REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31st MARCH, 2016 The Board of Directors has pleasure in presenting this Ninety- seventh Annual Report of the Company together with the Audited Financial Statements for the year ended 31st March 2016. DIVIDEND The Board recomends payment of the contractual dividend amounting in total to Rs. 750/- (Rupees seven hundred and fifty only) to the holders of the 0.001% Optionally Convertible Redeemable Preference Shares issued during the year. No dividend on Equity Shares is recommended. SHARE CAPITAL The Paid-up Equity Share Capital as on 31st March, 2016 amounting to Rs. 117.27 crore is comprised as follows: Rs. / crore Equity Share Capital as on lst April, 2015 109.77 Add : Issued during the year on preferential basis 7.50 Closing Equity Share Capital 117.27 In addition, the Company has issued, on preferential basis, 7,50,000 numbers 0.001% Optionally Convertible Redeemable Preference Shares of Rs. 100 each amounting to Rs. 7.50 crore. The Company will redeem these Shares at the end of eighteen months from the date of allotment unless converted into Equity Shares by the holders before that date. Premium received against the two aforementioned preferential issues amounting in total to 1165 crore has been credited to the Securities Premium Account. SECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES 10.50% Secured Redeemable Non Convertible Debentures amounting to Rs. 200 crores issued during the previous year were redeemed in full on 13th April, 2016. DEPOSITS The Company has not, during the year, accepted any deposits within the meaning of Section 73 of the Companies Act, 2013 ("the Act"). Deposits amounting to Rs. 4.46 lakhs from two persons remained unclaimed as at the end of the year. There are no deposits not in compliance with the requirements of Chapter V of the Companies Act, 2013 ("the Act"). GENERAL REVIEW The Company reported a Profit after Tax of Rs. 137.12 crore against a Loss of Rs. 366.68 crore in the previous year. The Company has, in the last two years, embarked upon a number of initiatives to return to profit and also to strengthen its Balance Sheet. It took a number of actions that have resulted in a turnaround of the bottom-line after a lapse of five years. The Company operates in three business segments - Cement, Tyres and Rayon. The businesses performed in the backdrop of continuing stagnancy in the macro-economic environment. The Businesses had to deal with the ongoing depressed infrastructure market. This resulted in weak demand, unfavourable volumes and a difficult pricing environment across businesses. Total Revenue for the year under review stood at Rs. 4554.23 crore as compared to Rs. 4963.00 crore in the previous year. De-growth in revenue has been on account of the reasons cited above. The Cement market in South India, where the Company operates, continued to suffer from slackness in demand and pricing pressures arising from overcapacity in the region. Despite these hindrances, the Cement Business reported a steady revenue of Rs. 2406.47 crore during the Financial Year 2015-16 against Rs. 2319.21 crore in the previous year. The Business penetrated new geographies, changed its product mix and resorted to aggressive selling resulting in increased sales volume of 56.98 lakh MT during the Financial Year 2015-16 as compared to51.99 lakh MT in the previous year. The Tyre Business reported a revenue of Rs. 2146.76 crore during the Financial Year 2015-16 against Rs. 2643.79 crore in the previous year. The decline is attributable to a slowdown in the heavy duty commercial vehicle tyre segment in the country as well as lower export volumes. The 2-3 wheeler and off-the-road tyre segments performed comparatively well. The Business is currently being adequately reinforced in order to further increase market share. The Rayon Business had to contend with start-up capital costs relating to the modernisation programme undertaken in the previous year. It also had to contend with power disruptions resulting in loss of production. Despite these odds, the Business recorded steady revenue of t 322.80 crore during the Financial Year 2015-16 against Rs. 285.81 crore last year. As mentioned earlier, the Company commenced various initiatives in order to strengthen its Balance Sheet. These are as follows: 1. As stated in the Annual Report last year, the Tyre Undertaking situated at Laksar in Uttarakhand was transferred to the Company's subsidiary, Cavendish Industries Limited ("Cavendish'),and was held for sale. The said Undertaking was transferred to the JK Tyre Group in April 2016 and the deal concluded. The net realisation from such disposal was used to partially retire the Company's portfolio of long term borrowings so as to bring down debt to a more credible level; 2. The Undertakings of the two businesses under suspension of work, viz. Spun Pipe & Foundries and Heavy Chemicals, were sold and transferred, effective close of business 31st March, 2016, through the slump sale route under Sections 50B of the Income Tax Act, 1961 to Camden Industries Limited (CIN : U24100WB2015PLC206721) after obtaining the requisite shareholder approval; 3. The Rayon Undertaking was transferred to Cygnet Industries Limited (CIN : U74900WB2015PLC206720) ("Cygnet"), effective close of business 31st March, 2016 also through the slump sale route after obtaining the requisite shareholder approval. Cygnet has since become a wholly owned subsidiary effective 7th May, 2016; 4. Equity Shares of several listed companies held by the Company as Investments over many years were disposed of. A brief analysis of the performance of each Business during the Financial Year 2015-16 and the outlook going forward appears in the Management Discussion & Analysis. MANAGEMENT DISCUSSION & ANALYSIS AND CORPORATE GOVERNANCE A Management Discussion & Analysis and the Report on Corporate Governance are attached as Annexures I and II respectively of this Annual Report. RISK MANAGEMENT The Company's Risk Management Policy is well defined to identify and evaluate business risks across all businesses. It assesses all risks at both pre and post-mitigation levels and looks at the actual or potential impact that a risk may have on the business together with an evaluation of the probability of the same occurring. Risk mapping exercises are carried out with a view to regularly monitor and review the risks, identify ownership of the risk, assessing monetary value of such risk and methods to mitigate the same. GOING CONCERN STATUS Regulators or Courts or Tribunals passed no significant or material orders during the year affecting the Company's going concern status and its future operations. INTERNAL FINANCIAL CONTROL The Board has inter alia reviewed the adequacy and effectiveness of the Company's internal financial controls relating to its financial statements. The Board also discussed major financial risk exposures and the steps taken by it to monitor and control such exposures. The internal control structure showed no reportable material weaknesses. The Company's Internal Financial Control framework is in line with current best practices and effectively addresses emerging challenges of its businesses. EVALUATION OF BOARD PERFORMANCE The Board carried out an annual evaluation of its own performance, of each Board Member individually as well as the working of its Committees. The manner in which the evaluation was carried out has been explained in the Report on Corporate Governance, which forms part of this Report. As required under the provisions of the Act, a Meeting of all Independent Directors was duly convened and held during the Financial Year 2015-16. NUMBER OF BOARD MEETINGS A tentative calendar of Board Meetings is prepared and circulated to Board Members in advance. During the Financial Year 2015-16, ten Board Meetings were duly convened and held, details of which are provided in the Report on Corporate Governance. NOMINATION AND REMUNERATION POLICY The Company's Nomination and Remuneration Policy prepared in accordance with Section 178(3) of the Act is available in Annexure III to this Report. AUDIT COMMITTEE Members of the Audit Committee as on 31st March 2016 were Amitabha Ghosh as Chairman and Vinay Sah, K P Khandelwal, Sudip Banerjee and Lee Seow Chuan as Members. The Company Secretary is the Secretary of the Committee. The Chief Business Officer and the Chief Financial Officer are permanent invitees to the Meetings. Pesi Kushru Choksey was Chairman of the Committee till his demise on 26th December, 2015. Amitabha Ghosh succeeded him as Chairman of the Committee during the year. All recommendations of the Audit Committee were duly accepted by the Board and there were no instances of any disagreements between the Committee and the Board. CORPORATE SOCIAL RESPONSIBILITY Over the past several decades, the Chairman of the Company was very persistent in ensuring that the Company performs its corporate social responsibilities. Accordingly, the Company has taken several initiatives in the areas of education, health, hygiene, empowerment, livelihood and community development during the Financial Year 2015-16 that satisfies the requirements of Section 135 of the Act. The Company has a codified Social Responsibility Policy, the text of which is available on www.kesocorp.com. The Corporate Social Responsibility Committee was constituted on 29th April, 2014 and the Members as on 31st March, 2016 were Manjushree Khaitan as Chairperson and Amitabha Ghosh and Kamal Chand Jain as Members. Tridib Kumar Das has since replaced Kamal Chand Jain as a Member effective 1st April, 2016. The Report on Corporate Social Responsibility (CSR) activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 is given in Annexure IV to this Report. RELATED PARTY TRANSACTIONS All related party transactions / arrangements entered during the year under Report were on an arm's length basis and in the ordinary course of business. There was no materially significant related party transaction entered into by the Company with the Promoters, Directors, Key Managerial Personnel or other designated persons, which could conflict with the interest of the Company as a whole. Based upon shareholder approvals granted under Section 188 of the Act, the Company's Rayon and Transparent Paper Undertakings were transferred to Cygnet. Cygnet is now a wholly owned subsidiary of the Company. As required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI LODR Regulations, 2015"), related party transactions are placed before the Audit Committee for approval. Where required, prior approval of the Audit Committee is obtained on an omnibus basis for continuous transactions and the corresponding actual transactions become a subject of review at subsequent Audit Committee Meetings. The relevant Form AOC-2 pursuant to Rule 8(2) of the Companies (Accounts) Rules, 2014 is attached in Annexure V to this Report. The Company's Related Party Transaction Policy appears on its website with web link www.kesocorp.com/DOCS/management_corner. php#slide_5. SUBSIDIARY AND JOINT VENTURE COMPANY Cavendish was a subsidiary company as at 31st March, 2016. The ownership of this subsidiary was transferred to the JK Tyre Group in April, 2016. In view of such disposal, Cavendish has not been considered for consolidation with the Company's Financial Statements as at 31st March, 2016. Gondkhari Coal Mining Limited ("Gondkhari"), a Special Purpose Vehicle ("SPV"), was incorporated in 2008 as a Joint Venture between the Company (45.46% shareholding), Maharashtra Seamless Limited (30.30% shareholding) and Dhariwal Infrastructure Limited (24.24% shareholding). Thejoint venture was set up as per Central Government directives to develop and work the Gondkhari Coal Block in the State of Maharashtra that the Central Government had allocated. The Supreme Court, vide judgment dated 25th August, 2014, read with Order dated 24th September, 2014, cancelled the allocation of all coal blocks (including Gondkhari) by the Central Government. The deallocation of the coal block has made the SPV defunct. In view of the provisions of Paragraphs 11, 28 of Accounting Standards ("AS") 21 and Paragraph 38 of AS 27, consolidation of the Financial Statements of these companies as at 31st March, 2016 are not mandated. Therefore, a Report on the performance and financial position of these companies, as required under Rule 8(1) of the Companies (Accounts) Rules, 2014, is not annexed to this Report. PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS The Company has not given any loan, corporate guarantee or security nor made any investment covered under Section 186 of the Act during the Financial Year 2015-16. VIGIL MECHANISM The Company has a codified Whistle Blower Policy which is hosted on its website www.kesocorp.com. STATUTORY AUDITORS Shareholders have already reappointed at the Company's Ninety-fifth Annual General Meeting, Messrs. Price Waterhouse, Chartered Accountants, Kolkata (Firm Regn. No.301112E) as the Company's Auditors for a period of three years till the conclusion of the Company's Ninety Eighth Annual General Meeting. Their appointment will, therefore, need ratification at the Company's forthcoming Ninety-seventh Annual General Meeting for which an appropriate Resolution will be proposed. COST AUDITORS The Board, upon a recommendation from the Audit Committee, appointed Mani & Co., and B. Ray & Associates, Cost Accountants as Cost Auditors to audit the cost accounting records maintained by the Company for the Financial Year ended 31st March, 2016 at a total remuneration of t 8.31 lakh, excluding taxes and reimbursement of out of pockets as indicated in the matrix below: As per Section 148(3) of the Act, the remuneration payable to the Cost Auditors requires ratification by Shareholders. Accordingly, a Resolution seeking such ratification has been included as part of the Notice convening the Ninety-seventh Annual General Meeting. SECRETARIAL AUDITOR The Board appointed Salil Banerjee, FCS, Practising Company Secretary (CP Registration No. 1140) to audit the secretarial records of the Company in respect of the Financial Year 2015-16. The Report of the Secretarial Auditor is attached in Annexure VI to this Report. There are no qualifications in the Report. PARTICULARS OF EMPLOYEES Disclosures pertaining to remuneration and other particulars as prescribed under the provisions of Section 197 of the Act read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are set out in Annexure VII and forms part of this Report. None of the employees listed in the said Annexure is related to any Director of the Company. As per the provisions of Section 136 of the Act, this Annual Report and Accounts is being sent to each Member and others entitled thereto, excluding the information on employee particulars as per Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. This information is readily available for inspection by Members at the Company's Registered Office between 3:00 PM and 5:00 PM on all working days (excluding Saturdays) up to the date of the forthcoming Annual General Meeting. Should any Member be interested in obtaining a copy (including through e-mail gg@kesoram.net), s/he should write to the Company Secretary at the Company's Registered Office. DISCLOSURE UNDER SEXUAL HARRASSMENT OF WOMEN AT WORKPLACE The Company has in place the requisite Internal Committees as envisaged in the Sexual Harassment of Women at workplace (Prevention, Prohibition and Redressal) Act, 2013. No complaints on the issues covered by the above Act were received during the year. DIRECTORS' RESPONSIBILITY STATEMENT: Pursuant to Section 134(5) the Act and, based upon representations from the Management, the Board, to the best of its knowledge and belief, states that: (a) in the preparation of the Annual Accounts, applicable accounting standards has been followed along with proper explanation relating to material departures; (b) such accounting policies have been selected and applied consistently and suchjudgments and estimates have been made 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 ended 31st March, 2016 and of the profit for that period; (c) proper and sufficient care was taken 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 Annual Accounts have been prepared on a going concern basis; (e) internal financial controls have been laid down to be followed by the Company and that such internal financial controls are adequate and operating effectively; and (f) proper systems have been devised to ensure compliance by the Company with the provisions of applicable laws and that such systems were adequate and working effectively. DIRECTORS Pesi Kushru Choksey (DIN 00060508), Independent Director, passed away on 26th December, 2015, ending an association that spanned over three decades. A Finance professional gifted with rare erudition, his contributions to Board and Committee deliberations have been immeasurable. The Board will greatly miss his august presence. Kamal Chand Jain's (DIN 00029985) ("K C Jain") tenure as a Whole-time Director expired by efflux of time effective close of business on 31stMarch, 2016. Consequently, he retired from the Board and the Company from this date. K C Jain had an illustrious tenure in the Company as an employee having served it with distinction for over 50 years. He was elevated as a Whole-time Director effective 15thApril, 2011. The Board wishes to gratefully acknowledge K C Jain's loyal and dedicated services to the Company. Tridib Kumar Das (DIN 01063824), Chief Financial Officer, has been appointed a Whole-time Director, effective 1stApril, 2016. A Special Resolution proposing his appointment and the payment of remuneration to him is included as part of the Notice convening the forthcoming Ninety-seventh Annual General Meeting. All Independent Directors have furnished to the Company the requisite declarations that they meet the independence criteria as laid down under Section 149(6) of the Act and the Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations,2015 Basant Kumar Birla (DIN 00055856), Chairman, retires by rotation and, being eligible, offers himself for reappointment. An Ordinary Resolution is included as part of the Notice convening the forthcoming Annual General Meeting. Brief profiles of Directors being appointed / re-appointed are given in the Report on Corporate Governance. KEY MANAGERIAL PERSONNEL The following functioned as Key Managerial Personnel during the year: Manjushree Khaitan Executive Vice Chairperson Arvind Kumar Singh Chief Executive Officer-Business Operations (till 4th May, 2016) Tridib Kumar Das Chief Financial Officer Enrico Malerba Chief Business Officer (effective 26th February, 2016) Gautam Ganguli Company Secretary Kamal Chand Jain Whole time Director (till 31st March, 2016) CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNING AND OUTGO Information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, set out in Annexure VIII to this Report. MATERIAL CHANGES BETWEEN THE END OF THE FINANCIAL YEAR AND DATE OF REPORT As already stated elsewhere in this Report: (a) Cavendish ceased to be a subsidiary effective 13th April, 2016 upon its ownership being transferred to the JK Tyre Group; and (b) Cygnet, to whom the Rayon and Transparent Paper Undertakings was transferred effective close of business 31st March, 2016, became a wholly owned subsidiary of the Company on 7th May, 2016. EXTRACTS FROM ANNUAL RETURN Details forming part of extract from the Company's Annual Return in Form MGT 9 are furnished in Annexure IX to this Report. ANNEXURES FORMING PART OF THIS REPORT Annexure Particulars I Management Discussion & Analysis II Report on Corporate Governance III Nomination & Remuneration Policy IV Report on Corporate Social Responsibility (CSR) activities V AOC -2 VI Secretarial Audit Report VII Remuneration related disclosures per Section 197 VIII Energy Conservation Particulars IX Annual Return Extracts APPRECIATION The Board wishes to gratefully acknowledge the understanding and support received by the Company from its employees. It would wish to thank the banking system, the Central Government, the various State Governments and the local authorities for the support received during the year. This Report will be incomplete without a specific appreciation for the Members of the Company who have shown immense confidence and understanding in the Company's well being. Tridib Kumar Das Whole-time Director & Chief Financial Officer Basant Kumar Birla Chairman Manjushree Khaitan Executive Vice Chairperson Enrico Malerba ChiefBusiness Officer Gautam Ganguli Company Secretary Amitabha Ghosh Directors Kashi Prasad Khandelwal Directors Sudip Banerjee Directors Lee Seow Chuan Directors Place: Kolkata Date: 25th May, 2016 |