DIRECTORS' REPORT DEAR MEMBERS, The Board of Directors (Board) presents the Annual Report of Atul Ltd together with the audited statement of accounts for the year ended March 31, 2016 Performance Sales decreased by 4% from Rs. 2,510 cr to Rs. 2,407 cr mainly due to lower prices (7%) partly offset by higher volumes (3%). Sales in India decreased by 6% from Rs. 1,283 cr to Rs. 1,202 cr. Sales outside India decreased by 2% from Rs. 1,227 cr to Rs. 1,205 cr. The Earning per share increased from Rs. 73.30 to Rs. 90.37. While the operating profit before working capital changes increased by 21% from Rs. 383 cr to Rs. 462 cr, the net cash flow from operating activities increased by 18% from Rs. 317 cr to Rs. 374 cr. Sales of Life Science Chemicals (LSC) Segment increased by 11% from Rs. 676 cr to Rs. 748 cr, mainly because of higher sales in Sub-segment Crop Protection; its EBIT increased by 45% from Rs. 119 cr to Rs. 173 cr. Sales of Performance and Other Chemicals (POC) Segment decreased by 10% from Rs. 1,834 cr to Rs. 1,659 cr mainly because of lower sales in Sub-segment Colors; its EBIT remained stagnant at Rs. 242 cr. More details are given in the Management Discussion and Analysis (MDA) Report. The borrowings of the Company increased marginally (including current maturities of long-term borrowings) by 8% from Rs. 281 cr to Rs. 303 cr despite payments towards capital expenditure of Rs. 363 cr. Credit Analysis and Research Ltd (CARE) maintained its credit rating at 'AA+' (double A plus) for long-term borrowings of the Company. Its rating for short-term borrowings and commercial paper remained at 'A1+' (A1 plus), the highest possible awarded by CARE. The Company completed 5 projects with an investment of Rs. 213 cr which are expected to generate sales of Rs. 530 cr at full capacity utilisation. Dividend The Board recommends payment of dividend of Rs. 10 per share on 2,96,61,733 Equity shares of Rs. 10 each fully paid up. The dividend will entail an outflow of Rs. 32.14 cr {including dividend distribution tax (net)} on the paid-up Equity share capital of Rs. 29.66 cr. Conservation of energy, technology absorption, foreign exchange earnings and outgo Information required under Section 134 (3) (m) of the Companies Act, 2013, read with Rule 8 (3) of the Companies (Accounts) Rules, 2014, as amended from time to time, forms a part of this Report which is given at page number 26. 05. Insurance The Company has taken adequate insurance to cover the risks to its employees, property, plant and equipment, buildings and other assets and third parties. 06. Risk Management Risk Management is an integral part of the business practices of the Company. The framework of Risk Management concentrates on formalising a system to deal with the most relevant risks, building on existing management practices, knowledge and structures. With the help of a reputed international consultancy firm, the Company has developed and implemented a comprehensive Risk Management System to ensure that risks to the continued existence of the Company as a going concern and to its growth are identified and remedied on a timely basis. While defining and developing the formalised Risk Management System, leading standards and practices have been considered. The Risk Management System is relevant to business reality, pragmatic and simple and involves the following: i) Risk identification and definition - Focused on identifying relevant risks, creating updating clear definitions to ensure undisputed understanding along with details of the underlying root causes contributing factors. ii) Risk classification - Focused on understanding the various impacts of risks and the level of influence on its root causes. This involves identifying various processes generating the root causes and clear understanding of risk interrelationships. iii) Risk assessment and prioritisation - Focused on determining risk priority and risk ownership for critical risks. This involves assessment of the various impacts taking into consideration risk appetite and existing mitigation controls. i v) Risk mitigation - Focused on addressing critical risks to restrict their impact(s) to an acceptable level (within the defined risk appetite). This involves a clear definition of actions, responsibilities and milestones. v) Risk reporting and monitoring - Focused on providing to the Board and the Audit Committee periodic information on risk profile evolution and mitigation plans. Roles and responsibilities Governance The Board has approved the Risk Management Policy of the Company. The Company has laid down procedures to inform the Board on i) to iv) above. The Audit Committee periodically reviews the Risk Management System and gives its recommendations, if any, to the Board. The Board reviews and guides the Risk Policy. Implementation Implementation of the Risk Management Policy is the responsibility of the Management. It ensures functioning of the Risk Management System as per the guidance of the Audit Committee. The Company has Risk Management Oversight Structure in which each Sub-segment has Chief Risk and Compliance Officer. The Management at various levels takes accountability for risk identification, appropriateness of risk analysis, and timeliness as well as adequacy of risk mitigation decisions at both individual and aggregate levels. It is also responsible for the implementation, tracking and reporting of defined mitigation plans, including periodic reporting to the Audit Committee and the Board. 07. Internal Financial Controls The Internal Financial Controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Financial Statements. These include those policies and procedures that i) pertain to the maintenance of records which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Financial Statements in accordance with Generally Accepted Accounting Principles and that receipts and expenditures are being made only in accordance with authorisations of the Management and the Directors of the Company and iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the assets that can have a material effect on the Financial Statements. A reputed international consultancy firm has reviewed the adequacy of the Internal Financial Controls with respect to the Financial Statements. The Management assessed the effectiveness of the Internal Financial Controls over financial reporting as of March 31, 2016, and the Board believes that the controls are adequate. 08. Fixed deposits During 2015-16, the Company did not accept any fixed deposits. 09. Loans, guarantees, investments and Particulars of loans, guarantees, investments and security are given at page number 103 and 119. 10. Subsidiary, associate and joint venture companies Performance and financial position of such companies are given at page number 28. 11. Related Party Transactions Particulars of contracts or arrangements with related parties are given at page number 111. 12. Corporate Social Responsibility Composition of the Corporate Social Responsibility (CSR) Committee, the CSR Policy and the CSR Report are given at page number 30. 13. Extract of the Annual Return This is given at page number 33. 14. Auditors Dalal & Shah Chartered Accountants LLP, the Statutory Auditors (the Auditors) of the Company, will retire at the conclusion of the ensuing Annual General Meeting (AGM). They have given their consent to continue to act as the Auditors for 2016-17, if reappointed. The relevant Notes forming part of the accounts are self-explanatory and give full information and explanation in respect of the observations made by the Auditors in their report. The Shareholders ratified the appointment of R Nanabhoy & Co as the Cost Auditors for 2015-16 on August 04, 2015. The Board appointed Mr A C Doshi, Practising Company Secretary, as the Secretarial Auditor for 2015-16 on April 29, 2015, and his report is given at page number 44. 15. Directors' responsibility statement Pursuant to Section 134 (5) of the Companies Act, 2013, the Directors confirm that, to the best of their knowledge and belief: 15.1 The applicable Accounting Standards were followed along with proper explanations relating to material departures in the preparation of the annual accounts. 15.2 The Accounting Policies were selected and applied consistently and judgements and estimates were made that were 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. 15.3 Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. 15.4 The attached annual accounts for the year ended March 31, 2016 were prepared on a going concern basis. 15.5 Adequate Internal Financial Controls to be followed by the Company were laid down and the same were adequate and operating effectively. 15.6 Proper systems were devised to ensure compliance with the provisions of all applicable laws and the same were adequate and operating effectively. 16. Directors 16.1 Appointments Reappointments Cessations 16.1.1 Subject to the approval of the Members in the AGM, Mr B N Mohanan was reappointed as a Whole-time Director effective January 01, 2017 for a period of 3 years. 16.1.2 According to Article 86 of the Articles of Association of the Company, Mr B S Mehta and Mr B N Mohanan retire by rotation and being eligible, offer themselves for reappointment at the forthcoming AGM scheduled on July 29, 2016. 16.2 Policies on appointment and remuneration 16.2.1 Appointment While recommending appointment of the Directors, the Nomination and Remuneration Committee considers the following factors: i) Qualification: well-educated and experienced in senior leadership positions in industry profession ii) Traits: positive attributes and qualities iii) Independence: criteria prescribed in Section 149 (6) of the Companies Act, 2013 for the Independent Directors, including no pecuniary interest and conflict of interest 16.2.2 Remuneration of the Non-executive Directors i) Sitting fees: up to Rs. 20,000 for attending a Board, Committee and any other meeting ii) Commission: up to 1% of net profit as may be decided by the Board based on the following factors: a. Membership of Committee(s) b. Profit c. Attendance d. Category (Independent or Non-independent) 16.2.3 Remuneration of the Executive Directors This is given under para number 17.2. 16.3 Criteria and method of annual evaluation 16.3.1 The criteria for evaluation of performance of a) the Non-independent Directors (Executive) b) the Non-independent Directors (Non-executive) c) the Independent Directors d) the Chairman e) the Committees of the Board and f) the Board as a whole are summarised in the table at the end of the Directors' Report at page number 24. 16.3.2 The Independent Directors have carried out annual: i) Review of performance of the Non-independent Directors - Executive ii) Review of performance of the Non-independent Directors - Non-executive iii) Review of performance of the Chairman iv) Assessment of quality, quantity and timeliness of the flow of information to the Board v) Review of performance of the Board as a whole 16.3.3 The Board has carried out annual evaluation of performance of: i) Its Committees namely Audit, Nomination and Remuneration, Stakeholders Relationship, CSR and Investment ii) The Independent Directors The templates for the above purpose were circulated in advance for feedback of the Directors. In addition, the Chairman also held discussions with the Directors individually. 16.4 Familiarisation Program for the Independent Directors The Company has a Familiarisation Program for its Independent Directors. It comprises, amongst others, presentations by and discussions with the senior Management on the nature of the industries in which it operates, its vision and strategy and its organisation structure. A visit is organised to one or more of its manufacturing sites. Details of the program are also available at <http://www.atul.co.in/> investors/pdf/familiarisation_programme.pdf. 17. Key Managerial Personnel and other employees 17.1 Appointments and cessations of the Key Managerial Personnel There were no appointments cessation of the Key Managerial Personnel during 2015-16. 17.2 Remuneration The Remuneration Policy of the Key Managerial Personnel and other employees consists of the following: 17.2.1 Components: i) Fixed pay a. Basic salary b. Allowances c. Perquisites d. Retirals ii) Variable pay 17.2.2 Factors for determining and changing fixed pay i) Existing compensation ii) Education iii) Experience iv) Salary bands v) Performance vi) Market benchmark 17.2.3 Factors for determining and changing variable pay i) Business performance ii) Individual performance iii) Grade 18. Analysis of remuneration The information required pursuant to Sections 134 (3)(q) and 197 (12) of the Act read with Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, forms part of this Report. However, as per the provisions of Sections 134 and 136 of the Act, the Report and the Accounts are being sent to the Members and others entitled thereto excluding the information on employees' particulars which are available for inspection by the Members at the registered office of the Company during business hours on working days of the Company up to the date of ensuing AGM. Any Member interested in obtaining a copy of such statement may write to the Company Secretary at the registered office of the Company. 19. Management Discussion and Analysis The Management Discussion and Analysis Report covering performance of the two reporting segments, namely, LSC and POC, is given at page number 49. 20. Corporate Governance 20.1 Statement of declaration given by the Independent Directors The Independent Directors have given declarations under Section 149 (6) of the Companies Act,2013 20.2.Report The Corporate Governance Report along with the certificate from the Statutory Auditors regarding compliance of the conditions of Corporate Governance pursuant to Regulation 34 (3) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 is given at page number 56. Details about the number of meetings of the Board held during 2015-16 are given at page number 59. The composition of the Audit Committee is given at page number 62. All the recommendations given by the Audit Committee were accepted by the Board. 20.3 Whistle-blowing Policy The Board, on the recommendation of the Audit Committee, had approved a vigil mechanism (Whistle-blowing Policy). The policy provides an independent mechanism for reporting and resolving complaints pertaining to unethical behaviour, actual or suspected fraud and violation of the Code of Conduct of the Company and is displayed on the website (of the Company) at <http://www.atul.co.in/> investors/pdf/Whistle_blowing_Policy.pdf. No personnel has been denied access to the Audit Committee. 21. Acknowledgements The Board expresses its sincere thanks to all the employees, customers, suppliers, lenders, regulatory and Government authorities, Stock Exchanges and investors for their support. For and on behalf of the Board of Directors (Sunil Siddharth Lalbhai) Chairman and Managing Director Place : Mumbai Date : April 29, 2016 |