BOARD'S REPORT TO THE MEMBERS, Your Company's Directors are pleased to present the 38th Annual Report of the Company, along with Audited Financial Statements for the year ended 31st December 2015. 2. PERFORMANCE Net revenues from operations of the Company have decreased by about 3% over the previous year to Rs. 3,298 crores, mainly due to drop in volumes in commercial vehicle segment. The sales volumes declined by 2% over the previous year although personal mobility segment witnessed a good growth. Costs of materials were lower by about 17% over the previous year to Rs. 1,601 crores due to drop in input costs. Despite the challenging economic environment, reduction in input cost and focus on personal mobility and better product mix helped the Company to improve its unit gross margin and gross profit. Operating and other expenses increased by about Rs. 67 crores as compared to the previous year. Profit before Tax increased by about 31% over previous year to Rs. 951 crores. Tax rate for the current year has remained at nearly the same level as that of the previous year. Profit After Tax increased by 30% over the previous year to Rs. 615.2 crores. The Company's performance has been discussed in detail in 'Management Discussion & Analysis Report'. The Company does not have any subsidiary or associate or joint venture company. 3. DIVIDEND Your Directors are pleased to recommend a final dividend of Rs. 5.00 per equity share of Rs. 5/-each, for the year ended 31st December 2015. The interim dividend of Rs. 4.00 per equity share was paid in August 2015. The Final Dividend, subject to approval of members, will be paid within statutory period, to the members whose names appear in the Register of Members, as per book closure. The total dividend for the financial year, including proposed Final Dividend, amounts to Rs. 9.00 per equity share (180% on paid-up equity share capital) (Previous year Rs. 7.50 per equity share) and the same will absorb Rs. 445.10 crores (Previous year Rs. 370.92 crores). 4. SUPPLY CHAIN Your Company's supply chain strategy continued to focus on five pillars - (1) Contemporary, differentiated and competitive customer service, (2) Premium quality - a source of enhanced customer experience, (3) Supply chain capabilities - assets & resources to support growth, (4) Consistent processes, and (5) Generating value for business through efficiency initiatives. Health, Safety, Security and Environment, along with the Ethics and Values formed the core of the five pillars. The Safety agenda continued to be driven strongly across the plants and the product delivery interfaces, and included strong input measures. Driver safety was led in a big way through "Family Connect" programs across the metro cities of Mumbai and Kolkata covering a healthy percentage of heavy vehicle drivers. Within the plants, Control of Work (CoW) guidelines and Operating Management System (OMS) processes continued to be strengthened. As a part of the safe control and monitoring mechanism, Safety Observations continued to be recorded, and proactively actioned. Patalganga plant achieved ISO/TS 16949:2009 during the year making it the second OEM ready plant after Silvassa. Significant strides were made in Quality with end-to-end process interventions leading to 60% reduction in quality complaints against 2014. Strong inspection programs at supplier level, incoming and in process stage, continuous engagements with packaging suppliers and assessing packaging supplier through a SMART score card helped in 50% reduction of pack related complaints against 2014. Q-Standard — an end-to-end quality management system defining quality checks at each stage of manufacturing process right from incoming raw material to dispatch of finished goods is now in place across all the manufacturing locations. Customer Service and product availability continue to be key priorities for supply chain. They were driven by anticipating demand changes and variability proactively, and continuous improvement in order fulfilment processes. Due to various initiatives undertaken in demand & supply planning, distribution and logistics, there was an overall improvement of 7% in the Service Levels (In 'Full On Time' indicator) and 10% in Stock availability. The improvements in customer service were fully supported by plant production reliability and raw materials and packaging suppliers. Your supply chain team, in tandem with the larger organisation continues to innovate and manufacture New Products for customers and OEM partners in your own plant. In 2015, your Company introduced new products like Castrol CRB Multi, Castrol CRB Turbo Plus, Castrol Vecton CI4+, Castrol MAGNATEC Professional OE 5W20. Throughout the year, there was strong focus on generating value through standardisation, simplification and efficiency measures. Some key efficiency measures driven were: bringing very competitive base oil supplier in east which resulted into higher quality and service at low cost, optimising formulation & product sourcing, elimination of slow moving and obsolete stocks systematically through the year and reducing logistics cost by using higher capacity trucks. The packaging across multiple products were standardized, helping your organization be more efficient and responsive. To support integrity and growth operations, your organisation continued to invest in projects and initiatives to make the operations robust for future. The total capital investment across multiple supply chain projects for 2015 was about Rs. 25 crores. 5. DIRECTORS AND KEY MANAGERIAL PERSONNEL Mr. Ravi Kirpalani resigned as Managing Director of the Company with effect from 11th October 2015. Mr. Kirpalani continued with the Board as Whole-time Director until 31st December 2015 to assist in smooth transition of his responsibilities to the newly appointed Managing Director. Your Board places on record its appreciation for outstanding contribution made by Mr. Ravi Kirpalani during his tenure as the Managing Director of the Company and in various other capacities previously. Mr. Omer Dormen was appointed as Additional Director and Managing Director effective 12th October 2015. His appointment as a Managing Director is valid for three (3) years subject to the approval of the Shareholders of the Company and Central Government. In accordance with the provisions of the Act and the Articles of Association of the Company, Ms. Rashmi Joshi and Mr. Jayanta Chatterjee, Directors of the Company, retire by rotation at the ensuing Annual General Meeting and being eligible have offered themselves for re-appointment. The Independent Directors of the Company have given the certificate of independence to your Company stating that they meet the criteria of independence as mentioned under Section 149(6) of the Companies Act, 2013. Mr. Omer Dormen, Managing Director, Ms. Rashmi Joshi, Director Finance (CFO) and Mr. Sandeep Deshmukh, Company Secretary are the Key Managerial Personal and there is no change in the same in the year except that Mr. Omer Dormen replaced Mr. Ravi Kirpalani as Managing Director as explained above. 6. BOARD EVALUATION The Nomination and Remuneration Committee of the Company approved Board Performance Evaluation Policy during the year, which was adopted by the Board of Directors. The Policy provides for evaluation of the Board, the Committees of the Board and individual Directors, including the Chairman of the Board. The Policy provides that evaluation of the performance of the Board as a whole; Board Committees and Directors shall be carried out on an annual basis. The Company has appointed a reputed agency that engages with the Chairman of the Board and Chairman of the Nomination and Remuneration Committee in respect of the evaluation process. The agency prepared an independent report which was used for discussion in the meeting and giving appropriate feedback to the Board/Committees/ Directors. During the year, evaluation cycle was completed by the Company which included the Evaluation of the Board as a whole, Board Committees and Directors. The Evaluation process focused on various aspects of the Board and Committees functioning such as composition of the Board and Committees, experience and competencies, performance of specific duties and obligations, governance issues etc. A separate exercise was carried out to evaluate the performance of individual Directors on parameters such as attendance, contribution and exercise independent judgment. The results of the Evaluation of the Board and Committees were shared with the Board and respective Committees. The Chairman of the Board had individual discussions with each member of the Board to discuss the performance feedback based on self-appraisal and peer review. The Nominations Committee Chairman discussed the performance review with the Board Chairman. The Independent Directors met on 5th November 2015 to review performance evaluation of non-independent directors and the Board of Directors and also of the Chairman taking into account views of executive directors and nonexecutive directors. Based on the outcome of the evaluation, the Board and Committees have agreed on various action points, which would result each Director, Committees and Board playing more meaningful role to increase shareholder value. 7. POLICY ON DIRECTORS' APPOINTMENT, REMUNERATION, ETC The "Remuneration Policy of Directors, KMPs and other employees" and policy on Directors Appointment and Board Diversity is given as Annexure I & II. 8. BOARD AND COMMITTEES A calendar of meetings is prepared and circulated in advance to the Directors. The Board met five (5) times during the year, the details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The details of Audit Committee and CSR Committee have been given in the Report on the Corporate Governance. 9. CORPORATE GOVERNANCE Your Company is part of BP group which is known globally for the best standards of governance and business ethics. Your Company has put in place governance practices as prevalent globally. The Corporate Governance Report and the Auditors' Certificate regarding compliance of conditions of Corporate Governance are made part of the Annual Report. 10. CORPORATE SOCIAL RESPONSIBILITY Your Company recognises the need and importance of a focused and inclusive social and economic development, especially of the industries and communities within which it operates. Your Company seeks to build open and constructive relationships with all its stakeholders. We want them to benefit from our presence and this is set out in our Code of Conduct and our values. Over the last hundred years of the Company's presence in India, Castrol India's CSR activities have evolved from charitable giving to a strategic CSR programme, working in collaboration with key stakeholders. Going forward, your Company aims to build on this foundation as we develop a CSR programme that aligns business risks and opportunities with the national agenda of development priorities to meet the needs and aspirations of the populace. Corporate Social Responsibility Committee recommended and the Board approved CSR Policy in line with the requirements of Section 135 of the Companies Act, 2013. Your Company aims to provide a safer and better quality of life for the communities it serves, whilst ensuring the long-term sustainability of the Company's operations in the relevant industries where it operates. In alignment with our core skills and vision of building a safer and better quality of life, underpinned by our focus on progressive technology and in line with the aspirations of the country's youth, the Company intends to focus on: i. Skill development with a focus on technology targeting unorganised two-wheeler mechanics ii. Collaborating for a safer environment for mobility iii. Community Development in areas of operation and presence iv. Humanitarian aid v. Catering to the growing demand for lubricants in the country in an environmentally responsible manner The Corporate Social Responsibility Policy which is available on the website of the Company at <http://www.castrol.com/en_in/india/about-us/csr>. html. The Annual Report on our CSR activities is annexed herewith marked as Annexure-III. Also, the Business Responsibility Report contains the information on work done on CSR front. 11. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirement under Sections 134(3) (c) of the Companies Act, 2013, with respect to the Directors' Responsibilities Statement, it is hereby confirmed: (a) in the preparation of the annual accounts for the year ended 31st December 2015, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same; (b) t he Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st December 2015 and of the profit of the Company for the year ended on that date; (c) the Directors have 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 have prepared the annual accounts on a 'going concern' basis; (e) the Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. 12. RISK MANAGEMENT AND ADEQUACY OF INTERNAL FINANCIAL CONTROLS The Board of Directors of your Company has, on recommendation of the Risk Management Committee framed and adopted a policy on Risk Management of the Company. The details of which are given in the Corporate Governance Report that forms part of this Annual Report. Your Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. Internal control systems provide, among other things, a reasonable assurance that transactions are executed with Management authorisation and that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles and that the assets of your Company are adequately safe-guarded against significant misuse or loss. An independent Internal Audit function is an important element of your Company's internal control system. The internal control system is supplemented through an extensive internal audit programme and periodic review by Management and Audit Committee. The Company has in place adequate Internal Financial Controls with reference to Financial Statements. During the year, such controls were tested and no reportable material weaknesses in the design or operation were observed. 13. RELATED PARTY TRANSACTIONS The Audit Committee reviews the policy from time to time and also reviews all the Related Transactions, to ensure that the same are in line with the provisions of Law and Policy. The Committee approves the Related Party Transactions and wherever it is not possible to estimate the value, approves limit for financial year, based on best estimates. All Related Party Transactions are reviewed by an independent accounting firm to establish compliance with law and limits approved. None of the transactions approved in the financial year breached Arm's length and ordinary course criteria and those are within materiality threshold. All the Related Party Transactions entered during the year were in ordinary course of the Business and done on Arm's Length basis. No Material Related Party Transactions were entered during the year by your Company. Accordingly, the disclosure of Related Party Transactions as required under Section 134(3)(h) of the Companies Act, 2013 in Form AOC 2 is not applicable. In conformity with the requirements of the Companies Act, 2013 read with SEBI Listing Regulations, the policy to deal with Related Party Transactions was formulated which is also available on Company's website at <http://www>. castrol.com/en_in/india/about-us/financials/other- financial-documents-policies.html 14. DEPOSITS Your Company has not accepted any fixed deposits under Chapter V of Companies Act, 2013, during this financial year and as such, no amount on account of principal or interest on deposits from public was outstanding as on 31st December 2015. The Company has no deposit which is not in compliance with the provisions of Chapter V of the Companies Act, 2013 and as the Companies (Acceptance of Deposit) Rules, 2014. 15. PARTICULARS OF LOANS GIVEN, INVESTMENTS MADE, GUARANTEES GIVEN AND SECURITIES PROVIDED Particulars of loans, guarantees and investments made by the Company pursuant to Section 186 of the Companies Act, 2013 are given in the notes to the Financial Accounts forms part of the Annual Report. 16. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, RESEARCH & DEVELOPMENT (R&D) AND FOREIGN EXCHANGE EARNING AND OUTGO The particulars relating to conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo, as required to be disclosed under the Act, are provided as Annexure - IV. 17. MATERIAL CHANGES OCCURRED AFTER END OF FINANCIAL YEAR Except as disclosed elsewhere in this report, no material changes and commitments which could affect the Company's financial position have occurred between the end of the financial year of the Company and date of this report. 18. AUDITORS M/s. SRBC & Co. LLP, Chartered Accountants, retire and are eligible for re-appointment as Auditors from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting. They have confirmed their eligibility to the effect that their re-appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for re-appointment. The Report given by the Auditors on the financial statements of the Company is part of the Annual Report. There has been no qualification, reservation or adverse remark given by the Auditors in their Report. M/s. Kishore Bhatia & Co., Cost Accountants carried out the cost audit for applicable business segment. It is proposed to re-appoint them as Cost Auditors for the Financial Year 2016. The Board had appointed M/s. S. N. Anantha-subramanian & Co., Company Secretaries in Whole-time Practice, to carry out Secretarial Audit under the provisions of Section 204 of the Companies Act, 2013 for the financial year 2015. The Secretarial Audit report is annexed to this Report marked as Annexure-V. There are no qualifications, reservations or adverse remarks in the report given by Secretarial Auditors. 19. EXTRACT OF THE ANNUAL RETURN The details forming part of the extract of the Annual Return in Form MGT-9 as per provisions of Companies Act, 2013 and rules thereto is annexed to this report as Annexure VI. 20. PARTICULARS OF EMPLOYEES Disclosures with respect to the remuneration of Directors and employees as required under Section 197 of Companies Act, 2013 and Rule 5 (1) Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 has been annexed to this report as Annexure VII. Details of employee remuneration as required under provisions of Section 197 of the Companies Act, 2013 and Rule 5(2) & 5(3) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this Report. As per the provisions of Section 136 of the Act, the Report and Accounts are being sent to the shareholders of the Company and others entitled thereto, excluding the statement on particulars of employees. The Copies of said Statements are available at the Registered Office of the Company during working hours before 21 days of the Annual General Meeting. Any members interested in obtaining such details may write to the Secretarial Department at the Registered Office of the Company. 21. PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE Your Company firmly believes in providing a safe, supportive and friendly workplace environment - a workplace where our Values come to life through the underlying behaviours. Positive workplace environment and a great employee experience are integral parts of our culture. Your Company believe in providing and ensuring a workplace free from discrimination and harassment based on gender. Your Company educates its employees as to what may constitute sexual harassment and in the event of any occurrence of an incident constituting sexual harassment your Company provide the mechanism to seek recourse and redressal to the concerned individual subjected to sexual harassment. Your Company has a Sexual Harassment -Prevention and Grievance Handling Policy in place to provide clarity around the process to raise such a grievance and how the grievance will be investigated and resolved. An Internal Complaints Committee has been constituted in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. During the year there was one complaint of sexual harassment that was reported which was reviewed by the Internal Complaints Committee. Pursuant to the review, disciplinary action of termination was taken against the employee accused of sexual harassment. 22. VIGIL MECHANISM The Company has very strong whistle blower policy viz. 'Open Talk'. All employees of the Company have access to the Chairman of the Audit Committee in case they want to report any concern. The Policy on Vigil Mechanism and Whistle Blower Policy is discussed in the Corporate Governance Report. 23. GENERAL DISCLOSURES Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. I ssue of Equity Shares with differential rights as to dividend, voting or otherwise. 2. Issue of Shares (including Sweat Equity Shares) to employees of the Company under any scheme. The Company has not resorted to any Buy Back of its shares during the year under review. 3. Neither the Managing Director nor the Whole-time Directors of the Company receive any remuneration or commission from any of its subsidiaries. 4. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. 24. ACKNOWLEDGEMENT The Board wishes to place on record its sincere appreciation of the efforts put in by the Company's employees for achieving encouraging results under difficult conditions. The Board also wishes to thank its members, distributors, vendors, customers, bankers, government and all other business associates for their support during the year On behalf of the Board of Directors Omer Dormen Managing Director DIN: 07282001 Rashmi Joshi Director Finance & Chief Financial Officer DIN: 06641898 Place : Mumbai Date ; 24th February 2016 |