DIRECTORS' REPORT TO SHAREHOLDERS We have the honour to present our Fifty-Sixth Annual Report and Audited Statement of Accounts for the year ended March 31, 2016. 2015-16 Operations: Main Results Once again, sales are the highest ever. Revenue from operations including excise duty in 2015-16 was Rs. 571.31 crores (up 5.7% over the previous year) and, net of excise duty, it was Rs. 544.35 crores (up 5.8% over the previous year). This year, profits are also the highest ever. Profit before tax was Rs. 60.23 crores (27.3% higher than the previous year). Net profit after tax was Rs. 40.34 crores (25.6% higher than the previous year), The net return after tax on shareholders' funds (net worth) was 67% (previous year: 56%). Management Discussion and Analysis We operate in one segment: Kitchenware. The industry structure is highly competitive in which both small scale and organized sector units operate. In 2015-16, our major focus has been in improving Distribution and making further improvements in our Advertising. Almost 1,500 new dealers have been created which is more than double of what has been done in any previous year. Distribution has also been strengthened by the setting up and training of 50 Hawkins Authorised Megawholesalers from all over India. Further, 118 Hawkins Authorised Showrooms have been set up in 83 towns. These improvements in Distribution are expected to bear fruit in the coming years, Other than increase in Distribution, we have had excellent response to our Advertising wherein we have added two new TV commercials and have improved the continuing three TV commercials. The raw material costs during the year were such that we were able to forgo the usual price increase in our products as of April 1, 2016. This should add buoyancy to our sales in 2016-17. The number of permanent employees as on April 1, 2015, was 820 and as on March 31, 2016, was 789. The morale of our employees at all locations is high. Industrial relations at all our locations are normal. We appreciate very much the contribution of our employees to the successful working of your Company. Profit before tax as a percentage of net sales in 2015-16 was 11.1% as against 9.2% in the previous year. Net profit after tax as a percentage of net sales in 2015-16 was 7.4% as against 6.2% in the previous year. Cash flow during the year was more than comfortable, Cash and cash equivalents as on March 31, 2016, were Rs. 48.92 crores (previous year: Rs. 31.59 crores). We have plans to utilise these funds appropriately, Control Systems In our judgment, the Company has adequate financial and administrative systems and controls and an effective internal audit function, Risks and Concerns All foreseeable risks that the Company may encounter and concerns have been addressed in a documented Risk Management Framework which is reviewed by the Board from time to time, Threats and Opportunities Management continues to diligently watch cost increase trends and seeks effective cost controls and necessary adjustment in prices as needed from time to time. The current and long-term vitality of the demand for our brands - Hawkins, Contura, Hevibase, Futura and Miss Mary - augur well for the future of your Company. Outlook We believe the outlook for our business is excellent. In this year, we have further strengthened the good reputation we have amongst our consumers and customers and we expect to increase our sales and profits handsomely, All forward-looking statements in our report are based on our assessments and judgments exercised in good faith at this time. Of course, actual developments and/or results may differ from our present anticipation. 2015-16 Operations: Other Aspects The value of exports at Rs. 27.72 crores in 2015-16 was down 17.1% over the previous year. The main reason for this was the fact that in April 2015 we took a 10% price increase in US dollars after two years - which caused our importers to advance their orders into the previous year. Foreign Exchange used in 2015-16 was Rs. 1.33 crores (Rs. 6.27 crores in the previous year), As our Research & Development Unit is recognised by the Department of Scientific and Industrial Research, our expenditure on R&D in 2015-16 shall be eligible for the benefit of deductibility of expenses at the rate of 200% for the purpose of the computation of income tax subject to the necessary approvals by the Department of Scientific and Industrial Research and the Income Tax Department. The expenditure on Research & Development in 2015-16 was Rs. 3.38 crores, up 10.0% over the previous year. Reauired details are given in Appendix I. Efforts continue in our factories and offices to save energy wherever possible, The details of deposits under Sections 73 and 76 of the Companies Act, 2013, are as follows: (a) Amount accepted during the year: Rs. 7.77 crores. (b) Amount remained unpaid or unclaimed as at the end of the year: Nil, (c) Default in repayment of deposits or payment of interest thereon: Nil, Dividend and Appropriations We are pleased to recommend Rupees Sixty per Share as dividend at the rate of 600% (previous year: Rupees Forty Five per Share). Our recommendation takes into account the profitability, circumstances and requirements of the business, Out of the amount available for appropriation of Rs. 51.95 crores (previous year: Rs. 45.25 crores), we propose: • Rs. 31.73 crores as provision for dividend (previous year: Rs. 23.80 crores) • Rs. 6.46 crores as tax on proposed dividend (previous year: Rs. 4.84 crores) • Rs. 1.00 crore transfer to General Reserve (previous year: Rs. 5.00 crores) and • Rs. 12.7 7 crores as surplus carried to the Balance Sheet (previous year: Rs. 11.61 crores). Directors' Responsibility Statement The Board confirms that: 1. The Directors have taken proper and sufficient care for the maintenance of adeauate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities, 2. In the preparation of the Annual Accounts, the applicable accounting standards have been followed and proper explanation given relating to material departures, The Directors have prepared the Annual Accounts on a going-concern basis, 3. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period, 4. Based on the framework of the internal financial controls and compliance systems established and maintained by the Company, the work performed by the Internal, Statutory and Secretarial Auditors, including audit of the internal financial controls over financial reporting by the Statutory Auditors, and the reviews performed by Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company's internal financial controls were adequate and effective during the financial year 2015-16. 5. The Directors have devised proper systems that are adequate and operating effectively to ensure compliance with the provisions of all applicable laws. Code of Conduct The Board has formulated an updated Corporate Governance Code of Conduct for all Directors of the Board and Senior Managers of the Company. This Code is available on the website of the Company. All Directors and Senior Management Personnel have affirmed compliance with the Code. A declaration to this effect signed by the Vice-Chairman and Chief Executive Officer of the Company appears elsewhere in this Annual Report. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 As required under the abovementioned Act, we report that in the year 2015-16 no case of sexual harassment of women was filed under the said Act, Corporate Governance A separate section on Corporate Governance forms part of our Report. A certificate has been received from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Both appear elsewhere in the Annual Report, Directors At the Board Meeting held on May 19, 2016, Mr. Ravi Kant has been appointed as an Additional Director of the Company with effect from June 1, 2016, to hold office up to the 56th Annual General Meeting. A resolution is proposed to the shareholders for his appointment as an Independent Director. Mr. Subhadip Dutta Choudhury, Vice-Chairman and Chief Executive Officer, retires by rotation as a Director at the 56th AGM of the Company and, being eligible, offers himself for re-appointment for which the Board has resolved to recommend to the shareholders a suitable resolution. The present tenures of Mr. Subhadip Dutta Choudhury, Vice-Chairman and Managing Director designated as Chief Executive Officer, and Mr. Sudeep Yadav, Executive Director-Finance & Administration, will expire on September 30, 2016. The Board at its Meeting held on May 19, 2016, approved and resolved to recommend to the shareholders suitable resolutions for the re-appointments of Mr. Dutta Choudhury as Vice-Chairman and Managing Director designated as Chief Executive Officer and Mr. Yadav as Executive Director-Finance & Administration for a further period of three years with effect from October 1, 2016, on revised terms, At its Meeting held on May 19, 2016, the Board approved the re-appointment of Mr. Brahm Vasudeva, Director and Chairman of the Board, as an Advisor to the Company on the terms approved by the Board for a period of five years with effect from April 26, 2017, All the five Independent Directors, namely, Mr. J. M. Mukhi, Mr. Shishir K. Diwanji, Mr. Gerson da Cunha, General V. N. Sharma (Retd.) and Mr. E. A. Kshirsagar have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. The Chief Executive Officer made presentations to the Independent Directors to update them on the Company's products and marketing policies, the impact of the new advertising program and the main items that had an impact on the Company in 2015-16 and how the Company has managed them. Details of the familiarization programmes are available at www.hawkinscookers.com/idfp , Auditors Messrs. Deloitte Haskins & Sells LLP retire and, being eligible, offer themselves for re-appointment, Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Company has appointed Ms. Jayshree S. Joshi, Proprietress of Jayshree Dagli & Associates, Company Secretaries in Practice, to undertake the secretarial audit of the Company for the year 2015-16. The Secretarial Audit Report is annexed as Appendix II. Extract of Annual Return in Form MGT-9 (Section 92(3) of the Companies Act, 2013) The required details are annexed herewith as Appendix III. Contracts or Arrangements with Related Parties All related party transactions during the year were on arm's length basis and were not material as per the Related Party Transaction Policy of the Company, Corporate Social Responsibility The Company has selected an appropriate project called 'Improving the Health of Women and Children by Cutting Indoor Air Pollution with pressure cooking'. As per Section 135 of the Companies Act, 2013, the Company had to spend Rs. 1.03 crores on activities under Corporate Social Responsibility in the year ended March 31, 2016. The Board had asked management to apply to the National Committee for Promotion of Economic and Social Welfare (NCPESW) for approval of the said CSR project under Section 35AC of the Income Tax Act, 1961, to avail the benefit of tax exemption, However, the Finance Act of 2016 has withdrawn the said tax exemption effective April 2017. Therefore, the earlier direction of seeking approval from NCPESW is now no longer being pursued and the Company intends to start the above project as soon as possible without seeking approval from NCPESW. The Annual Report on CSR is given as Appendix IV. Directors' Performance Evaluation The performance evaluation of each Director of the Board was carried out by the Nomination and Remuneration Committee at its Meeting held on May 19, 2016, as per the criteria set by it earlier. The said criteria are included in the Corporate Governance Report enclosed herewith. The performance evaluation of the non-independent Directors, the Board as a whole and the Chairman of the Board was carried out by the Independent Directors at their separate meeting held on May 19, 2016. The Board of Directors at its meeting held on May 19, 2016, reviewed the reports of evaluation received from the Nomination and Remuneration Committee and the Independent Directors and also the functioning of the Committees of the Board and carried out the evaluation of the Board as a whole, the Committees of the Board and each Director and found the performance of the Board, the Committees and all the individual Directors to be satisfactory. Remuneration Policy On the recommendation of the Nomination and Remuneration Committee, the Board has framed a Remuneration Policy for all employees of the Company including senior management and the Directors. The Remuneration Policy of the Company is designed to attract, motivate and retain suitable manpower in a competitive market. The remuneration package for each person is designed keeping a balance between fixed remuneration and profit and performance-linked incentives in order to achieve corporate performance targets. The policy is aligned with the Company's mission, which states: "Our single-minded determination to please customers drives the kind of people we employ and promote, the investments we make and the results we produce." The Board affirms that the remuneration is as per the Remuneration Policy of the Company. Information as per Section 197 of the Companies Act, 2013, is given in Appendix V, Vigil Mechanism The Company has established a vigil Mechanism/ Whistle Blower Policy for Directors and employees to report genuine concerns or grievances including unethical behaviour, fraud or violation of the Company's Corporate Governance Code of Conduct. The authority for the implementation of the policy rests with the Executive Director-Finance & Administration under the overall supervision of the Audit Committee of the Board, ON BEHALF OF THE BOARD OF DIRECTORS BRAHM VASUDEVA CHAIRMAN Mumbai June 24, 2016 |