DIRECTORS’ REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS. The Directors have pleasure in submitting their Report together with the Audited Financial Statements of your Company for the year ended 31 December 2015: Financial Performance Your Company recorded a moderate increase in revenues during the year under review despite the challenging macro-economic environment and continuing contraction of demand and growth in most of the end user industry segments both in the Gases and Project Engineering businesses. The iron and steel industry which is the major consumer of industrial gases in India saw sluggish demand with subdued activity across main steel consuming sectors such as construction, general engineering and infrastructure. While the rising import of steel in India further aggravated the scenario, the gases demand from other sectors such as chemicals, fabrication, etc also remained subdued amidst weak economic conditions. Despite these headwinds, your Company was successful in increasing volumes and grow its business selectively in sectors such as automobile and healthcare. The uncertain economic environment also delayed several customer projects, which adversely impacted sales and order intake in the Project Engineering business. Your Company continued its focus on cost control initiatives resulting in savings in energy cost and fixed cost reduction. Focus on operational efficiencies supported by softening of crude and commodity prices have also helped to maintain the overall profitability. Total Revenue from operations during the year amounted to Rs. 17,023.47 million as compared to Rs.16,148.67 million in the previous year, which reflected a growth of over 5% over that of the previous year. While the sales of products in the Gases business amounted to Rs.14,987.72 million as compared to Rs.13,919.85 million in the previous year, the revenues from construction contracts, mainly from Project Engineering Division amounted to Rs.1,910.36 million as compared to Rs.2,022.70 million in the previous year. Your Company’s financial performance continued to feel the impact of higher depreciation and higher interest costs in respect of newly commissioned plants, which coupled with under-utilisation of the new capacities have adversely impacted financial performance. The operating profit of the Company amounted to Rs.2,614.64 million as against Rs. 2,877.90 million achieved in the previous year. This includes a profit of Rs.151.39 million (net) arising from disposal of factory land at Taloja and right to use an apartment at Kolkata, which has been disclosed as other income. The profit after depreciation, impairment and interest amounted to Rs.100.56 million as compared to Rs.35.78 million in the previous year. In compliance with the Companies Act, 2013, your Company has adjusted the useful lives of its fixed assets resulting in lower depreciation charge of Rs. 1,615.25 million as compared to Rs. 1,813.46 million in the last year, which contributed to higher EBIT. During the year, the Company had also restructured its existing external commercial borrowings resulting in cancellation of cross currency interest rate swaps and a net gain of Rs.86.95 million arising from this has been transferred from Translation and Hedging Reserves to the Statement of Profit and Loss, which has been shown as other income. Overall finance cost has been brought down to Rs. 898.83 million against Rs. 1,028.66 million in the previous year as a result of re-financing of external commercial borrowings and reduction of interest rates on working capital loans. During the year, the Company incurred an amount of Rs.95 million towards a voluntary retirement scheme launched by the Company with a view to refine the organisation. During the year, your Company availed tax benefit on investment allowance under Section 32 AC of the Income Tax Act, 1961 in respect of its investment in the plant and machinery of its Air Separation Units at Kalinganagar, which has resulted in deferred tax release of Rs.253.26 million. The net profit after tax during the year amounted to Rs.234.57 million as compared to Rs.54 million achieved in 2014. Dividend Your Directors have after detailed deliberations on the performance of the Company recommended a lower dividend @ 7.50% (Re.0.75 per equity share of Rs.10 each) on 85,284,223 equity shares of Rs.10 each for the year 2015 as compared to 15% (Rs.1.50 per equity share of Rs.10 each) paid in the previous year. The dividend together with the dividend tax will result in a cash outlay of Rs. 76.98 million. The Board has not recommended any transfer to general reserve from the profits of the year under review. Industry Developments The gases business is capital intensive by nature as it requires large investments in setting up of air separation units as well new packaged gases sites. The supply chain in the gases business also requires significant investments in the form of distribution assets and storage networks to service bulk volumes as well as in the form of cylinders to service relatively smaller volumes in packaged gases business. The industry comprises major users in steel, chemicals and refinery sectors and a large number of merchant liquid customers primarily in metal, glass, automobile, petrochemicals and pharmaceutical sectors, besides customers for medical gases. New applications continue to provide growth opportunities. This growth is also supported by the increasing outsourcing of gases requirement under a ‘Build Own Operate’ (BOO) type of supply scheme opportunities mainly in steel and refinery sectors. The project engineering business on the other hand is characterised by a different business model and thrives on designing and engineering, supply, installation, commissioning and sale of air separation units, cryogenic plants, vessels, etc. to third parties on turnkey basis. The project engineering business therefore, reflects the appetite for new projects in diverse core sectors of the economy. Business Segments Your Company’s business has two broad segments, viz. Gases and Related Products and Project Engineering in line with the operating model of its parent, Linde AG. Gases and Related Products The Gases and Related Products segment comprises of pipeline gas supplies (On-site) to very large industrial customers - mainly primary steel production and refining industry, supply of liquefied gases through cryogenic tankers (Bulk) to cater to mid-size demands across a wide range of industrial sectors and compressed gas supply in cylinders (Packaged Gas) for meeting smaller demand for gases mainly across fabrication, manufacturing and construction industry. The primary production of gases (oxygen, nitrogen & argon) is mostly achieved through cryogenic distillation of air in Air Separation Units (ASU). Oxygen, Nitrogen and Argon may be produced in the gaseous state and supplied through pipeline to the on-site customers, or produced in liquid form and stored in insulated cryogenic tanks for supply to bulk customers or further processed in the Packaged Gas plants to bottle compressed gas in cylinders. The strategy of the bulk and packaged gases business is to build and establish sustained market leadership by differentiating with the help of application led gas sales and enhanced customer experience. The Healthcare business, an important part of the Gases business provides high quality gases for pharmaceutical use such as medical oxygen, synthetic air, nitrous oxide in addition to providing state of the art medical gas distribution systems to major hospitals. Your Company also provides total gas management solutions to private hospital chains and has ambitious plans to expand beyond its current footprint, which is predominantly in the metro cities. The strategy of the healthcare business is to sustain its leadership position in the large hospitals in metro cities and increase penetration in tier 2 cities. The turnover of your Company’s gases business for the year 2015 recorded a growth of about 7% over 2014 on the back of revenues from newly commissioned ASUs at Rourkela and Dahej and higher loading at Jamshedpur ASU despite general slowdown in industrial activities in several sectors. This growth was primarily achieved by revenues realized from the newly commissioned plants, while the base gases demand remained subdued. There has been significant product oversupply in the markets with number of new ASUs coming on-stream while demand continued to be weak. The automobile, stainless steel and ancillary sectors experienced a flat demand through the year. While the bulk products recorded a growth of 8%, the packaged gases business recorded a marginal growth of 4% over last year. The Healthcare segment continues to provide a strong growth lever for your Company; this segment continues to show robust growth unaffected by the adverse economic conditions. Your Company has not only been able to consolidate its existing business in Healthcare sector, but also expand geographic footprint to capture growth opportunities in non-metro cities. Opening of the first dedicated medical oxygen filling facility in Siliguri, West Bengal during the year was one of the success stories in this regard. Linde India’s credibility as a service provider of medical engineering services was further strengthened by rendering technical consultancy to Manipal Hospital for one of their medical gas pipeline projects in India. Your Company sees several opportunities in the Gases business in the medium to long term. The merchant liquid capacity built by the Company as a result of the investments in new Air Separation Units over the last few years is an opportunity to cater to future demand as the Company is poised to secure the upsides promptly as soon as the economy turns around on the back of the Government’s focus on “Make in India” and its thrust on reviving the economy by boosting investments in several sectors. Your Company is also selectively expanding its geographic footprint, among others at Dahej, which provides us the opportunity to tap into the fast growing markets in Gujarat. Besides, the newly set up Application Technology Centre in Chakan in Pune is expected to drive opportunities to promote new gas application technologies that help to increase the addressable market size. Your Company has made good progress in growing its shielding gases portfolio and continues to see further opportunity to ramp up shielding gases volumes in the automobile industry. On the other hand, over-capacity and over supply position in the markets in the short term, rising power cost in West India and pricing pressure in merchant markets and depressed helium market scenario appear to be some of the threats facing the Gases business. Project Engineering The Project Engineering Segment comprises the business of designing and engineering, supply, installation and commissioning of tonnage Air Separation Units (ASU) of medium to large size, apart from projects relating to setting up of nitrogen plants, hydrogen Pressure Swing Adsorption (PSA) plants, compressed air systems and gas distribution systems. The Project Engineering Division (PED) also manufactures cryogenic vessels, small size Liquid Nitrogen Plant (LINIT), steam bath vaporizers, containerized micro plants for cylinder filling for in-house use as well as for sale to third party customers. The market conditions in the Project Engineering business remained very challenging in 2015 reflecting the state of the economic conditions and the subdued core sector. This has resulted in lower revenues in the Project Engineering segment during the year under review in comparison to the previous year. Project Engineering Division achieved revenue of Rs. 1,903.65 million as compared to Rs. 2,001.58 million recorded in 2014. During this year, the Division was engaged in execution of several projects involving air separation plants, nitrogen plants, compressor air stations in steel industry both in public and private sectors. During the year, the Division has completed most of the supplies for 2X1250 tpd Air Separation Units for NMDC which are expected to be commissioned towards the end of 2016. The execution activities for new compressed air station for RINL Visakhapatnam Steel Plant and nitrogen generation package for LNG terminals at Mundra and Dahej are at its final stages. The execution of these and several other projects is progressing well. In its continuing support to grow the Gases business, PED is currently executing large in house project for the Gases Division, viz. 2X1200 tpd Air Separation Units at Tata Steel’s greenfield site at Kalinganagar in Odhisa, which are expected to be commissioned within first half of 2016. Despite market challenges, the Division was able to win third party orders to the tune of approximately Rs. 4,000 million during the course of the year, which include orders received from JSW Steel and Inox AP for supply of Air Separation Units. Besides, the Division also bagged an order for supply of a merchant liquid plant to Linde Bangladesh. PED has also collaborated with Linde Kryotechnik, Switzerland for winning a large order from ITER India for supplying equipment for setting up of cryo distribution system in France. The Division is continuing its efforts to win orders in the overseas markets and during the year received orders from Kenya and Bangladesh for supply of liquid nitrogen plants, construction of a PGP site, relocation of CO2 plant, etc. These projects are expected to be commissioned and executed in 2016. While the Division provides great support in execution of in-house ASU projects for the Gases Division, it also continues to remain focused to make its business more competitive through several initiatives to increase the indigenous component through innovative methods leveraging its strengths. In this connection, PED has developed three ASU products through licensing agreement with Linde Engineering, Munich. PED also developed manufacturing of two new products i.e. steam bath vaporizers & containerized micro plants for cylinder filling. The Division has supplied two containerized micro plants during the year to Linde Malaysia and is pursuing for new orders in this geography. Similarly for the first time PED has received an order from Reliance industries for supplying a 30,000 Nm3/hr capacity steam bath vaporizer which will be manufactured at PMW Works at Kolkata. Design, engineering know how for these vaporizers will be provided by Linde Engineering, Munich. The Division’s total third party orders in hand stood at Rs. 4,690 million as on 31 December 2015. Risks Management Your Company’s business faces various risks - strategic as well as operational in both its segments viz. Gases and Project Engineering, which arise from both internal and external sources. As explained in the report on Corporate Governance, the Company has an adequate risk management system which takes care of identification, assessment and review of risks as well as their mitigation plans put in place by the respective risk owners. The risks which were being addressed by the Company during the year under review included risk relating to over dependence of business on steel sector, increasing power costs, risk of investments not delivering business case assumptions including merchant credits, competitive risks in the Gases and Project Engineering, etc. Since the Project Engineering Division of your Company is engaged in execution of various in house and third party projects, it has an inherent risk of time and cost overruns due to various reasons. Your Board of Directors provides oversight of the risk management process in the Company and reviews the progress of the action plans for the identified key risks with a distinct focus on top 5 key risks on a quarterly basis. During the year, your Board of Directors approved and adopted a Risk Policy with an objective to provide a more structured framework for proactive management of all risks related to the business of the Company and to make it more certain that growth and earnings targets as well as strategic objectives are met. Finance As on 31 December 2015, your Company had three loan facilities by way of External Commercial Borrowings (ECB) aggregating to Rs. 10,693 million from Linde AG. The facilities were executed for funding of the 2550 tpd Air Separation Units at Tata Steel Jamshedpur, 2X853 tpd Air Separation Units at Steel Authority’s Rourkela Steel Plant and 2X1200 tpd Air Separation Units at Tata Steel, Kalinganagar and a Hydrogen Steam Methane Refining unit at Asian Peroxide works in Sullurpet. During the year, the Company refinanced its current outstanding Euro ECBs for SAIL, Rourkela and Tata Steel, Jamshedpur to fixed rate INR facilities with their repayment tenor extended till 2020. The ECBs are fully hedged both with regard to the principal and interest payments. The third facility is a fixed rate INR facility equivalent to Euro 77.6 million, whose draw down was completed during the year. As such all the three facilities are fully drawn down. During the year, the Company availed a three-year floating rate term loan facility aggregating to USD 15.67 million equivalent of Rs. 1,000 million from Citibank. The term loan facility was executed to fund ongoing small capital expenditure requirement. This facility is in addition to three year floating rate, two term loan facilities aggregating to USD 24.95 million equivalent of Rs. 1,500 million executed in the previous year. All the three facilities are fully hedged with regard to the principal and interest payments. During the year, with a view to raise short term finance, the Company has also availed an inter corporate loan of Rs. 500 million from Linde Engineering India Private Ltd. at a competitive interest rate for a period of one year. The facility was executed as an alternative financing mode for short-term funds. During the year, the Company transferred a sum of Rs. 0.77 million of unpaid/unclaimed 53rd dividend for the nine months period ended 31 December 2007 to the Investor Education and Protection Fund, which could not be claimed despite reminders sent to the concerned shareholders. There were no material changes and commitments affecting the financial position of the Company, which occurred between the end of the financial year to which this financial statements relate and the date of this report. Deposits During the year, the Company has not accepted any deposits from public under Chapter V of the Companies Act, 2013. Significant and Material Orders passed by the Regulators or Courts There have been no significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status and Company’s operations. Particulars of loans, guarantees or investments The particulars of loans, guarantees given and investments made during the year under Section 186 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 are annexed to this Report. [Annexure 1] Safety, Health, Environment and Quality (SHEQ) Safety is one of the foundational principles upon which the Linde Spirit is built. Safety remains the top most priority of the Company and the SHEQ rules and procedures are clearly defined, understood, respected and complied with by employees at all levels and contractors alike. In order to reinforce on the SHEQ agenda, your Company continues to focus on ensuring compliance with the Linde Group’s Golden Rules of Safety. This year, a new Golden Rule on personal ownership for Safety was rolled out with the revised SHEQ policy. During the year, The Linde Group carried out a global survey in order to assess its safety performance and culture and based partly on the results of this survey, existing targets and performance indicators were reviewed and redefined. Besides, a Safety Perception Survey was carried out covering all employees, contractors, drivers, helpers, security guards, etc. Global Safety Assessment in India was carried out by a third party at the Company’s Taloja and Hyderabad ASU sites. The team provided a very positive feedback about the safety culture at these sites. The Results of the assessment and the actions were shared with the management team and cascaded to all sites. The survey highlighted the areas where Linde India was doing well, which included high level of awareness on Safety and Golden Rules, focus on Transport Safety operations being critical to our business, robust SHEQ training for Operations and presence of a rigorous accident investigation process. During the year under review, your Company continued to make good progress with its SHEQ agenda. Your Company’s aspirations for achieving growth are not without its own share of challenges of new sites, new geographies, rising number of kilometres run by the fleet of the Company’s transport tankers and delivery vehicles for delivering products to customers across the country. In the backdrop of a very challenging external environment, your Company ended the year 2015 without any Lost Time Injury to its employees although there was one such case in respect of its contractor employee. This demonstrates that we are taking the early steps towards achieving our aspirational safety goal- “All incidents are preventable and zero injuries is achievable.” Your Company continues to mandate complete transparency in reporting of all accidents and incidents; even the minor ones are reported. Thereafter, depending on the incident, the same is duly investigated; corrective actions are identified and actioned upon. The “Lessons from Incidents” (LFIs) of all major Incidents are circulated to prevent repeat of similar incidents. Your Company has so far covered 341 employees in the mandatory SHEQ Induction & Training programme which was commenced during the second half of 2014. Futher it continued to reinforce competency assessments for engineers and contractors on safety & operations critical chapters mainly aimed at covering all high risk jobs. Transport Safety remains the single biggest challenge and focus area for improvement. Trained personnel at our Fleet Control Room (FCR) monitor driver behaviour for our entire fleet and report generated for management information/intervention. The FCR staff monitors speed, driving hours/rest hours, harsh braking, night driving restrictions and this has significantly contributed to safer driving and lesser transport related incidents. To improve transport safety further, we have started a programme for installation of In-Cab camera in our bulk transport tankers and cylinder trucks. These cab cam video clips are helping us to improve our transport safety by analyzing transport safety incidents, driving violations, etc which would make it easier to initiate effective preventive actions to avoid incidents. With the help of the Major Hazards Review Programme (MHRP), all major high risk sites have been certified with relevant MHRP CAT 1 & CAT 2 certificates. This MHRP programme helps the organization to assess the onsite and offsite risks due to our operations. Based on risk categorization, control measures are established to reduce these risks at the plant sites. As a part of commitment to environment protection, initiatives like rain water harvesting, water recycling, recycling of waste generated, have been taken up. All ASU sites are certified and sustained with ISO 14001 certification. Security vulnerability risk assessments are carried out at high risk sites and effective CCTV monitoring arrangements have been made at some of these sites. Human Resources Your Company’s Human Resource strategy is aligned to its business strategy reinforcing the key thrust areas, being the employer of choice, building an inclusive culture and a robust pipeline of talent, driving greater employee engagement towards the corporate goal of profitable growth safely. We aim to build and nurture the best teams in our bid to drive high performance culture. The Human Resource function supported by the Linde Group’s HR function focuses on nurturing talent through various Talent Management & Development programs so as to provide a competitive edge to the organisation by ensuring the right talent for the right job. Our recruitment focuses on infusing quality talent aligned to the values of Linde with potential to take the organisation to a higher level of performance. Your Company has visibility on various social networking sites, which have helped to create a strong employer brand. At Linde India, Learning and Development is pivotal for ensuring success in business. During the year, we leveraged the Linde University e-campus even further by providing focused leadership competency based learning for our employees. This initiative was recognized as a key driver for “Empowering People” in Linde India. Most of our training programmes are a blend of national and international level programmes focusing on leadership development and business skills. In addition to this, all new employees underwent a structured induction programme branded as ‘SAMPARK’, Safety Induction programme and online Safety training programs in all locations. In 2015, we also completed the compliance training and communication on prevention of sexual harassment at workplace and also formed an Internal Complaints Committee as per the norms. Your Company regularly reviews and benchmarks its remuneration levels for its employees using internal and external comparisons to ensure that they are appropriate and in line with the market. It uses a performance appraisal system to ensure comparable and fair appraisal of employees. This system includes performance evaluations which are binding on all managers. Pay-for Performance is supported by various reward schemes, which are in place to motivate and retain skilled employees to achieve business strategy & goals. Various other initiatives like Health Awareness Programs, CSR engagement activities, Team building exercise for employees across locations were carried out during the year. Your Company has continued to maintain harmonious employee relations across all its plants and offices in India and there has been no loss of man-days due to labour related issues. Your Company had manpower strength of 737 as on 31 December 2015. Disclosure as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 As a part of its commitment to Diversity and Inclusion, your Company is committed to provide and promote a safe, healthy and congenial atmosphere irrespective of gender, caste, creed or social class of the employees. The Company has put in place a Policy on Prevention of Sexual Harassment in line with the provisions of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules made thereunder. Internal Complaints Committee (ICC) has been set up to redress complaints, if any, received regarding sexual harassment. All employees whether permanent, contractual, temporary, etc have been covered under this Policy. The Policy is gender neutral. During the year 2015, no complaints alleging sexual harassment were received by the Company. Prescribed Particulars of employees The disclosures pertaining to ratio of remuneration of each Director to the median remuneration of all the employees of the Company, relationship between average increase in remuneration and Company Performance and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed to this Report. [Annexure 2] In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other prescribed particulars of employees who were employed throughout the year and were in receipt of remuneration aggregating to Rs. 6 million or more or were employed for part of the year and were in receipt of remuneration aggregating to Rs. 0.5 million per month or more during the year ended 31 December 2015 forms part of this report. However, having regard to the provisions of the first proviso to Section 136(1) of the Companies Act, 2013, the Annual Report is being sent to all the Members of the Company excluding the said information. The said information is available for inspection at the Registered Office of the Company during business hours on working days up to the date of the ensuing Annual General Meeting. Any Member interested in obtaining such information may write to the Company Secretary, at the Registered Office and the same will be furnished on request. Such details are also available on the Company’s website at www.linde.in . Corporate Social Responsibility (CSR) As a member of The Linde Group, your Company has been a socially responsible corporate and our core values define the way we operate and create value within the larger society. Linde’s four basic principlessafety, integrity, sustainability and respect form the basis of its CSR Policy. Your Company is therefore, committed to behave responsibly towards people, society and the environment for inclusive growth of the society where we operate to conserve natural resources and to develop sustainable products. In line with its CSR Policy, Linde India’s CSR commitment will be centred around four thematic areas- Education, Health, Environment and Livelihood (skill development). The CSR Policy of the Company is available on the Company’s website at www.linde.in. Particular focus is given to engaging employees into the CSR initiatives of the Company. Some of the CSR projects/ initiatives taken up/ sustained during the year include providing education to differently abled children at Indian Institute of Cerebral Palsy (IICP), sponsoring a classroom for underprivileged children at a school at Jamshedpur, working with Disha (NGO) for adoption of classroom for education of underprivileged children at Kolkata, sponsoring livelihood programme for under privilaged women through TARA (NGO), contribution to Prime Ministers’ National Relief Fund towards relief of flood victims in Chennai, etc. Against the requirement of CSR spend of Rs. 9.33 million during the year, being 2% of the average net profit of last three years as per the provisions of the Companies Act, 2013, the actual CSR expenditure during the year on various projects/activities was slightly lower at Rs. 8.77 million. The justification for the same is covered in the Annual Report on CSR activities annexed to this Report. [Annexure 3] During the year, your Company was awarded a special commendation award at the presentation ceremony of Golden Peacock Award at the 10th International Conference on CSR held at Mumbai. Your Company will continue to make a positive impact on the community by way of its CSR projects in the years ahead. Corporate Governance As a member of The Linde Group, your Company attaches great importance to sound responsible management and good corporate governance. Your Company subscribes to the Linde Spirit which sets out a Code of Ethics for companies within The Linde Group. The Linde Spirit describes the corporate culture manifested in the Linde vision and the values that underpin day to day activities. The Linde’s Code of Ethics sets out the commitment of all employees to comply with legal regulations and uphold the ethical and moral values of the Group. Your Company is therefore, committed to business integrity, high ethical standards and professionalism in all its activities. As an essential part of this commitment, the Board of Directors supports high standards in corporate governance and during the year approved several new policies in compliance with regulatory provisions to further strengthen the same. It is the endeavour of the Board and the executive management of your Company to ensure that their actions are always based on principles of responsible corporate management. In The Linde Group, corporate governance is seen as an on-going process. Your Company’s Board therefore closely follows contemporary developments in the governance norms and will take lead in ensuring compliance with the same. A separate report on Corporate Governance along with the certificate of the Auditors, B S R & Co. LLP, confirming compliance of the conditions of corporate governance, as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 forms part of this Report. Board Meetings A calendar of Board and Committee meetings is agreed and circulated in advance to the Directors. The Board met four times during the year under review, details where of are given in the Corporate Governance Report, which forms part of this Report. Board Membership Criteria The Nomination and Remuneration Committee of the Company identifies and ascertains the integrity, qualification, expertise, positive attributes and experience of persons for appointment as Directors and thereafter recommends the candidature for election as a Director to the Board. The Committee follows defined criteria in the process of obtaining optimal Board diversity which, inter alia, includes optimum combination of executive and non-executive directors, appointment based on specific needs and business of the Company, qualification, knowledge, experience and skill of the proposed appointee, etc. The Policy on appointment and removal of Directors, Board Diversity Criterion and Remuneration to Directors/Key Managerial Personnel/ Senior Management forms part of the Nomination and Remuneration Policy of the Company, which is available on the Company’s website at www.linde.in. Familiarisation Programme for Directors In terms of Reg. 25(7) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your Company is required to conduct the familiarisation programme for Independent Directors to familiarise them about their roles, rights, responsibilities in your Company, nature of the industry in which your Company operates, business model of your Company, etc., through various initiatives. The detail of training and familiarization programmes for Directors has been provided under the Corporate Governance Report. Performance Evaluation The Nomination and Remuneration Committee of the Company formulated and laid down criteria for performance evaluation of the Board including its Committees and the individual directors (including Independent Directors) pursuant to provisions of Section 134, Section 149 read with Code of Independent Directors (Schedule IV) and Section 178 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The manner of performance evaluation followed by the Board is provided in the Corporate Governance Report. Independent Director’s Declaration The Company has received necessary declaration from all Independent Directors in accordance with Section 149(7) of the Companies Act, 2013 that they meet the criteria of independence as laid down in Section 149(6) of the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Internal Control Systems and their adequacy Your Company has an adequate system of internal control commensurate with the size and the nature of its business, which ensures that transactions are recorded, authorised and reported correctly apart from safeguarding its assets against loss from wastage, unauthorised use and removal. The internal control system is supplemented by documented policies, guidelines and procedures. The Company’s Internal Audit Department continuously monitors the effectiveness of the internal controls with a view to provide to the Audit Committee and the Board of Directors an independent, objective and reasonable assurance of the adequacy of the organization’s internal controls and risk management procedures. The Internal Audit function submits detailed reports periodically to the management and the Audit Committee. The Audit Committee reviews these reports with the executive management with a view to provide oversight of the internal control systems. During the year, in compliance with the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your Board approved several policies on important matters such as related party transactions, risk management, nomination and remuneration of directors and senior managers, whistle blower mechanism, CSR, insider trading, fair practices and disclosures, materiality of events/ information, preservation of documents, etc, which would provide robust guidance to the management in dealing with such matters to support internal control. The Company reviews its policies, guidelines and procedures of internal control on an on-going basis in view of the ever changing business environment. During the year, the Company also engaged the services of Price Waterhouse, Chartered Accountants for reviewing and strengthening the framework of its existing internal financial controls across the Company. As stated in the Responsibility Statement, your Directors have confirmed that based on the reviews performed by the internal auditors, statutory auditors, cost auditors, secretarial auditors and the reviews undertaken by the management and the Audit Committee, the Board is of the opinion that the Company’s internal financial controls were adequate and effective as on 31 December 2015. Your Company’s statutory auditors have, in their report, confirmed the adequacy of the internal control procedures. Directors During the year under review, at a meeting of the Board of Directors of the Company held on 17 February 2015, on the recommendation of the Nomination & Remuneration Committee, Ms Desiree Co Bacher, Head of Finance & Control of RSE Regional Office in The Linde Group was appointed as an Additional Director (Non-Executive Director) of the Company with effect from that date. At the 79th Annual General Meeting of the Company held on 15 May 2015, Ms Bacher was appointed as Director of the Company. Ms Desiree Co Bacher retires by way of rotation at the ensuing Annual General Meeting and being eligible, offers herself for re-appointment. Necessary resolution for re-appointment of Ms Bacher as a Director of the Company is included in the Notice of the ensuing Annual General Meeting. The Board recommends the aforesaid resolution for your approval. At the Board Meeting held on 17 February 2015, Mr Binod Patwari stepped down as a Director of the Company. Mr Patwari joined the Board as a Director of your Company on 15 June 2010 and was later inducted in the CSR Committee of the Board set up last year. During his aforesaid tenure, your Board has from time to time benefited from the wise counsel and experience of Mr Patwari. Your Directors therefore, place on record their sincere appreciation of the valuable contribution made by Mr Patwari to the Company during his tenure on the Board. Responsibility Statement Based on the framework of internal financial controls and compliance systems established and maintained by the Company, audit and reviews performed by the internal auditors, statutory auditors, cost auditors, secretarial auditors and the reviews undertaken by the management and the Audit Committee, the Board is of the opinion that the Company’s internal financial controls were adequate and effective as on 31 December 2015. As required by Section 134(5) of the Companies Act, 2013, the Directors to the best of their knowledge state and confirm: That in preparation of the annual accounts for the year ended 31 December 2015, applicable accounting standards have been followed along with proper explanations relating to material departures, if any; That they 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 aforesaid financial year and of the profit and loss of the Company for that period; That they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; That they have prepared the aforesaid annual accounts on a going concern basis; That they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and That they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Related Party Transactions All related party transactions entered during the year were in ordinary course of business and on arm’s length basis and the same have been disclosed under Note 46 of the Notes to Financial Statements. No material related party transactions arising from contracts/ arrangements with related parties referred to the Section 188(1) of the Companies Act, 2013 were entered during the year by the Company. Accordingly, the disclosure of related party transactions as required under Section 134(3)(h) of the Companies Act, 2013 in Form AOC-2 is not applicable. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo Details of conservation of energy, technology absorption and foreign exchange earnings and outgo in accordance with Section 134(3)(m) read with Companies (Accounts) Rules, 2014 are annexed to this Report. [Annexure 4] Uniform Financial Year During the year, your Company had filed a petition under Section 2(41) of the Companies Act, 2013 to the Company Law Board (CLB) for seeking its approval for following calendar year as its financial year as against the uniform financial year (April- March). The CLB has passed its order on the Company’s petition for following calendar year as the financial year from 1 January 2015 onwards. As a result, the Company would continue to follow calendar year as its accounting year in future. Consolidation of Financial Statement of Subsidiaries/Associate Companies/Joint Ventures Your Company does not have any subsidiary or associate Company. It however, has a 50% owned joint venture Company, viz. Bellary Oxygen Company Private Ltd., which operates a 855 tonnes per day ASU at Bellary in Karnataka. Section 129(3) of the Companies Act, 2013 read with Rule 6 of the Companies (Accounts) Rules, 2014, as amended, mandates every Company having subsidiary (including associate Company and joint venture) to prepare Consolidated Financial Statements. As per Companies (Accounts) Amendment Rules, 2014 notified by the Ministry of Corporate Affairs on 14 October 2014, a new proviso to the aforesaid Rule 6 was inserted, which had the effect of excluding the Company from the applicability of consolidation of Financial Statements for its current Financial year 2015. Accordingly, your Company has not presented the Consolidated Financial Statements for the year ended 31 December 2015. However, it has provided necessary and sufficient information on performance and financial position of its joint venture Company (Belloxy) in Note 30 of the Notes to Financial Statements for the year 2015 forming part of this Annual Report. Therefore, the requirement of furnishing a statement in Form AOC-1 containing the salient features of the financial statements of Belloxy pursuant to Section 129(3) of the Companies Act, 2013 is not applicable. Extract of Annual Return The extract of Annual Return as on the financial year ended on 31 December 2015 in Form No. MGT-9 as required under Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, is set out as an annexure to this Report. [Annexure 5] Outlook India’s economy grew at 7.3% in the fiscal year 2014-15. While initial projections for fiscal year 2015-16 showed optimism due to expectation of policy reforms by the new government at the Centre, recovery in the global economy, easing liquidity and normal monsoons in India, the actual performance of the economy has been impacted by several factors such as weak monsoons, slow pace of reforms in India, global slowdown, geo political tensions and steep fall in commodity and crude prices worldwide. Notwithstanding this, the economy is projected to achieve a GDP growth of about 7.5% during 2015-16 driven largely by service sector as the industrial growth in the first three quarters was largely subdued. The steel production capacity in the country has seen rapid rise in the last few years with India becoming the third largest producer of crude steel in 2015. The country is expected to become the second largest producer of crude steel in the world in the next one year, which augurs well for the gases industry in India. However, the Indian steel industry has been facing short term challenges due to over capacity and rising imports. The Government of India’s recent decision to fix minimum import price for steel is expected to benefit the domestic steel industry against cheap imports in 2015. This augurs well for the gases industry as steel is the major consumer of industrial gases. Although the global market environment is expected to continue to be characterised by moderate growth and geopolitical instability, the presence of a large domestic middle class population in the country and the “Make in India” programme of the Government is expected to revive demand and the overall domestic economy in the next 1-2 years. Your Company is best positioned in the gases industry to benefit from such revival in the economy. Linde India has been able to develop capabilities by leveraging the strengths of its parents both in the gases and engineering segment. With robust integrated business model and a sharper focus on improving customer experience to drive growth, the medium term outlook of your Company looks cautiously optimistic. Auditors Statutory Audit Messrs B S R & Co. LLP, Chartered Accountants, were appointed Statutory Auditors of the Company at the 79th Annual General Meeting held on 15 May 2015 from the conclusion of that Annual General Meeting till the conclusion of the 81st Annual General Meeting to be held in the year 2017. As per the provisions of Section 139 of the Companies Act, 2013, the appointment of the Auditors is required to be ratified by the Members at every Annual General Meeting. The report given by the Auditors on the financial statements of the Company for the year 2015 forms part of this Annual Report and contains emphasis of matter on the impact of early adoption of Accounting Standard 30 “Financial Instruments: Recognition and Measurement” issued by the Institute of Chartered Accountants of India. Your Directors wish to draw your attention to Note 42(ii) of the Notes to Financial Statements for the year 2015 dealing with early adoption of the abovementioned Accounting Standard with effect from December 2009, which is self-explanatory. The early adoption of AS 30 has been consistently followed and disclosed by the Company in all the subsequent financial statements. Secretarial Audit The Board of Directors of the Company had appointed Messrs Vinod Kothari & Co., a firm of Company Secretaries pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 for undertaking the secretarial audit of the Company for the year 2015. In terms of the provisions of Section 204(1) of the Companies Act, 2013, a Secretarial Audit Report in Form MR-3 given by the Secretarial Auditor is annexed to this Report [Annexure 6]. The Report confirms that the Company had complied with the statutory provisions listed under Form MR-3 and the Company also has proper board processes and compliance mechanism. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. Cost Audit Pursuant to Section 148 of the Companies Act, 2013, your Company is required to have the audit of its cost accounting records relating to Industrial Gases and Project Engineering business by a Cost Accountant in practice. Messrs Bandyopadhyaya Bhaumik & Co., a firm of Cost Accountants conducted this audit for the Company’s financial year ended 31 December 2014 and submitted their report to the Central Government on 1 July 2015. The Board of Directors of the Company had on the recommendation of the Audit Committee appointed Messrs Bandyopadhyaya Bhaumik & Co., Cost Accountants having registration no. 000041 as the Cost Auditor for the year ended 31 December 2015 to conduct cost audit under the Companies (Cost Records and Audit) Rules, 2014 as amended from time to time. The said auditors would be conducting the audit of cost accounting records for the year 2015 and submit their report in due course. Acknowledgements Your Directors wish to convey their deep appreciation to the employees of the Company at all levels for their dedication and commitment as well as collective contribution during another challenging year, which has enabled the Company to maintain its leadership in the industrial gases industry in India. Your Directors also place on record their appreciation of the support provided by The Linde Group to your Company with their technological, operational and marketing inputs as well as for helping your Company to continuously improve its product and service offerings to its customers. The Directors would also like to thank the customers, dealers, suppliers, bankers and all other business associates and the shareholders of the Company for their support and reposing confidence in its management. Disclaimer Certain statements in this report relating to Company’s objectives, projections, outlook, expectations, estimates, etc may be forward looking statements within the meaning of applicable laws and regulations. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, actual results or performance could differ materially from such expectations, projections, etc whether express or implied as a result of among other factors, changes in economic conditions affecting demand and supply, success of business and operating initiatives and restructuring objectives, change in regulatory environment, other government actions including taxation, natural phenomena such as floods and earthquakes, customer strategies, etc over which the Company does not have any direct control. On behalf of the Board S Lamba Chairman Mumbai 16 February 2016 |