To Our Shareholders
Your Company accomplished a lot in the year 2015-16 despite the slowdown ininternational markets and the beginning of a revival in the domestic market. In managingyet another difficult year our employees continued to work together as one strong teamresponding with agility to opportunities that emerged domestically focusing on making ourcustomers win maximizing cost reduction initiatives and in doing all of these livingCummins' six Core Values every day. As a result your Company has delivered a performancewell ahead of any of its peers within the industry.
2015-16 Financial Performance
In the fiscal year 2015-16 net sales for your Company were at an all-time high at'4603 crores representing an increase of 7 percent over the previous year. Net profitbefore tax (excluding exceptional items) was '906 crores representing a 6 percentincrease over the previous year. We feel good about being able to grow our revenuesprofitably despite the challenges prevailing in the global and domestic markets. TheCompany generated significant cash strengthened its balance sheet and financial positionand continued to return value to its shareholders. Your Company had disbursed an interimdividend of '5 per fully paid-up equity share of '2 each (250 percent) in March 2016. The2015-16 financial year concluded with the Board recommending a final dividend of '9 pershare of '2 fully paid-up (450 percent) aggregating to '14 per share of '2 each fullypaid-up (700 percent) subject to your approval at the Annual General Meeting.
During the year the four businesses of your Company - Industrial Automotive PowerGeneration and Distribution continued to deliver on our brand promise of Dependability toall our stakeholders.
Strong partnerships with all stakeholders
Our long-standing partnerships with our stakeholders positions both your Company aswell as the partnering stakeholders for longer- term success. These partnerships extend toour key OEMs as well as end-users across the on-highway construction marine railway andmining segments suppliers and our communities.
As an example our Industrial Business launched market leading competitive products forthe rail segment. Supporting the Indian Railways in realizing its vision of moderntechnology your Company built and shipped the first ever 50 litre electronic engine forthe Diesel Electrical Multiple Unit (DEMU) manufactured by the Integral Coach Factory inChennai. Complying with stringent Euro IIIA emission norms this product offers ussignificant inroads and future opportunities in the rail segment.
With increasing demand for power higher tonnage trucks are making inroads in themining sector. The sector witnessed the launch of the largest dump- truck to be ever builtin India. Manufactured by BEML for Coal India this gigantic 205 ton dump- truck is fittedwith a 60 litre Cummins engine. The modular design of the engine allows ease in servicingand lesser down time between engine scheduled maintenance. A significant feature includesthe built- in pre-filtration fuel system that ensures the right quality of fuel availablefor the equipment. Offering great fuel economy to price sensitive markets like India thisengine has tremendous potential in the mining industry in the near future.
Your Company continued to bring industry leading technologies for our other majorsegment marine.
In addition to delivering engines for Landing Craft Utility and Water Jet Fast AttackCraft of the Indian Navy your Company also partnered with the warship builder GardenReach Shipbuilders and Engineers Ltd. in exporting an Offshore Patrol Vessel (OPV) to theNational Coast Guard in Mauritius for the first time. To this project Cummins renderedits expertise of back-up power with its 250 KWe generator sets. We also partnered with GoaShipyard Ltd. to build Offshore Patrol Vessels for the Sri Lankan Navy and with MarineFrontier Shipyard for the first allaluminium hull vessel for the Nigeria Security Agency.Yet another partnership entailed the commissioning of the very first indigenous torpedolaunch and recovery vessel by the Indian Navy which adds a thrust to India's ongoingendeavours in indigenizing the country's ship design and building capabilities anddevelopment of underwater weapon systems. Manufactured by Shoft Shipyard this vessel hasbeen fitted with heavy-duty main propulsion Cummins diesel engines and marine generatorsets.
We view our suppliers as strategic partners in bringing high quality right first timeproducts to the marketplace. We recently launched AMaZe (Accelerated Move towards Zerodefects) across all entities of Cummins in India to accelerate product qualityimprovements across the five pillars of product design manufacturing supply baseproduct in-use and service quality. The program saw a total of 380 projects beingundertaken during the year. Through this program our suppliers are now closely engagedwith us right from the very initial stages of product development. In addition we arealso significantly more integrated with our suppliers in ensuring quality in all boughtout finished and semifinished products. In continuing to improve processes wecollaborated with our suppliers on 79 Supplier Focussed Six Sigma projects during theyear.
Reinforcing our responsibility towards our employees natural resources and theenvironment our commitment to Health Safety and Environment continued into 2015.Subsequently we reduced the safety incident rate (IR) for employees as well ascontractors to a historical low.
In accelerating our journey to zero defect in safety we launched the Live ItLead It' (LILI) program to bring about a cultural change of having employees take personalownership over safety and in doing so adopting the necessary behavioral changes. Inaddition we are also focussing on slip trip fall safety hoist and crane safety and amachine guarding program.
Given that a large population of our employees commute on two-wheelers a training ontwo-wheeler defensive driving has been imparted to sensitize and create awareness ontwo-wheeler safety.
We also improved our overall environment performance through waste inventorization andmapping water balancing and energy reduction programs. High energy consumption areas arebeing identified on the shop-floor and projects have been undertaken to conserve energyand reduce greenhouse gas (GHG) emissions. Your Company reduced waste disposal and GHGemissions by 15 percent and 20 percent respectively with respect to the 2014 baseline.
Our waste recycling rate is 95 percent. I am extremely pleased to share that all ouroperational units across India are now water neutral. I am also proud to share that allthe plants of your Company comply with the Occupational Health and Safety AssessmentSeries (OHSAS) 18001 and Environment Management System (EMS) 14001 standards. The Kothrudengine plant in Pune has received the Robert Sonntag Global Cummins Inc. Award and wasalso recognized for its efforts towards zero garbage. The HHP Rebuild Center in Phaltanhas received the Cummins Inc. Chairman's Health and Safety Awards for eliminatingergonomic risks associated with valve and injection time setting operation in the 60 and45 litre engines.
We are starting to take steps towards substituting non-renewable sources of energy withrenewable sources across our plants and offices. Work is in progress for developing agreen supply chain with the adoption of environmentally compliant raw materials andreturnable packaging.
Along with meeting our health safety and environmental commitments we continued tomake the lives of the communities around us better. I feel immensely proud that each andevery one of our employees including shop floor operators have successfully dedicated aminimum of four fully-paid hours for the third consecutive year in a row to corporateresponsibility. These hours were dedicated towards the many sustained projects under thefocus areas of Higher Education Energy & Environment Social Justice andInfrastructure.
Our collective commitment in improving our communities is evident from a few of ourmost significant projects -
The Nandal Model Village transformation project was extended to 12 more villages aroundPhaltan Ahmednagar Ranjangaon Dewas Pithampur and Jamshedpur and our employees helpedcreate water bodies increase awareness of health and hygiene and develop schools andmodel farming methods. Through participatory rural appraisal (PRA) the most criticalneeds of the communities were identified and prioritized and a road map has beendeveloped for village transformation. Till date 13 check dams and five ponds have beenconstructed saving close to 14 million gallons of water in the villages. An additional 300acres of land has been cultivated and most model villages have become self-sufficient withrespect to water despite poor monsoons in the last two years.
By de-silting a 1.5 km stretch of the Khadakwasla dam and planting 5000 trees wecontributed to ensuring that the primary source of water for Pune city continues to havewater in abundance.
Leveraging the scale and network of Cummins' distribution business we took theCoach Them Young' environmental awareness program to the next level. This year morethan 710000 students across the country were made aware about water conservation andreduction of carbon footprint.
Through the Cummins Scholarship Program we extended support for undergraduate collegeeducation to 155 bright diverse meritorious and financially needy students this year.With this we have supported 744 students till date and plan to further increase thenumber of scholarships next year.
Our longstanding partnership with the Cummins College of Engineering for Women enteredits 25th year and working together with the Government in Delhi as well asMaharashtra we were able to obtain academic autonomy status by the University GrantsCommission effective academic year 2016-17. This is a significant milestone in the historyof the college as the college will now be able to improve its curriculum to be moresuited for industry and will increase the opportunities for women engineers for evenbetter quality education and careers. We stay committed to making this college one of thetop five percentile of privately managed engineering colleges in India with athree-pronged approach of enhancing the quality of education through improved physicalinfrastructure faculty and student development.
Last year I had touched on our Technical Education for Communities (TEC) initiativewhich focuses on vocational education through sustained engagement and support toIndustrial Training Institutes (ITI). One such institute is the ITI at Phaltan with whichwe have been associated since 2010 and have been steadily making improvements ininfrastructure labs equipment faculty and students. I am proud to state that this isnow one of the best ITIs in Maharashtra. Our aim is to channelize the talent of the ruralyouth and develop a young and diverse talent pipeline for industry. In horizontallydeploying this model we have partnered with our suppliers in Kolhapur in Maharashtra toengage with an ITI there. The deployment will be led by the suppliers with process supportfrom Cummins.
Our work on improving the communities continues to receive recognition internally andexternally:
Of the 14 projects submitted from India for the Cummins Inc. EnvironmentalChallenge 2015 11 projects were recognized from amongst the many projects submittedacross the globe.
In the Economic Times survey of the top 200 corporates practicing CorporateSocial Responsibility in India Cummins edged its way up from 29th position in2014 to 16th in 2015.
Cummins was awarded the Runners-Up Award in CSR Excellence from ManufacturingToday Publishing House and the Best Project Award for the Model Village project from NITIEMumbai.
The far-reaching positive impact of our sustainability efforts during the year can begauged from the following -
Approximately 6500 million gallons of water has been harvested for the city
35000 trees were planted and maintained
Approximately 20000 MT carbon was prevented from entering the atmosphere
Note - Details of other projects undertaken and the resultant impact on the communitieshave been published in the Business Responsibility Report.
Over the years your Company has built a leadership
position in engine performance fuel economy and emissions.
In order to sustain our technology leadership in India and across the globe Cummins isexpanding its technological capabilities with the establishment of the Cummins TechnicalCenter India (CTCI) the largest research and development center worldwide. Expected tobecome operational by end of 2016 CTCI will generate leading edge product and technologydevelopment as well as business specific product development capabilities and globalproduct solutions to all of Cummins businesses world-wide while leveraging the largetalent pool of engineers in India. The Center will work on exploring and providingtechnology insights that will offer your Company a critical competitive advantage inengine component and generator technology.
As emission norms in India become ever more stringent the Technical Center will play asignificant role in bringing advanced emission technologies at an affordable price to theIndian consumer.
Presently under construction the four-level building at the Kothrud campus in Punewill co-locate laboratories engineering facilities and engineers from across India.Employing over 2500 engineers CTCI will eventually have more than 36 engine test cellsengine build and tear down areas and other spaces essential to technology productdevelopment verification and validation work across various engine generator andcomponent technologies.
The total investment of '10 billion is being shared approximately equally by CumminsIndia Limited and Cummins Technologies India Private Limited.
The lean and innovative technologies that will be designed at this Center will benefitboth the entities.
To meet the upcoming emission regulations with fit for market' solutions yourCompany is developing the ISBe 5.9 BSIV engine with selective catalytic reductionaftertreatment while also incorporating the internally developed high pressure commonrail electronic fuel system for far better fuel economy and performance.
Last year I had spoken about the Global Analytics Center (GAC) a knowledge processinghub set up to support non-engineering business functions and processes across differentregions. Catering to the analytical needs of various Cummins businesses globally in anintegrated manner GAC has been supporting processes such as Should Costing GlobalMaterial Planning Reliability and Warranty Inventory Management etc. With Cummins'recent focus on Telematics GAC is gearing to provide data analytics support required toenable our customers to harness real time information while promoting safety improvingperformance and reducing warranty and maintenance cost of their Cummins products.
The disciplined investments made over the years in increasing manufacturing capacitiesat high quality levels positions your Company to respond quickly to the first sign ofeconomic recovery domestically as well as globally.
On the exports front I am pleased to share that the Power Generation businessincreased generator set exports by almost 40 percent over 2014. Our gensets are reachingacross the globe in markets in Africa Middle East Australia Latin America and Europe.
As we scale up our capacities we are also providing our suppliers with strongopportunities to scale up their volumes. We have a dedicated team in place to supportexports of components from Indian suppliers directly to Cummins worldwide locations. Thisis approximately one third of the value of our direct materials spend and has grown by 47percent to '1686 crores in the last five years.
Additionally working with suppliers in improving parts availability we have expandedthe operations of the India Parts Distribution Center (IPDC) at the Megasite.Subsequently the IPDC that distributes parts to the domestic and exports aftermarket hasseen a four-fold upsurge in exports revenue in the last two years.
Another growth opportunity for our suppliers is our new initiative "Total ValuePerformance (TVP) Strategy" which provides visibility of category suppliers toCummins worldwide. Our category focussed purchasing organization structure enables commonresources across all Business Units to focus on supplier relationship management. Thishelps right size our supply base and in turn consolidation of volumes with categorysuppliers.
As mentioned earlier in bringing right first time products to the marketplace we haveestablished platforms that facilitate our suppliers' participation and involvement in thevery early stage of product development. As we expand our technical capabilities with theopening of the Technical Center growth opportunities for our supplies will increasemulti-fold with the extensive new product development work that the Center willundertake.
The manufacturing prowess and technology capabilities of your Company were showcased atthe Make in India Week' organized by the Government of India along withConfederation of Indian Industries (CII) and Department of Industrial Policy and Promotion(DIPP) in Mumbai earlier this year.
With a world-class infrastructure backed by a dedicated team of employees yourCompany is geared to be looked upon as the preferred choice for high quality manufacturingfor the world.
Increasing our commitment to making our customer win we have increased our focus onour Customer Support Excellence (CSE) roadmap.
We added new initiatives; Success Obstacle System and Customer Connect Program. Theformer enables engagement between businesses and functions to resolve tough and chroniccustomer success obstacles and the latter facilitates leadership interactions with ourcustomers and end-users to better understand their expectations from us and galvanize theorganization to meet these expectations. The latter program is centered on staying closelyengaged with our end-users. This involves periodic visits to customer sites by seniormanagement.
A comprehensive training program is also being conducted across application segments toaddress technical training service and warranty issues.
These sessions are proving to be extremely helpful in gathering data on qualitycustomer requirements spare parts availability etc. all of which are being utilised inbridging the gap towards becoming a truly customer focussed organization.
We view world-class technical training infrastructure as an enabler to providingexcellent customer service. We opened two training centers at the
Megasite one of which is designed to impart training to professionals and the other toservice technicians on High Horsepower Heavy duty and MidRange engines.
Another effective customer and dealer relationship management tool the Cummins DealerOperating System (CDOS) launched in 2012 underwent a technical upgrade towards becoming amore open user interface' enabling customer support through mobile devices. Goingforward data analytics and business intelligence on generated data will help us furtherenhance our customers' experience. All this has resulted in the transactional Net PromoterScore (NPS) becoming 71 percent which is a record. NPS is the best measure of our customerloyalty and an indicator of our progress in CSE.
Towards ensuring a consistent customer experience across the distribution channel wepiloted a standardized sales process at five dealer locations. Work is in progress towardsinstituting a uniform look and feel across field offices and dealership locations so asto offer a consistent brand experience to our customers. By the end of this year ninefield offices and ten dealership head offices will align to the common brand standards.This in addition to our branded service vans will increase our brand recall amongst themasses.
Your Company further strengthened its distribution capabilities in India with theacquisition of Cummins Svam Sales and Service in Noida. Renamed as Cummins Sales andService Pvt. Ltd. this is the only company owned dealership and will serve as a modeldealership to our network by showcasing seamless and consistent service and support tocustomers in the Delhi area ultimately driving more growth in the long run.
We have also been strengthening the Integrated Supply Chain function across theorganization. Supported by Planning & Logistics Purchasing Manufacturing and Qualityfunctions we have started work on strengthening hand-offs between these subfunctionsoptimizing resources starting the journey on centralizing material planningsynchronizing material flow and establishing a reliable market driven supply chain tosupport profitable growth.
Through Six Sigma which is now in its 12th year we generated savings of'172 crores. This year 720 projects were completed of which 119 projects were focussedon customers. At the end of the year your Company had 1089 Six Sigma trained belts.Owing to the fourth wave of the Accelerated Cost Efficiency' (ACE) program towardsreducing the Total Cost of Ownership for direct materials we generated annualized savingsof approximately '234 crores.
This program has since its launch in 2005 generated total savings worth '1355 crores.The other cost reduction program TRIMS to reduce the Total Cost of Ownership forindirect materials and services generated savings of '18 crores for your Company.
For a company to sustain success in the longer term and delight every stakeholder itis important that the working environment be conducive to high performance that isconsistently delivering great results. Over the years significant time and effort has beenchannelized in building this environment which we call as the Right Environment.'Consolidating these efforts further this year we formulated the Right Environment'statement which emphasizes that "Cummins is committed to fostering a physically andpsychologically safe integrity based respectful inclusive high performance culturethat breaks down hierarchies and organizational boundaries and engaging the full talentsof our diverse employees to delight all our stakeholders (employees customers partnersshareholders suppliers communities) consistently".
In building and fostering this environment leadership is a key enabler and afoundation. As a result we have been investing heavily on interventions and training todevelop leadership skills across all levels of the organization. Of the five criticalleadership skills identified by the organization we have cascaded three - Coach andDevelop Fostering Open Communication and Talent Management to 863 775 and 617 managersrespectively. Additionally 515 managers have undergone Leadership Conversation sessionsaimed at helping managers become more effective in managing people. Another trainingmodule familiarizing employees with our environment and their role - Cummins Environmentand You has been cascaded to a total of 393 employees.
A second batch of the Global Leadership Development Program (GLDP) with 21 participantsfrom the senior leadership team was launched in 2015. The participants worked on themeswhich included Strategy Global Engineering Right Environment and Customer SupportExcellence.
With this batch graduating in November 2016 the program would have so far covered 34senior managers across two batches.
In reiterating our Great Place to Work' strategy at the Megasite we also openeda state-of-the- art Residential Campus to house our Phaltan based employees in a highquality safe and clean environment.
Additionally for our associates at the Megasite in Phaltan a month-long employeedevelopment initiative that focused on building conversational English skills computerskills and values was launched in partnership with Unnati an NGO based out of Bangalore.Subsequently the site has an employee grievance committee in which 20 selectedassociates are active members. These associates were identified based on theirorganizational skills such as conflict management teamwork and collaboration skillsinterpersonal communication presentation skills and ability to speak English and operatethe computer. In 2015 we partnered with Tata Institute of Social Sciences in Mumbai todesign an Industrial Relations Certification program for senior managers responsible oraspiring for roles at plant locations. 16 of our employees participated in this programand sharpened their capability and knowledge in this area becoming more efficient inhandling industrial relations while aligning to the right environment philosophy.
We have also partnered with the Confederation of Indian Industry (CII) for a programcalled Visionary Leadership for Manufacturing. Designed with a vision to take Indianmanufacturing to the world this program is designed to shape senior managers intovisionary leaders of the industry. Three of our senior manufacturing leaders haveundergone this program.
Continuing to sponsor our employees for higher education in management and technicalstreams a total of 103 employees have been sponsored at our partner institutions. Theinstitutions include the Kelley School of Business at the Indiana University in the USIIM-Ahmedabad and S.P Jain for management studies and ARAI-Vellore Institute of Technologyfor technical programs. The ARAI-Vellore M.Tech program is now offering Manufacturing andIndustrial Engineering to the existing streams of Power Train Electronics and EngineTechnology and 16 employees have enrolled in the program.
Your Company continues to strongly abide by the Cummins Code of BusinessConduct' Treatment of Others' and Prevention of Sexual Harassment' policies.These are at the very core of building the right environment. During the year a trainingmodule on the Anti-Bribery policy was also introduced to strengthen the knowledge on thesubject and enhance awareness amongst the employees. The
Right Environment Every Time (REET) module has now been incorporated in the inductionprogram that every employee entering the organization has to undergo in order to sustainthe right environment.
Taking forward our hire-to-develop' strategy in employing the right talent at theentry level and then developing them for larger roles within the organization we hired251 fresh engineers chartered accountants MBA and M.Tech graduates. Furthermore 227professional employees moved within Cummins into different roles or functions.
On Diversity at the workplace we believe in ridding ourselves from inherited and longterm unconscious biases and prejudices. While the focus all these years has remained onincreasing gender representation at workplace which has resulted in taking the ratio to 30percent efforts are now being taken to broaden the scope of diversity beyond gender intostepping into other visible and invisible dimensions such as region generationspecially-abled and other minority groups such as lesbian gay bisexual and transgender(LGBT).
I am particularly proud of the fact that our employee health in aggregate is improvingand more of our employees are taking personal ownership about maintaining zero defecthealth. We began fanning our health program to employees' families during the year.Initiatives such as the Healthy Living Module and Yoga continued to run across locationsgathering further momentum. In last year's update
I had mentioned about the introduction of the Employee Assistance Program (EAP)aligned towards strengthening the emotional wellbeing of our employees. So far over 470employees and family members have availed these services. We were able to mitigate asignificant number of high-risk cases through effective counselling.
Yet another initiative was the introduction of the National Pension System (NPS) forour employees. Several studies have highlighted the lack of retirement preparedness andpension adequacy in India. Recognizing this and in a bid to aid our employees to betterprepare themselves for life post retirement your Company has taken the lead and is one ofthe few organizations to provide guidance in securing the financial wellbeing of itsemployees.
Programs such as Birth and Beyond' and anaemia eradication for women employeesand Ideal Weight drive for all employees which were first introduced at the Megasitehave been horizontally deployed across all other locations.
It is encouraging to see employees across the organization imbibing and demonstratingthe expected leadership behaviors which are all about role modelling and championing thesix Core Values five personality traits five leadership skills building high performingteams and being authentic selfaware leaders with improved emotional intelligence. We dobelieve that this more than anything else will help sustain your Company's leadershipposition into the future.
We expect the global economy in 2016 to remain challenging. However in India with theGovernment ushering a series of reforms and spending on infrastructure projects we arestarting to see a recovery in the domestic market. This coupled with the factors in ourcontrol which are strong partnerships fit for market technology scale advantage inmanufacturing soon to open largest technical center and building the right environmentin the organization that allows each employee to perform to their full potentialpositions your Company well to capitalize on every opportunity that comes forth.
I remain confident and excited about the future and am grateful to our Board ofDirectors for their valuable direction in helping us grow profitably while returning valueto our shareholders and sustaining the respect of all our other stakeholders. I would alsolike to thank the leadership team and all the employees for their commitment to deliver onour brand promise of dependability. Above all I remain thankful to you our shareholdersfor your unstinted confidence in our capabilities. I along with my leadership teamrecommit to continue working passionately in making people's lives better by unleashingthe Power of Cummins.
Anant J. Talaulicar