DIRECTORS' REPORT Your Directors, with pleasure, present their Report along with the Audited Accounts for the year ended March 31, 2016. 1. Review of Operations This year too, your Company has continued to grow ahead of the overall FMCG sector, as well as the home and personal care categories that it participates in, despite a challenging macro environment. Godrej Consumer Products Limited's ('GCPL') expanding footprint is driven by a focused 3x3 strategy - a presence in three business categories (personal care, hair care, and home care) across three geographies (Asia, Africa, and Latin America). Despite challenges across geographies, its businesses have performed well, with the Company's salience of international revenues at 47%. During the year, GCPL's consolidated sales increased by 11% and EBITDA by 21% in organic constant currency terms. India business net sales increased by 9% driven by 11% volume growth. In our international business, our sales growth of 14%, in organic constant currency terms, was led by strong growth in Africa and Latin America. The standalone net profit grew by 13% at Rs. 740 crore as compared with previous year net profit of Rs. 654 crore and the consolidated net profit grew by 23% at Rs. 1,119 crore as compared with previous year net profit of Rs. 907 crore. GCPL's focus has been to accelerate innovation and back new products with strong marketing investments. In the past year, GCPL made several new launches in the domestic and international businesses, which are expected to further enhance the company's competitiveness, improve the brand equity, and drive increased penetration and consumption. More than 40% of GCPL's growth now comes from new products and renovations. It was also the highest ranked Indian company (at number 24) on Forbes' list of the 'World's 100 Most Innovative Growth Companies 2015', for the second year in a row. Today, GCPL is one of the largest household and personal care companies in India; the leader in hair colour, household insecticides, and liquid detergents, and the number 2 player in toilet soaps and air care. Significant marketing investments have driven higher consumption and penetration across the board. GCPL's superior global supply chain and future ready sales organisation leverage the latest technology for sharper execution and better decision making, thus strengthening market positions. It was ranked the number 1 FMCG company to work for in the 'Great Place to Work-Best Workplaces in India 2015' list; its twelfth consecutive year on the list. It was also ranked number 9 on 2. Dividend Your Directors recommend that the aforesaid interim dividends aggregating to Rs. 5.75/- per equity share be declared as the final dividend for the year ended March 31, 2016. 3. Board of Directors Four Board meetings were held during the year. Details of the meetings and the attendance record of the Directors are in the Corporate Governance section of the Annual Report. All the Independent Directors have given their declaration of independence as required under Section 149(6) of the Companies Act, 2013; this has been recorded by the Board of Directors. A familiarisation programme for the Independent Directors was conducted to familiarise them with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc. The same may also be accessed through the link given below.[1] The service contract of Mr. Adi Godrej was for a period of 3 years beginning from April 1, 2013 to March 31, 2016. The Board of Directors have reappointed Mr Adi Godrej for a further period of 3 years beginning from April 1, 2016 to March 31, 2019. This re-appointment is subject to the approval of shareholders and accordingly a special resolution is included in the Notice of Annual General Meeting. The service contracts of Ms. Nisaba Godrej, Executive Director and Mr. Vivek Gambhir, Managing Director are for a period of 3 years beginning from July 1, 2013 to June 30, 2016. The Board of Directors have reappointed Ms. Nisaba Godrej as Executive Director and Mr Vivek Gambhir as Managing Director for a further period of 3 years beginning from July 1, 2016 to June 30, 2019. This reappointment is subject to the approval of shareholders and accordingly separate ordinary resolutions are included in the Notice of Annual General Meeting for their re-appointment. In the forthcoming Annual General Meeting, Ms. Tanya Dubash will retire by rotation and being eligible is considered for re-appointment. Your Company has an Audit Committee in compliance with the Listing Regulations and the provisions of the Companies Act, 2013. The Committee consists entirely of the Independent Directors. The composition of the Committee is given in the Corporate Governance section of the Annual Report. 4. Changes in the Company's Registered Office The Company's Registered Office is now located at Godrej One, 4th Floor, Pirojshanagar, Eastern Express Highway, Vikhroli (E), Mumbai - 400 079 w.e.f. November 20, 2015. 5. Remuneration Policy The Company's Remuneration Policy for Directors, Key Managerial Personnel, and other employees is attached as Annexure 'A' to the Directors' Report. The Company's total rewards framework aims at holistically utilising elements such as fixed and variable compensation, long-term incentives, benefits and perquisites, and non compensation elements (career development, work-life balance, and recognition). The non-executive directors receive sitting fees and commission in accordance with the provisions of the Companies Act, 2013. The Company also has a Board Diversity Policy in place, which is attached as Annexure 'B'. The criteria for determining qualification, positive attributes, and independence of directors are as per the Board Diversity Policy, Listing Regulations and the Companies Act, 2013. 6. Remuneration to Directors The disclosure on the details of remuneration to directors and other employees pursuant to Section 197 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached as Annexure 'C'. Information as required under Section 197 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this Report. The above-mentioned annexure is not being sent along with the Report. Members who are interested in obtaining these particulars may write to the Company Secretary at the Registered Office of the Company. The aforesaid annexure is also available for inspection at the Registered Office of the Company during working hours, up to the date of the Annual General Meeting. Mr. Adi Godrej, Chairman; Ms. Nisaba Godrej, Executive Director, Innovation; and Mr. Vivek Gambhir, Managing Director receive remuneration from your Company. Mr. Adi Godrej receives commission from your Company's holding company viz. Godrej & Boyce Manufacturing Company Limited. 7. Performance Evaluation of the Board of Directors, its Individual Members, and its Committees We conducted a formal Board Effectiveness Review as part of our efforts to evaluate and identify improvements and thus enhance the effectiveness of the Board, its Committees, and Individual Directors. This was in line with the requirements mentioned in the Companies Act, 2013 and the Listing Regulations. The Corporate HR team of Godrej Industries Limited and Associate Companies (GILAC) worked directly with the Chairman and the Nomination & Remuneration Committee of the Board, to design and execute this process, which was adopted by the Board. Each Board Member completed a confidential online questionnaire, providing vital feedback on how the Board currently operates and how it could improve its effectiveness. The survey comprised four sections and compiled feedback and suggestions on: • Board Processes (including Board composition, strategic orientation, and team dynamics) • Individual Committees • Individual Board Members • Chairman The criteria for evaluation of the Board Committees covered whether the Committee has well defined objectives, whether the Committee has the right composition and whether it delivers its objectives. The criteria for evaluation of all the individual Directors included skills, experience, and level of preparedness of the Directors, attendance and extent of contribution to Board debates and discussion, how the Director leverages his/her expertise and networks to meaningfully contribute to the Company. The criteria for the Chairman's evaluation included leadership style, conduct of Board meetings etc. The following reports were created, as part of the evaluation: • Board Feedback Report • Individual Board Member Feedback Report • Chairman's Feedback Report The overall Board Feedback Report was facilitated by Mr. Bharat Doshi with the Independent Directors. The Directors were vocal about the Board functioning effectively, but also identified areas that show scope for improvement. The individual Committees and Board Members' feedback was shared with the Chairman. Following his evaluation, a Chairman's Feedback Report was also compiled. 8. Finance A. Non-Convertible Debentures The 2,500 Unsecured Redeemable Zero Coupon Non-Convertible Debenturesissued on October 16, 2014 a tenor of 1 year and 63 days have been redeemed during on private placement basis, (428 days), having a credit the year as per the terms of aggregating to Rs. 250 crore for rating of 'ICRA AA+ (Stable)', the issue. B. Particulars of Loans, Guarantees, and Investments Details of Corporate Guarantees given are provided under the Note on Contingent Liabilities in the Notes to the Financial Statements section of the Annual Report. No Loans were given during the year. 9. Related Party Transactions In compliance with the Listing Regulations, the Company has a policy for transactions with Related Parties ('RPT Policy'). The RPT Policy is available on the Company website viz. www. godrejcp.com <http://godrejcp.com>, on the Investors page, under the section titled 'Compliance'. The same may also be accessed through the link given below [2] Apart from the Related Party Transactions in the ordinary course of business and at arm's length basis, details of which are given in the notes to the financial statements, there were no other Related Party Transactions requiring disclosure in the Directors' Report, for compliance with Section 134(3) (h) of the Companies Act, 2013. Therefore, a Nil Report is attached as Annexure 'D' in the format prescribed i.e. Form AOC-2. 10. Acquisitions and Mergers Pursuant to a Deed of Merger ('the Scheme'), sanctioned by a Dutch Court, vide its order effective March 31, 2016, Godrej Argentina Dutch Cooperatief UA has been merged with Godrej Consumer Products Dutch Cooperatief UA, Godrej Netherlands Argentina BV has been merged with Godrej Consumer Holdings (Netherlands) BV, and Godrej Netherlands Argentina Holding BV has been merged with Godrej Consumer Products (Netherlands) BV w.e.f. from April 1, 2015. Your Company completed the acquisition of balance 40% stake in Cosmetica Nacional, a market-leading hair colourant and cosmetics company in Chile. Subsequently, the stake owned by your Company is 100%. Your Company has increased its equity stake by 39% in DGH Phase Two Mauritius, owning Style Industries Limited, Kenya on March 9, 2016. Subsequently, the stake owned by your Company is 90%. 1 <http://www.godrejcp.com/Resources/pdf/Related-Party-Transactions-Policy.pdf> Your Company entered into the following agreements during the year for various acquisitions: • With Canon Chemicals Limited on February 3, 2016 to acquire majority equity stake in its business in Kenya. Canon Chemicals Limited, a Kenya based company, manufactures and distributes products in the personal and home care categories. • With Strength of Nature, a leading hair care company, on April 1, 2016 to acquire 100% equity stake in its business, to accelerate growth in Africa. The above acquisitions were completed after the close of the financial year 11. Subsidiaries and Associates During the year, the following companies became subsidiaries of your Company: Charm Industries Limited Godrej Hair Care Nigeria Limited Godrej Household Insecticide Nigeria Limited Godrej Hair Weave Nigeria Limited Hair Credentials Zambia Limited Godrej SON Holdings INC Godrej Consumer Products US Holding Limited Godrej Mid East Holdings Limited Belaza Mozambique LDA On account of mergers with other subsidiaries, the following companies ceased to be subsidiaries during the year: Godrej Argentina Dutch Cooperatief UA (GADC UA) Godrej Netherlands Argentina BV (GNABV) Godrej Netherlands Argentina Holding BV (GNAHBV) The details of business of the key subsidiaries are given in the Management Discussion & Analysis section of the Annual Report. A report on the performance and financial position of each of the subsidiaries, associates, and joint venture companies has been provided after the Consolidated Annual Financial Statements section of the Annual Report in Form AOC-1. The Consolidated Financial Statements of the Company and its subsidiaries, prepared in accordance with Accounting Standard 21 issued by the Institute of Chartered Accountants of India, also forms a part of the Annual Report and Accounts of your Company. Pursuant to the provisions of Section 136 of the Companies Act, 2013, the Company has placed the financial statements of its subsidiaries on the Company's website www.godrejcp.com . In compliance with the Listing Regulations, the Board has adopted a policy for determining material subsidiaries. This policy is available on the Company's website www.godrejcp.com , on the Investors page, under the section titled 'Compliance'. This may also be accessed through the link given below.[3] 12. Disclosure on Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo Annexure 'E' to this Report provides information on Conservation of Energy, Technology Absorption, and Foreign Exchange Earnings and Outgo, required under Section 134 (3)(m) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, which forms a part of the Directors' Report. 13. Risk Management Policy The Board has constituted a Risk Management Committee. Elements of risks to the Company are given in the Management Discussion & Analysis section of the Annual Report under the heading 'Risks & Concerns'. 14. Corporate Social Responsibility The Company has framed a CSR policy in compliance with the provisions of the Companies Act, 2013. The policy as well as projects and programmes falling under the CSR policy are on the Company website. Details of CSR projects in the prescribed format and the link to access the Company's CSR Policy are provided in Annexure 'F'. 15. Vigil Mechanism Your Company has adopted a Vigil Mechanism Policy. The purpose of the policy is to enable employees to raise concerns about unacceptable improper practices and/or any unethical practices being carried out in the organisation without the knowledge of management. All employees shall be protected from any adverse action for reporting any unacceptable/improper practice and/or any unethical practice, fraud or violation of any law, rule, or regulation. This Whistle Blower Policy will also be applicable to the Directors of the Company. The Audit Committee reviews on a quarterly basis, reports made under this policy and implements corrective actions, wherever necessary. 16. The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 In Compliance with Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013, your Company has constituted an 'Internal Complaints Committee' ('Committee'). Because the number of complaints filed during the year was NIL, the Committee prepared a NIL complaints report. This is in compliance with Section 22 of the Act. 17. Audit Committee Your Company has an Audit Committee in compliance with Section 177 of the Companies Act, 2013 and the Listing Regulations. The Audit Committee consists of the following Independent Directors: Mr. Bharat Doshi as Chairman of the Committee and Mr. Narendra Ambwani, Dr. Omkar Goswami, Mr. Aman Mehta, Mr. D Shivakumar, and Ms. Ireena Vittal as members. 18. Employee Stock Grant Scheme The details of the grants allotted under Godrej Consumer Products Limited Employee Stock Grant Scheme, 2011 as also the disclosures in compliance with SEBI (Share Based Employee Benefits) Regulations, 2014 and Section 62 1(b) read with Rule 12(9) of the Companies (Share Capital & Debentures) Rules, 2014 are set out in Annexure 'G' to this report. Under the scheme of amalgamation between your Company and Godrej Household Products Limited ('GHPL'), the Employee Stock Option Scheme of the erstwhile unlisted GHPL has become part of your Company. The equity shares of 'Godrej Industries Limited' are the underlying equity shares for the stock option scheme. As of April 1, 2015, 35,000 options convertible into 35,000 equity shares of Godrej Industries Limited (GIL) were outstanding, 20,000 options were vested and consequently exercised, and 15,000 options were vested and lapsed. Consequently, no options are outstanding as of March 31, 2016. The Company has not given any loan to any person under any scheme for the purpose of or in connection with the subscription or purchase of shares in the Company or the Holding Company. Hence, there are no disclosures on voting rights not directly exercised by the employees in respect of shares to which the scheme relates. 19. Directors' Responsibility Statement The Board has laid down Internal Financial Controls within the meaning of the explanation to section 134 (5) (e) ("IFC") of the Companies Act, 2013. The Board believes the Company has sound IFC commensurate with the nature and size of its business. Business is however dynamic. The Board is seized of the fact that IFC are not static and are in fact a fluid set of tools which evolve over time as the business, technology and possibly even fraud environment changes in response to competition, industry practices, legislation, regulation and current economic conditions. There might therefore be gaps in the IFC as Business evolves. The Company has a process in place to continuously identify such gaps and implement newer and/ or improved controls wherever the effect of such gaps might have a material effect on the Company's operations. Pursuant to the provisions contained in Section 134(5) of the Companies Act, 2013, your Directors, based on the representation received from the Operating Management, and after due enquiry, 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) 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; c) They have taken proper and sufficient care 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; d) They have prepared the annual accounts on a going concern basis; e) They have laid down internal financial controls to be followed by the Company, and such internal financial controls are adequate and operating effectively; f) They have devised a proper system to ensure compliance with the provisions of all applicable laws, and this system is adequate and operating effectively. 20. Unclaimed Shares In compliance with the Listing Regulations, your Company has transferred the unclaimed shares into a demat account, viz. 'Unclaimed-Suspense Account'. As and when an allottee approaches the Company, after proper verification, either credit the shares lying in the Unclaimed-Suspense Account to the demat account of the allottee to the extent of the allottee's entitlement, or deliver the physical certificates after re-materialising them, depending on what has been opted for by the allottee. 21. Listing The shares of your Company are listed at the BSE Limited and the National Stock Exchange of India Limited. The applicable annual listing fees have been paid to the Stock Exchanges before the due date. Your Company is now listed on the Futures & Options Segment of the National Stock Exchange of India. 22. Extract of Annual Return Annexure 'H' to this Report provides the Extract of Annual Return to be filed by the Company under the Companies Act, 2013. 23. Auditors and Auditors' Report A. Statutory Auditors In accordance with Section 139 of the Companies Act, 2013 and rules made thereunder, M/s Kalyaniwalla & Mistry, Chartered Accountants, Mumbai, have been appointed as Statutory Auditors to hold office from the conclusion of the 14th Annual General Meeting (AGM) till the conclusion of the 17th Annual General Meeting, which will be held in 2017 (subject to ratification of re-appointment by the members at every AGM held after the AGM in which the appointment was made) of the Company, on a remuneration as may be agreed upon by the Board of Directors and the Auditors. The notes to the Accounts referred to in the Auditors' Report are self-explanatory and therefore do not call for any further explanation. Cost Auditors Pursuant to directions from the Department of Company Affairs, M/s. P. M. Nanabhoy & Co., Cost Accountants, have been appointed as Cost Auditors for the applicable products of the Company for FY 2015-16. They are required to submit the report to the Central Government within 180 days from the end of the accounting year. The Board has appointed M/s. A. N. Ramani & Co., Company Secretaries, Practising Company Secretary, to conduct Secretarial Audit for the financial year 2015-16. The Secretarial Audit Report for the financial year ended March 31, 2016 is attached herewith marked as Annexure 'I' to this Report. The Secretarial Audit Report does not contain any qualification, reservation, or adverse remark. 24. Corporate Governance The Company continues to enjoy a Corporate Governance Rating of CGR2+ (pronounced as CGR 2 plus) and a Stakeholder Value Creation and Governance Rating of SVG1 (pronounced as SVG one). The '+' sign indicates relatively higher standing within the category indicated by the rating. The above ratings are on a scale of 1 to 6, where 1 is the highest rating. The two ratings evaluate whether a company is being run on the principles of Corporate Governance and whether the practices followed by the company lead to value creation for all its shareholders. The CGR2 rating is on a scale of CGR1 to CGR6, where CGR1 denotes the highest rating. The CGR2+ rating implies that in ICRA's current opinion, the rated company has adopted and follows such practices, conventions, and codes as would provide its financial stakeholders a high level of assurance on the quality of corporate governance. The SVG1 rating is on a scale of SVG1 to SVG6, where SVG1 denotes the highest rating. The SVG1 rating implies that in ICRA's current opinion, the company belongs to the highest category on the composite parameters of stakeholder value creation and management as also corporate governance practices. Pursuant to the Listing Regulations, the Management Discussion & Analysis Report and the Report on Corporate Governance are included in the Annual Report. The Auditors' Certificate certifying the Company's compliance with the requirements of Corporate Governance in terms of the Listing Regulations, is attached as Annexure 'J' and forms a part of the Annual Report. 25. Acknowledgement Your Directors wish to extend their sincere thanks to the Central and State Governments as well as the Government agencies, banks, customers, shareholders, vendors, and other related organisations who have helped in your Company's progress, as partners, through their continued support and co-operation. For and on behalf of the Board of Directors sd/- Adi Godrej Chairman Mumbai, 3rd May 2016 |