

It is hereby affirmed that the remuneration to managerial personnel referred to aboveis as per the remuneration policy of the Company.

Notes:

1. The aforesaid details are calculated on the basis of remuneration for the financialyear 2015-16.

2. Remuneration to Directors includes sitting fees paid to them for the financial year2015-16.

3. Median remuneration in the Company (on cost to company basis) for all its employeeswas Rs 781133 for the financial year 2015-16.

4. Remuneration to Directors is within the overall limits approved by the shareholders.

Internal Control Systems

Your Company has an effective risk management framework which helps the Board tomonitor the state of controls in key business processes. Your Company has well-establishedprocedures for internal controls commensurate with its size and operations. Theorganisation is appropriately staffed with qualified and experienced personnel forimplementing and monitoring the internal control environment.

Policy Against Sexual Harassment

Your Company has formulated a policy for the prevention of sexual harassment within theCompany. It ensures prevention and deterrence of acts of sexual harassment andcommunicates procedures for their resolution and settlement. Internal ComplaintsCommittees have been constituted in accordance with the requirements under the SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013 whichensures implementation and compliance with the law. There were no cases/ complaintsreported in this regard during 2015-16. A copy of the Policy against sexual harassment isposted on the Company website and available at www.akzonobel.com/in/corporatefigovernance/policies.

Related Party Transactions (RPTs)

Your Company enters into various transactions with related parties as defined underSection 2(76) of the Companies Act 2013 in the ordinary course of business. All the RPTsare undertaken in compliance with the provisions set out in Companies Act 2013 and theListing Regulations. Your Company has a robust process for RPTs and the transactions withRelated Parties are referred to the Audit Committee for its approval at the scheduledquarterly meetings or as may be called upon from time to time along with all relevant andstipulated information of such transaction(s).

The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board may be accessed on the Company’s website at www.akzonobel.com/in/corporatefigovernance/policies.

All contracts / arrangements / transactions entered by the Company during the financialyear with related parties were in the ordinary course of business and on an arm’slength basis. During the year the Company had not entered into any contract / arrangement/ transaction with related parties which could be considered material in accordance withthe policy of the Company on materiality of related party transactions. Your Directorsdraw attention of the members to Note 5.15 to the financial statement which sets outrelated party disclosures.

Loans Guarantees & Investments

There are no loans given or guarantees issued that are covered under Section 186 of theAct read with the Rules made thereunder. Details of investments made under the saidsection are covered in Notes 3.9 and 3.12 of the financial statements.

Extracts of the Annual Return

As required under section 134(3)(a) of the Act read with the Companies (Management andAdministration) Rules 2014 an extract of the Annual return in the prescribed form isattached as Annexure IV.

Directors & Key Management Personnel

Mr Himanshu Agarwal Wholetime Director resigned from the Board with effect from 19August 2015.

Mr Pradip Menon was appointed as a Wholetime Director with effect from 1 February 2016.His appointment and remuneration are subject to approval by the shareholders at theforthcoming Annual General Meeting.

Mr Arabinda Ghosh will be retiring by rotation at the forthcoming Annual GeneralMeeting and is eligible for re-appointment.

A brief resume of Mr P Menon and Mr A Ghosh as required under Regulation 36 of theListing Regulations is given in the notice convening the Annual General Meeting.

The Board wishes to place on record its deep appreciation of the contribution of MrHimanshu Agarwal during his tenure with the Company.

Declaration by Independent Directors

The Company has received necessary declarations from each Independent Director that he/she meets the criteria of independence laid down in section 149(6) of the Act and theListing Regulations.

Auditors

Statutory Auditors

M/s B S R & Associates LLP will retire as the Auditors of the Company at theconclusion of the forthcoming Annual General Meeting (‘AGM’) and have conveyedthat they do not wish to be considered for re-appointment. The Auditors’ Report forthe financial year 2015-16 does not contain any qualification reservation or adverseremark.

The Company had approached M/s Price Waterhouse Chartered Accountants LLP who haveconveyed their eligibility and willingness to function as the Company’s Auditors ifappointed. Accordingly necessary resolution is being placed at the AGM for shareholderapproval.

Cost Auditors

In terms of section 148 of the Companies Act 2013 Cost Audit was conducted for theyear 2015-16 by M/s. Chandra Wadhwa & Associates New Delhi. Their report has beenfiled with MCA within the stipulated time.

The Board has re-appointed M/s Chandra Wadhwa & Associates as the Cost Auditors forconducting Cost Audit for the financial year 2016-17 whose remuneration is subject to theapproval of the shareholders at the AGM.

Secretarial Auditors

In terms of section 204 of the Companies Act 2013 a Secretarial Audit was conductedfor the year 2015-16 by M/s A K Labh & Co Kolkata. Their report is appended.

The Board has re-appointed M/s A K Labh & Co Kolkata to conduct a SecretarialAudit for the financial year 2016-17.

Directors’ Responsibility Statement

As required under section 134 (5) of the Companies Act 2013 the Board states that:

(a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

(b) the Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit and loss of the Company for that period;

(c) the Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

(d) the Directors had prepared the annual accounts on a going concern basis;

(e) the Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

(f) the directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

General

Your Directors state that no disclosure or reporting is required in respect of thefollowing items as there were no transactions on these items during the year underreview:

1. The Company has issued only one class of equity shares with equal rights.

2. The Company has not issued any shares during the year under ESOPs or Sweat Equityor otherwise.

3. The Company does not have any subsidiary; hence the question of the ManagingDirector or Wholetime Directors of the Company receiving any remuneration or commissionfrom any of its subsidiaries does not arise.

4. No significant or material orders were passed by the Regulators or Courts orTribunals which could impact the going concern status and the Company’s operationsin future.

Cautionary Statement

Some of the statements in this report describing your Company’s objectives andexpectations expressed in good faith may constitute ‘forward lookingstatements’ within the meaning of applicable laws and regulations. Actual resultsmight differ materially from those in the event of changes in the assumptions/ marketconditions.

Acknowledgment

The Directors wish to convey their gratitude and appreciation to all the employees ofyour Company for their valuable contribution during the year. They also wish to place onrecord their appreciation of our Company’s customers shareholders investorsbankers agents suppliers distributors and other business associates for theircooperation and support.

13 May 2016 On behalf of the Board
N Kaviratne CBE
Chairman

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