MANAGEMENT DISCUSSION  & ANALYSIS

The B-to-B segment covers three businesses. These are:

• Power transmission and distribution equipment and system solutions covering a wide span of differentiated products and services from ultra-high voltage (UHV), high voltage (HV), medium voltage (MV) and low voltage (LV).

• Automation solutions for efficient electrical distribution.

• The Industrial Business Unit consisting of rotating machines (motors and alternators) across a wide spectrum of power and ratings, automated AC, DC and variable frequency drives and control systems as well as traction electronics and machines, signalling and coach products and integrated solutions for railway transportation.

Customers of the B-to-B segments comprise major utilities and industries across the globe

—in generation, transmission, distribution, renewables, oil and gas, cement, metals and mining and the transportation sector.

The B-to-C business meets the electrical needs of individuals, households, municipalities, shops and offices through a variety of enduser electrical products such as fans, lighting equipment (lamps and luminaires), pumps 1 8and appliances that are sold under the Crompton brand, which has been a house­hold name in India for over seven decades. CG has manufacturing, systems, services and sales facilities at 43 locations, sbrad across 5 continents. It does business in 85 countries across the world.

THE CG ORGANISATION

CG's offerings are built around its strategic Business Units (BUs): Power, Industrial, and Consumer. Each BU is responsible for revenue growth, profitability and capital efficiency through strategic levers and business activities. These involve, among others, geographical expansion of markets and the manufacturing footprint, design, technology, supply chain, manufacturing, sales support, tendering and quotations, contract management, installation, testing and commissioning for the products.

I. POWER SYSTEMS

CG's Power BU offers an extensive portfolio of manufactured equipment ranging from  high voltage transmission products to those needed for distribution, as well as integrated solutions for network management. Its operations can be classified into four divisions:

• Products comprising Power Transformers, EHV Switchgears, MV Switchgears and Distribution Transformers. It has facilities in Mechelen (Belgium), the state of Rio Grande do Sul (Brazil), Winnipeg (Canada), Tapioszele (Hungary), Bogor (Indonesia), Cavan (Ireland) , Saudi Arabia, Washington (Missouri, USA), and in India at Kanjur Marg (Mumbai), Malanpur and Mandideep (Madhya Pradesh), Nashik and Aurangabad (Maharashtra).

• Systems and Solutions which provide turnkey solutions and services for design, manufacture, supply, construction, installation, testing, commissioning, and servicing of large scale on-shore and off-shore, conventional and renewable energy projects. It has offices in Mechelen (Belgium), Budapest (Hungary), Stockport (UK), Jakarta (Indonesia), Saudi Arabia, New York, Pennsylvania and Texas (USA) and Gurgaon (Haryana).

• Automation which provides equipment and services to manage and control the flow of electricity in transmission and distribution grids. It also provides digitised automation solutions for power utilities, rapid transport services and other related activities. It has facilities in Zaimudio, Madrid and Barcelona (Spain), Grenoble (France), Niteroi (Brazil), Dublin (Ireland), Springfield (New Jersey, USA) and Bengaluru (Karnataka).

• Services comprising retrofit and maintenance solution, measurement and diagnostics of electrical systems, field services, spare parts sale and training related services. It has facilities in the United Arab Emirates (UAE), Washington (Missouri, USA), Madrid (Spain), Stockport (UK), Charleroi (Belgium) and Fecamp (France). The division offers services where the customer is based, directly through its teams.

Power BU also runs a distribution franchise at Jalgaon (Maharashtra).

The end-to-end solution competency from Systems and Solutions, Automation and Services business together create a complete offering for customers — from meeting product needs to installation, connection, maintenance and servicing across the life cycle of the equipment or substations.

The Automation business reflects CG's strategy to play a role in promoting smarter grids for increased energy efficiency. Though it is not yet a reportable segment in financial and accounting terms and the operations are reported under the Power BU, the business recorded a significant growth in FY2015: by 28.3% in sales and 8.6% in terms of order intake. Later on in this chapter, there will be further details of this business.

II. INDUSTRIAL SYSTEMS

The Industrial Systems BU provides equipment and services to convert electrical energy for industrial applications. It has four verticals:

• Products comprising high voltage (HV) motors ranging up to 25 MW; low voltage (LV) motors ranging up to 1.5 MW; fractional horse power (FHP) motors; direct current (DC) motors; AC generators up to 70 MVA range and AC drives up to 3 MW; traction machines for railway transportation; and stamping products. It has facilities at Tapioszele (Hungary), Mandideep and Pithampur (Madhya Pradesh), Kanjur Marg (Mumbai, Maharashtra), Ahmednagar (Maharashtra) and Colvale and Kundaim (Goa).

• Drives and Industrial Automation which involves AC and DC drives, variable frequency drives. It has facilities at Helsingborg (Sweden) and at Mandideep and Pithampur (Madhya Pradesh).

• Railways which includes solutions based on insulated gate bi-polar transistor (IGBT) technology, traction electronics and traction machines for railway transportation and signalling, with facilities at Mandideep and Pithampur (Madhya Pradesh).

• Services for all the above products including the condition monitoring and training modules for maintenance.

III. CONSUMER PRODUCTS

The Consumer Products BU provides equipment and services for home and industrial applications. This BU manufactures and sells products such as fans, lighting, domestic pumps and appliances. It focuses on India with exports to South Asia, Middle East and Africa; and has facilities at Bethora and Kundaim (Goa), Baddi (Himachal  Pradesh), Kanjur Marg (Mumbai), Ahmednagar (Maharashtra), and Vadodara (Gujarat).

THE DEMERGER

During the course of FY2015, the Board of Directors of CG took a significant decision regarding the Company. Given that CG had two distinct businesses — the B-to-B involving Power Systems including Automation and Industrial Systems, and the B-to-C that focused on the manufacture, marketing and sale of consumer products — it was felt that demerging these into two distinct corporate entities would create additional long term value for CG's shareholders. The idea was to create two industry-leading entities, each with complete independence and flexibility to pursue growth opportunities and, in the process, unlock greater shareholder value.

Accordingly, at a meeting on 3 March 2015, the Board of Directors unanimously approved a Scheme of Demerger (the 'Scheme'). This consists of a 100% vertical demerger of the Consumer Products BU of CG into its wholly owned subsidiary called Crompton Greaves Consumer Electricals Limited (CGCEL), and will come into effect from the Appointed Date of 1 October 2015, subject to the receipt of all regulatory approvals. The contours of the Scheme are given below:

• The Consumer Products business undertaking shall be demerged into CG's wholly owned subsidiary, CGCEL.

• CG will transfer its Consumer Products business undertaking including related businesses, undertakings, properties, investments, intangibles, contracts (including employee contracts) and liabilities to CGCEL.

• As on the record date, CGCEL will issue and allot to the shareholders of CG one (1) fully paid up equity share of Rs.2 each for every one (1) equity share held in CG.

• Upon demerger, the shareholding of CG in CGCEL will get cancelled, and the shareholding pattern of CGCEL will mirror that of CG.

• CGCEL will apply for the listing of its shares on the BSE and the NSE.

• The proposed Scheme will be subject to approvals of the High Court of Judicature at Mumbai. It will also be subject to various statutory approvals, including those from the shareholders as well as the lenders and creditors of CG and CGCEL.

• The appointed date of the Scheme is 1 October 2015.

Thus, if all goes according to schedule, from the second half of FY2016, the shareholders of CG will hold shares of CGCEL — thus having shares in two listed entities, each with distinct businesses.

BUSINESS PERFORMANCE, FY2015

Chart A plots the change in net revenues of the three main businesses.

• CG's Power Systems' net revenues was virtually flat at Rs.8,574 crore.

• The net revenue from Industrial Systems fell by 0.9% to Rs.1,841 crore.

• Net revenue from Consumer Products rose by 11.5% to Rs.3,233 crore.

POWER SYSTEMS

Power Systems (or 'CG Power') is the Company's largest BU and focuses on power transmission, distribution, power solutions, automation, setting up of integrated on-shore and offshore power systems and associated services businesses.

Through its power products business, CG Power manufactures a wide range of power and distribution transformers, extra high voltage (EHV) and medium voltage (MV) circuit breakers, switchgears, EHV instrument transformers, lightning arrestors, isolators and vacuum interrupters. In addition, through power systems and services, it offers turnkey solutions for transmission and distribution (T&D) through sub-station projects, engineering, procurement and construction (EPC) as well as other end-to-end contracts that involve the entire value chain — solutions, design, products, procurement, construction, erection and servicing. The  automation business provides equipment and services to manage and control the flow of electricity in transmission and distribution grids. It also provides digitised automation solutions for power utilities, rapid transport services and other activities. A detailed list of CG Power's products, solutions and services as well as its associated facilities across the globe is given at the end of this Annual Report.

CG POWER: CONSOLIDATED FINANCIAL PERFORMANCE

The consolidated performance of CG Power is given in Table 1.

• The unexecuted order book (UEOB) reduced by 19.9% to Rs.6,916 crore.

• Net sales of CG Power was flat—growing by 0.4% in FY2015 to Rs.8,574 crore.

• EBIDTA (including other income) fell by 23.5% — from Rs.429 crore in FY2014 to Rs.328 crore in FY2015. It should, however, be noted that the EBIDTA for FY2015 is considerably higher than the Rs.34 crore posted in FY2013.

• EBIT reduced by 42.4% to Rs.135 crore. While disappointing compared to FY2014, is better than the loss of Rs.110 crore incurred in FY2013.

• The return on capital employed (ROCE) decreased by 2.7 percentage points to 3.3% in  FY2015

As will be seen in the course of this chapter, CG Power's consolidated financial performance was negatively impacted by two factors: European operations and the Systems business (the Engineering Projects Division or EPD) in India.

CG POWER OVERSEAS:

FINANCIAL PERFORMANCE

The financial performance of the CG Power Overseas is given in Table 2.  Due to insufficient order intake, there was a decline in the unexecuted order book. Despite a 1% growth in net sales for FY2015, EBIDTA reduced from Rs.90 crore to Rs.12 crore. Loss on EBIT stood at Rs.132 crore in FY2015. Some of the issues that have affected the performance of CG Power Overseas will be discussed later in this chapter.

CG POWER INDIA: FINANCIAL PERFORMANCE

Table 3 gives the key financial performance indicators for CG Power's India operations.  CG Power India also had some decline in the unexecuted order book as on 31 March 2015 and in net sales. Without any significant growth in additional infrastructure spends in India in  FY2015, the business faced pricing brssures in India, especially from large customers.

The absolute EBIDTA decreased by 10.4%, and the EBIDTA margin reduced by 70 basis points to 9.7% of net sales. A 13.9% reduction in EBIT coupled with a rise in capital employed resulted in the business' ROCE decreasing from 30.4% in FY2014 to 18.2% in FY2015. Even so, this still ranks among the higher ROCE margins vis-a-vis the competition. A feature that becomes apparent when looking at the financial data brsented in Tables 1, 2 and 3 is that despite competitive brssures, the India business of CG Power has continued to perform profitably. Unfortunately, regarding CG Power Overseas, the gains from excellent performance of Indonesia and the systems business out of Belgium, creditable functioning of the US plant and the gradual turnaround in Canada were counteracted by under-performance of some of the other operations.

There is also a strategic question. From a longer term perspective, how should CG's B-to-B enterprise be structured vis-a-vis products and geographies?

Clearly, the regions of long term sustained growth are India, China and the emerging nations of Asia and Africa. Demand for power in these countries is growing, and will continue to grow, at rates significantly higher than the developed world, especially Western Europe and North America. Among the large emerging nations, India has significant upside prospects for power generation, transmission and distribution, setting up of smart grids, locomotion, motors and rotating machines. Not only does CG have considerable manufacturing capacity in its power and industrial systems facilities in India, but also has the technical and commercial wherewithal to win large contracts abroad.

Therefore, the strategic issue is whether CG's B-to-B business should focus largely on manufacturing in India — for India and the rest of the world — while leveraging the technologies inherent in its global Automation business to create value added products and services for clients in the fast growing regions. This has been something that CG's Board of Directors has been focusing on in considerable detail.

Independently, CG's Board of Directors received non-binding proposals on 28 May 2015 from reputed international entities with significant interest in the industrial and power sectors, for acquiring the European, North American and Indonesian activities of CG Power. Separately, CG received firm offers for the Canadian power facility (PTCA) and the US transportation automation businesses, formerly known as QEI Inc.

These proposals constitute firm indications of interest but are subject to due diligence, negotiation and execution of definitive agreements. These also happen to be inline with the Board's strategic intent of focusing on its profitable India and global Automation businesses.

The Board reviewed these offers and authorised a Committee of Directors to take the appropriate next steps. There can be no assurance that any definitive offer will be made, or that any agreement will be executed or that these offers will be approved or consummated.

CG will provide updates with respect to these transactions as required under applicable law.

CG POWER: KEY

DEVELOPMENTS IN FY2015

Despite difficulties experienced by some of the overseas locations in the CG Power BU business in FY2015, there have been several positive developments that need highlighting. These are discussed below.

Products

The global product lines for CG Power BU are: Power Transformers, Switchgears and Distribution Transformers.

Power Transformers (PT)

Comprising of facilities at T3 (Mandideep, near Bhopal), T1 (Kanjur Marg, Mumbai), Bogor (Indonesia), Tapioszele (Hungary), Mechelen (Belgium), Washington, Missouri (USA) and Winnipeg (Canada), the PT product line has a total global installed capacity of approximately 80,000 MVA per annum. FY2015 witnessed many key successes, some of which are mentioned here

• The T3 facility at Mandideep remains India's leading 765 kV manufacturing plant.

• It produced 50 units of 765 kV products in FY2015, totalling 11,820 MVA.

• Manufactured and despatched the 175th unit of 765 kV class products — aggregating over 40,000 MVA. It is the only plant in India to do so.

• There are several other credits for the T3 plant:

• It produced and despatched the 190th unit of locomotive transformers to the Chittaranjan Locomotive Works (CLW).

• It crossed the milestone of producing over 100,000 MVA since its inception in 1995.

• It entered the export market by executing orders worth Rs.15 crore. More importantly, T3 booked record export orders of Rs.163 crore.

• It exceeded the order intake budget by over 47%. Secured major orders from (i) the National Thermal Power Corporation (NTPC) for 765 kV transformers and reactors; (ii) the Power Grid Corporation of India Limited (PGCIL) for 765 kV and 400 kV reactors;

(iii) ISOLUX (Mexico) for 125 MVA/400 kV transformers and 400 kV reactors; (iv) CLW for locomotive transformers; and (v) Bechtel (USA) for 242 kV generator transformers and unit auxiliary transformers.

• Bagged a significant order from PGCIL for the supply of 80 MVAR 765kV shunt reactors. The scope of this contract includes design, engineering, manufacture, shop testing, supply, erection testing  and commissioning at site, and other associated civil works. These reactors will be installed at PGCIL's Vemagiri and Srikakulam sub-stations in Andhra Pradesh — and will add to the population of over 100 CG reactors already in commission in PGCIL's UHV network.

• Awarded a brstigious contract by the NTPC for the design, manufacture and supply of a Generator Step-Up (GSU) transformers for its largest capacity, 800 MW super-critical thermal power plant at Darlipali in Odisha. The order comprises 315 MVA 765kV single phase GSU transformers, 85 MVA 765 kV 'tie' transformers and 80 MVAR shunt reactors. CG won this order against stiff international competition; and it has reaffirmed CG's leadership in India's UHV segment.

• Obtained 18% productivity improvement in 765 kV transformers; 22% improvement  in 765 kV reactors; and 16% improvement in locomotive transformers.

• The T1 plant at Kanjur Marg (Mumbai) has also continued to perform well. During FY2015 in won several orders:

• Domestic orders: (i) Highest rating of generator transformers (396 MVA, 174 MVA) from L&T Power for a project in Bangladesh; (ii) trackside transformers for Indian Railways — a first for T1; (iii) first time orders from the Tamil Nadu Transmission Corporation; (iv) won orders from Tata Power for two 500 MVA units; and (v) secured orders from the Bihar State Power Transmission Company Limited (BSPTCL).

• Export orders: (i) First order for Laos — three 100 MVA/230 kV transformers; (ii) South East Asia and the Pacific, led by Malaysia, accounted for 50% of order intake for T1's exports; (iii) acquired several new customers across Africa, including Rwanda, Ivory Coast, Guinea, Mozambique, Tanzania, Ethiopia and South Africa; and (iv) gained new market entry in Mexico for the supply of transformers and shunt reactors to the Comision Federal de Electricidad.

• Won two major end-to-end project orders with PGCIL, which involve manufacturing and supply of equipment as well as site construction, erection, testing and commissioning.

• The plant at Bogor, Indonesia (called PTID) completed its state-of-the-art manufacturing facility with environmentally controlled winding bays and new core stacking tables. It is the sole supplier of 500 kV transformers in Indonesia. During FY2015, the plant received a significant order from PT Perusahan Listrik Negara (PT PLN), the state electricity corporation of Indonesia, for 21 units of 60 MVA transformers — a 'transfer order' that was earlier awarded to a competitor. In addition, it:

• Delivered a 324 MVA strategic spare transformer to PT PLN — the largest 3-phase transformer produced by PTID.

• Secured two major orders from PLN under international competitive bidding with World Bank funding for 36 150 kV transformers and 36 transformers bays. The transformers are being produced by PT ID, and the bays are being executed by the Systems division in Indonesia (SY ID). These 36 extension bays will comprise 2 lots: the Java and  Bali island extension bays rebrsenting Lot 1, and Sumatra, Kalimantan and the Sulawesi islands rebrsenting Lot 2.

• Secured contract from PT PLN under an Open Book Arrangement for the supply of 150 kV transformers.

• Won an order from PT PLN to supply EHV transformers for its Indonesian electricity transmission network. It involves the supply of 500kV, 275kV and 150kV power transformers, which will be installed across PT PLN's transmission network in Java and Sumatra.

• Won the highest ever quality score from Transpower (New Zealand) ever since it began supplying to this utility in 2007.

• The medium voltage power transformer plant at Washington (Missouri, US), called PTUS, has completed five years and stabilised its operations. During FY2015, it:

• Secured a record order intake for supply of transformers for renewable energy projects.

• Received large orders from NextEra Energy Resources Inc. from Florida, We Energies of Wisconsin, MEC Electric and the Omaha Public Power District.

• Successfully designed, built, tested and shipped its first two 230 kV/825 kV basic insulation level (BIL) transformer. Also successfully built and shipped dual low voltage regulation unit with individual load tap changers.

• From a difficult past, the power transformer plant at Winnipeg (Canada), called PTCA, has begun a gradual turnaround. A systematic labour force restructuring was completed in May 2014 and headcount reduced. A new collective bargaining agreement has been concluded that has frozen hourly wage rates until the end of April 2017. Manpower costs have reduced. Business improvement projects have started to raise productivity. The order book position is finally healthy; and the plant has exceeded the budgeted sales as well as collection targets. However, this is still work in progress. It will take a while to restore the plant to a brdictably profitable path of growth.

• The plant at Mechelen (Belgium), or PTBE, has operationally stabilised. Unfortunately, given the generally debrssed investment climate in Western Europe, the order intake has been low, especially at the MVAs, prices and material cost ratios that can generate profits. There is also scope for further operational improvement and financial turnaround.

• The story is qualitatively similar for the power transformer plant at Tapioszele (Hungary), or PTHU. On the positive side, capacity expansion work to create 10,000 MVA per annum has been completed. Three new winding machines and a new winding bay were added; three complete coil core assembly platforms were installed; and the refurbishment of the vapour phase drying (VPD) oven and the hot air vacuum oven were completed. Loss hours have dropped sharply. First pass yield has improved to 96%. Seven transformers up to 120 MVA 245 kV class have been successfully short circuit tested at KEMA, Netherlands, and VEIKI, Hungary. A 1,000 MVA 500 kV transformer has been shipped to Statnett (Norway) and commissioned. Off-shore transformers for three major wind farm projects that were produced in Hungary are now connected to the grid. Unfortunately, the order book situation was difficult, especially for transformers with the right kind of prices. That, coupled with lower than budgeted throughput for the plant, led to Hungary making losses in  FY2015.

• Having said so, CG won a significant new contract win for the design, construction and delivery of 16 mobile substations for the Ministry of Electricity in Iraq. It is a collaborative effort. The 31.5 MVA transformers in each mobile substation will be produced in PT Hungary; the auxiliary/earthing units will be manufactured in the DT factory in Belgium; the control and protection equipment will be provided by CG's Automation arm, ZIV; and integration and assembly work for the project will be carried out in Belgium.

Switchgears

• The range of products under EHV switchgears are: (i) instrument transformers up to 1200 kV and bushings up to 550 kV; (ii) sulphur hexafluoride (SF6) circuit breakers up to 800 kV range; (iii) gas insulated switchgears (GIS) up to 245 kV; (iv) surge arrestors up to 1200 kV; and (v) vacuum interrupters up to 72.5 kV. CG has full-fledged EHV switchgear plants in India and Hungary with an assembling plant in Brazil. Some of the facilities in India command significant leadership position in the country for switchgears.

• For medium voltage (MV) switchgears, the products include: 11 kV indoor and outdoor vacuum circuit breakers (VCB), 36 kV indoor and outdoor VCB, 36 kV GIS, and unitised substation.These are all produced in India.

FY2015 witnessed several successes, some of which are mentioned below.

• Successfully developed and type tested 800 kV current transformer (CT) in accordance with the specifications of PGCIL. Also developed and type tested 800 kV condenser bushings as per PGCIL specifications.

• Received PGCIL's product approval for, and manufactured mixed dielectric synthetic oil capacitor voltage transformers (CVTs) up to  800 kV.

• Successfully developed and type tested 420 kV, 3000A (six core) CT as per PGCIL specifications. This received product approval and was supplied to PGCIL's Sagardighi project in West Bengal.

• Developed, type tested and supplied 300 kV transient response (TPX,TPY) CTs to PLN Indonesia.

• Developed a new economically designed 245 kV CT with mild steel tanks for the Madhya Pradesh Power Transmission Company Limited (MPPTCL). Supplied 75 such CTs, and received new orders for another 117 units.

• Received a brstigious order for 92 units of 420 kV CTs from Bharat Heavy Electricals Limited (BHEL) for MPPTCL.

• Secured significant export orders of CTs, CVTs and voltage transformers (VTs) from Laos, Indonesia, Vietnam, Ethiopia, Democratic Republic of Congo, Uganda, Senegal, Algeria and Guatemala, often after overcoming tough competition from major international players.

• Regarding MV switchgears, FY2015 saw its first export sale of the 36 kV GIS to Nigeria, and the first significant Indian order from the Tamil Nadu Generation and Distribution Company (TANGEDCO). Also secured product approval of the 36 kV GIS from Oman.

• MV switchgears continued to witness repeat sale of higher rating (12kV, 50kA) vacuum circuit breakers (VCBs). A marquee customer for the indoor 12kV, 44kA VCB switchboard was the Nuclear Power Corporation of India. Moreover, new indoor VCBs were successfully type-tested for the export market, ranging from 12 kV, 40 kA, 2000 Amps to 36 kV, 25 kA, 2000 Amps.

• FY2015 saw MV switchgears produce its highest ever volume of indoor and outdoor

VCBs produced — a total of 11,512 units, which rebrsented a growth of 43% over the brvious year.

• Manufactured the highest number of 72.5 kV breakers in the year —1,028 units during  FY2015.

Distribution Transformers (DT)

The DT product line has an installed capacity of almost 25,000 MVA across all its plants throughout the globe. Unfortunately, the market position has been similar to the brvious year. Except the US and Ireland — both of which enjoyed reasonably good orders — FY2015 continued to be challenging for the business across most of Europe and margin brssures in India. The DT plant in Belgium (DTBE) is recognised throughout Europe as a key manufacturing facility for SLIM® transformers that are used for off-shore and on-shore wind-farm projects. FY2015 saw a slowdown in wind-farm projects in Europe. This is expected to pick up. When it does, the DTBE should have better capacity utilisation and higher revenues. Some of the DT plants succeeded in designing, testing and manufacturing new products. Among these were: (i) the production and certification of ATEX transformers of different sizes and ratings for KBR Inc. for the oil and gas industry; (ii) the development of 10 MVA double-stock transformer for off-shore wind turbine applications; (iii) offering and production of first series of transformers according to European ECO-directive; and (iv) increasingly producing and supplying transformers from the DT plant in Washington, Missouri, for the oil and gas sector and heavy industries in the US as well as renewables in Latin America.

POWER SYSTEMS AND SOLUTIONS  

Belgium

The Systems division in Belgium (SY BE), having its front office in Mechelen, Belgium for project management and high level engineering, avails of an engineering back-office in Hungary. This permits a cost efficient but flexible engineering response to customer needs.

SY BE has a strong reputation in key markets, such as offshore and mobile substations because of the successful implementation of major projects such as: (i) Belwind, an offshore wind project on the North Sea; (ii) Northwind, another offshore North Sea project off the coast of Belgium; (iii) Butendiek, on the German North

Sea, off the coast of Schleswig-Holstein, (iv) Amrumbank West, offshore from Helgoland in the German North Sea; and (v) the Humber Gateway offshore wind-farm project.

This business has continued to do well. Order intake increased by 175% in FY2015 over the brvious year; and sales grew by 41%. In a highly competitive market, the profitable performance of SY BE is due to its strong execution skills backed by solid risk management that allows it to identify and mitigate contract liabilities at an early stage.

In June 2014, CG, along with two other consortium partners, Fabricom and Iemants, was selected by Van Oord for its offshore wind project, Gemini, in the Netherlands. CG will design, deliver and install two high voltage (HV) offshore substations and one HV onshore substation. The volume of the order for the consortium is in excess of 150Mn Euro. CG's scope covers approximately 30% of the overall contract. The project is expected to be completed in 2016. The two offshore wind farms — Buitengaats (300MW) and ZeeEnergie (300MW) — are located 85 km north of the island of Schiermonnikoog in the Dutch North Sea.

CG will design and engineer the overall electrical HV system, manufacture and supply all key equipment and connect the onshore substation to the 400 kV high voltage grid. The total 600MW of installed capacity will produce electricity for over 785,000 households which will reduce emissions of 1,250,000 tons of CO2.

The AC connection solution devised by SY BE for the Gemini project is among the most advanced in the world. It is the first AC/DC offshore-onshore connection in 235 kV over distances as long as these. CG has patented its solution for this energy efficient 235 kV connection.

Indonesia

The Power Systems business out of Indonesia (SY ID) has the following offering to customers:

• Mobile and modular substations up to  275 kV.

• Turnkey high voltage electrical EPC projects involving (i) conventional substations and EHV switchyards up to 500 kV; (ii) GIS substations up to 275 kV; (iii) SCADA projects; and (iv) electrical balance of plant projects for power plants.

• Substation service and maintenance.

• GIS extension and refurbishment.

SY ID's sales for FY2015 was up by 46%. For the year, in addition to winning a major World

Bank financed PT PLN order for 36 150 kV substation bays (discussed earlier), SY ID is executing an order for Tenaga Nasional Berhad (TNB), Malaysia, for two mobile substations each of 90 MVA, 132/33 kV, and another one of 30 MVA, 132/11 kV. These happen to be Asia's largest mobile substations under execution. It has also achieved breakthrough orders in the 60 Hz EPC market in the Philippines and Venezuela. In the former, SY ID will build a 138 kV AIS switchyard for a power plant; and in Venezuela it will set up two 30 MVA, 132/11 kV mobile substations.

India: the Engineering Projects Division (EPD)

EPD's offerings include:

• Turnkey AIS substations of 220 kV, 400 kV  and 765 kV.

• Turnkey GIS substations from 66 kV to 400  kV.

• Pure installation and commissioning of projects

During FY2014 and FY2015, EPD suffered  losses mainly on account of issues with site completion leading to costs overrun. Structurally, the power systems business in India brings to the fore many risks — such as land acquisition for substation construction — which are outside the control of CG. Given such constraints, the focus is on completing the projects at hand and not taking up any new contracts.

SOME INTERNATIONAL POWER BU OBSERVATIONS

Some trends have remained the same since FY2014. Global T&D markets have remained very competitive — something that began in FY2011, intensified in FY2012 and continued throughout FY2013, FY2014 and FY2015. Producers continue to offer prices that barely cover EBIDTA, only to secure orders for keeping some of the capacities in use. We have not seen this trend make way for sensible pricing and bidding in FY2015, especially in Europe but also in other parts of the developed world.

Also, as before, many customers continue to delay taking physical delivery of their equipment. This is true in Europe, the Middle East and North Africa and, occasionally, even in India. This blocks the lines in the factories, brvents timely revenue recognition, locks up working capital and reduces ROCE. Producers often accept such behaviour of major customers to maintain long term relationships.

In addition, several customers now insist that at least one of their units is 'short-circuit' tested. Some even insist that the entire lot go through the process. This requires the transformer to be sent to the external test laboratory, tested, brought back into the plant and re-assembled before onward shipment to the customer — causing inevitable delays in delivery and revenue recognition, and reducing the throughput of plants.

It is difficult to brdict whether these trends will gradually disappear in better times, or whether these will be 'the new normal'. Whatever the outcome, it needs stating that these problems are being faced by all global transformer manufacturers; and are impinging upon financial results for reasons that have little or nothing to do with operational performance.

AUTOMATION

The product lines of the Automation business are :

• SAS or the Substation Automation and Telecommunication Systems.

• DAS or the Distributed Automation Solutions.

• Transit automation and supervisory control for electric, transportation and water utilities, located in the US.

As of now, there is an offer for the possible purchase of the third business, subject to the right price and conditions. Though a profitable operation, transit automation is tangential to CG's main Automation business — which aims to become a globally recognised provider of smart grid and substation automation across the world.

As automation technology becomes integral to power systems world-wide, there is considerable scope for increasing the SAS and DAS businesses in Western Europe, especially in the Euro area and in Spain where this business has a clear brsence, as well as in Asia subject to successful homologation, acceptance and the right kind of pricing.

As mentioned in last year's Annual Report, the Automation business' facility in Bengaluru, India, has been successfully commissioned. With an investment of Rs.8 crore, this plant can now produce up to 10,000 SAS devices in India at more competitive prices to bid for tenders in India, South Asia and the SEAP. The process of homologating both SAS and DAS devices for Indian and Asian markets continue. We are starting so see interest across various customer groups, and expect to significantly grow the business in FY2016.

Automation is the core of smart grid solutions. And CG expects it to be a driving force in expanding its brsence in power transmission and distribution as well as in rotating machines and drives. The smart grid market is developing rapidly in western Europe, and experts believe that there will be good prospects up to 2022. The next wave is supposed to be in India, starting around 2017. That is when the Bengaluru facility will be critical for growth. Incidentally, the facility has already turned breakeven.

Some of the orders secured during FY2015 were from:

• April 2014, Chile. The Automation business, through a Spanish contractor, installed a complete 61850 SAS based on the ZIV protection IEDs and a SAS gateway for the Llanos de Llampo substation, Chile. It also provided associated engineering, system integration, commissioning, and training services. SunEdison's 100 MW Llano de Llampo substation is located in the Atacama Desert in Chile, and distributes energy generated by the largest solar photovoltaic plant in Latin America.

• April 2014, India. Automation bagged a deal from PGCIL to supply six substation automation systems (SAS) in Jharkhand, India. The deal involved supplying six 220/132/33 kV ZIV 61850 SAS to Govindpur, Manoharpur, Jaduguda, Dalbhumgarh, Jamtara, and Rourkela in Jharkhand. It included the manufacture and supply of ZIV protection and control relays, automation systems and engineering services.

• June 2014, Spain. Automation won a major contract with Spanish multinational electric utility company Iberdrola to supply over 1 million ZIV single smart meters in a year. The order comprised single-phase and three-phase meters and reiterated CG's growing brsence in the global smart grid sector. A significant advantage for CG in the Spanish market has been the regulatory framework which makes it mandatory that 70% of the analogue meters are replaced by 2016 and 100% by 2018.

• June 2014, Spain. Automation was awarded a significant contract for supply of 750,000 smart meters from the Spanish utility Gas Natural Fenosa (GNF), making it one of GNF's main smart meter suppliers for the next two years. ZIV's single phase smart meters will cover a large part of the demand for domestic meters. Automation would also be supplying nearly 20,000 three-phase meters and would bid for DCUs (Data Concentrator Units).

• September 2014, France. CG was selected by Electricite Reseau Distribution France (eRDF), the public electricity distribution company managing 95% of the network in continental France, as one of the six suppliers to manufacture the first three million of its new generation Linky smart meters. This contract is a very significant achievement for CG, which is building a competitive strategy in the development of smart grid solutions under the ZIV brand, based on its own know-how and a  unique mix of knowledge in protection, control, communications and metering technologies.

• November 2014, France. CG committed to opening a new facility in Grenoble to produce, test and calibrate over 2 million ZIV smart meters per year. CG chose Grenoble to cover the demand for Linky meters in France, and thereby provide local support to eRDF. This facility will house the Centre of Excellence for G3-PLC technology, be fully equipped to manufacture ZIV single and three phase Linky G1 and G3 meters, and produce the first units by the second half of calendar year 2015.

• March 2015, Saudi Arabia. CG secured a brstigious contract from the Saudi Electricity Company (SEC), the largest power utility company in the Middle East serving approximately five million customers in the Kingdom of Saudi Arabia (KSA), to supply ZIV three phase smart meters. It bagged the largest lot for the supply of the first batch of industrial smart meters after months of close dedication from its application and sales team to understand the customer's needs — which enabled CG to offer a customised and competitive product.

• March 2015, Paraguay. CG was awarded a contract by the Administracion Nacional de Energfa (ANDE), the national electric utility of Paraguay, to supply 10 complete ZIV Substation Automation Systems. The scope of the contract also includes engineering services, training and systems integration. The project, financed by the World Bank, is scheduled to be completed in six months.

Electricity Distribution: Jalgaon (Maharashtra)

From 1 November 2011, CG has been managing the Jalgaon, Maharashtra distribution franchise. At that time, the Jalgaon area had over 35% distribution losses; the failure rates of transformers and switchgears were high; billing efficiency was 69%; and on that poor billing, the collection efficiency was 81%. In other words, a little over two-thirds of the users were billed; and only four-fifths of them actually paid.

Although there has been much improvement since then, the business suffers from a pricing formula that, even with good operational performance, makes it difficult to generate profits. Given this situation, CG is looking at strategic options with the objective of ensuring that the profitability of the Company is not negatively impacted by its distribution franchisee business

Parenthetically, from the perspective of financial reporting, the financials of the Jalgaon Distribution franchise are not included in the Power BU results, but are shown separately in 'Others'.

CG INDUSTRIAL SYSTEMS

CG Industrial Systems manufactures the following types of products:

• High voltage (HV) motors.

• Low voltage (LV) motors.

• Fractional horse power (FHP) motors.

• Direct current (DC) motors.

• AC and DC drives

• AC generators (LV and HV).

• Variable frequency drives and solutions based on insulated gate bi-polar transistor (IGBT) technology; soft starters and shaft power monitors; and rotary heat exchangers with switch reluctance motors for saving energy.

• Traction electronics and traction machines for railway transportation

• Railway signalling equipment.

• Stampings.

Table 4 gives the financial performance of the Industrial Systems BU over the last two years.  Industrial Systems' net sales was down by 0.9% over the brvious year to Rs.1,841 crore. While this is expected to improve in the next year, it is becoming clear that the modernisation of the facilities at Mandideep has now started to pay dividends. EBIDTA has again begun to rise — increasing by 5.4% to Rs.180 crore in FY2015. EBIT has increased faster than EBIDTA — by 9.2% to Rs.140 crore. And ROCE, which was going southward till FY2014 has turned the tide — increasing by 2.2 percentage points to 15.7%.

The Industrial Systems BU has started to turn around. And the fully modern, state-of-the-art capacities that have been systematically created at Mandideep can now be fully utilised to produce world class motors and drives for India, Europe, the Middle East and Africa, and the South East Asia and Pacific region.

THE NEW MANDIDEEP FACILITY: MOTORS AND DRIVES

Motors

• A world class large rotating machines facility has been built at Mandideep, covering 9,284 square metres.

• It has a state-of-the-art machines, automation and process technologies to manufacture up to 250 large machines per year.

• It has test facilities up to 12 MW for MV motors and up to 25 MVA for synchronous generators.

• The winding and vacuum brssure imbrgnation (VPI) processes are automated — resulting in energy efficiency, high reliability as well as high throughput.

• The facility integrates rotating machine technology from CG Electric Systems in Hungary.

Drives

• A new manufacturing facility for low voltage (LV) AC drives was inaugurated in Mandideep in July 2013.

• It can produce 6,000 drives per annum per shift, with test facilities for drives up to 315  kW.

• The plant integrates technologies from Emotron.

• In sourcing, the drives business has moved inputs from high cost countries to India with an overall savings of 25%.

With the new facilities and the ability to manufacture world class motors and drives out of Mandideep, the strategic objectives of the BU are:

• Geographical expansion.

• Creating regional organisations in SEAP, MEA, EU and the Americas to enhance reach.

• Improving customer offerings for the new geographies.

• Developing new products that meet global standards.

• Lean manufacturing and sourcing initiatives for cost competitiveness.

Given below are some of the achievements of the Industrial Systems BU for FY2015.

• The business has begun to prove its ability to reach out to global customers. For the first time, exports from India crossed the Rs.100 crore mark.

• As far as sales of rotating machines in India were concerned, CG gained market share of 1.4% in volume terms.

• Secured the first IP65 motor order from the Saline Water Conversion Corporation, Saudi Arabia, for five 1.9 MW MV motors. IP65 motors are designed to work in extreme dust and temperature conditions.

• Obtained an order from the Jindal Steel Plant Limited (Angul, India) for an 8.5 MW, 6-pole, 11 kV medium voltage motor.

• NTPC approved the new Mandideep rotating machine plant for large rating MV motors. This allowed the business to bid for, and win, an order from Alstom Kolkata for three units of 3.6 MW, 10-pole 11 kV motors.

• The rotating machine facility at Hungary secured its largest order from Fives FCB of France, a specialist in the construction of cement plants, for 11 large slip ring MV motors to be supplied to Algeria Cement.

• Secured order from Deepak Fertilizer for 28 LV motors, 2 LV motors and associated drives.

• Obtained the first order from the Japanese global OEM, Torishima Pumps, for pump test motors of 500 KW for Indonesia.

• Got the first development order of a three-phase diesel-electric multiple unit (DEMU) propulsion system from the Indian Coach Factory (ICF), Chennai. This is possibly the beginning of a shift in Indian Railways from conventional to three-phase.

• Obtained orders for 38 high horsepower (HHP) DEMU from ICF Chennai order rebrsenting 60% of the tender quantity. Also won 100% of the tender order for 72 traction motors from the Rail Coach Factory, Kapurthala.

With the new motors and drives facilities at Mandideep and a focus on producing best in class machines to secure orders from the most reputed OEMs all over the world, CG's Industrial Systems BU is geared once again to climb a high growth path.

CG CONSUMER PRODUCTS

The CG Consumer Products business supplies fans, lighting equipment (light sources and luminaires), pumps, a wide range of electrical household appliances and provides solutions for integrated security systems, home automation, and street lighting.

Given that the business will be demerged into a separate company, Crompton Greaves Consumer Electricals Limited (CGCEL), from 1 October 2015, this is the last occasion when the Management Discussion and Analysis of the Company's Annual Report will be discussing its operational and financial performance.  CG Consumer Product's financial performance for FY2015 versus the brvious year is given in Table 5.

As before, the Consumer BU remained CG's second largest business unit in terms of revenues and its largest cash generator. Net sales grew by 11.5% to Rs.3,233 crore in FY2015. EBIDTA increased by 18.6% to Rs.414 crore; and EBIT grew by 18.9% to Rs.401 crore. With a negative capital employed of Rs.559 crore, ROCE had no meaning. The business generated net cash of Rs.336 crore in FY2015, which was 29% higher than the brvious year.

LIGHTING AND LUMINAIRES

CG's lighting division grew by 7.4%, which has been higher than the overall industry growth, and has led to CG further improving its market share. The business continues to hold an overall No.3 position in the Indian market, with leadership in high intensity discharge lamps used for public lighting, industrial lighting and floodlighting. Here are some key facts:

• A total of 207 stock keeping units (SKUs) were launched during FY2015, mostly in LED based fixtures. Exclusive LED experience centres inaugurated at three locations.

• New product sale was 18% of total lighting and 36% of luminaires.

• Continuous development and cost optimisation led to CG bagging 5 million LED lamp and LED street lights orders under the government's drive on energy efficiency. CG's growth in LED based lighting products was in excess of 100%, versus a market growth of 45%. This growth was on account of the launch of new products and a continuous revamp of entire product portfolio in LED.

• Won the order for around 25,000 units of LED street lights in locations like Agartala, Jhalawar, Vishakhapatnam and Alleppey.

• CG's consistent sales pitch coupled with technical competence helped in getting the first major LED lighting order from the Central Public Works Department (CPWD) for border security.

• Won the first major LED luminaire export order to Oman, comprising mainly high wattage high-bay luminaires.

• Signed up with major corporate houses and banks for the supply of conventional and LED products for all their locations in India, including the use retrofit solutions.

• Singed up with Bata for lighting up 300 of their stores across India.

• Upgraded lighting automation options to address growing need of energy efficient solutions.

• The lighting and luminaires business generated cash of Rs.44 crore in FY2015, up by 19% compared to the brvious year.

FANS

• Showed an overall sales growth of 14.3% to Rs.1,414 crore in FY2015.

• Generated cash of Rs.197 crore — up by 49% over the brvious year.

• Continued to remain the leader with a 26.6% market share. In fact, it improved its leadership position by 1.1 percentage points over the brvious year.

• Crompton fans are the only ones in India to have sold over 10 million units for the second consecutive year.

• Developed additional capacity of 0.74 million units/year at Kundaim. The Baddi unit's production increased by 32% and crossed the 2 million mark.

• Revenue from brmium fans grew by 32%. These models contribute to 9% of revenue. In

FY2015, 26 new models were introduced in the areas of (i) energy efficient ceiling fans, (ii) brmium range ceiling fans, and (iii) table, pedestal and wall range fans, which resulted in over 4.8% revenue from new products introduced in the course of the year.

• The business maintained negative capital employed.

PUMPS

• FY2015 sales grew by 12.8% to Rs.656 crore versus a market growth of 5%. Thus, the business improved its market share from 12.9% to 13.4%

• Generated cash worth Rs.92 crore in FY2015 — up from Rs.78 crore in the brvious year.

• Continued its leadership status in the residential segment with 27.5% market share.

• New product sales accounted for 32% of net sales. Introduction of stainless steel submersible pumps helped capture new markets and applications.

• Solar pumping system developed up to 5HP.

APPLIANCES

This business is relatively small and achieved net sales of Rs.203 crore in FY2015 — an 8.9% increase over the brvious year. It supplies a range of domestic appliances in four major product categories: water heaters/geysers, small appliances, power solutions and air coolers/heaters. Overall, 34 new products were launched in FY2015, involving new models of air coolers, mixer grinders, rice cookers and voltage stabilisers. New products contributed to a revenue of Rs.36 crore; revenue from brmium products doubled in the year.

AFTER SALES SERVICE

A few years earlier, CG launched its after sales service. Over time, it has become a key differentiator for the business. The total number of authorised service centres (ASCs) have crossed 500. These have achieved 86% speed of resolution, within 48 hours of the complaint. The business also initiated a D2H (Direct to Home) project through its ASC network to promote the sale of other Crompton products. During the year, this project reached 160,000 households and created additional sale of Rs.5 crore.

SIX SIGMA AND SUPPLIER QUALITY ASSESSMENT

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects, and minimising variability in manufacturing and business processes. It uses defined methods including statistical tools, and conducts projects through a set of people in the organisation — called Black Belts (BB) and Green Belts (GB) — who are specially trained in these methods.  CG has been following Six Sigma for several years, especially in India. Given below are some facts of Six Sigma in CG for FY2015.

• 172 new executives were trained within and outside India. Of these, successful candidates were certified as BB or GB.

• 51 BB and 405 GB projects completed during the year, and handed over to the respective businesses.

• It is estimated that Rs.25.5 crore was saved in FY2015 through Six Sigma.

In addition, CG continued with its supplier quality assessments. All critical vendors were assessed, as they have been each year. For FY2015, 430 vendors assessed. Any new supplier had to score '3-stars' in the assessment to be added to the CG supplier base; and those who did not meet the standard or delayed their assessment ran the risk of having themselves locked out of the enterprise-wide SAP system. This drive has improved the incoming quality of supplies of critical parts.

HUMAN RESOURCES (HR)

The key focus during FY2012 to FY2014 was the launch and rollout of the 'ONE CG' organisational deployment, building Centres of Excellences (CoEs) in HR to improve functional capability and significantly enhancing delivery capability of HR processes to enable business performance through the Global HR Shared Services.

In FY2015, there was a special emphasis on augmenting our management bandwidth. We relied more on external hiring as a conscious strategic decision. Many of our transitioning Executive Committee (EC) members were replaced with both external and Avantha group talent to bring in fresh perspectives.

In our attempt to improve performance culture, we rechristened our Performance Management Process as PRIDE which stands for Personal Responsibility In Delivering Excellence. We improved the quality, content and timeliness of goal-setting, performance reviews, coaching and the feedback process.

In FY2015, there was a special focus on rolling out the Consumer BU demerger. We looked at all the people processes with a view to optimise costs and reduce both production and non-production overheads. We looked at the organisational structure and realigned this with the business for more effective execution. We also streamlined the India sales organisation and activities with uniform practices across the different units. A restructuring exercise was carried out for our drives and automation business in Sweden to reduce overheads and streamline operations. A special taskforce consisting of rebrsentatives from senior leadership was appointed to facilitate CG's joint venture with PLN, Indonesia.

With the help of CGHR4U, our global online employee lifecycle management portal, we have almost all the associates working across different geographies on the same platform. This has led to greater integration of our people practices and systems. To improve personal effectiveness, we launched 7 Habits across all our markets and a special course on Personal Effectiveness to impart critical competencies to our managers. In our effort to build a more effective global cadre of professionals, we launched a new set of guidelines for international assignments limiting the tenure to two plus one year. We plan to rotate expatriates on a regular basis to key assignments at home to bring about greater global perspective in our operations. These rotations should help us widen and strengthen our global cadre, which is a key to successfully running international operations. Many of our long-serving expatriates were either repatriated or localised in their respective geography.

CG PERFORMANCE MANAGEMENT  SYSTEM (CG PMP)

The Global CG Performance Management Process (CG PMP) includes three major stages: (i) goal management, (ii) mid-year review, and (iii) annual assessment. In FY2015, we successfully completed all three on time with the right level of rigour.

Our priority was building awareness, buy-in and instilling a sense of ownership towards the integrated performance management process. As mentioned earlier, to build this ideology, we rechristened the online CGPMP process as PRIDE, or Personal Responsibility In Delivering Excellence, to rebrsent an individual's commitment for excellence and performance delivery.

PRIDE was adopted by all eligible white collar employees. On-going support was available to all employees in their use of PRIDE. Extensive communication and awareness helped in driving process rigour and compliance to timelines.

The new process and system incorporates improvements from last year, including behaviour assessment based on the Avantha Competency Framework, potential assessment at leadership level and identifying development opportunities for employees. Additional features also include 'Internal Feedback' and a performance rating linked 'PEP, or Performance Enhancement Programme' for developing of low performers.

TALENT ACQUISITION AND SUCCESSION PLANNING

In FY2014, in an effort to move from tactical to strategic hiring, Talent Acquisition (TA) initiated a number of process and system changes. During FY2015, most of these changes were implemented. Today, there is a high level of robustness in the process globally with brdictability in outcomes — all tracked in the internal MIS generated in CGHR4U. This MIS is central to globally integrating our TA practices.

We ensured proactive hiring for positions that lacked internal succession depth — especially critical senior positions. CG rolled out detailed Talent Reviews across levels in the organisation, starting from the top. Managers were required to assess their talent pipeline, analyse succession depth for all critical positions, and identify ready-now and near-term successors for these positions, along with development planning for such individuals. Going forward, TA will continue taking inputs from Talent Reviews, identify talent gaps and ensure smooth talent supply to the organisation.

CROMPTON GREAVES  PRODUCTION SYSTEM (CGPS)

CGPS sets norms and evaluates productivity for blue collared workers on shop-floors. In FY2015, the new manufacturing facilities of Drives and Automation in India, the Traction Electronics Unit and the Lighting Division at Baddi were covered under CGPS. Re-calibration of CGPS norms at all  units was also completed, which gave an opportunity to workmen to enhance their earnings by accomplishing stretch targets. The CGPS database has been upgraded across all production units in India and some abroad, which has enabled faster generation and better management of the CGPS data. The consequence has been an increase in manpower productivity. The good news is that CGPS was successfully implemented at the Winnipeg plant in Canada, which led to an effective increase in plant capacity and optimisation of workforce. It is at an advance stage of completion in the units in USA and Ireland.

GLOBAL HR SHARED SERVICES  AND PROCESS AUTOMATION

Global Shared Services is striving to provide HR professionals the wherewithal to focus on value adding tasks — while administrative tasks are transferred to a shared service delivery centre. In FY2015, we achieved a higher degree of automation in the areas of Global Performance Management System combined with Annual Compensation Review Tool, Mobile Technology in HRIS, installed web-kiosks for workmen at the Baroda plant connecting them to HRIS and the Workmen Self-Service Portal. We expect to have web-enabled kiosks at all production units by March 2016.

In FY2016, HR Shared Services at CG India will use HR automation right from an offer to a candidate until exit. The complete employee life cycle management will be under a single umbrella. Our project for Centralised Global Payroll has been planned in a phased manner, keeping in mind operational efficiencies and cost-effectiveness. Digitisation of documents and creating a paperless office in HR administrative function is another key initiative in the coming year.

DIVERSITY AND INCLUSION

In line with our commitment to embrace, value, and respect diverse cultures as well as promote multiplicity, we celebrated CG Diversity Day across CG locations from 6 March to 15 March 2015. Different events were organised around our Diversity theme for this year: 'Celebrate, Advocate and Educate!'  

• A video featuring CG employees across the globe exbrssing their thoughts on 'What Diversity Means to Them' was showcased at CG locations on Diversity Day.

• CG Diversity Day also celebrated the success of SHINE, the Executive Certification in Leadership for Women — a programme which was launched last year to support CG women employees to hone their talent and enhance performance by nurturing their skills and knowledge. Sixteen participants completed this programme successfully and were felicitated with convocation certificates.

AVANTHA GROUP PEOPLE SURVEY (AGPS)

AGPS was conducted across all Avantha companies to measure the degree of alignment of senior leaders to Avantha values and to improve employee engagement across levels. As before, CG continued to focus on the areas of (i) Enabling Environment, (ii) Organisational Identity, (iii) Employee Development, and (iv) Performance and Recognition. Feedback from workshops involving senior leaders and group discussions with employees provided an understanding of the issues and served as a basis for action planning. The action plans are being implemented and improvements are beginning to be visible in core processes like succession planning, performance and talent management, talent acquisition, and compensation and rewards.

OTHER HR PROGRAMMES

• RECOGNIZE, our global peer-to-peer employee recognition programme, connects CG's workforce to its core values of customer orientation, intellectual honesty, leading edge knowledge, nurturance and performance excellence. The programme's uniformity has brought employees close across the globe. More than 1,000 winners have been felicitated with Certificate of Excellence for their outstanding achievements. Nearly 150 individuals won the TrailBLAZER award and 100 teams won the SuperSTAR award globally for their commendable work as part of Quarterly Awards. RECOGNIZE's annual awards honoured 18 individuals and 26 teams for their exemplary achievements. In addition, two special award categories were introduced, namely, LEADERSHIP Award and Annual CEO Award.

• Campus @ CG. In continuing with the efforts started during FY2014, CG continued to invest in young talent by hiring fresh engineers and M.Sc. from reputed institutions. In India, the last batch of 70+ young people were inducted and placed on the shop-floor.

• CG Global Leadership Development Programme (CG GLDP). CG GLDP was launched targeted at (N-2) leaders. The initiative consists of nine months of leadership inputs consisting of three modules, team projects and assignments, and bringing CG Board and senior leaders to share their learning. There were 20 participants across CG's global operations. A module in Indonesia and another at Mumbai was well received by the participants. Subsequent to the programme, some of the participants were given higher responsibilities.

• Frontline Supervisory Development Programme (FSDP). We continued the FSDP, which was launched in September 2013. The programme enables supervisors to be more effective in their roles as first-level leaders within the company. The three-day programme blends classroom, experiential learning and sessions by senior management. In FY2015, 150 employees across various CG's locations and units in India were trained.

• SHINE, Executive Certification in Leadership Programme for Women. SHINE was initiated across CG locations globally to assist women managers to unleash their potential by providing opportunities for professional and personal development. The first batch was completed with considerable success. The second batch was launched in FY2015 with 30 participants.

• Avantha Young Executives Programme (AYEP). This Avantha Group HR initiative is a development programme for entry level talent. With an objective to create a middle level talent pool to address future needs, the programme is offered to early career high potential employees. This year-long programme consists of e-learning modules, case studies and an action learning project. We have tied up with Symbiosis Institute of Business Management as our education partner. The third batch of AYEP consisting of seven participants was launched this year. Successful AYEP participants graduate to AYEP Plus and undergo a five-year inter-company, inter-geography and inter-functional rotation.

• Young Researcher Programme. This is an initiative with a vision to build and strengthen CG Technology Leadership pipeline. The first batch commenced its year-long journey in February 2014, and completed it in February 2015. There are four modules which focus on developing capability, improving the R&D mind-set and overall personality of the  researchers. The content has been designed and delivered in coordination with the knowledge partners from brstigious institutes and organisations.

HAY JOB EVALUATION

We have partnered with the Hay Group in a global initiative to evaluate and grade all critical roles worldwide. This initiative will be a critical input to align roles, career movements and rewards across the globe. The exercise involves extensive capability building efforts and participation of business leaders.

INDUSTRIAL RELATIONS

Industrial relations with workmen and the unions rebrsenting them continued to be cordial in the FY2015. Three collective agreements were negotiated and signed in India, of which two were with the recognised trade union, and one was signed with all individual workmen. All wage agreements have been signed for a term of five years. The benefits of these wage agreements will be applicable to 540 permanent blue collar workmen of CG working in the three units.

We had special agreements with our union in Canada and Belgium for temporary layoff to realign our manpower requirements. We closed our Stamping Division at Mumbai with a constructive understanding with the unions.

Management-union interactions during collective negotiations were amicable. Workmen and union support required in implementation of programme towards quality, cost and productivity improvements were also the key points of all the agreements. Regular dialogue with the workers' unions have helped in maintaining a harmonious work environment.

ENVIRONMENT, HEALTH AND SAFETY (EHS)

CG is committed to minimise the adverse impact on the environment and safety at workplace, by protecting and enhancing the well being of our employees, visitors and partners as EHS is the number one priority in CG. In FY2015, our EHS agenda consisted of two key thrusts:

• A renewed focus of enhancement of currently implemented EHS systems and processes.

• Globally drive the EHS campaign and awareness through 'One CG EHS' concept. Several measures have been implemented and enhance EHS systems and processes,  and these continue to deliver results. EHS is now a key responsibility of the entire line management. Employees across the company were trained and educated about EHS measures at work. In several locations, we actively engaged with local authorities to minimise EHS risk. We also continued to focus on being an 'Injury Free' and 'Zero Environment Incident' organisation. In doing so, we also created more stringent norms for reporting 'Near Miss' incidents by adopting Bird's Triangle Model on EHS — which states that 300 near miss incidents typically result in 30 accidents, of which 10 are serious, and one could be fatal. Thus, if the base is halved, the chain gets reduced. Based on this model, we have set aggressive targets for closure of corrective actions arising out of EHS events. These plus EHS audits and safety observation tours have led to improvements in safety standards across the organisation.

CORPORATE SOCIAL

RESPONSIBILITY (CSR)

CG's work on CSR is appended with the Directors' Report.

FINANCIAL PERFORMANCE

This section begins with CG' standalone results, after which it moves on to the financial performance of the overseas entity before, finally, the consolidated financials for the Company.

CG: STANDALONE FINANCIAL PERFORMANCE

The standalone results of CG for the year ended 31 March 2015 and 2014 are given in Table 6. Table 7 shows the key ratios (profitability, assets efficiency and leverage ratios) of the entity for FY2015 and FY2014.

• Gross sales, or revenue from operations grew by 2.8% to Rs.8,216 crore in FY2015. Net sales and services increased by 3.5% to Rs.7,837 crore.

• Raw material costs as a share of net sales went up by 40 basis points to 74.3%. In absolute terms, this head of cost increased by 4% — which was 50 basis points more than the growth in net sales.

• Operating EBIDTA increased by 5.9% to Rs.653 crore in FY2015.

• Operating PBT grew by 5.8% over the brvious year to Rs.581 crore.

• Thanks to an exceptional item — sale of excess land at Kanjur Marg, Mumbai — PAT increased by 40.3% to Rs.731 crore.

• The ratio of operating EBIDTA to net sales increased by 20 basis points to 8.3% in FY2015.

• RONW grew by 2.7 percentage points to 18.2% in FY2015. Given the competitive environment facing the B-to-B businesses, this has been a good performance compared to other peers in the industry.

• Because of higher capital employed, the ROCE has dropped by 3.5 percentage points to 13.8% at the end of FY2015. Again, this is the highest ROCE among all significant competitors in the sectors that CG India operate.

CG: OVERSEAS FINANCIAL PERFORMANCE

The consolidated financial performance of all overseas entities is given in  

Table 8. For the CG overseas entities:

• Revenue from operations decreased by 0.6% to US$ 1,023 million in FY2015. In terms of the Indian rupee, this grew by 0.7% to Rs.6,254 crore.

• In US$, operating EBIDTA fell from zero in FY2014 to a loss of US$ 6 million (or Rs.38 crore) in FY2015.

• The operating PBT worsened from a loss

US$ 46 million in FY2014 to a loss of US$ 52 million in FY2015.

• Losses at the PAT level (before minority interests and share of associate companies) have increased from US$ 40 million in FY2014 to US$ 83 million in FY2015.

CG: CONSOLIDATED FINANCIAL

PERFORMANCE

Table 9 gives the consolidated performance of CG, while Table 10 gives the key ratios.

• Net sales and services: In rupees, it grew by 2.8% to Rs.14,013 crore in FY2015. In terms of US$, it grew by 1.5% to US$ 2,293 million. It needs mentioning that FY2015 is the fifth successive year when CG's consolidated net sales and services has exceeded US$ 2 billion

• Operating EBIDTA increased by 5% in rupees to Rs.642 crore in FY2015, and by 3.7% in US dollars to US$ 105 million.

• Operating PBT (before other income) rose by 8.8% to Rs.275 crore in FY2015; and increased by 7.5% to US$ 45 million.

• PAT (after exceptional items, exchange gains or losses and prior period items, but before minority interests and share of associate companies) reduced by 20.2% Rs.206 crore. In terms of US dollars, it dropped by 21.9% to US$ 34 million.

Some ratios have deteriorated on account of the performance of CG's overseas entities. The consolidated RONW reduced by 1.3 percentage points to 5.7%; and  the ROCE at the end of FY2015 was

7.8%, or 70 basis points less than what it was at the end of the brvious year.

RISK MANAGEMENT

Crompton Greaves continues to deploy a well articulated risk management framework.

This is based upon a three-tiered approach encompassing (i) enterprise risks, (ii) process risks, and (iii) compliance risks.

Enterprise risk identification and mitigation initiatives are managed through an on-going action agenda between the corporate risk department and each of the businesses, as well as for the Company as a whole. The coverage extends to all key business exposures as well as to lost opportunities — both internal and external — that are identified in conjunction with the businesses. After getting a measure of each such enterprise risk, the corporate risk department tracks the mitigation actions.

Process risk management involves assurances by the Company's internal audit department regarding the effectiveness of business and financial controls and processes in all key activities across the various businesses.

Compliance risk management comprises a detailed mechanism of assurances with respect to adherence of all laws and regulations in every country, with a combrhensive reporting process that cascades upwards from the  accountable business line executives to CG's fiduciary Risk and Audit Committee (RAC) and then on to the Board of Directors.

The outcomes of business review meetings conducted by management and internal audit regarding processes and their compliance, as well as observations of the RAC and the Board of Directors are continuously incorporated to capture new risks and update the existing ones.

All three dimensions of CG's Risk Management framework are reviewed annually for their relevance and modifications, as required. The businesses and internal audit make regular brsentations to the RAC for detailed review. The risk management process, including its tracking and adherence, is substantially e-enabled for greater consistency and better reporting capabilities.

INTERNAL CONTROLS AND THEIR ADEQUACY

CG believes that a strong internal controls framework is an essential br-requisite of growing its businesses. To that end, it has an effective and efficient internal control system to conduct the audit of various divisions, sales offices, corporate headquarters and overseas operations. The internal audit team focuses primarily on operational and systems audits that monitor compliance with defined authority delegation matrix of the Company.

Annual internal audit plan covers key areas of operations. This is vetted by Board-level RAC, which is updated every quarter — and occasionally between successive quarters — of the significant internal audit observations, compliance with statutes, risk management and control systems. The RAC assesses the adequacy and effectiveness of inputs given by internal auditor and suggests improvement for strengthening internal controls from time to time.

CG's internal controls have been designed to provide a reasonable assurance with regard to maintaining of proper internal controls, monitoring of operations, protecting assets from unauthorised use or losses, compliances with regulations for ensuring reliability of financial reporting. The Company uses SAP as its key data and analytics tool — which has over the years considerably enhanced the internal control mechanism.

As recommended by RAC, internal audit has developed and extended an internally coded Risk Control Framework (RCF) software across the Company. This helps in understanding the risk and control environment from the perspective of each unit — be it a division or a marketing/sales office. The RAC periodically reviews the findings of RCF and suggests improvements where needed.

A SUMMARY AND  THE OUTLOOK

For all the good news coming out from different parts of CG, the year has been financially and operationally disappointing for the Company. After the excellent growth in top line and turnaround in profitability witnessed in FY2014, shareholders would have expected a continuation of such performance in FY2015. Unfortunately, that did not happen, for reasons given earlier.

The signals are clear that India will be the focus of growth in the coming years. Not just for the domestic market but as the manufacturing base for the export of transformers, switchgears, rotating machines, drives and products that couple the intelligence of automation with electromechanical power. Other than India, which is expected to grow at a healthy pace and

create robust demand for various types of electromechanical products that CG excels in, there are serious growth opportunities in South East Asia and the Pacific region, the Middle East and North Africa, several countries of sub-Saharan Africa, the Caucasian region and parts of Latin America — all of which can be serviced through world class manufacturing in India, backed up by intelligent automation solutions devised either in India or by the Company's facilities in Spain.

Compared to Western Europe and North America, India enjoys serious comparative advantages in the manufacture of electromechanical devices. It has the engineering skills. It has cost advantages. CG's Indian enterprises understand the power of throughput and productively, and the importance of turning around working capital better than most others in the world. That is the opportunity which CG will look forward to seize in FY2016 and thereafter.

CG will look to focus itself as a dominantly India based global company — leveraging its physical capacities and human skills to competitive produce transformers, reactors, switchgears motors, drives, automation systems and traction equipment not only for its rising needs, but also for the world.

It is a challenge worth taking, notwithstanding the demerger of the cash rich consumer products business. But it can be done. By refocusing on radically restructuring or parsing unprofitable lines of business; and by recreating dedicated teams that concentrate only on achieving stretch goals. CG has done it before. It can do so again.

Thus, if we refocus at CG — with its sound portfolio of power products and systems, automation, rotating machines, drives, and traction electronics and traction machines — and work according to our strengths, we could be witnessing another period of growth from FY2017. Therefore, even in a difficult time such as this, there are reasons to be cautiously optimistic. And to ensure that the 'cautious optimism' finally results in better performance and shareholder value.

I urge all my colleagues across CG to take up this challenge.

CAUTIONARY STATEMENT

The management of Crompton Greaves has brpared and is responsible for the financial statements that appear in this report. These are in conformity with accounting principles generally accepted in India and, therefore, may include amounts based on informed judgements and estimates. The management also accepts responsibility for the brparation of other financial information that is included in this report. Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Management has based these forward looking statements on its current expectations and projections about future events. Such statements involve known and unknown risks significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other costs and may cause actual results to differ materially.

Laurent Demortier  

CEO AND MANAGING DIRECTOR

Place : Mumbai,  

date : 28 May 2015