Your Directors have pleasure in presenting this Annual Report on the business andoperations of the company and the audited accounts of United Breweries Limited(UBL or your Company or the Company) for the FinancialYear ended March 31 2016 (the year under review the year orFY16).
Financial performance for the year ended March 31 2016 is summarized below:
| ||(Amounts in Rupees million) |
|FINANCIAL RESULTS ||Year ended March 31 |
| ||2016 ||2015 |
|Net Turnover ||51263 ||47299 |
|EBITDA ||7678 ||6584 |
|Depreciation and amortization ||2435 ||2074 |
|EBIT ||5243 ||4510 |
|Interest ||759 ||730 |
|Provision for Diminution in investment in Subsidiary || || |
|Profit before Taxation ||4484 ||3780 |
|Provision for Taxation ||(1538) ||(1184) |
|Profit after Tax available for appropriation ||2946 ||2596 |
|Appropriations: || || |
|Proposed dividend on Equity Shares (including taxes thereon) ||366 ||318 |
|Dividend on Preference Shares paid (including taxes thereon) || ||27 |
|Transfer to the General Reserve ||295 ||260 |
|Transfer to Capital Redemption Reserve || ||741 |
|Depreciation Adjustment || ||72 |
|Balance your Directors propose to carry to the Balance Sheet ||2285 ||1178 |
|Total appropriations ||2946 ||2596 |
The net turnover of UBL grew by 8.38% on account of increased Sales in line with theindustry growth. Interest cost increased by 4% due to higher working capital requirements.EBITDA for the year under review stood at Rs.7678 million as compared to Rs.6584 millionin the previous year reflecting an increase of 17%. Growth in EBITDA is the result ofvolume growth improved brand mix and effective management of input costs and fixed costs.
Depreciation for the year was Rs. 2435 million as compared to Rs. 2074 million in theprevious year.
Profit before Taxation for the year stood at Rs.4484 million as compared to Rs.3780million in the previous year reflecting an increase of almost 19%. Profit after Taxationfinally stood at Rs.2946 million as against Rs.2596 million in the previous year.
We take pleasure in proposing a dividend of Rs.1.15 per Equity Share of Re.1/- each forthe year ended March 31 2016. The dividend declared for the previous year was Re.1/- perEquity Share of Re.1/- each. The total dividend (including dividend tax) is Rs.366million which amounts to about 12.42% of the Profit after Tax.
UBL proposes to transfer Rs.295 million to the General Reserve.
The Authorized Share Capital of the Company stands at Rs.9990 million comprisingEquity Share Capital of Rs.4130 million and Preference Share Capital of Rs.5860 million.The Issued Subscribed and Paid-up Share Capital of the Company as on March 31 2016remains unchanged at Rs.264.4 million comprising 264405149 Equity Shares of Re.1/-each.
MANAGEMENT DISCUSSION AND ANALYSIS
On the basis of alcohol content beer in India can be categorized into Strong and MildBeers. Strong beer which has an alcohol content between 6% and 8% dominates the beermarket accounting for over 85% of the total beer consumed in India. The Super Premium beersegment within both the Strong and Mild beer categories has been growing faster than theoverall beer industry and has grown at a Compounded Annual Growth Rate (CAGR) of almost 30per cent over the last three years. The Indian beer market continues to grow in line withexpectations. Industry volumes grew at a Compounded Annual Growth Rate (CAGR) of 8% duringthe last five years. During 2015-16 the Indian beer market grew 4% to cross 294 millioncases.
Though the alcohol industry in India has been dominated by Spirits (IMFL and countryliquor) and Beer comprises about 11% of the total alcohol consumed in India recentsurveys show that beer is the preferred alcoholic beverage for young Indians and has abright future. It has registered robust growth in the last 10 years. From a total industryconsumption of about 100 million cases in 2005 the consumption has nearly tripled to 294million cases in 2016. Two leading players contribute over 70% of the total industrysales with our company being the market leader with a market share of about 50% and salesof 151.5 million cases in FY16.
There has been a trend of emergence of brew pubs in large cities such as BengaluruPune and Gurgaon over the last few years. These outlets have introduced consumers to newtypes of beers for e.g. wheat beer.
Our competitors too have introduced brands from their international portfolio.
UBL has been successful in meeting all these challenges and is continuing to strengthenits position in the market.
Compared to the global average per capita consumption of about 30 litres the percapita consumption in India is about 2 litres. However the scope for growth in Indiacontinues to remain positive given the climate young demographics and increasingdisposable income.
The Industry remains highly regulated with high taxation. In many parts of the countrywholesale and/or retail distribution is controlled by State Government monopolies. Also in60% of the markets State Governments dictate the price at which beer can be sold.However in combination with the young demographics and warm climate of the country webelieve in the long term growth prospects of the beer market notwithstanding theconstraints mentioned above.
The introduction of the Goods and Services Tax (GST) is being eagerly looked forward toby the Indian industry at large. The legislation that has been under discussion for thepast decade envisages to bring the country under a single tax regime that would avoidcascading taxes and be simple to implement. However the alcohol industry is being keptout of the GST reform. We will be outside the tax reform on our output but pay GST rateson our input materials. This would result in higher tax incidence on input materialspushing up our cost of production.
We are actively pursuing remedial measures with the Government in order to mitigate thenegative impact of the legislation on our business.
Sales and Marketing
Our national market share in FY16 is about 50% which is more than double the size ofthe nearest competitor.
Kingfisher Strong continues to lead the Indian beer market with a market share of about40% in the Strong beer category. Kingfisher Premium continues to grow market share and isthe first choice of mild beer consumers across the country. Kingfisher Ultra crossed 1.59million cases sales in FY16 and commands a market share of over 16% in Super Premiumcategory. It has become the most aspirational super premium mild beer in the country andis ubiquitously present all over India.
Heineken is the fastest growing brand in UBLs portfolio. The brand hasestablished itself in India as a world class super premium beer. It has been promotedleveraging the Global marketing platforms of football James Bond and music.
The Company maintains sustainable investment in brand building activities forKingfisher in the fields of Sports Food Music and Fashion. We have a significant andmarket leading presence in the Indian Premier League T20 Cricket Tournament KingfisherEast Bengal Football Club the Kingfisher Ultra Derby and Formula One Racing. Ourassociation with restaurants/bars/pubs/clubs/star hotels/night clubs is uninterrupted.
The Kingfisher Calendar continues to maintain its high aspirational value. We havecreated excitement around this property by hosting a very popular Supermodel hunt on aleading TV Channel.
In 2014 Kingfisher was featured in the list of 100 most valuable brands for itscredibility and consumer following by the World Consulting and Research Corporation. In2015 Kingfisher was one of the Top 50 most valuable Indian brands in the WPP and MilwardBrown Survey.
Our manufacturing expenses for the FY16 amounted to Rs.20107 million representing 39%of net sales as against Rs.19091 million in the previous financial year whichconstituted 40.68% of net sales. The relative decrease is due to tight cost control in themanufacturing process in an environment of relatively high inflation.
To cater to the increasing demand for our products we have further expanded ourcapacity with the Greenfield brewery near Patna in Bihar that had commenced operationsduring the course of the year. To further augment capacities in Rajasthan we haveacquired brewery assets in a strategic location near Shahjahanpur. This Brewery commencedoperations from February 2016 following refurbishment and overhaul. UBL will continue toexpand capacity either at its existing breweries or by acquisition or building of new oneswhere required.
Bottles remain our biggest cost element. Our decision to move to dedicated bottles withTrade Mark and design registration has ensured tight control on the cost of recycledbottles.
Key material imports for Heineken requirements have now been localized and substitutedwith Heineken approved local vendors. This has ensured lower procurement cost and greaterflexibility of sourcing. Softening of commodity prices coupled with better negotiationshave helped us contain prices.
We are continuing our efforts to develop new varieties of barley in association withleading Government Institutes. We work with farmers in helping them cultivate barley andprovide them with good quality seeds and offer a package of good practices in order toincrease productivity. During the year under review we have worked on about 30000 acresand built relationships with about 7000 farmers.
Research and Development
UBLs Research and Development function continues to support our growth strategywith a focus on new capabilities development of new products enhancement of existingproducts productivity improvement and cost reduction.
UBL recognizes people as the primary source of its competitiveness and continues tofocus on people development by leveraging technology and developing a continuouslylearning human resource base to unleash their potential and fulfil their aspirations.
Your Company has a long standing practice of developing talent from within by providingon the job learning opportunities and career development platforms to all employees.
The Human Resources strategy is aimed at talent acquisition development motivationand retention. The Human Resource function acts as an effective lever for driving thecompanys strategic initiatives and helps in integrating and aligning all the peopletowards UBLs business priorities.
UBL employs 2793 people across all locations. The Company has not offered any stockoptions to the employees during the year under review. All the wage agreements have beenrenewed in a timely manner and are all valid and subsisting. Operatives and unions supportimplementation of reforms that impact quality cost and improvements in productivityacross all locations which is commendable.
Total employee benefit expenses for the year stood at Rs.3360 million as compared toRs.2974 million in the previous year. This constituted 7% of net sales. Employee benefitexpenses were higher on account of salary increases.
Your Directors place on record their sincere appreciation to all employees for theircontribution towards the continuous success of the organization.
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY
Corporate Social Responsibility (CSR) is a partnership between the corporate and thecommunity to assume and execute responsibility towards the impact of the business on thesociety. Being one of Indias largest beverage companies with a strong brand name hasinstilled high expectations from the Company. UBL takes cognisance of this fact and thusfeels responsible for meaningfully contributing towards environmental conservation andcreation of social capital. Companies do not function in isolation from the society aroundthem. In fact their ability to operate depends heavily on the circumstances of thelocations where they operate. UBL operates from a large number of locations all across thecountry that are characterized by non-uniformity in the level of socio-economicdevelopment education poverty practices and rituals. While India is a very largecountry with multitude of social issues and concerns your Company has decided to focus onthe communities residing in the vicinity of its breweries as a starting point for its CSRinterventions. The Company has integrated CSR in its corporate strategy and intends todrive it with a vision to bring about sustainable social development for itsco-communities. The CSR Policy of the Company is posted on its websitewww.unitedbreweries.com and is available through the link http://unitedbreweries.com/csr.
Building and transforming communities requires focus time commitment and resources.The thematic areas have been carefully chosen to maximise the output of the corporatesocial responsibility initiatives. The programmes have been solidified with theparticipation of business units employees and the community that we work with and focusareas have emerged as:
Water Sanitation and Hygiene Education Primary Health Environmental Sustainability
In the last financial year UBL has implemented its CSR programmes either directly orthrough partnerships with reputed non-profit organisations having expertise in theselected thematic areas. Emanating from the belief that the co-communities deserveattention on priority the CSR implementation area has been defined within a 10km radiusof UBLs operations and manufacturing facilities._
A robust system of monitoring has been put in place to ensure effective implementationof planned CSR initiatives. A monthly reporting system has been established for each ofthe programmes which is consolidated into quarterly and eventually annual CSR reports.The output of the intervention is gauged through a planned and actual comparison whichhelps identify the gaps and challenges faced in the process of implementation andsolutions for the same. The project sites are visited on a regular basis to understand thephysical progress.
UBL has committed a significant proportion of its CSR budget to availability of safedrinking water for the communities residing in the vicinity of each of its 21 ownedbreweries. Over 140 villages comprising a population of over 600000 would be coveredunder this program. The program will be implemented brewery by brewery for effectivemonitoring and supervision. It will be implemented in partnership with reputednon-government organisations and respective gram panchayats over five years commencing inFY16.
CSR activities undertaken by UBL are included in the Report of StakeholdersEngagement detailed in pages 1 to 8 to this report. The Business Responsibility Report inthe format prescribed under the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 (the current Listing Regulations) is annexed as Annexure-A.Annual Report on CSR activities in terms of the Companies Act 2013 and the Companies(Corporate Social Responsibility) Rules 2014 is annexed as Annexure-B.
UBLs sustainability reporting articulates our perspective on the emerging forcesin the global sustainability landscape and UBLs response on multiple dimensions. Foreach of the three dimensions i.e. economic ecological and social sustainability wearticulate key issues as well as opportunities that emerge and update our engagements.
Towards sustainability UBL has undertaken proactive measures in water consumptionrain water harvesting and reduction in energy consumption thereby reducing the carbon footprint energy and fuel consumption.
The Companys brewery at Hyderabad was bestowed with the "Green ManufacturingExcellence Awards 2015" under the category "Challengers Award-MediumBusiness" from Frost & Sullivans. The brewery at Rajasthan has beenrecognised for its contribution through corporate social responsibility by the AlwarDistrict Administration.
OPPORTUNITIES THREATS RISKS & CONCERNS
India_is the_second most populous_country in the world with over 1.3 billion peoplei.e. more than a sixth of the_worlds population. Over 50% of its population is belowthe age of 25 and more than 65% below the age of 35 as per United Nations Department ofEconomic and Social Affairs statistics.
The beer market in India is growing each year. With a Sales Volume of about 189 millioncases in 2010 the Volume crossed 294 million cases during FY16. The continuing growth ofthe Indian beer market can be attributed to the young demographics of the country alongwith growing affluence of the population. Our current per capita consumption of beer at 2litres is well below the Global average of around 30 litres and can only grow.
In terms of revenue beer accounts for around 11% of the Indian alcoholic beveragemarket. Compared to various international markets such a low penetration in beerconsumption offers an opportunity for substantial growth in the future. Your Company viewstremendous opportunity in meeting the ever increasing demand armed with a consistentexpansion programme each year.
UBL has added 2 new brands to its portfolio. Kingfisher Ultra Max a Super PremiumStrong beer and Kingfisher Buzz a flavoured beer to cater to new consumers and marketopportunities.
UBL faces a challenge in the form of consolidation of competition. The worldslargest beer maker AB InBev took over its closest rival SAB Miller thereby enhancing itscombined presence to control nearly a third of the global market.
There are a variety of taxes & levies in each state. These along with priceregulation inadequate market infrastructure and restrictions in interstate movement ofbeer pose a great challenge to the industry. Roughly one-fifth of most state governmentbudgets are funded by the_alcoholic beverage category. Despite drivers of growth being inplace government intervention in distribution high taxation restricted communicationand increased cost of raw materials remain some of the negatives faced by the industry.
The threat to sales in some territories in the country arises due to changes ingovernment regulations and the threat of prohibition which stems from constant changes inthe political climate in the country. Though sales have been prohibited in certain stateswe are in the process of identifying avenues for increasing sales by exporting to otherstates. The industry as a whole faces the threat of drought in a few states resulting insevere shortage of water supply.
UBL is the leading player in the industry with a market share of about 50%. Effectivemarketing strategies have helped us reinforce our position as the clear market leader inthe country. Our flagship brand Kingfisher is almost synonymous with beer in India.
Despite many challenges the Indian market provides a huge opportunity with itsextremely low per capita consumption when compared to other countries in the world likeChina and US which consume 37 litres and 78 litres of beer respectively per person perannum. We believe that favourable demographics rising disposable incomes urbanizationand rising acceptability of drinking will bring winds of change to the industry. Beerindustry is expected to grow at 6% to 8% p.a. for the next few years.
Also what augurs well for the Indian beer industry is our large population and thefact that over 50% of the population is under 25 years of age. India is expected toovertake China to become the most populous nation in the world by 2025. All this willresult in India reaping a huge demographic dividend.
Consumer acceptance of beer has led to innovations such as new product introductionsand success of brewpubs selling freshly brewed beer in cities like Bengaluru Gurgaon andPune. Growth in premium modern trade and on-premise outlets in metropolitan cities hasincreased the range of availability of products and improved the retail environment. Somestate governments notably Maharashtra Uttar Pradesh and Kerala offer separate licensesfor beer sale further boosting growth prospects for the industry.
UBL has invested significantly in brand visibility to sustain its "top ofmind" recall with consumers. High profile sponsorships and brand activations haveensured that its brands especially Kingfisher retain their iconic status. The companyhas a strong route-to-market combined with a portfolio of market leading brands.
We have through a series of strategic investments taken steps to enhance ourleadership in the industry in this unfolding scenario. UBL continues to invest in bothcapacities and brands. Though already established efficiency programmes apply to allaspects of our business there is a constant drive towards continuous identification ofnew ways of improving organizational capabilities and speed whilst reducing cost.
Even in a highly competitive scenario your Company has not only successfully overcomethe challenges of the industry but also outpaced several global beer brands that haveentered India in the recent past and has constantly maintained its leadership position.
Considering the risks affecting our industry we have an established and robustframework for managing and mitigating various risks. We also continuously assess andupdate the framework based on the changes in the level of risk. To achieve this controlUBL performs risk assessment in which Strategic Operative Information TechnologyFinancial and other Risks are analysed. This is reviewed regularly by the Internal Auditteam and the Board. UBL has evolved a framework for management of business risk. Weperiodically assess risks in the internal and external environment along with the cost oftreating risk and incorporates risk treatment plans in its strategy business andoperational plans.
High taxation and price control by several states inhibits our ability to significantlyimprove the margin profile of our business.
UBL has explored a variety of avenues to contain the risk of continued increase inbasic costs and has entered into a few long term agreements for sourcing vital inputs.There has been a continuing review of the long term strategy for procurement at aneconomical cost.
In order to mitigate the risk of water shortages most of our breweries haveimplemented ground water recharge. As part of Corporate Social Responsibility (CSR)initiatives UBL has committed to availability of safe drinking water for communitiesresiding in the vicinity of each of its 21 owned breweries. Over 140 villages comprising apopulation of over 6 Lakh villagers would be covered over a period of 5 years commencingin FY16.
From a consumption level of about 6 litres of water per litre of beer produced 78 years ago we are at a level of about 3.5 litres per litre of beer today. This is aheadof the world average of about 4 litres. Some of our newer breweries are at a level of 2.5 2.8 litres of water per litre of beer. This would place your Company amongst theelite of world breweries in the area of water consumption.
UBL has constituted a Risk Management Committee comprising senior board members.Further the Assurance Committee comprising of functional Heads periodically reviews theidentified risks and takes mitigative actions. The Company has formulated a RiskManagement Policy and the management has laid down procedures for risk assessmentidentification minimization and mitigation which are presented to the Audit Committee andthe Board of Directors on a periodical basis.
Internal control system
UBL has established a robust system of Internal Controls to ensure that assets aresafeguarded and transactions are appropriately authorized recorded and reported.With the introduction of Internal Controls in Financial Reporting (ICFR) in the CompaniesAct 2013 we have made an evaluation of functioning and quality of internal controls. Inaddition to statutory mandate Internal Audit evaluates and provides assurance of itsadequacy and effectiveness through periodic reporting. Controls in place are routinelyevaluated and certified by the Internal and Statutory Auditors
and gaps are identified by the Auditors through a detailed testing exercise. Therevised process of internal control ensures orderly and efficient conduct of businesssafeguarding of assets prevention and detection of frauds and errors accuracy andcompleteness of accounting records and timely preparation of reliable financialinformation.
Internal Control evaluates adequacy of segregation of duties transparency inauthorization of transactions adequacy of records and documents accountability &safeguarding of assets and reliability of the management information system. Periodicreviews are carried out for identification of control deficiencies and opportunities forbridging gaps with best practices along with formalization of action plans to minimizerisks.
The Company believes that the overall internal control system is dynamic and reflectsthe current requirements at all times thereby ensuring that appropriate procedures andoperating and monitoring practices are in place.
Maltex Malsters Limited is the only subsidiary in which your Company holds 51% ofequity capital. Maltex Malsters Limited is a non-listed entity and is not a materialnon-listed subsidiary as defined in Clause 49 of the earlier Listing Agreement andRegulation 16(1)(c) of the current Listing Regulations.
UBL has formulated a policy for determining material subsidiaries which is placed onthe website of the Company www.unitedbreweries.com and is available through the linkhttp://unitedbreweries.com/pdf/policyandcodes/Policy%20for%20Determining%20Material%20Subsidiaries-PDF.pdf.
The consolidated financial statement of the company including the financial statementof its subsidiary forms part of this Report in terms of the Companies Act 2013 and thecurrent Listing Regulations . A statement containing the salient features of the financialstatement of the subsidiary/associate is attached as Annexure-Cto this Report.
Cash Flow Statement
A Cash Flow Statement for the year ended March 31 2016 is appended.
Particulars of Loans Guarantees or Investments
Details of loans guarantees and investments covered under section 186 of the CompaniesAct 2013 are given in the notes to the Financial Statements.
Your Companys equity shares are listed on the BSE Limited (formerly Bombay StockExchange Limited) and National Stock Exchange of India Limited. The listing fees have beenpaid to all these Stock Exchanges for the year 2016-2017.
The trading in the equity shares of the Company is under compulsory dematerializationmode. The Company has entered into an agreement with National Securities DepositoryLimited and Central Depository Service (India) Limited in accordance with the provisionsof the Depositories Act 1996 and as per the directions issued by the Securities andExchange Board of India. As the depository system offers numerous advantages members arerequested to take advantage of the same and avail the facility of dematerialization of theCompanys shares.
There were no outstanding deposits at the end of the previous financial year. TheCompany has not invited any deposits during the year.
Additional statutory information
Particulars of Employees & Managerial Remuneration
Information required under sub-section (12) of Section 197 of the Companies Act 2013read with Rule 5(2) of The Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 in respect of employees of the Company forms part of this Report.Details of remuneration of managerial personnel as required under sub-section (12) ofSection 197 of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 also forms part of this Report.
In terms of first proviso to sub-section (1) of Section 136 of the Companies Act 2013the reports and accounts are being sent to the shareholders excluding the aforesaidinformation. Any shareholder interested in inspection of the documents pertaining to aboveinformation or desires a copy thereof may write to the Company Secretary.
Statements in this report particularly those which relate to ManagementDiscussion and Analysis and Opportunities Threats Risks and Concernsdescribing the Companys objectives projections estimates and expectations mayconstitute forward looking statements within the meaning of applicable lawsand regulations. Actual results might differ materially from those either expressed orimplied.
Employees Stock Option Scheme and Sweat Equity Sharees
The Company has not offered any shares to its employees or Key Managerial Personnelunder a scheme of Employees Stock Option and has also not issued any Sweat EquityShares at any time.
Related Party Transactions
Details of transactions with related parties as defined in the Companies Act 2013 andthe Rules framed thereunder the Listing Agreement/current Listing Regulations andAccounting Standard 18 of the Companies (Accounting Standards) Rules 2006 have beenreported in the Notes to financial statements. Approval of the Audit Committee and theBoard of Directors as required under the Listing Agreement/current Listing Regulations hasbeen obtained for such transactions.
The Company has formulated a policy on materiality of Related Party Transactions andalso on dealing with Related Party Transactions which is placed on the website of theCompany viz. www.unitedbreweries.com and is available through the linkhttp://unitedbreweries.com/pdf/PolicyandCodes/Policy%20on%20Related%20Party%20Transactions.pdf.
All transactions entered by the Company during FY16 with related parties were in theordinary course of business and on an arms length basis. During the year theCompany has not entered into any transaction with related parties which could beconsidered material in accordance with the policy of the Company on materiality of relatedparty transactions.
Familiarization programme for Independent Directors
The existing Board comprises Executive Independent and Non-Executive Directors whohave been at the helm of Management of the Company for several years and are fullyconversant with the business and operations of the Company. The familiarization programmefor new Independent Directors as and when inducted shall aim to familiarize them with theCompany their roles rights responsibility in the Company market business model of theCompany etc.
The existing Board of Directors have complete access to the information within theCompany.
Presentations are regularly made to the Board of Directors/Audit Committee/Nomination& Remuneration Committee on various related matters where Directors get anopportunity to interact with Senior Managers. The Company has issued appointment lettersto the Independent Directors which also incorporates their role duties andresponsibilities.
Whistle Blower Policy
The Company has adopted vigil mechanism which is a channel for receiving and redressingof complaints about any misconduct actual or suspected fraud actual or potentialviolations of the Companys code of conduct and any other unethical unlawful orimproper practices acts or activities within the Company. The Company has formulated aWhistle Blower Policy for Employees & Directors and has ensured adequate safeguardsagainst victimization of whistle blowers. The details of establishment of the vigilmechanism are disclosed on the website of the Company. None of the Employees &Directors have been denied access to the Chairman of the Audit Committee.
Conservation of Energy
The company is taking continuous steps to conserve energy. Its"Sustainability" initiatives are disclosed separately as part of this report.The information on conservation of energy technology absorption foreign exchangeearnings and outgo as stipulated under Clause (m) of sub-section (3) of Section 134 ofthe Companies Act 2013 read with The Companies (Accounts) Rules 2014 is set out herewithas Annexure-D to this report.
Code of Business Conduct and Ethics
The Board of Directors of UBL have adopted a Code of Business Conduct and Ethics interms of the Listing Regulations which has been posted on the website of the Company viz.www.unitedbreweries.com.
Code for Prevention of Insider Trading
Your Company has adopted a comprehensive Code of Conduct to Regulate Monitor andReport of Trading by Insiders and also a Code of Practices and Procedures forFair Disclosure of Unpublished Price Sensitive Information under the provisions ofthe Securities Exchange Board of India (Prevention of Insider Trading) Regulations 2015.
The Board of Directors of UBL comprises twelve Directors with a balanced combinationof Independent and Promoter Directors. Mr. A K Ravi Nedungadi Non-Executive Directorretires by rotation at the ensuing Annual General Meeting and being eligible offershimself for re-appointment. Following his transfer to a new assignment by Heineken N.V.the term of Mr. Henricus Petrus van Zon as Director and Chief Financial Officer shall endon August 31 2016. Mr. Steven Bosch has been seconded by Heineken N.V. in place of Mr.van Zon to take charge on September 01 2016. Mr. Bosch will also be a Key ManagerialPersonnel as per the Companies Act 2013.
Independent Directors viz. Mr. Chhaganlal Jain Mr. Chugh Yoginder Pal Mr. SunilAlagh Ms. Kiran Mazumdar Shaw Mr. Madhav Bhatkuly and Mr. Stephan Gerlich have beenappointed for a period of five years till September 03 2019.
Declaration from Independent Directors
All Independent Directors have given a declaration that they meet the criteria ofIndependence as laid down under Section 149(6) of the Companies Act 2013.
Meetings of the Board of Directors and Committees of the Board
The meetings of the Board and Committees are pre-scheduled and a tentative calendar ofthe meetings finalized in consultation with the Directors is circulated to them in advanceto facilitate them to plan their schedule. In case of special and urgent business needsapproval is taken by passing resolutions through circulation. During FY16 four (4) BoardMeetings were held. Other details including composition of the Board and variousCommittees and Meetings thereof held in FY16 are given in the Corporate Governance Reportforming part of this report.
The Audit Committee of the Board of Directors is constituted to act in accordance withthe terms of reference and perform roles as prescribed under the Companies Act 2013 andClause 49 of the Listing Agreement. The composition of the Audit Committee its terms ofreference roles and details of meetings convened and held during the year under review isgiven in Corporate Governance Report forming part of this report.
During the year all the recommendations of the Audit Committee were accepted by theBoard.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee is constituted to act in accordance with theterms of reference and perform roles as prescribed under the Companies Act 2013 andClause 49 of the Listing Agreement. The composition of the Nomination and RemunerationCommittee its terms of reference roles and details of meetings convened and held duringthe year under review is given in the Corporate Governance Report forming part of thisreport.
Performance Evaluation of Directors
To ensure an effective Board evaluation process the Nomination and RemunerationCommittee (NRC) has put in place a robust evaluation framework for conducting the exercisewith key steps and practices defined clearly. As part of this process customizedquestionnaires after review by the NRC were circulated to all Directors of the Company.Each Director was required to undertake assessment of all other Directors and theChairperson. Additionally the effectiveness of the Board and Committees was required tobe evaluated by each member of the Board.
Keeping in view the sensitivity and confidentiality associated with the exercise anexternal agency was engaged to anchor the process. Responses from Directors were submittedthrough an electronic platform and were kept confidential.
Performance of the Board was evaluated on various parameters such as compositionstrategy tone at the top risk and controls and diversity. Similarly a questionnaire forCommittees was framed on parameters such as adherence to the terms of reference andadequate reporting to the Board. Parameters for the Directors included intellectualindependence of the Director participation in formulation of business plans constructiveengagement with colleagues and understanding of risk profile of the company. Chairpersonof the Company was evaluated on parameters such as leadership style and motivation ofDirectors.
Questionnaire was completed by each Director responses were analysed and the resultswere subsequently discussed at a meeting of the NRC. Additionally each Director was givenan Individual report regarding his/her peer evaluation by other Directors for deeper andfruitful understanding of development areas.
The recommendations arising from this entire process were considered by the Board toimprove its overall effectiveness and optimize individual strength of Directors.
Policy on Performance Evaluation
UBL has formulated a Performance Evaluation Policy inter alia prescribing evaluationcriteria for Independent Directors and the Board of Directors of the Company. The Policyalso lays down criteria for appointment of Directors and the remuneration of Directors/KeyManagerial Personnel. The Policy of the Company is posted on the website of the Companyviz. www.unitedbreweries.com and is available through the linkhttp://unitedbreweries.com/pdf/policyandcodes/Directors%20performance%20Evaluation%20Policy.pdf. Criteria for making payment tonon-executive Directors is placed on the website of the Company viz.www.unitedbreweries.com.
Foreign Exchange Earnings and Outgo
During FY16 total foreign exchange earnings of the Company stood at Rs. 438 Lakhs(Previous Year: Rs.467 Lakhs) and foreign exchange outgo stood at Rs.18821 Lakhs(Previous Year: Rs.16808 Lakhs).
Corporate Governance Report
Report on Corporate Governance forms part of this report along with the Certificatefrom the Company Secretary in Practice.
As required under sub-section (3) of Section 92 of Companies Act 2013 and Rule 12(1)of Companies (Management and Administration) Rules 2014 an extract of Annual Return inForm MGT-9 is annexed as Annexure-E to this report.
Auditors and the Auditors Report
In terms of the provisions contained in the Companies Act 2013 read with the Companies(Audit and Auditors) Rules 2014 Messrs S R Batliboi & Associates LLP CharteredAccountants were appointed Statutory Auditors of UBL at 15th Annual GeneralMeeting held on September 04 2014 for a period of three years i.e. from the conclusion of15th Annual General Meeting till the conclusion of 18th AnnualGeneral Meeting. Their appointment in the office of Statutory Auditors during the saidperiod is subject to ratification by Members at every Annual General Meeting.
There are no qualifications or adverse remarks in the Auditors Report. TheAuditors have expressed their opinion that the Companys internal financial controlswith respect to obtaining customer/vendor confirmation and their reconciliation with thebooks of accounts of the Company in certain cases were not operating effectively. TheDirectors are of the view that though the Company was unable to achieve the said controlsin certain cases there is no risk of material misstatement of the outstanding ofdebtors/creditors in the books of accounts.
Pursuant to the Section 204 of the Companies Act 2013 and Rule 9 of The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hasappointed M/s. Sudhir Hulyalkar Company Secretaries to undertake Secretarial Audit ofthe Company for the FY16. The Secretarial Audit Report forms part of this report and isannexed as Annexure-F.
There are no qualifications reservations or adverse remarks in the Secretarial AuditReport.
Details of Significant and Material Orders
No order has been passed or stringent action taken by any regulator or court ortribunal impacting the going concern status of the Company. The Company has complied withthe requirements of the regulators on matters related to stakeholders as applicable.
Directors Responsibility Statement
Pursuant to clause (c) of sub-section (3) of Section 134 of the Companies Act 2013the Board of Directors report that: (a) in the preparation of the Annual Accounts theapplicable accounting standards have been followed along with proper explanation relatingto material departures; (b) the Directors have selected such accounting policies andapplied them consistently and made judgments and estimates that are reasonable and prudentso as to give a true and fair view of the state of affairs of the Company at the end ofthe financial year and of the profit of the Company for that period; (c) the Directorshave taken proper and sufficient care for the maintenance of adequate accounting recordsin accordance with the provisions of this Act for safeguarding the assets of the Companyand for preventing and detecting fraud and other irregularities; (d) the Directors haveprepared the annual accounts on a going concern basis;
(e) the Dir ectors have laid down internal financial controls to be followed by theCompany and ensured that such internal financial controls are adequate and were operatingeffectively and (f) the Directors have devised proper systems to ensure compliance withthe provisions of all applicable laws and ensured that such systems were adequate andoperating effectively.
ACKNOWLEDGEMENTS AND APPRECIATION
Your Directors take this opportunity to thank UBLs customers shareholderssuppliers bankers business partners and associates financial institutions and centraland state governments for their consistent support and encouragement to the Company.Finally your Directors would like to convey sincere appreciation to all employees of theCompany for their hard work and commitment.
| || ||By Authority of the Board |
| ||Shekhar Ramamurthy ||Henricus Petrus van Zon |
|May 13 2016 ||Managing Director ||Director & CFO |
|Mumbai ||DIN: 00504801 ||DIN: 06485007 |