BOARD'S REPORT DEAR MEMBERS, Your Directors have pleasure in presenting the 52nd Annual Report of the Company and the Audited Accounts for the year ended March 31, 2016. Performance of the Company During the financial year 2015-16, your Company recorded a significant improvement in business performance through strong operational performance, better revenue management and generating better cash flow. During the financial year ended March 31, 2016, the Company continued to execute initiatives for reducing the cost of production, improve the customer satisfaction, continued focus on safety environment and productivity. These efforts have helped the Company improve profitability substantially, registering an increase of 148 times over the last financial year. These initiatives will also create long-term value for the stakeholders and help position the Company as a leading supplier of premium grade products in the domestic market. The summary of financial performance for the year is encapsulated below Sales & Marketing Market demand for uncoated free sheet (UFS) paper remained soft during most part of the year with signs of improvement towards the year-end. Our estimate is that overall demand for paper grew by around 2-3% during the year. Demand was adversely impacted as government buying was deferred/reduced. Uncertain government policy of restraining private publishers in CBSE school books took a toll in the creamwove segment. Imports and substitution in some segments also continues to be a threat. Pricing was under pressure during the year due to sluggish demand and is now showing signs of firming up gradually. In this market environment, the Company was able to make marginal progress in sales growth in domestic and export markets and could maintain our prices throughout the year. Highlights of sales & marketing performance: a. Sales of 217,706 MT in the financial year 2015-16 as against 215,846 MT in the financial year 2014-15, a growth of 1%; b. We grew in West and Andhra Pradesh/Telangana which were our focus markets which aligns well with our future strategy of domestic growth; c. Cutsize grew by 38% and we expanded our distribution in new markets and new geographies; d. We also expanded our export sales in Middle East & Africa and achieved a substantial growth of around 46%. Established consistent sales of cut-size products (under the HP brand). The Company has successfully met all its EPCG obligations; e. Your Company continues to be focused on delivering increased value to customers through improved products and customer service; f. The Company continued to increase penetration of new products launched with the International Paper brand last year. Sales of TruPrint, TruPrint Ultra, WriteChoice in the printing/notebook segment & Hammermill and HP in the cut-size segment registered strong growth during the year with significant improvement in brand building; g. The Company continued to be responsive to customer needs and developed new products to cater to niche segments. Developed watermark paper to maintain Creamwove sales in lean months; h. Launched WD engagement program - Paper Barons - to differentiate ourselves and improve customer connect; i. Introduced mobile app to provide real time information to customers; j. Launched door to door delivery model in Cutsize varieties in Andhra Pradesh; k. Special focus on OTIF which improved the score from 77 to 85 in 3 years time; l. Have undertaken deliberate improvement projects involving cross-functional teams to enhance customer service through OTIF. Raw Material Procurement The Company's sustainable farm forestry program represents a strong competitive advantage. During 2015-16, your Company continued to expand the program and its partnership with local farmer communities with an endeavor to ensure long term fiber sustainability. The Company was able to source 100% requirement of pulpwood from Andhra and Telangana, primarily within a radius of 350 sq.kms. After three years of significant increase in fiber costs, 2015-16 experienced an increase in wood availability and correction in wood prices. The Company continues to focus on empowerment of farmers by expanding the clonal distribution program under its robust farm forestry program with education, research & development and community support. During 2015 planting year, approximately 225 million saplings were distributed covering an area of 31,300 hectares under plantation. The Company expanded the clonal propagation center infrastructure and introduced new business practices to improve safety and productivity. To have even more better meaningful relationship with the farmers, your Company has started a unique initiative through digital system by launching www.rythukosam.com and 'Krishak honored smart card'. IP APPM farmers will have direct access with your Company and the Company will have direct relationship with them. Research and Development has been taken at a wider perspective through a collaborative project with Indian Paper Manufacturers Association (IPMA) and Institute of Forest Genetic & Tree Breeding (IFGTB), Coimbatore. We are introducing more farmer-friendly demonstration plots and other cost reduction measures in qualitative and quantitative production processes. In addition, the initiatives with high yielding, short rotation planting stock will enhance raw material availability. These have created a pool of over 123 million man-days so far. In India, long awaited research and development on Eucalyptus has been started with partnering with IP Brazil being Brazil as most advanced and progressive country in the world. Information Technology Our vision is to enable business processes and systems through strategic adoption of IT. These cover all the operating areas including manufacturing, sales and marketing, human resources and forestry. During 2015-16, the Company implemented several IT systems and processes including redesign to the internet, new farmer portal, a new payroll system, mobile app to enable customers to view our products and most importantly SAP upgrade. SAP upgrade provides operational efficiency, cost reduction, improved controls in the areas of finance, costing, purchasing, manufacturing and project systems During the year under view, the Company implemented SAP FICSM project (Finance, Capital, Source, Maintenance, Order Management and Manufacturing) with a view to be a part of IP's standard application portfolio with global processes. The benefits derived from this project are simplified, standardized and streamlined business processes with greater integration across the enterprise. HR initiatives During the year under review, the Company made significant investments in digitizing all the HR systems and creating culture of leadership whereby every leader demonstrates the 3 Cs - Character, Capability and Catalyst. The Company has successfully completed implementing all the modules of SAP HR that provides system as one place for all employee data. It also created the Performance Management System in one platform that is available online for an employee and the manager to effectively plan their objectives, measure performance, update their accomplishments etc. Talent Reviews were conducted function-wise to recognize the competencies, growth and development of the employees. IP Leadership Institute conducted various programs that provide development opportunity for talent at all levels. A multi-skilled, multi-trade study was conducted with a view to understand the current skills and map them to the jobs currently performed by the workmen in order to position them in the right grade and jobs. Industrial relations at both manufacturing units are cordial and focused on long-term development. During 2014-15, the Company conducted the Global Engagement Survey to assess employee engagement and satisfaction. The participation rate was 98.37%, the highest among all IP entities. Overall employee engagement registered a strong improvement compared to prior surveys, with a specific improvement in communication and recognition. CSR Initiatives The Company has adopted CSR Policy which is placed on the Company's website. The Board of Directors during the year has re-constituted Corporate Social Responsibility Committee comprising of: a. Mr. M.S. Ramachandran (Independent Director) -Chairman b. Ms. Ranjana Kumar (Independent Director) - Member c. Mr. Rampraveen Swaminathan (Chairman & Managing Director) - Member d. Ms. Ann Barbara Wrobleski (Non-Executive Director) - Member The focus areas of CSR Policy are education, environment and engagement. In view of past losses, the Company is not required to spend money on CSR activities as per Section 135 of the Companies Act, 2013. However, as a responsible corporate citizen, the Company incurred a sum of Rs.47.35 lakhs supporting various CSR initiatives in these focus areas. During the year, the Company's CSR initiatives included: • As part of Swatch Bharath programme, installation of RO plants in Madhavarayudu Village and Chaitanya Nagaram Village, Kadiyam Mandalam; • Construction of bus shelter in Kadiyam Village; • Supporting the sports events viz., AP State Volley Ball Association and AP State Kabaddi Championships; • Construction of community sanitary complex for the women in Setty Balijapeta, Kadiyam Mandalam; • Construction of compound wall for Government Primary School at Bhaskara Ram Nagar, Kadiyam Mandalam and construction of Diamond Mesh Fence for Government Primary School, Chaitanya Nagaram Village, Kadiyam Mandalam; • Construction of girls toilet and installation of RO plant in Girijana Vikas Kendra School which supports the tribal students; • Under project New Horizons, students of 5 municipal schools in Rajahmundry were given training in spoken English; • Sponsored the Balakalakar Art Camp for underprivileged children. In addition to the above financial commitments, your Company actively engaged employees to volunteer in the local community. Our employees have logged over 2,300 hours with impressive results. Awards During the year under review, the Company received the following Awards: • Special Export Award for its export performance for the year 2012-13 from CAPEXIL. • Parivarthan Sustainability Leadership Award for its sustainability initiatives under the category of leadership in branding for sustainability. • Community Development Award from World CSR Congress for the Community development work done by the Company around Unit: Kadiyam. • Award for social innovation from World CSR Congress for the project New Horizons whereby the students in municipal schools in Rajahmundry were trained in spoken English. • A Certificate of Appreciation from FICCI for good practice in safety systems by the Company's Unit: Kadiyam in recognition of its commitment to safety at workplace and putting in place safety systems. • Uttama Smart Partner Award from Mandal Praja Parishad, Kadiyam, Government of Andhra Pradesh in recognition of the various development works done by the Company in Kadiyam Mandal. • 'Best Management Award' from the Government of Andhra Pradesh for the good practices followed to keep industrial harmony and good employee relations in the organization. Related Party Transactions All related party transactions that were entered into during the financial year under review were on arms length basis and were also in the ordinary course of business. There are no materially significant related party transactions entered into by the Company with the promoters, directors key managerial personnel which may have a potential conflict with the interests of the Company at large. The Board of Directors approved a policy on related party transactions which is placed on the Company's website. The related party disclosures are given in note no.27 to the financial statements. Remuneration Policy The Company has adopted the Nomination and Remuneration Committee Charter which includes the Company's policy on directors' appointment and remuneration including criteria for determining the qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) of the Companies Act, 2013. Pursuant to Section 178(4) of the Companies Act, 2013, the Company also adopted remuneration policy relating to remuneration for the directors, key managerial personnel and senior executives in the rank of vice president and above. The remuneration policy is placed on Company's website. Technology Absorption & Energy Conservation Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are given in the Annexure-1 attached and forms part of this Report. Risk Management The Company has a robust business risk management framework to identify and evaluate business risks and opportunities. This framework aims to create transparency, minimize adverse impact on the business objectives and enhance the Company's competitive advantage. The key business risks identified by the Company and its mitigation plans are as under: a. Fiber Procurement The Company spends more than 25% of its income on procurement of fiber viz. casuarina, subabul, mixed hard wood, eucalyptus etc. Keeping in view the criticality of this factor, the Company has been expanding farm forestry program to secure fiber supply. b. Competition Risk The paper industry is becoming intensely competitive with the expansion of capacities by the existing players and lower import duties. To mitigate this risk, the Company is leveraging on its expertise and experience by enhancing its brand equity/visibility and energy product portfolio. c. Occupational Health & Safety (OH&S) Safety of employees is of paramount importance to the Company. In order to inculcate safety culture in the Company, it has identified Occupational Health & Safety as one of its focus areas. Various training programs have been conducted at the plants and other locations. Accountability has been strengthened by integrating OH&S objectives into job descriptions with the introduction of management personnel and safety professionals. Directors a. Meetings of the Board The Company prepares Calendar of Meetings for each calendar year and circulates the same in advance to all the Directors. During the year under review, four Board meetings and four Audit Committee meetings were held. The details of the meetings held are given in the Corporate Governance Report forming part of Annual Report. During the year under review, Ms. Jayashree Satagopan resigned as Non-Executive Director with effect from the close of office hours of April 24, 2015. The Board placed on record its appreciation for the valuable advice and guidance received from Ms. Jayashree Satagopan. In accordance with the provisions of the Companies Act, 2013 and Articles of Association of the Company, Mr. Thomas G. Kadien retires by rotation at the forthcoming Annual General Meeting and being eligible offers himself for re-appointment. b. Independent Directors The Members at the 50th Annual General Meeting held on August 27, 2014 appointed the existing Independent Directors viz. Mr. Praveen P. Kadle, Mr. Adhiraj Sarin, Ms. Ranjana Kumar, Mr. Milind Sarwate and Mr. M.S. Ramachandran under the Companies Act, 2013 each for a term of five years up to March 31, 2019. All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 16(1)(b) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. c. Key Managerial Personnel There is no change in the key managerial personnel during the year. d. Performance Evaluation Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has carried out the annual performance evaluation of its own performance, as well as the evaluation of the working of its Committees. A separate exercise was carried out to evaluate the performance of individual directors including the Chairman & Managing Director who were evaluated on parameters such as level of engagement and contribution, independence of judgment, safeguarding the interests of the Company and its minority shareholders etc. e. Board Training and Induction At the time of appointing a Director, a formal letter of appointment is given to him/her, which inter alia explains the role, function, duties and responsibilities expected of him/her as a Director of the Company. The Director is also explained in detail the compliances required from him/her under the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other relevant laws and regulations. Details of familiarization of directors are disclosed on the website of the Company. f. Audit Committee The Audit Committee comprises of Mr. Milind Sarwate as Chairman and Messrs Praveen P. Kadle, Adhiraj Sarin, Thomas G. Kadien and Rampraveen Swaminathan as other Members. All the recommendations made by the Audit Committee were accepted by the Board. Extract of Annual Return The extract of Annual Return as on financial year ended March 31, 2016 as required under sub-section 3 of Section 92 of the Companies Act, 2013 in Form No. MGT 9 is attached as Annexure-2. Particulars of Employees The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, will be provided upon request. In terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary at the registered office in this regard. Vigil Mechanism The Company has adopted Whistle Blower Policy to deal with instance of fraud or any unethical or improper practices. A copy of this policy is placed on the Company's website. Internal Financial Controls The Company has an internal financial control system commensurate with the size, scale and complexity of the operations. Internal audit function was jointly controlled by in-house department and by a professional firm of chartered accountants. The main function of Internal Audit is to monitor and evaluate adequacy of internal control system in the Company, its compliances with the operating systems, accounting procedures and policies at all locations in the Company. Based on the report of internal audit function, process owners take corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions are reported to the Audit Committee Statutory Auditors audited the internal financial controls (IFC) over financial reporting of the Company as of March 31, 2016 in conjunction with audit of the financial statements of the Company for the year ended on that date. Unmodified opinion on IFC was given by them. Statutory Auditors The Members at the Annual General Meeting held on August 27, 2014 appointed Messrs Deloitte Haskins & Sells, Chartered Accountants, Hyderabad, as Auditors of the Company for a period of five years to hold office from the conclusion of 50th Annual General Meeting to the conclusion of the fifth consecutive annual general meeting subject to ratification of the appointment by the Members at every subsequent annual general meetings. Messrs Deloitte Haskins & Sells, Chartered Accountants have confirmed their eligibility and willingness to accept office, if re-appointed by the Members at the 52nd Annual General Meeting of the Company. Secretarial Auditors Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Messrs D. Hanumanta Raju & Co., a firm of Company Secretaries in Practice to undertake the secretarial audit of the Company. Secretarial Audit Report under Section 204(1) of the Companies Act, 2013 issued by Messrs D. Hanumanta Raju & Co., Practising Company Secretaries is attached as Annexure-3. Cost Auditors In terms of Section 148 of the Companies Act, 2013 read with the Companies (Audit & Auditors) Rules, 2014, the Board at their meeting held on April 22, 2016 appointed Messrs Narasimha Murthy & Co., Cost Accountants as Cost Auditors of the Company at a remuneration of Rs.6.50 lakhs (excluding service tax) plus reimbursement of travelling and out of pocket expenses on the recommendation of Audit Committee at their meeting held on April 22, 2016 for the financial year ending March 31, 2017 and their remuneration shall be ratified by the Members at the forthcoming Annual General Meeting. Cost Accounting Records Cost accounting records for the financial year under review were maintained as per the Companies (Cost Accounting Records) Rules. M/s. Narasimha Murthy & Co., Cost Accountants were appointed as Cost Auditors of the Company with the approval of Central Government to audit the cost accounts for the financial year ended March 31, 2016. The Cost Audit Report in XBRL form due for filing on September 27, 2015 for the financial year ended March 31, 2015 was filed with the Ministry of Corporate Affairs on September 30, 2015. The report for the year ended March 31, 2016 will be filed on or before end of September, 2016. Public Deposits The Company had discontinued its public deposit scheme in the financial year 2012-13. Despite efforts to identify and repay unclaimed deposit, the amount of public deposit matured and remaining unclaimed with the Company as on March 31, 2016 was Rs.0.65 lakhs. The Company has not accepted or renewed any deposit during the year from the public falling within the ambit of Section 73 of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014. During the year under review, there was no unclaimed deposit amount which is required to be transferred to Investor Education and Protection Fund. Particulars of loans, guarantees or investments No loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 were given during the year under review. Dividend In view of accumulated losses, your Directors decided not to recommend payment of dividend on the equity shares for the financial year under review. Subsidiary Company The Company made an investment of Rs.5 lakhs by way of share capital in IP India Foundation, a Section 25 company under the Companies Act, 1956 wherein the excess of income over expenditure will be applied for promoting its objectives. Accordingly, the accounts of IP India Foundation are not consolidated since the holding Company will not derive any economic benefit from its investment in IP India Foundation. During the financial year ended March 31, 2016, the Foundation recorded a deficit amounting to Rs.0.62 lakhs The Company undertakes that annual accounts of IP India Foundation and the related information will be made available to the members of holding company seeking such information at any point of time. The annual accounts of IP India Foundation is placed on the Company's website www.ipappm.com and is also available for inspection by any Member at the Registered Office of the Company during business hours on working days of the Company. Statement containing salient features of the financial statement of IP India Foundation for the financial year ended March 31, 2016 is attached as Annexure-4. Directors' Responsibility Statement Your Directors hereby confirm and declare that: • in the preparation of final accounts for the year ended March 31, 2016 the applicable accounting standards had been followed along with proper explanation relating to material departures; • they 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 financial year ended March 31, 2016 and of the profit of the Company for the year; • they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; • they had prepared the accounts for the year ended March 31, 2016 on a 'going concern' basis; • they had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating efficiently; • they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating efficiently. General • During the year under review, the Chairman & Managing Director of the Company has not received any remuneration or commission from the subsidiary company. • There were no significant material orders passed by the regulators or courts which would impact the going concern status of the Company and its future operations. • The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules there under for prevention and redressal of complaints of sexual harassment at workplace. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All women employees (permanent, contractual, temporary, trainees) are covered under this policy. Acknowledgements Your Directors wish to place on record their gratitude to the Central Government, the Government of Andhra Pradesh, the Government of Telangana, State Bank of India, Axis Bank Limited, Citibank N.A., BNP Paribas, JPMorgan Chase Bank, Royal Bank of Scotland and Bank of America N.A. for their continued support during the year. Your Directors wish to convey their thanks to the valued customers and dealers for their continued patronage during the year and place on record their appreciation of the contribution made by all the employees, during the year. For and on behalf of the Board Rampraveen Swaminathan Chairman & Managing Director Date : April 22, 2016 Place : Hyderabad |