DIRECTORS' REPORT Dear Members, Your Directors present this 36th Annual Report together with the Audited Accounts of the Company for the financial year ended 31st March, 2016. PERFORMANCE AND PROJECTIONS During the year under review, the Company achieved consolidated sales revenue of Rs. 4542 million against Rs. 4157 million in the previous year, witnessing a growth of 9.3%. The profit before tax declined from Rs. 139 million to Rs. 79 million, representing a decline of 43%. Sales revenue from manufacturing operations on standalone basis was Rs. 1234 Million against Rs. 1310 Million in the previous year, thereby registering a decline of 5.8%. The company earned net profit after tax of Rs. 66 million against Rs. 65 million in the previous year. Sales revenue in retail business of the company (Ethos) increased from Rs. 2810 million in previous year to Rs. 3287 million registering a healthy growth of 17%, but the profit after tax declined from Rs. 24 million to a loss of Rs. 59 million. Manufacturing Business Segments All manufacturing units of the Company faced sluggish market environments which lead to decline in turnover during the year. The total revenue from watch components segment declined by 4.8%, primarily because of major slowdown in export markets. The total revenue of precision engineering business during the year declined by 6.5%, primarily on account of decline in direct and indirect exports. The revenue of the precision engineering business from domestic market grew by more than 25%. The ornamental packaging business of the company witnessed a revenue decline of 16%. The decline in revenue and profitability of the company was also due to reduction of export incentives on the watch components from 5% in the previous year to zero in the first part of the year under review and later restored partially only to 2% . The requirement of watch components from domestic watch industry was also irregular compared to the previous year which led to sub optimal utilization of the capacities and resources. Your Company's continuing efforts for improving the average price realization by manufacturing components with additional features and higher complexity is moving in the right direction and it will lead to improved and better financial performance in the coming periods. The strategic actions of management for enhancing operational performance are in the right direction and with the improvement in market environment and conditions, better results are expected in the coming periods. The Company continues to focus on improving the productivity with dedicated steps for skill enhancement, better utilization of machines and optimizing business and manufacturing processes. The Precision Engineering business of the Company is likely to witness a healthy growth in revenue from next year onwards. Your company has identified the key additional capabilities and structurally making progress in the identified markets and improving the critical levers of operational performance, which will yield healthy growth and returns in the ensuing period. Efforts for improving the reach to customers by show-casing our capabilities and competitiveness are bearing fruits. Your company has established its reputation as a quality supplier with the ability to meet sophisticated customer needs. The Company continues to believe that this business segment will be a major source of growth in revenue and profitability in the coming years. Company is judiciously investing and moving in the direction of a high growth trajectory in various emerging opportunities. Retail Business Segments:- During the course of the year, the retail business ETHOS continued its topline growth. The company's net sales grew from Rs. 281 crores in FY14-15 to Rs. 329 cr in FY15-16, (+ 17%), with a healthy like-to-like growth of billings at store level at 12%. However, the implementation of Rs. 2,00,000 PAN card threshold rule had a large immediate impact on the sales of the company, especially during the last quarter. Further, the company also faced margin pressures due to the higher competitive environment, brought about partly by the new PAN rules, and also due to unfavourable exchange rate and higher taxes. As a result of these challenges the business recorded a loss before tax of Rs. 4.63 Cr in the year compared to profit of Rs. 3.54 Cr in the previous year. The EBIDTA recorded by the business in the year is Rs. 7.40 Cr, about 2.3% of the net sales of the year. The impact of the new PAN rules is likely to diminish gradually as the rules gain wider acceptance amongst the watch customers. The business is already witnessing a recovery of growth. The business is also taking proactive steps to modify its growth strategy to counter the negative impact of the PAN rules on the very high price points and to nullify the margin pressures in general. The Directors are hopeful of the introduction of GST in the near future. This will have a very healthy impact on the Company. The Company has a pan India presence but archaic laws make it very difficult and expensive to leverage this presence. In addition, the levy of multiple taxes, especially customs, service tax, sales tax, etc. has an impact on the profitability of the Company. The introduction of GST will not just lead to administrative ease for serving customers across geographies, it will also have direct positive impact on the profitability of the Company. The Packaging division operational revenue was lower due to decline in order position from jewellery and writing instruments market segment. However, the efforts of the company in consolidation of the manufacturing facilities and control of overheads lead to sharp reduction in losses from the business. The major segments of the business are showing irregular and cyclic fluctuations in the demand, which leads to a pressure on the operational continuity. The Company is taking necessary proactive actions to add new customers and move into higher average realizations to contain losses and turn around this division. The Company's Swiss subsidiary, Pylania SA in Switzerland financial performance is as per the expected levels and continuously improving year on year by adding new streams of the revenue and curtailing the overheads. We foresee that the watch component manufacturing business of Company will witness recovery with the implementation of the new "Swiss Made" regulations that will be implemented from January 2017. The operations of the Joint venture Company Satva Jewellery and Design Limited, the 50:50 Joint Venture with Pascal Vincent Vaucher, SA of Switzerland remained suspended during the year. The Company is in discussion with the JV partner for finding out the alternatives for restructuring / realigning the business of the Company. LISTING OF SHARES During the year, the Equity shares of the company were also listed at National Stock Exchange of India Limited, (NSE) w.e.f. 23rd March 2016. The Equity Shares of the Company are already listed on the BSE Limited The Company has paid the Annual Listing Fees to National Stock Exchange of India Limited and The BSE Ltd. for the financial year 2016-17. DETAILS OF SUBSIDIARY, JOINT VENTURE OR ASSOCIATES As per the provisions of Section 129 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, a separate statement containing the salient features of the financial statements of the Subsidiary Companies/ Associate Companies/Joint Ventures is prepared in Form AOC-1 and the same is enclosed as Annexure-1 to this Report. CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements have been prepared by the Company's Management in accordance with the requirements of Accounting Standard 21 issued by The Institute of Chartered Accountants of India (ICAI) and as per the provisions of the Companies Act, 2013. As per the provisions of Section 136 of the Companies Act, 2013, the Company has placed separate audited accounts of its subsidiaries on its website www.kddl.com and a copy of separate audited financial statements of its subsidiaries will be provided to the shareholders at their requests. EXTRACT OF ANNUAL RETURN The extract of Annual Return, in Form MGT -9 for the Financial Year 2015-16 has been enclosed with this report as Annexure 2. NUMBER OF BOARD MEETINGS The detail of number of meetings of the Board held during the financial year 2015-16 forms part of the Report on Corporate Governance in terms of Regulation 34(3) of Securities & Exchange Board of India( Listing obligations and Disclosure requirements) Regulations, 2015. DIRECTORS RESPONSIBILITY STATEMENT In accordance with the provisions of section 134(3)(c) of The Companies Act, 2013, the Board confirm and report that:- (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (d) the directors had prepared the annual accounts on a going concern basis; (e) the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. NOMINATION & REMUNERATION COMMITTEE POLICY The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management Personnel of the Company. This policy also lays down criteria for selection and appointment of Board Members. The detail of this policy is explained in the Report on Corporate Governance which forms part of this report. AUDITORS M/s Walker Chandiok & Co. LLP, Chartered Accountants, Statutory Auditors of the Company were appointed for a period of two years at the last Annual General Meeting of the company and as per terms of appointment, their appointment is subject to ratification by shareholders in the ensuing Annual General Meeting. The Company has received a letter from them to the effect that their appointment, if made, would be within the prescribed limits under section 139 of the Companies Act, 2013 and that they are not disqualified for such appointment within the meaning of section 141 of the Companies Act, 2013. The Notes on Accounts referred to in the Auditors' Report are self-explanatory and therefore do not call for any further comments. SECRETARIAL AUDIT REPORT Pursuant to the provisions of Section 204 of the Companies Act, 2013 and rules made there under, the Company has appointed M/s P. S. Dua & Associates, a firm of Company Secretaries (C.P. No. 3934) to undertake the Secretarial Audit of the Company. The Secretarial Audit Report in prescribed format MR.-3 given by aforesaid Secretarial Auditors is annexed to this Board Report as Annexure 3 and forms an integral part. There is no qualification or observation or remarks made by the Secretarial Auditors in their report. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES The particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act 2013 for the Financial Year 2015-16 in the prescribed Form AOC 2 has been enclosed with the report as Annexure 4. TRANSFER TO RESERVES The Board of Directors of the Company has decided to transfer Rs 20 million to its General Reserves. DIVIDEND During the Financial Year 2015-16, the Board of Directors have declared and paid Interim Dividend @ 15% , i.e. Rs. 1.50 per share to the shareholders whose names appeared on the register of members as on record date , i.e. 26th February 2016. In order to conserve the financial resources for the overall growth of the company, your directors have decided to confirm the interim dividend as final dividend for the year. TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND In terms of Section 125 of the Companies Act, 2013, the Unclaimed Dividend of Rs. 2,20,646 relating to the financial years 2007-08 was transferred to the Investor Education and Protection Fund established by the Central Government during the year. MATERIAL CHANGES AFFECTING FINANCIAL POSITION OF THE COMPANY There are no Material changes and commitments in the business operations of the Company from the financial year ended 31st March, 2016 to the date of signing of the Director's Report. There is no significant and material orders passed by any regulators or courts or tribunals against the company impacting the going concern status and company's operations in future. RISK MANAGEMENT POLICY The risk management framework defines the risk management approach of the Company and includes periodic review of such risks and also documentation, mitigating controls and reporting mechanism of such risks. Some of the risks that the Company is exposed to are: Risks of Specific Nature Company as a part of normal business monitoring review and development plans, identifies the specific risks for each business segment and develops necessary action plan to minimise the impact of same on business performance. Based on the present operations and areas of interest for the company, following specific nature risks are identified: • Risks due to decline in overall demand for watches and overdependence on watch segment; • Risks pertaining to over dependence on few customers; • Foreign Exchange Risks; • Risk related to availability of Skilled manpower; • Risks related to compliance and statutory requirements Risk Strategy Company recognizes that risk is an integral and unavoidable component of business and is committed to managing the risk in a proactive and effective manner. The Company believes that the Risk cannot be eliminated but it can be better managed by • Transferred to another party, who is willing to take risk, say by buying an insurance policy or entering into a forward contract in case of business involving use of Foreign exchange; • Reduced, by adopting good internal controls; • Avoided, by not entering into risky businesses; • Retained, to either avoid the cost of trying to reduce risk or in anticipation of higher profits by taking on more risk, and; • Shared, by following a middle path between retaining and transferring risk. Risk Management Framework Company adopts systematic approach to mitigate risks associated with accomplishment of objectives, operations, revenues and compliance with the regulations. The Company believes that this would ensure mitigating steps proactively and help to achieve the risk management effectively. The Company has constituted a Risk Management Committee of Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer and Business Heads as its regular members and other senior functional heads on invitation basis. The Committee is committed to review periodically the various risks associated with the Company and report the same to the Board. Focus of the Company is on the three key elements, viz., Risk Assessment / Identification, Risk Management and Risk Monitoring. • Potential Risks are identified and analyzed, considering likelihood and its impact, as a basis for determining how they should be managed. • Risk Assessment consists of a detailed study of threats and vulnerability and resultant exposure to various risks. Based on the assessment and identification of the risks, the committee decided the proactive steps for managing and monitoring these risks. CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICY The Company is committed to discharge its social responsibility as a good corporate citizen. The company has duly constituted CSR Committee which is responsible for fulfilling the CSR objectives of the Company. As on 31st March, 2016 the Committee comprised of 5 (five) Directors viz. Mr. R. K. Saboo as Chairman and Mr. Yashovardhan Saboo, Ms. Ranjana Agarwal, Mr. Jagesh Khaitan and Mr. Chandra Mohan as members. As part of its social responsibility, the Company has constructed new borewell for the toilet blocks to ensure permanent supply of water at Derabassi, Punjab. The company has also contributed to Mutiple Sclerosis Society of India (MSSI), Mumbai and KDDL-Ethos foundation. These projects have been undertaken to carry services and in compliance to the provision of the Section 135 of the Companies Act, 2013 read with Schedule VII and rules made there under and in accordance with Company's CSR Policy. The Report on CSR required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out as Annexure -5 forming part of this report, and is also available on company's website www.kddl.com . MECHANISM FOR EVALUATION OF BOARD, COMMITTEES AND INDIVIDUAL DIRECTORS Pursuant to the provisions of the Companies Act, 2013 and regulation 17(10) of SEBI (LODR) regulations, 2015, a structured procedure was adopted after taking into consideration the various aspects of the Board's functioning, composition of the Board and its various Committees, execution and performance of specific duties, obligations and governance. The performance evaluation of the Independent Directors was completed in time. The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors. The Board of Directors expresses its satisfaction with the evaluation process. DIRECTORS/KEY MANAGERIAL PERSONNEL The term of appointment of Mr. Dinesh Agrawal as Chief Operating Officer of the company expired on 31st March 2016. Mr. Dinesh Agrawal has expressed his desire to resign as Director and his resignation was accepted by the Board w.e.f. 30th May, 2016. The Board of Directors record their appreciation for the commendable work done by Mr. Dinesh Agrawal during his tenure as Director of the company. Mr. Dinesh Agrawal has been one of the architects of company's foundation in 1983 and its growth over last 33 years. During his tenure with company, he held various positions in different roles of the units and he handled difficult situations and challenging environments very efficiently. He was a perfect combination of technocrat with business acumen and skills. He strongly upheld the values and ethics of the company. Mr Agrawal with his in depth analysis, calm and positive approach, strong relationship management and clear vision was a pillar of strength for the organisation. In order to comply with the various provisions of relevant clauses of the Investment Agreement executed between the Company and SAIF India V FII Holdings Limited (a non-promoter), a Qualified Institutional Buyer ('Investor'), Mr. Vishal Satinder Sood , nominee of the said Investor was appointed as an Additional Director of the Company at the Board of Directors meeting held on 02-09-2015 in accordance with Clause 98-A of the Articles of Association of the Company, who holds office till ensuing Annual General meeting of the company. As per the said clause, 98-A, the director so appointed shall be reappointed on retirement by rotation. Mr. Sanjeev Kumar Masown of the company was also appointed as whole time Director with functional designation of Chief Financial Officer by the Board of Directors on 30th May 2016. Both of the Additional Directors hold office till conclusion of ensuing Annual General meeting and it is proposed and recommended to appoint Mr. Vishal Satinder Sood and Mr. Sanjeev Kumar Masown as Directors liable to retire by rotation. As per provision of the Companies Act, 2013, Mr. R.K.Saboo retires by rotation as Director in ensuing Annual General Meeting and being eligible, offers himself for re-appointment. The Board recommends his re-appointment. DEPOSITS The following details of deposits, covered under Chapter V of the Companies Act, 2013 is given hereunder: 1. Deposits Accepted during the year : Rs. 55,056,000 2. Deposits outstanding at the end of the year : Rs. 113,698,000 3. Deposits remained unpaid or unclaimed as at the end of the year : NIL 4. Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved : NIL 5. The details of deposits which are not in compliance with the : NIL requirements of Chapter STATEMENT IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROL WITH REFERENCE TO THE FINANCIAL STATEMENTS A strong internal control culture is an important focus and thrust area in the company. The company has comprehensive internal systems, controls and policies for all the major processes to ensure the reliability of financial reporting, timely feedback on achievement of operational and strategic goals, compliance with policies, procedures, laws, and regulations, safeguarding of assets and economical and efficient use of resources. The formalized systems of control facilitate effective compliance as per applicable laws. The company also has well documented Standard Operating Procedures (SOPs) for various processes which are periodically reviewed for changes warranted due to business needs. The Internal Auditors of the company continuously monitor the efficacy of internal controls/ compliance with SOPs with the objective of providing to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance on the adequacy and effectiveness of the organization's risk management, control and governance processes. The scope and authority of the Internal Audit activity are well defined in the Internal Audit scope and guidelines, approved by the Audit Committee. Internal Auditors develop a risk based annual audit plan with inputs from major stake holders, and the major focus areas as per previous audit reports. All significant audit observations are reviewed periodically and follow-up actions thereon are reported to the Audit Committee. The Audit Committee also meet the company's Statutory Auditors and Internal Auditors to ascertain their views on the financial statements, including the financial reporting system, compliance to accounting policies and procedures, the adequacy and effectiveness of the internal controls and systems followed by the company. The top and senior management of the company also assesses opportunities for improvement in business processes, systems and controls, provides recommendations, designed to add value to the organization and follows up on the implementation of corrective actions and improvements in business processes. The senior management of the company meets periodically to assess the performance of the each business segment and key functions of the company and areas for improvement of performance / controls are identified and reviewed on continuous basis . Report on adequacy of internal financial control is annexed with auditors report on financial statements. CHANGES IN SHARE CAPITAL During the Financial Year ended on 31st March, 2016, the paid up equity share capital of the Company has been increased from Rs. 9,07,64,700/- to Rs. 10,08,48,700/- pursuant to the issue and allotment of 1008400 equity shares at the price of Rs 297.50 per share (including a premium of Rs. 287.50 per share) by way of preferential allotment to SAIF India V Holdings Limited, a Category II Foreign Portfolio Investor, as authorized by the shareholders by way of Special Resolution passed at Annual General Meeting held on 24th August 2015. Further, the Company has neither issued any shares with differential voting rights nor any Sweat equity shares. DISCLOSURE REGARDING ISSUE OF EMPLOYEE STOCK OPTIONS Details as required in Rule 12(9) of Companies (Share Capital and Debenture Rules, 2014) and pursuant to clause 12 (Disclosure in the Directors Report) of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are enclosed as a Annexure-6 DECLARATION BY INDEPENDENT DIRECTORS 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 regulation 16(b) of SEBI(LODR) Regulations, 2015. During the financial year under the review, Mr. Praveen Gupta was appointed as Independent Director by the share holder at the previous AGM. CONSERVATION OF ENERGY, TECHNOLOGY, ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO The information required under section 134(3)(m) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 relating to "Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo" is given in the Annexure - 7 forming an integral part of this Report. CHANGE IN THE NATURE OF BUSINESS There is no change in the nature of business of the Company during the year under review. MANAGERIAL REMUNERATION Disclosures pursuant to section 197(12) of the Companies Act, 2013 and Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is enclosed with this report as Annexure --8. RECEIPT OF ANY COMMISSION BY MD / WTD FROM A COMPANY OR FOR RECEIPT OF COMMISSION / REMUNERATION FROM ITS HOLDING OR SUBSIDIARY During the year under review, the Managing Director and Whole time Director neither received any Commission from the company nor any remuneration from the Subsidiary Companies of the company. VIGIL MECHANISM/WHISTLE BLOWER POLICY The Board of Directors of the Company has adopted Whistle Blower Policy which aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. All permanent employees of the Company are covered under the Whistle Blower Policy. A mechanism has been established for employees to report concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct and Ethics. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Whistle Blower Policy of the Company is available at the link <http://www.kddl.com/pdf/2015/KDDL_Whistle_Blower_Policy.pdf>. DISCLOSURES UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013 The Company has been employing about 259 women employees, both permanent as well as contractual in various fields within the factory premises and offices. The Company has in place a policy in line with the requirement of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013. There was no complaint received from any employee during the financial year 2015-16 and hence no complaint is outstanding as on 31st March, 2016. MANAGEMENT DISCUSSION AND ANALYSIS REPORT A detailed Report on Management Discussion and Analysis, pursuant to Scheduled V of SEBI(LODR) Regulations, 2015 is annexed to this report as Annexure - 9. CORPORATE GOVERNANCE The Company has complied with all the conditions of Corporate Governance as stipulated in SEBI(LODR) Regulations, 2015 during the year ended on 31st March, 2016 as per Report on Corporate Governance annexed as Annexure -10 and a Certificate from the Auditors to this effect for the year ended on 31st March, 2016 is also enclosed with this report. CASH FLOW ANALYSIS In conformity with the provisions of Clause 34(2) of SEBI(LODR) Regulations, 2015, the Cash Flow Statement for the year ended on 31st March, 2016 forms an integral part of the Financial Statements. PERSONNEL Your Directors place on record their appreciation for the significant contribution made by all the employees, who through their competence, hard work, solidarity and co-operation, have enabled the Company to perform better. TRADE RELATIONS The Board wishes to place on record its appreciation for the support and co-operation that the Company received from its suppliers, distributors, retailers and other associates. The Company has always looked upon them as partners in its progress and has happily shared with them rewards of growth. It will be Company's endeavor to build and nurture strong links based on mutuality, respect and co-operation with each other and consistent with customer interest. ACKNOWLEDGMENTS Your Directors take this opportunity to thank all the investors, clients, vendors, banks, regulatory and government authorities, for their continued support. For and on behalf of the Board of Directors (Anil Khanna) Director DIN-00012232 (Yashovardhan Saboo) Vice Chairman-cum-CEO DIN-00012158 Date: 30-5-2016 Place: Chandigarh |