Directors' Report To The Members Your Directors are pleased to present their 47th Annual Report and Audited Accounts for the year ended 31st March, 2015. BACKGROUND Economic fundamentals have started to accelerate in recent months with the combined impact of a strong Government mandate, RBI's inflation focus supported by benign global commodity prices and a stable currency. GDP growth expectations are around 7.4% compared with 6.9% of the previous year. Recent IIP data also shows a positive movement during the April14-January15 period - while infrastructure spend still has to improve, expectations based on the government announcements around the Delhi Mumbai Industrial Corridor, Smart City Initiatives, Digital Connectivity and Make in India etc., indicate increased expenditure in infrastructure projects over the near and medium term. OPERATIONS In terms of revenue, growth for the year under review was similar to what was achieved in the previous year. However, the year under review also saw commodity prices falling. Despite this, overall sales grew by 4% in value terms as compared to FY 2013-2014. In volume terms, the growth was higher at 7%. Higher volumes were achieved in several product lines - notably in Low Duty Electrical Wires (12%) in the Electrical Cable Segment and across all product lines in the Communication Cable Segment. As in the previous year, Auto and Infrastructure (Power) sectors continued to be under strain. In terms of outlook for the upcoming year, sales of Optical Fiber Cables look promising with the Government's announcements about the Digital India Program. In an increasingly connected world, a growing number of devices are expected to use broadband connections to deliver a wide array of rich communication and multimedia services, anytime, anywhere. Similarly, the government's focus on infrastructure Power Sector would attract investments in cabling in the not too distant future. Your Company entered the Lighting business a few years ago, first with energy efficient CFLs and subsequently with Tube Lights and LED based lamps. While the business has grown and continues to show good potential, the consumer preference towards LED based lamps, especially in the lower wattage segment has been significant in the year under review. Your Company, therefore, undertook a review of the potential impairment to the CFL assets - given the changing market scenario and based on the estimated cash flow for the next five years, an impairment charge of Rs 60.4 million has been provided for. This has been done as a prudent measure - your Company will continue in the Lighting business and will continue to offer a range of products. Income for the year under review was higher at Rs.25,075.6 million (previous year Rs.24,073.9 million) representing a growth of 4% over the previous year. Your Company has recorded a Net Profit Before Tax of Rs 2,631.4 million as against Rs 2,440.1 million in the previous year. Highlights of the performance are discussed in detail in the Management Discussion and Analysis Report (MDAR) attached as Annexure A to this Report EXPORTS: Despite the depressed market situation, overseas FOB value of exports for the year was Rs 544.8 million (Previous year's export value of Rs. 501.0 million). FINANCE Your Company's short term debt programs continue to enjoy the highest ratings from CRISIL. Since the last few years, these have been accorded the A1+ rating. Your Company retained the AA+/stable rating for its Rs.500.0 million long term non convertible debentures program as well as on the long term loans currently outstanding. During the 4th quarter of the year, your Company repaid the last installment of its foreign currency loan. With this repayment, there are no long term foreign currency exposures. With the interest rates starting to decline, your Company would endeavor to further reduce interest costs by replacing its existing loans with lower cost ones, where possible. Despite the increase in value of operations, financial costs have been contained to the minimum required levels. The Company continues to meet all its financial commitments in a timely manner. TRANSFER TO RESERVES Your Company, before the declaration of dividend in every financial year, transfers such percentage of its profits for that financial year to the General Reserve, as it considers appropriate. Pursuant to the provisions of the Companies Act, 2013, in the year under review, your Directors decided to transfer Rs. 200.0 million to the general reserve out of the amount available for appropriation and Rs. 5618.9 million is proposed to be retained in the Statement of Profit and Loss. FIXED DEPOSITS Your Company has stopped accepting deposits from the year 2003 and accordingly, no fixed deposits have been accepted during the year under review. DIVIDEND Considering the business situation, your Directors have pleasure in recommending a dividend on equity shares of 90%. The amount thereof per equity share will be Rs 1.80. The total dividend outgo (including dividend tax) will be Rs.331.3 million. Payment of Dividend is subject to the approval of the members at the ensuing Annual General Meeting. EXPANSION & NEW PRODUCTS During the year under review, your Company expanded its manufacturing capacities of LAN, Coaxial and Optical Fiber Cable product lines at both Urse and Goa. The added capacities will become available from FY 2015-16 and will improve your Company's ability to garner a higher market share for these products. The switchgear facility in Roorkee was also completed with products now awaiting approval from BIS prior to market release. The completion was delayed due to equipment design changes. Product launch is now expected in Q2, 2015-16. Also in the pipeline for FY 2015-16 are new products from the Lighting/Lamp business, electrical cables for solar applications and an entirely new range of switches etc. JOINT VENTURES, SUBSIDIARIES AND ASSOCIATES Pursuant to Section 129(3) of the Companies Act, 2013 read with Rule 5 of the Companies (Accounts) Rules 2014, the statement containing salient features of the financial statements of the Company's Joint Ventures / Associates (in form AOC-1) is attached to this Report as Annexure I. Finolex J-Power Systems Limited As mentioned earlier, the Power Sector in our country has been going through uncertain times as evidenced by difficulties in fuel sourcing as well as the tight financial position of most power utilities. The recent coal auctions notwithstanding capital investment in the sector has been minimal and the sector did not see major activity during FY 2014-15. As pointed out in the previous year, the JV had been working hard to seek prequalification approvals from various state and private sector power utilities. During the year, considerable work on this area has been completed. The JV has obtained product certifications for the 132kV range from KEMA of Netherland and for the 220kV range from CPRI, Banglore. The JV has also been successful in registering itself with several power utilities, both domestic and overseas. Production and testing of the 400kV range of cables is at an advance stage. With this progress it is envisaged that the JV will be in a position to participate and emerge successful in tenders that would open up in the coming years. However, it is estimated that the JV will become profitable only around the second half of FY 2016-17 and will need financial support in the form of equity infusion until then. While the long term outlook of the JV is positive, in the short term, there is an erosion of net worth in the JV. Taking a prudent view of the same, an amount of Rs 122.9 million has been recognized as a diminution in the value of investment. During the year, your Company injected equity of Rs 122.5 million, taking the Company's participation up to Rs 749.7 million at the end of FY 2014-15. Corning Finolex Optical Fibre Private Limited As in the previous year, the JV clocked a revenue of over Rs 1,581.3 million during the year. Profitability, however, is yet to improve and the JV is currently nearing break-even levels. It is hoped that with the fiber penetration in India going up due to the Digital India initiatives, profitability will improve in the medium and long term. Your Company's participation in the JV's equity at the end of FY 2014-15 remains at Rs 17.5 million. EMPLOYEES Your Company recognizes the importance of a motivated and skilled human resource. Your Company endeavors to create a challenging and favorable work environment that encourages entrepreneurial behavior, innovation and the drive towards business excellence. Several skilled based training programs were conducted during the year with the help of external consultants, especially for the staff in Sales and Marketing functions. Your Company is also in the process of revamping its hiring and appraisal processes in line with benchmarked practices in industry. Industrial relations continued to be cordial during the year. The Company had 1,531 permanent employees on its rolls as on 31st March, 2015 (previous year 1,546 permanent employees as on 31st March, 2014). Particulars of employees and related disclosures: In terms of provisions of Section 197(12) of Companies Act, 2013 read with Rules 5(2) & 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annexure E to this Report. Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annexure E to this Report. KEY MANAGERIAL PERSONNEL At the Board meeting dated 12th February 2015, the Board noted that the following persons were its Key Managerial Personnel Name :Title Mr. D K Chhabria :Executive Chairman Mr. Mahesh Viswanathan :Executive Director & CFO Mr. R G D'Silva: Company Secretary & President (Legal) CORPORATE GOVERNANCE Your Company is in full compliance with the Corporate Governance guidelines as set out in Clause 49 of the Listing Agreement and is committed to good corporate governance laying a strong emphasis on transparency, accountability and integrity. All Directors and Senior Management employees have confirmed in writing their adherence to the Company's Code of Conduct. A separate report on Corporate Governance (Annexure B) is provided together with a Certificate from the Statutory Auditors of the Company regarding compliance with conditions of Corporate Governance as Annexure C, as mandated under Clause 49 of the Listing Agreement. There is no qualification, reservation or adverse remark or disclaimer made by the auditor in his report. A Certificate of the Chief Executive Officer and Chief Financial Officer of the Company in terms of Clause 49 (IX) of the Listing Agreement, inter alia, confirming the correctness of the financial statements and cash flow statements, adequacy of the internal control measures and reporting of matters to the Audit Committee is also annexed. DIRECTORS In accordance with the provisions of the Companies Act, 2013 and relevant Rules framed there under and the Articles of Association of the Company, Mr Mahesh Viswanathan [DIN: 02780987] retires by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re-appointment. The Board recommends his re-appointment as Director on the Board of Directors of the Company. The requisite details are set out in the notice for the ensuing Annual General Meeting. At its meeting held on 8th November, 2014, the Board appointed Mrs Namita Vikas Thapar [DIN: 05318899] as an Additional Director (i.e. Woman Director) on the Board. She holds office as such till conclusion of the ensuing Annual General Meeting of the Company. Further, at its meeting held on 12th May, 2015, the Board has recommended her appointment as Woman Director on the Board, to the Members of the Company which is reflected in the Notice for the said Meeting. INDEPENDENT DIRECTORS During the year under review, the members approved the appointments of Dr. H S Vachha, Mr. P G Pawar, Mr. P R Rathi, Mr. Sanjay Asher, Mr. Adi J. Engineer, Mr. Atul C Choksey and Mr. S B (Ravi) Pandit as independent directors for a period of five years and they are not liable to retire by rotation. Pursuant to Section 149(7) of the Companies Act, 2013, all independent directors have given declarations for the financial year 2015-16 that they meet the criteria of independence as laid down under Section 149 (6) the Companies Act, 2013 and Clause 49 of the Listing Agreement. The Company proactively keeps its Directors informed of the activities of the Company, its management and operations and provides an overall industry perspective as well as issues being faced by the industry. CORPORATE SOCIAL RESPONSIBILITY ('CSR') Your Company has and will continue to ensure that it serves the community around it. Towards this end, your Company has in the past supported activities around improving educational facilities for the underprivileged. This focus will continue in the future as well. Besides education, your Company also supports and sponsors efforts towards public welfare, poverty alleviation, sanitation improvement etc. While the Companies Act, 2013 has made it mandatory for all listed entities meeting a certain threshold to spend a portion of their profits on CSR projects, your Company has been committed to undertaking CSR activities for long. As required under section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, based on the average profits for the past three years, your Company should have spent an amount of Rs.30.3 million during the year on CSR related activities. At the Board meeting held on 08 May 2014, your Company formed a Committee of the Board to handle matters pertaining to CSR. The CSR policy of the Company was approved by the Board at its meeting held on 08th August 2014 and is hosted on the website of the Company. The CSR Committee of the Board met on 3 occasions. The Committee has approved projects worth Rs 30.0 million - mainly towards construction of additional building in an engineering college supported by your Company. Construction of this building has just commenced and hence the cash flow on this project will happen in FY 2015-16. The annual report on CSR activities of the Company for the year under review is set out in Annexure J forming part of this report. COMPLIANCE UNDER THE COMPANIES ACT, 2013 Pursuant to Section 134 of the Companies Act, 2013 read with the Companies (Accounts) Rules of 2014, your Company complied with the requirements. The details of such compliances are enumerated below: 1. Extract of Annual Return: An extract of the Annual Return in Form MGT 9 as on March 31, 2015 is enclosed as Annexure D to this Report. 2. Number of meetings of the Board: The Board met on 4 occasions during the year. Details of the meetings are furnished in the Report on Corporate Governance which is attached as Annexure B to this Report. 3. Directors' Responsibility Statement: Pursuant to Sections 134(3)(c) and134(5) of the Companies Act, 2013, (the "Act"), the Directors, to the best of their knowledge and belief and according to the information and explanations provided to them, confirm that: (a) in the preparation of the annual accounts, the applicable accounting standards have been followed and no material departures have been made from the same; (b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period; (c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) the Directors had prepared the annual accounts on a going concern basis; (e) the Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and (f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 4. Remuneration and Nomination Policy: The Board of Directors has framed the policy which lays down a framework in relation to Appointment and Remuneration of Directors, Key Managerial Personnel and Senior Executives of the Company including the criteria for determining qualifications, selection and appointment. 5. Board Evaluation: Pursuant to the provisions of Companies Act, 2013 and Clause 49 of the Listing Agreement, independent directors at their meeting dated 12 February 2015, without the participation of the non-independent directors and Management, considered and evaluated the Board's performance, performance of the Chairman and other non-independent directors. The evaluation was performed taking into consideration the various aspects of the Board's functioning, composition of the Board and its Committees, culture, execution and performance of specific duties, obligations and governance. 6. Particulars Of Loans, Guarantees Or Investments Under Section 186 Of The Companies Act, 2013 : During the year, an investment of Rs. 122.5 million was made in the equity of the Company's Joint Venture - M/s Finolex J-Power Systems Limited. 7. Contracts Or Arrangements With Related Parties: All transactions entered into by the Company with related parties were in the ordinary course of business and on an arm's length basis. Each of these transactions was reviewed by the Audit Committee prior to being entered into and where necessary, was approved by the Board of Directors and members. In respect of transactions of a repetitive nature, an omnibus approval was obtained from the Audit Committee and Members where necessary. At every meeting, the Audit Committee reviews the transactions that were entered into during the immediately preceding period. Details of related party transactions have been disclosed under Note 36 to the financial statements. Details of the same are also reproduced in Form AOC 2 which is attached as Annexure F to this Report. The Company's Policy on transactions with related parties as approved by the Board is also available on the website of the Company at www.finolex.com . 8. Material Changes And Commitments Affecting The Financial Position Of The Company Which Have Occurred Between March 31, 2015 And May 12, 2015 (Date Of This Report): There were no material changes and commitments affecting the financial position of the Company between the end of the financial year (March 31, 2015) and date of this Report (May 12, 2015) 9. Significant And Material Orders Passed By The Regulators Or Courts Or Tribunals Impacting The Going Concern Status Of The Company: There are no significant and material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and the Company's operations in the future. 10. Adequacy Of Internal Financial Controls With Reference To The Financial Statements: Having regard to Rule 8 (5) (viii) of the Companies (Accounts) Rules, 2014, the details in respect of adequacy of internal financial controls with reference to the financial statements of the Company are as follows : Your Company maintains appropriate systems of internal control including monitoring procedures. These internal control systems ensure reliable and accurate financial reporting, safeguarding of assets, keeping constant check on cost structure and adhering to management policies. The internal controls are commensurate with the size, scale and complexity of our operations and facilitate timely detection of any irregularities and early remedial steps against factors such as loss from unauthorized use and disposition. Company policies, guidelines and procedures provide for adequate checks and balances which are meant to ensure that all transactions are authorized, recorded and reported correctly. The internal controls are continuously assessed and improved / modified to meet changes in business conditions, statutory and accounting requirements Constant monitoring of the effectiveness of controls is ensured by periodical audits performed by an in-house internal audit team as well as assignments entrusted to M/S Ernst & Young. Both these teams in their respective assignments test and review controls, challenge business processes for their robustness and benchmark practices in line with industry norms. At the entity level, it has been decided that the Company's internal control mechanism would follow the COSO framework. At individual business levels, the existing controls are being strengthened by the adoption of an electronic tool which will provide for review, monitoring and reporting of the various control mechanism both at a location and functional level prior to being periodically certified by its robustness by the Management. The Audit Committee regularly meets and reviews the results of the various internal control audits both with the Auditors as well as with the respective Auditees. The Audit Committee is apprised of the findings as well as the corrective actions that are taken. Periodical meetings between the Audit Committee and the Company Management also ensure the necessary checks and balances that may need to be built into the control system. 11. Risk Management: Your Company has set up a Risk Management Committee of the Board of Directors which comprises Dr. H S Vachha, Mr. Sanjay Asher, Mr. D K Chhabria and Mr. Mahesh Viswanathan. More details of the risks faced by the Company are available in the Management Discussion & Analysis Report which, pursuant to Clause 49 (VIII) (D) of the Listing Agreement, is attached as Annexure A to this Report. 12. Vigil Mechanism / Whistle Blower Policy: As required under Section 177(9) of the Companies Act, 2013 read with Rule 7 of the Companies (Meetings of Boards and its Powers) 2014 and Clause 49 of the Listing Agreement, the Company has adopted a policy on vigil mechanism / whistle blower. The policy provides direct access to the Chairman of the Audit Committee in case any employee should choose to report or bring up a complaint. Your Company affirms that no one has been denied access to the Chairman of the Audit Committee and also that no complaints were received during the year. The policy is available at the Company's website. 13. Prevention Of Sexual Harassment: The Company has in place a policy on prevention of sexual harassment policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. During the year under review, no complaints were received by the Company relating to sexual harassment. AUDITORS M/S B K Khare & Company, Chartered Accountants (Firm Registration Number: 105102W), Auditors of your Company, hold office until conclusion of the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. Further as required under the provisions of Section 139 and Section 141 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, M/S B K Khare & Company have confirmed their consent as well as eligibility to act as Auditor of the Company. The Audit Committee and the Board of Directors have recommended the appointment of the Auditors for the financial year 2015-16. Necessary resolution is being placed before the Members for approval. COST AUDIT As per the requirement of the Central Government and pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) rules of 2014 as amended from time to time, your Company has been carrying out an audit of cost records every year. During the year under review, pursuant to a clarification / notification issued by Ministry of Corporate Affairs, cost audit for the year 201415 will only be applicable for the Company's copper rod division. However, the Board had decided to conduct an audit of cost records for all operating divisions of the Company and accordingly had appointed M/S Joshi Apte & Associates, Cost Accountants as Cost Auditor at a remuneration of Rs. 4.5 lacs plus service tax, as applicable, and reimbursement of out of pocket expenses. In respect of the financial year 2015-16 it has been clarified by Ministry of Corporate Affairs that Cost Audit is applicable for the entire Company. Accordingly, the Audit Committee and the Board have recommended the appointment of M/S Joshi Apte & Associates as Cost Auditor for the financial year 2015-16 at a remuneration of Rs. 4.5 lacs plus service tax, as applicable, and reimbursement of out of pocket expenses. A resolution seeking members' approval for the cost auditors' remuneration is attached to the Notice convening the Annual General Meeting. The Cost Audit Report for the financial year 2013-14 was filed on 27 September 2014. SECRETARIAL AUDIT In accordance with the provisions of Section 204 of the Companies Act, 2013, and the rules made thereunder, M/S S.V.D & Associates, Pune, a firm of Company Secretaries in practice, was appointed to conduct the Secretarial Audit of the Company. There is no qualification, reservation or adverse remark or disclaimer made by them. Their Report is attached as Annexure G to this Report. LISTING OF SECURITIES Pursuant to the actions taken by respective Stock Exchanges under SEBI Circular Ref No. CIR/MRD/DSA/14/2012 dated 30th May 2012 for Exit Policy of de-recognized / non-operational Stock Exchanges. The equity share of your Company would cease to be listed on the Stock Exchanges at Ahmedabad, Bangalore, Chennai, Cochin, Delhi, Kolkata and OTC Exchange. Accordingly, your Company's equity shares are listed on the two premier stock exchanges of the country namely Bombay Stock Exchange Limited and National Stock Exchange of India Limited. Your Company had issued Global Depository Receipts which are listed on the Luxembourg Stock Exchange. Your Company's non-convertible debentures are listed on wholesale debt market segment of the National Stock Exchange of India Limited. ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE Information on conservation of energy, technology absorption, foreign exchange earnings and outgo required to be given pursuant to Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is attached to this Report as Annexure H. PARTICULARS OF EMPLOYEES Information as required under the provisions of the Companies Act, 2013 (the "Act") read with Rule 5 sub rules (2 and 3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (the "Rules") forms part of this Report. However, as per the provisions of Section 136(1) of the Act, the Report and Accounts are being sent to the members, excluding the statement of particulars of employees under the Rules of the Act. Any shareholder desirous of obtaining a copy of the said statement may write to the Company Secretary & President (Legal) at the Registered office of the Company. CAUTIONARY STATEMENT Statements in this Directors' Report and Annexures may contain forward looking statements within the meaning of applicable Securities laws and regulations. Actual results could differ materially from those expressed or implied. Various factors including commodity prices, cyclical demand, changes in Government regulations, tax laws, general economic development could all have a bearing on the Company's operations and would impact eventual results. ACKNOWLEDGEMENTS Your Directors are grateful to the Central and State Governments, Statutory Authorities, Local Bodies, Banks and Financial institutions for their continued support and cooperation. Your Directors warmly acknowledge the trust and confidence reposed in your Company by its channel partners, dealers and customers in supporting its business activities and growth. Your Directors express their gratitude to the other business associates for their unstinting support. Your Directors value the commitment and contribution of the employees towards the Company .Last but not the least, your Directors are thankful to the Members for extending their constant trust and for the confidence shown in the Company. For and on behalf of the Board of Directors D.K. Chhabria Executive Chairman Pune Dated: 12th May 2015 |