BOARD'S REPORT TO THE MEMBERS Your Directors present the 961 Annual Report and the Audited Financial Statements of the Company for the year ended March 31 , 2016 together with the reports oftheAuditors and Board thereon. DIVIDEND The Board of Directors declared and paid an Interim Dividend of 25% ~ 0.50 paise per equity share) on March 29, 2016 which is proposed to be considered as final for the year 2015-16. OPERATIONS OFTHE COMPANY The revenue from the operations for the year under review is Rs. 1656 crores, which is more than 1.88% compared to the previous year. Drop in sales is mainly due to lower sales of project sectors, partly attributable to liquidity issue in the market, non-receipt of dispatch clearances from the customers and sluggish market and economic growth and subdued demand for fire fighting and HYPN systems in the overall globe. The performance of the Company was lower than planned due to shortfall in power sector and also a lower rise in sales for small pumps in product sector. The Company continued its focus of being selective in accepting orders depending on customers' financial position. There was concentrated effort towards improvement of marketing initiatives and brand presence. Overall efforts were made to improve the efficiencies at all plants. For project business, the Company continues to focus on closure of old projects and recovery of retention money. The main reason for major drop in sales of project sectors was unavailability of funds from customers, delay in engineering and civil work by a few clients and non receipt of dues from a few customers. Our all women plant in Kaniyur won the Merit Award by the Confederation of Indian Industry (Cll) under the 5S excellence category. The Company scripted yet another success story in the global power market, having bagged another repeat order from Calik Enerji of Turkey, for supply of pumps for its 230 MW CCPP project in Georgia. The Company has successfully supplied 194 concrete volute pumps upto March 31, 2016. The Company has also successfully commissioned Godavari Metropolitan Water Supply and Sewage Board project valuingRs. 50 crores in November, 2015. The Company has announced the launch of GK-P Pump at ACHEMA in Frankfurt, Germany. GK-P is a process pump used for handling various types of chemical liquids from various process industries. It is an End Suction centrifugal process pump having discharge capacity upto 500 m3/hr at 1450 rpm. The Company has also unveiled the technologically advanced ROMAK (RMK) Pump at ACHEMA in June 2015 which is used for handling various types of clear / clean chemical liquids without any suspended particles by various process industries. To its array of achievements for various innovative and indigenously developed products, the Company has received national-level recognition for its Lowest Life Cycle (LLC) Pumps series. KBLs LLC Pumps series has been granted the prestigious "India Design Mark" by the India Design Council which symbolizes product excellence in form, function, quality, safety, sustainability and innovation and communicates that the product is usable, durable, aesthetically appealing while being socially responsible. Kirloskarvadi Plant has won 'Excellent Energy Efficient Unit' Award in the national competition for Excellence in Energy Management and Dewas & allied Plants received Safety award in regional level "Manufacturing Today" competition. There were no material changes or commitments to report which affect the financial position of the Company that has occurred between the end of Financial Year and the date of this report. STATUTORY DISCLOSURES 1. EXTRACT OF ANNUAL RETURN Extract of Annual Return in Form MGT-9 as per provisions of Section 134 read with Section 92(3) of the Companies Act, 2013 (the Act) is given in Annexure I to this report. 2. NUMBER OF MEETINGS OF THE BOARD During the Financial Year under review, 5 (five) Board meetings were held, the details are appearing elsewhere in this Annual Report. 3. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 134(3) (c) of the Act, the Board of Directors report that (a) in the preparation of the annual accounts, the applicable accounting standards had been followed; (b) the directors had 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 and loss of the Company for that period; (c) the directors had 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) the directors had prepared the annual accounts on a going concern basis; and (e) the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively; (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. 4. INDEPENDENT DIRECTORS' DECLARATION All Independent Directors of the Company have given declaration under Section 149 (7) of the Act, that he /she meets the criteria laid down in Section 149 (6) of the Act. 5. DISCLOSURE REQUIRED UNDER SECTION 134(3)(E) The Board has adopted a Board Diversity Policy which sets the criterion for appointment as well as continuance of Directors, including Independent Directors, at the time of re-appointment as director in the Company. As per the policy, the Board has an optimum combination of Members with appropriate balance of skill, experience, background, gender and other qualities of directors required for the effective functioning of the Board. The Nomination and Remuneration Committee recommends remuneration of the Directors, subject to the overall limits set under the Act, as outlined in the Remuneration Policy recommended by the Committee and approved by the Board. As per the policy, the Executive Director(s) is/are entitled for a fixed salary, other non-monetary benefits etc., and commission based on performance evaluation of the Director. In case of Non Executive Directors, apart from receiving sitting fees, they may be given commission on the basis of criterion as per the policy. The Remuneration policy is given in Annexure II. 6. REPORT OF AUDITORS During the Financial Year under review there are no qualifications or adverse remarks or disclaimers made by the Statutory Auditors on the financial statements of the Company and by the Company Secretary in practice in his Secretarial Audit Report, which is annexed herewith as Annexure VIII M/s. R G. Bhagwat, Chartered Accountants (Firm Registration no. 101118W) the Auditors, retire at the ensuing Annual General Meeting (AGM) and are eligible for re-appointment. The requisite certificate as required under the Act has been received. The Audit and Finance Committee has recommended their re-appointment and the annual audit fees. Mr. M. J. Risbud, Practicing Company Secretary (CP No. 185) has been appointed as Secretarial Auditor as per Section 204 of the Companies Act, 2013 for the Financial Year 2016-17. Parkhi Limaye & Co. (Firm Registration No. 000191) have been appointed as Cost Accountant as per Section 148 of the Act, read with applicable rules made thereunder for the Financial Year 2016-17. Their remuneration is subject to approval by the Members. 7. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 The details of loans, guarantees or investments under Section 186 of the Act, are available under note no. A-11 and A-17 of notes to accounts, attached to the Standalone Financial Statements. The full particulars are available in the Register maintained under Section 186 of the Act, which is available for inspection during business hours on all working days (except Saturday and Sunday). 8. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES All contract/arrangement/transactions entered by the Company during the Financial Year 2015-16 with the related parties were in the ordinary course of business and on arm's length basis. Hence, no particulars are being provided in Form AOC-2. During the year, the Company has not entered into contract/arrangement/transactions with related parties which could be considered material in accordance with the Company's 'Policy on Materiality of Related Party Transactions and Dealing with Related Party Transactions'. The said policy is uploaded on the website of the Company. Further, we draw your attention to Note no C-17 of the Standalone Financial Statements of the Company. 9. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Details of energy conservation, technology absorption, research and development and foreign exchange earnings as required under Section 134(3) (m) of the Act read with applicable rules are given in Annexure III to this Report. 10. RISK MANAGEMENT The Risk Management Committee meets at regular intervals and identifies the top risks and prioritises those risks. The progress and review status of those identified risks are presented to the Audit and Finance Committee. 11. CORPORATE SOCIAL RESPONSIBILITY REPORT The Company has developed a Corporate Social Responsibility Policy as per the requirement of the Act and the same is available on the website of the Company. The Corporate Social Responsibility Report in the required format is given in Annexure IV. 12. BOARD EVALUATION The Board has formulated a Board Evaluation Policy for evaluation of individual Directors as well as the entire Board and individual Committees thereof. The evaluation framework is divided into parameters based on the various performance criteria to be done annually. The evaluation for the year ended March 31, 2016 has been completed. In compliance with the requirements under Regulation 25(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a meeting of Independent Directors was held on March 14,2016 primarily to discuss the matters mentioned under Schedule IV of the Companies Act, 2013. All the Independent Directors of the Company attended the same. 13. PERFORMANCE AND FINANCIAL POSITION OF SUBSIDIARIES AND JOINT VENTURES Subsidiaries: i. Karad Projects and Motors Limited The revenue under review is Rs.2,634,407,105/-which is 7% more as compared to the previous year. ii. Kirloskar Systech Limited (KSL) The revenue under review isRs.219,169,880/-which is 8% more as compared to the previousyear. iii. The Kolhapur Steel Limited The revenue under review isRs.393,971,829/-which is 25% more as compared to the previousyear. iv. Kirloskar Corrocoat Private Limited The revenue under review isRs.455,988,050/-which is 36% less as compared to the previousyear. v. Kirloskar Brothers International B.V. (consolidated) The revenue under review is Rs. 8,725,365,002/- which is 10% less as compared to the previous year. vi Kirloskar Ebara Pumps Limited (Joint Venture) The revenue under review is Rs. 1,590,581,939/-which is 7% less as compared to the previousyear. The financial position of the subsidiaries and joint venture companies is given in AOC-1, elsewhere in the Annual Report. 14. OTHER STATUTORY DISCLOSURES AS REQUIRED UNDER RULE 8(5) OF THE COMPANIES (ACCOUNTS) RULES, 2014 (i) Financial summary/highlights are already included elsewhere in the Report; (ii) Change in the nature of the business during the year under review; During the year under review, the process of amalgamation of the Kirloskar Systech Limited (KSL) wholly owned subsidiary, with the Company was initiated and in order to enable the Company to carry on the existing business of KSL i.e. System Engineering and Information Technology Solutions, the Company has amended its Memorandum of Association by insertion of a new Objects Clause 43 (A) after existing Clause No. 43. The Members of the Company have accorded their approval vide Postal Ballot, the results of which were declared on February 24,2016. iii) Directors and Key Managerial Personnel: Mr. Vikram S. Kirloskar resigned as a Non-Executive Director of the Company with effect from May 26,2015. Mr. J. R. Sapre ceased to be a Whole Time Director of the Company with effect from May 31, 2015. Consequently, he also resigned as a Director of the Company from the same date. Mr. Umesh R. Shastry resigned from the post of Chief Financial Officer (CFO) with effect from June 01,2015 and Mr. C. M. Mate was appointed as CFO of the Company with effect from July 27,2015. Mr. Kishor A. Chaukar was appointed as an Independent Director by the Members in the previous Annual General Meeting Subject to Member's approval the Board has re-appointed Mr. Sanjay C. Kirloskar as a Managing Director of the Company at its Board Meeting held on October 28, 2015; the Members are requested to confirm his re-appointment with effect from November 19,2015 for a period of 5 (five) years, at the ensuing AGM of the Company. Mr. Alok Kirloskar, Non-Executive Director is liable to retire by rotation and being eligible offers himself for re-appointment. (iv) Companies which have become or ceased to be subsidiaries, joint ventures or associate companies during the year: Kirloskar Pompen B.V., Netherlands, (KPBV) Company's step down subsidiary company in Netherlands, has acquired a Dutch pump manufacturer "Rodelta Pumps International B.Y, Netherlands" (Rodelta) on July 17,2015, who is into API and non API pumps for Oil and Gas, Pulp and papers, fluid, marine and chemical applications etc. KPBV also incorporated "Rotaserve Overhaul B.V" as it's wholly owned subsidiary as on January 04, 2016, who is into overhauling and will handle sales of spares and service activities of KPBV. SPP Pumps LP USA has now become SPP Pumps Inc. during the year. SPP Pumps Holding LLC and SPP Pumps Management LLC, USA, who were the wholly owned subsidiaries of SPP Pumps Limited UK, have ceased to operate during the year. SPP Pumps France EURL who was subsidiary of SPP Pumps Limited has ceased to operate during the year. (v) Details relating to Deposits: The Company neither accepts nor renews matured deposits since January 2003 and there were no deposits accepted by the Company as covered under Chapter V of the Act read with Rules made there under. (vi) No significant and material orders were passed by the regulators or court or tribunals impacting the going concern status and Company's operations in future. (vii) Details in respect of adequacy of internal financial controls with reference to the financial statements: The Company has an Internal Audit Charter specifying mission, scope of work, independence, accountability, responsibility and authority of Internal Audit Department. The internal audit reports are initially presented to the Chairman and Managing Director and significant observations and follow up actions thereon are reported to Audit and Finance Committee. The Auditors of the Company in Annexure B to their reports on financial statements have expressed a qualified opinion on the operative effectiveness of two sub processes of the Internal Control System over financial reporting of the Company and one of its jointly controlled entities. In this regards, your directors wish to state that the respective companies have already initiated necessary steps to strengthen their Internal Financial Control Systems with regard to these two processes. (viii) Other disclosures required under Companies Act, 2013 as may be applicable: Composition of the Audit and Finance Committee has been disclosed under Corporate Governance Report; Establishment of vigil mechanism: The Company has already in place a Whistle Blower Policy1 as a vigil mechanism since 2008. The details of the same are reported under Corporate Governance Report; Disclosure as required under Section 197(12) of the Act read with applicable rules and details as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure V & Annexure VI. 15. CASHFLOW Cash flow statement for the year ended March 31,2016 is attached to the Balance Sheet. SAFETY, HEALTH AND ENVIRONMENT Safety and Health Our manufacturing plants at Kirloskarvadi, Dewas, Sanand (Ahmedabad), Kaniyur (Coimbatore) and Kondhapuri are certified for Occupational Health and Safety Assessment Series standards (OHSAS 18001) and Environment Management System (IS0 14001). The Company's corporate office and four plants at Sanand (Ahmedabad), Kaniyur (Coimbatore), Kirloskarvadi, Dewas are certified for SA8000 , implementation of SA 8000 is in progress at Kondhapuri Plant and certification planned in 2016-17. Achievements- KBL Kirloskarvadi has been awarded "First Prize" by The Sangli District Industrial Safety Committee for best Safety Performance in an Engineering Industry. Dewas plant bagged 'Gold Safety Award 2015', which was organized by Greentech Foundation New Delhi. Dewas plant also secured winner (First) position in 'MT Award 2015 Excellence in Safety', organized by Manufacturing Today Magazine, Mumbai. KBL Dewas won the 1st price in ENCON competition. Safety Inspection/Audits - Periodic internal audits of all our manufacturing units are being conducted to ensure legal compliance, OHSAS 18001, IS014001 requirements and standard industrial practices. More emphasis was given to 'Leading indicators' rather than only concentrating on 'Lagging indicators'. Nearly 300 incidents logged in the incident tracking system, Corrective Actions and Preventive Actions (CAPA) are being tracked through the system, which helped to reduce the accident rate. Safety Committees - Safety committees in the manufacturing plants meet regularly to discuss various environment, health and safety related issues. Workmen have equal number of participation in the safety committees. It is encouraged to have departmental safety committees for bigger plants. Minutes of safety committee meetings are made available to all for review. Issues raised in the meetings help to Environment Health Safety improvement and reduce accidental situations. New Initiative- New initiatives were started to enhance the safety and increase safety awareness, which are as under: Online training course for machine guarding is conducted for shop floor staff and more than 98.5% of staff has completed the training. Behavioural Based Safety system is initiated at three locations namely Sanand, Kaniyur and Dewas. Safety round by senior persons started on monthly basis at all manufacturing locations. Departmental safety committees are established in Kirloskarvadi and Dewas plant. Since, Kirloskarvadi plant is more than 100 years old, there are many Directorate of Industrial Safety & Health (DISH) approved drawings, initiatives taken to prepare consolidated plan of factory building and machinery layout, which got approved from DISH. Environment Health Safety (EHS) Compliance-Company strives for 100% compliance with EHS requirements. In order to verify that our facilities are meeting regulatory compliances, all the project sites and manufacturing plants are audited frequently. Others- Safety week and environment day are celebrated at all locations of manufacturing plants, offices and project sites with number of activities, competitions and awareness programs. Bi-monthly contractor's safety meeting initiated. Visit of safety committee members was organized in Kirloskarvadi and Kondhapuri plant. A Safety meet of all persons looking after safety was organised in Sanand, which included the safety visit to one oftheMNC plants. Kirloskarvadi plant observed Safety Kaizen Month in September, 2015. Environment and Energy We monitor our direct and indirect energy consumption which is reported in our annual sustainability report. A group wise Energy Conservation (ENCON) competition encourages all our manufacturing plants to reduce the overall energy consumption. Company has taken many steps to reduce energy consumption and water conservation which includes maintaining power factor, use of alternative energy, installing VFD based equipments, replacing streetlights by LED, installation of Bio-plant to recycle the canteen food waste at Dewas. Waste heat recovery for Cupola furnace at Kirloskarvadi plant, installing close loop hydro testing at Kirloskarvadi plant. CORPORATE GOVERNANCE Pursuant to Securities Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements), Regulations 2015, Management Discussion and Analysis Report, Report on Corporate Governance, Auditors' Certificate on Corporate Governance, Disclosure of unclaimed shares and the declaration by the Chairman and Managing Director regarding affirmations for compliance with the Company's Code of Conduct are annexed to this report. EMPLOYEE STOCK OPTION SCHEME (ESOS) As you are aware, during the year 2007-08, the Company launched the Employees' "Share a Vision" Stock Option Scheme, 2007 (ESOS-2007). The Management has formulated under ESOS - 2007, a proposal of providing stock options at Rs. 21- per option to award employees for their outstanding, exemplary performance in getting sustainable results. During the year, Mr. J. R. Sapre, ex-Whole Time Director of the Company and an employee of one of the subsidiary companies have exercised their options and they were allotted 20,000 and 750 number of shares respectively. Auditors' Certificate to that effect is provided as Annexure VII to this report. ACKNOWLEDGMENTS Your Directors wish to place on record their appreciation of the unstinted support and co-operation given by banks and financial institutions. Your Directors would further like to record their appreciation of the efforts by the employees of the Company. For and on behalf of the Board of Directors, Sanjay C. Kirloskar Chairman & Managing Director DIN 00007885 Place : Pune: date : May 10,2016 |