BOARD'S REPORT TO THE MEMBERS OF TITAN COMPANY LIMITED The Directors are pleased to present the Thirty Second Annual Report and the Audited Statement of Accounts for the year ended 31st March 2016: During the year under review, the Company's sales income declined by 5.4 % to Rs. 1 1,295.74 crores compared with Rs. 11,936.71 crores in the previous year. Profit before tax declined by 17.5 % to Rs. 870.66 crores and the net profit declined by 14.2% to Rs. 705.85 crores. This performance came in the backdrop of an environment where the consumer sentiment did not pick up as expected and regulatory measures adversely affected the jewellery business. The Watches business of the Company recorded an income of Rs. 1,953.55 crores, a growth of 1.7%, which was achieved through meticulous planning and execution of key initiatives. The income from Jewellery segment declined by 7.6% touching Rs. 8,717.40 crores. The income from Eyewear segment grew by 11.8% touching Rs. 371.58 crores. The income from other segments comprising Precision Engineering, a B2B Business, and accessories recorded a sale of Rs. 235.17 crores, a growth of 1.3%. The year witnessed aggressive expansion of the Company's retail network with a net addition of 82 stores. As on 31st March 2016, the Company had 1,283 stores, with over 1.7 million square feet of retail space delivering a retail turnover of Rs. 11,295 crores. The Management Discussion and Analysis report, which is attached, dwells into the performance of each of the business division and the outlook for the current year. International Operations The Watches exports registered a handsome growth of 17% to clock a turnover of Rs. 161 crores despite several challenges in Middle East, which remained volatile and South East, which had economic and currency fluctuations. The business sustained its targeted investments in retail and brand building in key, large markets. Vietnam, UAE and Malaysia have seen brand scores enhanced along with business growth. There was visible shift to digital, new age media, e-commerce along with greater thrust on Fastrack and Sonata. Indonesia, Nigeria, Philippines and SAARC markets have shown promising results. Dividend The Directors at the meeting held on March 16, 2016 declared an interim dividend of Rs. 2.20 per share (220%) involving a total payment of Rs. 235.07 crores (including dividend distribution tax) for the year ended March 31, 2016. The said interim dividend was paid to the shareholders on March 29, 2016. The Directors do not recommend any further dividend for the year 2015-16. Transfer to General Reserve An amount of Rs. 521.26 crores is proposed to be transferred to the general reserve. Finance At the projected rate of 7% GDP growth, below earlier projections, the current fiscal has been a challenge. After two consecutive years of drought, with the expectation of a good monsoon this year, rural demand is expected to pick up in the second half. The PAN card rule has caused considerable dampening of sentiment in consumers and uncertainty in retailers. The Company plans to invest disproportionately in the digital space and contain its employee cost. Public Deposits The Jewellery Division of the Company was successfully operating customer schemes for jewellery purchases for many years. When the Companies Act, 2013 became substantially effective from 1st April 2014, the Company had around seven lakhs subscribers contributing to these schemes. However, these schemes were exempt under the Companies Act, 1956 relating to acceptance of public deposits as such schemes were not covered in the definition of deposits. Under the Companies Act, 2013 (the "Act") and Regulations made there under ('Deposit Regulations') the scope of the term "deposit" was enlarged and therefore a view was taken that the jewellery purchase schemes offered by the Company to its customers would be treated as public deposits. Thereupon, the Company discontinued fresh enrolment of subscribers and initiated steps to close the erstwhile customer schemes, which were wound down by 31st August 2014. Under the Deposit Regulations, a company is permitted to accept deposits subject to applicable provisions, to the extent of 25% of the aggregate paid-up share capital and free reserves from public and 10% of the aggregate paid-up share capital and free reserves from Members of the company, after prior approval by way of a special resolution passed by the Members in this behalf. In pursuance thereof, a Postal Ballot was conducted during August/September 2014 and requisite approval was obtained from the Members of the Company and a new customer scheme for jewellery purchase was launched in November 2014 in compliance with the Deposit Regulations. The details relating to deposits, covered under Chapter V of the Companies Act, 2013 are as under: (a) accepted during the year: Rs. 775.82 crores (b) remained unpaid or unclaimed as at the end of the year: Rs. 20.10 crores (c) whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved- (i) at the beginning of the year: Nil (ii) maximum during the year: Nil (iii) at the end of the year: Nil There are no deposits that have been accepted by the Company that are not in compliance with the requirements of Chapter V of the Act. Material changes and commitments affecting financial position between end of the financial year and date of report There have been no material changes and commitments affecting financial position between end of the financial year and the date of the report. Significant and material orders There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. There have been no investments made or guarantees given under Section 186 of the Companies Act, 2013 during the year under review. The particulars of loans given as part of treasury operations of the Company bearing interest ranging from 10.4% to 11.3% p.a. are furnished below: Contribution to Exchequer During the year under review, the Company made payments aggregating Rs. 931.20 crores by way of taxes (central, state and local) and duties as against Rs. 939.03 crores in the previous year. Adequacy of internal controls and compliance with laws The Company during the year has reviewed its Internal Financial Control systems and has continually contributed to establishment of more robust and effective IFC framework, prescribed under the ambit of Section 134(5) of Companies Act, 2013. The preparation and presentation of the financial statements is pursuant to the control criteria defined considering the essential components of Internal control - as stated in the "Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI)". The control criteria ensures the orderly and efficient conduct of the Company's business, including adherence to its policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. Based on the assessment carried out by the Management and the evaluation of the results of the assessment, the Board of Directors are of the opinion that the Company has adequate Internal Financial Controls system that is operating effectively as at March 31, 2016. There were no instances of fraud which necessitates reporting of material misstatement to the Company's operations. There have been no communication from regulatory agencies concerning non-compliance with or deficiencies in financial reporting practices. Risk Management Pursuant to the requirement of Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the "Listing Regulations"), the Company has constituted a Risk Management Committee. The Company has in place a Risk Management framework to identify, evaluate business risks and challenges across the Company both at corporate level as also separately for each business division. The top tier of risks for the Company is captured by the operating management after extensive deliberations on the nature of the risk being a gross or a net risk and thereafter in a prioritized manner presented to the Board for their inputs on risk mitigation/ management efforts. Based on this framework, a Risk Management policy is being developed. The Board engages in the Risk Management process and has set out a review process so as to report to the Board the progress on the initiatives for the major risks of each of the businesses that the Company is into. The Risk Register of each Business gets updated on an annual basis and is placed for due discussions at Board meetings and appropriateness of the mitigation measures to ensure that the risks remain relevant at any point in time and corresponding mitigation measures are optimized. The Board Audit Committee (BAC) has been engaged in reviewing the IT initiatives and governance mechanisms pertaining to information security. The BAC also reviewed the new IT controls incorporated to comply with IFC requirements mandated by the Companies Act, 2013. Related Party Transactions There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interests of the Company at large. All related party transactions are placed before the Audit Committee and the Board for approval, if applicable. Prior omnibus approval of the Audit Committee is obtained for the transactions which are of a foreseen and repetitive nature. The transactions entered into pursuant to the omnibus approval so granted are verified by the Internal Auditor and a statement giving details of all related party transactions is placed before the Audit Committee and the Board of Directors for their approval, if applicable on a quarterly basis. The Company has developed an Internal Guide on Related Party Transactions Manual and prescribed Standard Operating Procedures for purpose of identification and monitoring of such transactions. The Policy on Related Party Transactions as approved by the Board is uploaded on the Company's website. None of the Directors has any pecuniary relationships or transactions vis-a-vis the Company. There were no transactions during the year which would require to be reported in Form AOC-2. Subsidiaries / Joint Venture / Associate Company As on 31st March 2016, the Company had the following subsidiaries: 1) Titan TimeProducts Limited, Goa (TTPL) 2) Favre Leuba AG, Switzerland 3) Titan Watch Company Limited, Hong Kong and 4) Titan Engineering and Automation Limited During the year 2015-2016, TTPL sold a total of 59,68,000 nos. of ECBs and micro assemblies (previous year: 59,81,400 nos.). Net sales income during the year was Rs. 25.60 crores against the previous year's figure of Rs. 24.46 crores. The quality, delivery and competitive price of the products continue to be well-received by the Holding Company and external customers. As at 31st March 2016, Favre Leuba AG had registered a loss of CHF 1.88 million, i.e. Rs. 13.00 crores (2014-15: CHF 0.92 million i.e. Rs. 5.89 crores) which apart from amortization of trademarks design and development expenses, includes operating expenses incurred in preparation of product launches scheduled to commence from October 2016. Titan Watch Company Limited is a subsidiary of the Company's subsidiary Favre Leuba AG and hence is a subsidiary of the Company. It has a capital of HK $ 10,000 and no Profit and Loss account has been prepared as it has not yet commenced business. Titan Engineering and Automation Limited (TEAL) was incorporated on 24th March 2015 to acquire the Precision Engineering Business of the Company through a court approved scheme of arrangement. The annual accounts of these subsidiary companies were consolidated with the accounts of Titan Company Limited for 2015-16. None of these companies declared a dividend in 2015-16. The Company holds a 49% equity stake in a joint venture entered into with Montblanc Services B.V., the Netherlands for operation of retail boutiques in India for Montblanc products. The Company holds 26.79% stake in Green Infra Wind Power Theni Limited which supplies energy to the Company. The statement containing salient features of the financial statement of subsidiaries/associate company/joint venture forms part of the Annual Report. Consolidated Financial Statements The Consolidated Financial Statements of the Company prepared as per Accounting Standard AS 21, Accounting Standard AS 23 and Accounting Standard AS 27 consolidating the Company's accounts with its subsidiaries, a joint venture and an associate have also been included as part of this Annual Report. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo The particulars as prescribed under sub-section (3) (m) of Section 134 of the Act read with Rule 8 of the Companies (Accounts) Rules, are furnished in Annexure- I to the Board's Report. Corporate Social Responsibility A report on CSR is attached in Annexure II. Extract of Annual Return As provided under Section 92(3) of the Act, the extract of annual return is given in Annexure-III in the prescribed Form MGT-9, which forms part of this Report. Vigil Mechanism The Company has a whistle blower mechanism wherein the employees can approach the Management of the Company (Audit Committee in case where the concern involves the Senior Management) and make protective disclosures to the Management about unethical behaviour, actual or suspected fraud or violation of the Company's Code of Conduct. The Whistle Blower Policy requires every employee to promptly report to the Management any actual or possible violation of the Code or an event he becomes aware of that could affect the business or reputation of the Company. The disclosures reported are addressed in the manner and within the time frames prescribed in the policy. A mechanism is in place whereby any employee of the Company has access to the Chairman of the Audit Committee to report any concern. No person has been denied access to the Chairman to report any concern. Further, the said policy has been disseminated within the organisation and has also been posted on the Company's website. Disclosures as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules thereunder for prevention and redressal of complaints of sexual harassment at workplace. During the financial year 2015-16, the Company had received eight complaints on sexual harassment, which were disposed-off with appropriate action taken and nil complaints remain pending as of 31st March 2016. Details in respect of Frauds reported by Auditors under sub-section (12) of Section 143 other than those which are reportable to the Central Government The Statutory Auditors of the Company have not reported any fraud as specified under the second proviso of Section 143(12) of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force). Corporate Governance Pursuant to Regulation 34 of the Listing Regulations executed with the Stock Exchanges, a Management Discussion and Analysis, Corporate Governance Report and Auditors' Certificate regarding compliance of conditions of Corporate Governance forms part of the Annual Report. Business Responsibility Reporting As per Regulation 34 of the Listing Regulations with the Stock Exchanges, a Business Responsibility Report is attached and forms part of this Annual Report. Directors and Key Managerial Personnel Mr. T.K. Balaji, Dr. C.G. Krishnadas Nair, Ms. Vinita Bali, Mrs. Hema Ravichandar, Prof. Das Narayandas and Mrs. Ireena Vittal are the Independent directors and all have given declarations that they continue to meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Regulation 25 of the Listing Regulations. In accordance with his appointment resolution, term of directorship of Dr. C.G. Krishnadas Nair ends on 16th August 2016. The Board places on record its appreciation to Dr. Nair for the valuable contribution and wise counsel rendered by him during his tenure as a Director of the Company. In accordance with the provisions of the Act and in terms of the Memorandum and Articles of Association of the Company, Mr. C.V Sankar retires by rotation at the Annual General Meeting. Mr. Ashwani Puri, Independent Director was appointed as an Additional Director on the Board of the Company on 6th May 2016. Member's attention is drown to Item No. 8 of the Notice for the appointment of Mr. Ashwani Puri as a Director of the Company. None of the Directors are related to each other within the meaning of the term "relative" as per Section 2(77) of the Act. Five meetings of the Board were held during the year. For details of the meetings of the Board, reference may be made to the Corporate Governance Report, which forms part of the Annual Report. Details of Directors and Key Managerial Personnel who were appointed or have resigned during the year Pursuant to Section 134 of Companies Act, 2013 read with Rule 8(5) (iii) of Companies (Accounts) Rules, 2014, no Directors or Key Managerial Personnel were appointed or resigned. Pursuant to the provisions of Section 203 of the Act, Mr. Bhaskar Bhat-Managing Director, Mr. S. Subramaniam-Chief Financial Officer and Mr. A.R. Rajaram-Head Legal & Company Secretary continue to be the Key Managerial Personnel of the Company. Directors' Responsibility Statement Based on the framework of internal financial controls and compliance systems established and maintained by the Company, including audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company's internal financial controls are adequate and operating effectively. Accordingly, pursuant to the requirements of Section 134 (5) of the Act, the Directors hereby confirm that: i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures; ii. they have 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 of the Company for that period; iii. they 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; iv. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Board Evaluation The performance evaluation of the Board, its Committees and individual Directors was conducted and the same was based on questionnaire and feedback from all the Directors on the Board as a whole, its Committees and self-evaluation. The Chairperson of the Board Nomination and Remuneration Committee (BNRC) held separate discussions with each of the Directors of the Company and obtained their feedback on overall Board effectiveness as well as on each of the other Directors. Based on the questionnaire and feedback, the performance of every Director was evaluated by the BNRC. Some of the key criteria for performance evaluation, as laid down by the BNRC were as follows- Performance evaluation of Directors: • Contribution at Board / Committee meetings • Guidance / Support to Management outside Board / Committee Meetings Performance evaluation of Board and Committees: • Board structure and composition • Degree of fulfillment of key responsibilities • Establishment and delineation of responsibilities to Committees • Effectiveness of Board Processes, Information and Functioning • Board Culture and Dynamics • Quality of relationship between the Board and Management • Efficacy of communication with External Stakeholders • Committees - strengths and areas of improvement Independent Directors A separate meeting of the independent directors ("Annual ID Meeting") was convened, which reviewed the performance of the Board (as a whole), the non-independent directors and the Chairman. Post the Annual ID Meeting, the collective feedback of each of the Independent Directors was discussed by the Chairperson of the BNRC with the Board covering performance of the Board as a whole, performance of the non-independent directors and performance of the Board Chairman. Remuneration Policy The Board has, on the recommendation of the BNRC framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report. Policy on Directors' appointment and remuneration and other details In accordance with the agreement between the promoters, three Directors each may be nominated by Tata Sons Limited and Tamilnadu Industrial Development Corporation Limited. The guidelines for selection of Independent Directors are as set out below: The Board Nomination and Remuneration Committee oversees the Company's nomination process for Independent Directors and in that connection to identify, screen and review individuals qualified to serve as an Independent Director on the Board. Process for selection The Committee may act on its own in identifying potential candidates. The Committee shall review and discuss details pertaining to candidates and will conduct evaluation of candidates in accordance with the process that it sees fit and appropriate and thereafter pass on its recommendation for nomination to the Board, based on the following guidelines: Attributes i) The Committee shall seek candidates who is not a nominee or related to either Promoter of the Company. Such candidates shall possess integrity, leadership skills, managerial qualities, foresight abilities and competency required to direct and oversee the Company's management in the best interest of its stakeholders i.e. shareholders, customers, employees and communities it serves. ii) The candidate must be willing to regularly attend the meetings of the Board and develop a strong understanding of the Company, it's businesses and it's needs, to contribute his/ her time and knowledge to the Company and to be prepared to exercise his/her duties with skill and care. Besides these, the candidate should have an understanding of governance concepts and legal duties of a Director. iii) It is desirable that the candidate should have expertise to fill in the gap(s) identified by the Company in the current composition of the Board. iv) Ideally the candidate should possess experience of 5 years on 2. the Board of a listed company. v) The candidate's age shall not exceed 70 years at the time of joining the Board. vi) Forthrightness and ability to possess foresight abilities in the Governance of a Corporate. 3. Board Composition Keeping in mind that women constitute a majority of the Company's 4. customers it would be desirable to have one-third of the Board's strength represented by woman members. Procedure 1. The Committee may retain search firms or advisors as it deems appropriate to identify candidates. 2.Develop a list of potential candidates of Independent Directors which may be refreshed every year. The Committee to create a list of probable candidates from known sources or from the database of Ministry of Corporate Affairs, Government of India or Stock Exchanges. 3.The Committee may also consider profiles of suitable expatriates. 4.The candidate considered by the Committee as potentially qualified will be contacted to determine their interest in being considered to serve on the Board and if interested will be interviewed. As and when a candidate is shortlisted, the Committee will make a formal recommendation to the Board. viii) Percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year. ix) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration: No such differentiation was followed in giving the increment during the last financial year. The average increment in salary was basis individual performance. x) The key parameters for any variable component of remuneration availed by the directors The Members had, at the AGM of the Company held on 31st July 2015 approved payment of Commission to the nonexecutive directors within the ceiling of 1% of the net profits of the Company as computed under the applicable provisions of the Act. The said Commission is decided each year by the Board of Directors and distributed amongst the non-executive directors based on performance evaluation, attendance and contribution at the meetings of the Board and its Committees, as well as the time spent on operational matters other than at meetings. xi) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: The highest paid Director is the Managing Director. No employee has received remuneration in excess of the Managing Director during the year. xii) Affirmation that the remuneration is as per the Remuneration Policy of the Company. The Company's Remuneration Policy is based on the principle of internal equity, competence and experience of the employee and industry standards. Through its compensation programme, the Company endeavours to attract, retain, develop and motivate a high performance workforce and engaged workforce. The Company follows a compensation mix of fixed pay, benefits and performance based variable pay. Individual performance pay is determined by business performance and the performance of the individuals measured through the annual appraisal process. The Company affirms remuneration is as per the Remuneration Policy of the Company. Information as per Rule 5(2) of the Chapter XIII, the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 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 will be available at the Registered Office of the Company during working hours for a period of 21 days before the date of the Annual General Meeting. Any member interested in obtaining such particulars may write to the Company Secretary or through mail addressed to arrajaram@titan.co.in AUDITORS Statutory Auditors The Members are requested to ratify the appointment of its Statutory Auditors, Messrs Deloitte Haskins & Sells, Chartered Accountants (Firm's Registration No. 008072S), from the conclusion of this Thirty Second Annual General Meeting upto the conclusion of the Thirty Third Annual General Meeting. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed there under for re-appointment as Auditors of the Company. As required under Regulation 33 of the Listing Regulations, the auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. Cost Auditors Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the cost audit records maintained by the Company in respect of its PED activity may require to be audited. Your Directors had, on the recommendation of the Audit Committee, appointed M/s. M.R. Rajashekar & Co. to audit the cost accounts of the Company for the financial year 2015- 16. As required under the Companies Act, 2013, the remuneration payable to the cost auditor is required to be placed before the Members in a general meeting for their ratification. Accordingly, a Resolution seeking Member's ratification for the remuneration payable to M/s. M.R. Rajashekar & Co., Cost Auditors is included at Item No. 6 of the Notice convening the Annual General Meeting. Secretarial Audit 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 has appointed Messrs HBP & Co, a firm of Company Secretaries in Practice to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit Report is annexed herewith as (Annexure-IV). Auditor's Report and Secretarial Auditor's Report There are no disqualifications, reservations, adverse remarks or disclaimers in the auditor's report and secretarial auditor's report. Acknowledgements Your Directors wish to place on record their appreciation of the support which the Company has received from its promoters, shareholders, lenders, business associates, vendors, customers, media and the employees of the Company. On behalf of the Board of Directors, C.V. Sankar Chairman Date : 6th May 2016 |