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International Paper APPM Ltd.

BSE: 502330 Sector: Industrials
NSE: IPAPPM ISIN Code: INE435A01028
BSE 00:00 | 22 Feb 455.50 -1.65
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OPEN 457.25
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VOLUME 9565
52-Week high 591.15
52-Week low 285.00
P/E 9.96
Mkt Cap.(Rs cr) 1,812
Buy Price 455.50
Buy Qty 77.00
Sell Price 455.50
Sell Qty 173.00
OPEN 457.25
CLOSE 457.15
VOLUME 9565
52-Week high 591.15
52-Week low 285.00
P/E 9.96
Mkt Cap.(Rs cr) 1,812
Buy Price 455.50
Buy Qty 77.00
Sell Price 455.50
Sell Qty 173.00

International Paper APPM Ltd. (IPAPPM) - Director Report

Company director report

Dear Members

The Board of Directors has pleasure in presenting the 54th Annual Report ofthe Company and the Audited Accounts for the year ended March 31 2018.

Performance Review

During the financial year 2017-18 the Company financial performance improved byearning its highest recorded EBITDA and PAT. These results were driven by higher salesvolume higher selling prices as well as record production levels and improved efficiencyand manufacturing cost. While EBITDA registered an increase of 28% Profit after Taximproved by 156% supported by decrease in finance costs depreciation and exceptionalitems. The Company continued to focus on important initiatives for improving employeesafety and environmental compliance as well as improving the customer experience andoperational efficiencies.

(In Rs. Crores)
Summary of Financial Results March 31 2018 March 31 2017
Sales and other operating income 1279.80 1230.94
Earnings before interest depreciation and taxation (EBITDA) 226.72 176.03
Finance costs 26.09 33.59
Depreciation 65.81 70.03
Profit before exceptional items 134.82 72.41
Exceptional items (8.37) (28.18)
Profit before tax 126.45 44.23
Tax expense 43.39 11.83
Profit for the year 83.06 32.40

Dividend

In order to conserve the resources for meeting future capital needs the Directors havedecided not to recommend dividend on the equity shares of the Company.

Markets Customers and Commercial Excellence

The Paper Industry in India is growing steadily with increasing demand from variouscustomer segments like education business & corporate and commercial printing. Thedemand and growth drivers have come from a combination of factors such as rising incomelevels growing per capita expenditure rapid urbanization industrial productiongovernment spending on education and increased school enrollments.

To cater to the customer needs the Company offers the best products and services usinginnovation sustainability and manufacturing excellence programs. The Company has beenable to grow in most regions through distribution expansion and customer engagementprograms.

To build trust with the customers the Company needs to be consistent with its qualityand service. Our customers expect the Company to deliver orders on-time and in-full. Wemust do this to earn their trust. To improve the customer experience we revised our ordermanagement and scheduling process for a ~10% improvement in OTIF rate to 90% for 2017(On-Time & In-Full).

With an objective to increase customer satisfaction loyalty and awareness the Companyconducted various customer engagement programs like roadshows technical meetings loyaltyprograms and conferences. These programs served as a platform to show case the Company'sproducts and demonstrate their performance which helped in understanding the customerneeds better. Based on this the Company developed new products to suit their specificneeds. One of the success stories last year was Reflection – White in Cutsize. TheCompany also aligned its product development strategy to address the growing trends inbusiness and education segments which added to the value proposition.

The continuous focus in improving customer experience through engagement and newproduct introduction resulted in increased customer value creation which led to increasein sales volume by 4% over last financial year.

Raw Material Security

Fiber is the key raw material ingredient within our products so long term access tolow cost sustainable fiber is important to our strategy. We actively engage with farmersand other key stakeholders to collaborate on efforts to improve the strength of theseedlings and clones as well as enhanced farming techniques to improve yield. Theseefforts help to ensure the long term access to sustainable fiber.

The strategy has also enabled the sourcing of 100% of the Company's fiber requirementwithin a 300 km radius of the mill while stabilizing the fiber cost in 2017-18. Ourpartnerships with farmers has enabled the planting of ~ 4.3 million high yieldingCasuarina clones and ~ 70 million Casuarina seedlings. The plantations have covered ~10250 hectares of farm land and generated ~5.1 million man-days of employment forfarmers.

Developing and maintaining strong species of Casuarina Eucalyptus and Subabul requiresa commitment to ongoing research and development. We are working with the Indian PaperManufacturers Association (IPMA) and the Institute of Forest Genetic & Tree BreedingCoimbatore (IFGTB) to ensure the broadest approach to sharing best practices gainingknowledge and performing R&D for developing clonal species.

Human Resource Management

The Company's agenda for engaging and developing our employees is broad and deepincluding many initiatives to attract develop and retain talent. The key focus areasduring the year included diversity and inclusion succession planning developing a talentpool for critical positions quality of life programs and leadership development.Beginning with the senior leadership team the Company appointed a new Vice President& CFO and new Vice President for Procurement and Forestry. Both of these leaders werepromoted from within the Company and are a testament to the organization strength ofsuccession planning and development of future leaders. The succession plans and leadershipdevelopment programs also work deep in the organization as evidenced by the promotion ofseveral young and talented employees to new leadership positions.

We have taken a more professional proactive and engaging approach to industrialrelations. While upholding the IP philosophy of treating people with dignity and respectas well as important principles of labor relations we engaged with the union leadersmanagement and government. Following a fair transparent and engaging process the Companysuccessfully signed a long-term bargaining agreement with Kadiam Workers Union.

We believe that highly engaged employees drive better results in every measurement. Theglobal employee engagement survey received tremendous response at the Company with 92%respondents voicing high satisfaction at work. This high level of satisfaction rated inthe top quartile of IP globally. In addition to employee participation for the firsttime we included contract workers in the survey to measure their engagement.

In line with the philosophy of treating people with respect and equity the Companyintroduced medical insurance policy for mill workers and their spouses that will covertheir hospitalization expenses.

The annual leadership conference was attended by Company's top 100 leaders. The Companyused this opportunity to recognize its leaders' accomplishments as well as review thesuccess failures and learnings from 2017. Finally with all of the top leaders in oneroom the Company reviewed the goals for next year and made sure that all are aligned onthe 2018 priorities.

Leveraging the power of Information Technology

Applying IT solutions to business operations can be a powerful technique to improveefficiency cost and focus time. The IT department has begun using data analytics anddigital automation tools to enhance productivity reduce manual work and increaseaccuracy. The focus areas include Sales Marketing Forestry and Manufacturing. Newprocess automation in our Farm Forestry operation has enhanced our capability to tracksaplings from production to delivery. Further process automation within our Environmentalmanagement operation has reduced manual work and improved our data management and ourability to ensure that we operate in compliance to the regulations. We have provided newanalysis and report tools for our commercial team to better understand key market andcustomer trends thus leading to better decisions.

CSR and inclusive growth

The Company is committed to inclusive growth of the communities around themanufacturing facilities in which it operates and for this purpose it identified threefocus areas namely Education Health and Wellness and Engagement. It has been strivinghard for sustainable inclusive growth by taking up various initiatives under these focusareas.

The Company had adopted a CSR Policy which is placed on the Company's website:www.ipappm.com. The Members of Corporate Social Responsibility Committee as on March 312018 comprised of:

a. Mr. M.S. Ramachandran (Independent Director) – Chairman

b. Ms Ranjana Kumar (Independent Director) - Member

c. Mr. Donald P. Devlin (Chairman & Managing Director) – Member

As per Section 135 of the Companies Act 2013 the Company is required to spend a sumof Rs. 60.70 lakhs during the financial year 2017-18 whereas the Company spent a sum ofRs. 61.04 lakhs (Including donation of Rs. 9.10 lakhs given to IP India Foundation aSection 8 Company) for supporting various CSR initiatives in these focus areas.

The Annual Report on CSR activities is at Annexure-1.

Awards

During the year under review the Company received the following Awards:

a. Certificate of Silver Prize in the manufacturing sector medium scale hazardouscategory under 6th FICCI Safety Systems Excellence Awards for Industry 2017 inrespect of Unit: Kadiyam from Federation of Indian Chambers of Commerce and Industry.

b. Janmabhoomi Award in recognition of special CSR work done in Kadiam

c. Janmabhoomi Award for CSR work done in the areas of education and safe drinkingwater plants in Rajahmundry

d. Award for innovation in the field of mental health for employees from NationalInstitute of Mental Health and Neurosciences

Related Party Transactions

All related party transactions that were entered into during the financial year underreview were on arms-length basis and also in the ordinary course of business. There are nomaterially significant related party transactions entered into by the Company with thepromoters directors key managerial personnel which may have a potential conflict withthe interests of the Company at large.

The Board of Directors approved a policy on related party transactions which is placedon the Company's website. The related party disclosures are given in Note No.35 to thefinancial statements.

Remuneration Policy

The Company has adopted the Nomination and Remuneration Committee Charter whichincludes the Company's policy on directors' appointment and remuneration includingcriteria for determining the qualifications positive attributes independence of adirector and other matters provided under Section 178(3) of the Companies Act 2013.

Pursuant to Section 178(4) of the Companies Act 2013 the Company also adoptedremuneration policy relating to remuneration for the directors key managerial personneland senior executives in the rank of vice president and above. The remuneration policy isplaced on Company's website.

Technology Absorption & Energy Conservation

Particulars of conservation of energy technology absorption and foreign exchangeearnings and outgo as required under Section 134(3)(m) of the Companies Act 2013 readwith Rule 8(3) of the Companies (Accounts) Rules 2014 are given in Annexure-2 attachedwhich forms part of this Report.

Risk Management

The Company has a robust business risk management framework to identify and evaluatebusiness risks and opportunities. This framework aims to create transparency minimizeadverse impact on the business objectives and enhance the Company's competitive advantage.The key business risks identified by the Company and its mitigation plans are as under:

a. Fiber Procurement

The Company spends more than 25% of its total cost on procurement of fiber viz.casuarina subabul mixed hard wood eucalyptus etc. Keeping in view the criticality ofthis factor the Company has been expanding farm forestry program to secure fiber supply.

b. Competition Risk

The paper industry is becoming intensely competitive with the expansion of capacitiesby the existing players and lower import duties. To mitigate this risk the Company isleveraging on its expertise and experience by enhancing its brand equity/visibility andproduct portfolio.

c. Occupational Health & Safety (OH&S)

Safety of employees is of paramount importance to the Company. In order to inculcatesafety culture in the Company it has identified Occupational Health & Safety as oneof its focus areas. Various training programs have been conducted at the plants and otherlocations. Accountability has been strengthened by integrating OH&S objectives intojob descriptions with the introduction of management personnel and safety professionals.

Directors

a. Meetings of the Board

The Company prepares Calendar of Meetings for each calendar year and circulates thesame in advance to all the Directors. During the year under review four Board meetingsand five Audit Committee meetings were held. The details of the meetings held are given inthe Corporate Governance Report forming part of Annual Report.

During the year under review:

a. Mr. Rampraveen Swaminathan resigned as Chairman & Managing Director with effectfrom the close of office hours of April 27 2017 and the Board placed on record itsappreciation for his outstanding contribution in building a strong leadership team andculture of meritocracy integrity and fairness and turning around into a profitablecompany.

b. Mr. Thomas G. Kadien Non-Executive Director resigned from the Board effective June30 2017 and the Board placed on record its appreciation for the valuable advice andguidance received from Mr. Thomas G. Kadien.

c. Ms Shiela P. Vinczeller Non-Executive Director resigned from the Board effectiveFebruary 2 2018 and the Board placed on record its appreciation for the valuable adviceand guidance received from Ms Shiela P. Vinczeller.

Mr. Donald P. Devlin assumed charge as Chairman & Managing Director of the Companywith effect from April 28 2017.

As per the provisions of Companies Act 2013 Mr. W. Michael Amick Jr. will retire byrotation at the forthcoming Annual General Meeting and being eligible offered himself forreappointment.

Mr. Russell V. Harris and Ms Megan A.F. Bula will hold office up to the date offorthcoming Annual General Meeting and the Board recommends their reappointment by theMembers at the forthcoming Annual General Meeting.

b. Independent Directors

The Members at the 50th Annual General Meeting held on August 27 2014 appointed theexisting Independent Directors viz. Mr. Praveen P. Kadle Mr. Adhiraj Sarin Ms RanjanaKumar Mr. Milind Sarwate and Mr. M.S. Ramachandran under the Companies Act 2013 each fora term of five years up to March 31 2019.

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16(1)(b) of Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015.

A Meeting of Independent Directors was held on January 31 2018.

c. Key Managerial Personnel

Mr. Badrinath Chellappa resigned as Chief Financial Officer with effect from the closeof business hours of July 25 2017. Mr. Anish T. Mathew has been appointed as ChiefFinancial Officer and he assumed charge from October 24 2017.

d. Performance Evaluation

Pursuant to the provisions of the Companies Act 2013 and Regulation 17 of SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 the Board has carriedout the annual performance evaluation of performance of Board as well as the evaluationof the working of its Committees.

A separate exercise was carried out to evaluate the performance of individual directorsincluding the Chairman & Managing Director who were evaluated on parameters such aslevel of engagement and contribution independence of judgment safeguarding the interestsof the Company and its minority shareholders etc. The outcome of Board evaluation for thefinancial year 2017-18 was discussed by the Board at the Meeting held on May 2 2018.

e. Board Training and Induction

At the time of appointing a Director a formal letter of appointment is given tohim/her which inter alia explains the role function duties and responsibilitiesexpected of him/her as a Director of the Company. The Director is also explained in detailthe compliances required from him/her under the Companies Act 2013 SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 and other relevant Laws andRegulations. Details of Familiarization of Directors are disclosed on the Company'swebsite.

f. Audit Committee

The Audit Committee as on March 31 2018 comprised of Mr. Praveen P. Kadle as Chairmanand Messrs Milind Sarwate Adhiraj Sarin W. Michael Amick Jr. and Donald P. Devlin asother Members. All the recommendations made by the Audit Committee were accepted by theBoard.

Extract of Annual Return

The extract of Annual Return as on financial year ended March 31 2018 as requiredunder sub-section 3 of Section 92 of the Companies Act 2013 in Form No. MGT 9 is attachedas Annexure-3.

Particulars of Employees

The information required pursuant to Section 197 read with Rule 5 of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 in respect of employeesof the Company will be provided upon request. In terms of Section 136 of the Act theReport and Accounts are being sent to the Members and others entitled thereto excludingthe information on employees' particulars which is available for inspection by the Membersat the Registered Office of the Company during business hours on working days of theCompany up to the date of the ensuing Annual General Meeting. If any Member is interestedin obtaining a copy thereof such Member may write to the Company Secretary at theRegistered Office in this regard.

Vigil Mechanism

The Company has adopted Whistle Blower Policy to deal with instance of fraud or anyunethical or improper practices. A copy of this policy is placed on the Company's website.

Internal Financial Controls

The Company established an internal financial control(s) commensurate with the sizescale and complexity of the operations. Internal audit function is being handled by aprofessional firm of chartered accountants. The main function of Internal Audit is tomonitor and evaluate adequacy of internal control system in the Company its compliancewith the operating systems accounting procedures and policies at all locations of theCompany. Based on the report of internal audit function process owners take correctiveaction in their respective areas and thereby strengthen the controls. Significant auditobservations and corrective actions are reported to the Audit Committee.

Statutory Auditors audited the Internal Financial Controls (IFC) over financialreporting of the Company as of March 31 2018 in conjunction with audit of the financialstatements of the Company for the year ended on that date. Unmodified opinion on IFC wasgiven by them.

Statutory Auditors

The Members at the Annual General Meeting held on August 27 2014 appointed MessrsDeloitte Haskins & Sells Chartered Accountants Hyderabad as Auditors of the Companyfor a period of five years to hold office from the conclusion of 50th Annual GeneralMeeting to the conclusion of the fifth consecutive annual general meeting. Messrs DeloitteHaskins & Sells Chartered Accountants have confirmed their eligibility and compliancewith conditions relating to their reappointment for the financial year 2018-19.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hadappointed Messrs D. Hanumanta Raju & Co. a firm of Company Secretaries in Practice toundertake the secretarial audit of the Company. Secretarial Audit Report under Section204(1) of the Companies Act 2013 issued by Messrs D. Hanumanta Raju & Co. PracticingCompany Secretaries in respect of financial year 2017-18 is attached as Annexure-4.

Cost Auditors

In terms of Section 148 of the Companies Act 2013 read with the Companies (Audit &Auditors) Rules 2014 the Board at their meeting held on May 2 2018 appointed MessrsNarasimha Murthy & Co. Cost Accountants as Cost Auditors of the Company at aremuneration of Rs. 7.75 lakhs (excluding applicable taxes) plus reimbursement oftravelling and out of pocket expenses on the recommendation of Audit Committee for thefinancial year ending March 31 2019 and their remuneration shall be ratified by theMembers at the forthcoming Annual General Meeting.

Cost Accounting Records

Cost accounting records for the financial year under review were maintained as per theCompanies (Cost Records and Audit) Rules 2014. M/s. Narasimha Murthy & Co. CostAccountants were appointed as Cost Auditors of the Company to audit the cost Records forthe financial year ended March 31 2018. The Cost Audit Report for the financial yearended March 31 2017 was filed with the Ministry of Corporate Affairs in August 2017.

The Cost Audit Report for the year ended March 31 2018 will be filed before end ofSeptember 2018.

Public Deposits

The Company has not accepted any deposits from public and as such no amount on accountof principal or interest on deposits from public was outstanding as on the date of thebalance sheet.

Particulars of loans guarantees or investments

No loans gurantees security and investments covered under the provisions of Section186 of the Companies Act 2013 were given during the year under review.

Subsidiary Company

The Company made an investment of Rs. 5 lakhs by way of share capital in IP IndiaFoundation a Section 25 company under the Companies Act 1956 wherein the excess ofincome over expenditure will be applied for promoting its objectives. Accordingly theaccounts of IP India Foundation are not consolidated since the holding Company will notderive any economic benefit from its investment in IP India Foundation. During thefinancial year ended March 31 2018 the Foundation recorded deficit of Rs. 0.61 lakhs.

The Company undertakes that annual accounts of IP India Foundation and the relatedinformation will be made available to the members of holding company seeking suchinformation at any point of time. The annual accounts of IP India Foundation are placed onthe Company's website and are also available for inspection by any Member at theRegistered Office of the Company during business hours on working days of the Company.Statement containing salient features of the financial statement of IP India Foundationfor the financial year ended March 31 2018 is attached as Annexure-5.

Directors' Responsibility Statement

The Board of Directors hereby confirms and declares that:

• in the preparation of final accounts for the year ended March 31 2018 theapplicable accounting standards had been followed along with proper explanation relatingto material departures;

• they had selected such accounting policies and applied them consistently andmade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company at the financial year ended March 31 2018 andof the profit of the Company for the year;

• they had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

• they had prepared the accounts for the year ended March 31 2018 on a‘going concern' basis;

• they had laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and were operating efficiently;

• they had devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating efficiently.

General

• During the year under review the Chairman & Managing Director of theCompany has not received any remuneration or commission from the subsidiary company.

• There were no significant material orders passed by the regulators or courtswhich would impact the going concern status of the Company and its future operations.

• The Company has zero tolerance for sexual harassment at workplace and hasadopted a policy on prevention prohibition and redressal of sexual harassment atworkplace in line with the provisions of the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 and the Rules there under for preventionand redressal of complaints of sexual harassment at workplace. Internal ComplaintsCommittee (ICC) has been set up to redress complaints received regarding sexualharassment. All women employees (permanent contractual temporary trainees) are coveredunder this policy.

Acknowledgements

The Board of Directors wish to place on record their gratitude to the CentralGovernment Government of Andhra Pradesh Government of Telangana State Bank of IndiaAxis Bank Limited Citibank N.A. BNP Paribas JPMorgan Chase Bank N.A. and Bank ofAmerica N.A. for their continued support during the year.

The Board of Directors wish to convey their thanks to the valued customers and dealersfor their continued patronage and place on record their appreciation of the contributionmade by all the employees during the year under review.

For and on behalf of the Board
Hyderabad Donald P. Devlin
June 30 2018 Chairman & Managing Director