Board's Report TO THE MEMBERS, The Directors are pleased to present the 56th Annual Report together with the audited accounts of the Company for the fifteen months period ended 31st March 2015. The financial year of the Company has been changed to comply with the provisions of Section 2(41) of the Companies Act, 2013. The period under review is therefore for 15 months i.e., from 1st January 2014 to 31st March 2015. THE YEAR IN RETROSPECT The fiscal year 2014-15 witnessed resumption in growth with the Index of Industrial Production (IIP) growing by 2.8 per cent as compared to the contraction of 0.1 per cent in 2013-14. The GDP grew at 7.3 per cent in 2014-15 due to improved performance of both manufacturing and service sector as compared to 6.9 per cent in 2014-15. Inflation abated with the Wholesale Price Index (WPI) hitting a six year low of zero per cent in November 2014 in contrast to 7.5 per cent witnessed in November 2013. The decline in global crude prices also helped to ease inflation and release pressure on the current account deficit. All these factors collectively have raised expectations of a decrease in interest rates and increase in economic growth. The overall demand growth for cement industry in 2014 was marginally better compared to 2013. However, the industry continues to be saddled with significant unutilized capacity created over the past six years. At the end of March 2015, the overall installed cement manufacturing capacity stood close to 390 million tonnes. FINANCIAL HIGHLIGHTS / REVIEW OF OPERATIONS During the fifteen months period ended 31st March 2015, the new plants at Damoh and Jhansi were stabilized. The production team was able to consistently produce above the rated capacity which is a testimony to the high level of competence and commitment of our workforce. • The gross sales for the period ended 31st March 2015 were MINR 23,713.8 compared to MINR 16,102.4 during the previous year ended 31st December 2013 (twelve months), an increase of 17.8 % (on an annualised basis). • EBITDA (Earnings before interest, tax and depreciation) grew in fifteen months to MINR 3,359.5 from MINR 1,222.1 in the previous year ended 31st December 2013 (twelve months) resulting in growth of 120% (on an annualised basis). • The net profit in fifteen months was MINR 595.3 compared to net loss of MINR (407.3) during the previous year ended 31st December 2013 (twelve months). Cash profit for 2014-15 was MINR 1,970.7 compared to MINR 563.0 in 2013. Enhancement in production of clinker and cement, post stabilization of new plants, also increased the demand for raw materials, fuels, packing bags etc. The Company's foremost priority is to secure stable and economical sources of raw materials and accordingly necessary steps were taken in that direction. Procurement of adequate quantities of fly ash from sources in close proximity to our plants led to a saving of ~14% at Imlai plant. The fall in crude oil prices beginning July 2014, lowered the poly propylene granule and diesel prices by ~15% thus benefitting the Company by way of reduction in packing and logistics costs. Royalty on limestone was increased in September 2014 by 27% from Rs. 63 per tonne to Rs. 80 per tonne. Notwithstanding the challenging demand supply situation, the Company registered a 30% growth in sales volume on a like-for-like basis, way above the estimated average growth of 5% for the cement industry. The Company successfully increased its market share in Central India and penetrated new areas bringing new channel partners to its fold. Cement under a new brand name "Mycem power" was also launched in Southern India. emphasis was placed on ensuring effective coordination among production, quality control, marketing, logistics and customer support teams to supply quality products and services to our customers. TRANSFER TO DEBENTURE REDEMPTION RESERVE The Company had on 16th December 2013 issued Non-Convertible Debentures aggregating to MINR 3,700 carrying interest of 10.4% per annum. It is proposed to transfer out of the profits for the period ended 31st March 2015, an amount of MINR 173.4 to Debenture Redemption Reserve (DRR) to meet the obligations towards the redemption of debentures which is commencing from 16th December 2019. DIVIDEND In order to achieve growth and lay a stronger foundation for the future, the Company invested nearly INR 16 billion in capacity addtion at its existing locations in Central India. This was financed through a mix of internal accruals and debt. Since the repayment of external commercial borrowings will commence from January 2016, your Directors have decided to conserve the financial resources and therefore not recommended payment of dividend at this juncture. As always, every management decision remains directed towards creating value for the shareholders in the long term. STEPS TOWARDS COST REDUCTION The Company is continuously evaluating its internal and external environment and taking all possible steps to control costs so that it is able to improve its competitiveness and profitability. A few notable steps taken in this direction were as under: A step towards clean energy: The Company took a major decision to set-up an eco-efficient Waste Heat Recovery based Power Generation Plant at its clinkerisation unit at Narsingarh, District Damoh (M.P.). The proposed plant envisages production of approximately 12 MW of power for captive consumption from the waste heat generated from all three clinkerisation lines at Narsingarh. It will substitute grid power thus reducing power cost per ton of clinker. the project is likely to be operational by end of 2015. Energy Costs: To stem the burgeoning fuel costs, the Company has successfully altered its fuel mix and increased usage of petcoke as it delivers a lower cost per Giga Joules (GJ) compared to coal. The management's efforts to reduce specific power consumption have also started yielding results. Operational Efficiencies: The Company has installed wagon tipplers, extended its railway sidings and modified the packing plant at its Central India locations, resulting in the reduction of turnaround time for trucks and faster loading of wagons thereby increasing operational efficiencies. Various other measures were taken on the production front to improve the operating parameters in order to minimize the impact arising out of increasing input costs. Judicious sourcing and inventory management helped in keeping costs under control while astute financial management resulted in reduction of interest costs. DIVESTMENT OF RAIGAD UNIT The Company sold its Raigad unit as a going concern to JSW Steel Limited on a slump sale basis with effect from the close of business hours on 3rd January 2014. The entire sale consideration for the same aggregating to INR 1,660 million has been received during the fifteen months period ended 31st March 2015. The aforesaid sale transaction has resulted into net gain of INR 603.1 million which has been shown as an exceptional item. ENVIRONMENTAL SUSTAINABILITY The Company firmly believes in sustainable development and therefore environment protection and conservation of natural resources are practiced across functions of the organization. The following initiatives were taken in 2014-15: ? Two additional Continuous Ambient Air Quality Monitoring Stations (CAAQMS) were installed at the Clinkerization Units at Narsingarh and Ammasandra. ? Surveillance Audit conducted by TUV-SUD for Integrated Management System for ISO 9001:2008 (Quality Management System), ISO 14001:2004 (Environment Management System) and OHSAS 18001: 2007 (Occupational Health & Safety Assessment Series). ? Trainings on environmental legislations and environmental management were conducted at all the plants and mines. ? Planted a wide range of tree saplings in the Green Belt to improve the environment at all the plants. Plantation has also been carried out at Narsingarh Limestone Mines. ? Various initiatives were taken for improving the housekeeping and aesthetics at the plants and mines. ENRICHING BIODIVERSITY Recognizing the importance of biodiversity for sustainable development, the company took several measures in this regard. Development of water bodies and green belt surrounding the plants and mines was undertaken for improving air quality, prevention of soil erosion, sustenance of precipitation and conservation of flora and fauna. Numerous varieties of birds and animals, including certain species of migratory birds, are now being spotted near our plants and mines. MAKING A DIFFERENCE THRoUGH CSR The Company is creating value for the local communities through its CSR activities in the areas of healthcare, education, community development, environment etc. During the fifteen months period ended 31st March 2015 the Company has spent INR 10.7 million on various CSR activities / projects compared to statutory minimum amount of INR 0.5 million which needed to be spent in accordance with the provisions of Section 135 of the Companies Act, 2013. The CSR activities carried out by the Company using the aforesaid funds have further strengthened our bond with the communities around the plant. The Company organized free health check-up camps manned with experienced doctors and also provided mobile medical services distributing free medicines. Due to scarcity of drinking water in the area, the Company has undertaken both long term and short term projects to alleviate the situation. Under the rural development programme, the Company constructed community centers in Damoh District. It is also constructing a Km long Murom road along-with culverts and retaining walls, linking the villages of Imlai to SH-72 to facilitate speedier and smoother connectivity especially during rainy season. In the field of education, the Company renovated the infrastructure at seven schools by providing toilets, proper flooring, and expanded roofing slabs. The Company provided benches, desks and books to schools to improve the education facility. The Company is also running two education centers in the vicinity of its plant at Jhansi for the benefit of adults and children from the weaker sections of the society Camps were organized for farmers to educate them on methods to increase crop yield by using latest farming techniques. In order to empower women and improve their livelihood, the Company distributed paper plate making machines for commercial use. OCCUPATIONAL HEALTH & SAFETY Attention to occupational health & safety remains a core business value for the company. The Company is OHSAS 18001:2007 certified by TUV-SUD. The safety system is built on five strong pillars: safety guidelines of HeidelbergCement Group; cardinal norms on safety; compliance with legal obligations; OHSAS 18001:2007 benchmarking; and compliance with the industry's best safety practices. To make our employees and contractors aware of the occupational risks, specific trainings were imparted with focus on making our people as role models in occupational health and safety. Appropriate rules and systems have been put in place for this purpose and relentless efforts are made for continuous improvement on the basis of past experiences combined with contemporary safety practices. However despite the Company's best efforts and high level of commitment at every level, a fatality occurred during an old preheater's demolition work at Ammasandra plant. Although, the work was assigned to a contracting agency specialized in this field and the job was being done under strict supervision, the incident happened due to negligent behavior of the contract workman. The Management has taken it very seriously. A committee was formed to investigate the root cause of the incident. Based on the recommendations of the committee, procedures and methodology have been revisited. Several precautionary measures have also been taken including training on behavior based safety to avoid recurrence. Nevertheless, we are seeing a marked improvement in LTI rates. The Company stands committed to achieve "Zero Harm" Safety performance. Towards this goal, during the period under review the following steps were ensured: • Installed AV alarm system in Wagon Loading Machines as well as at both ends of two railway platforms to caution people working on the platforms, at Jhansi plant. • Installed "Inert Gas Purging System" for effective fire control situation - Coal Mill I & II at Narsingarh plant. • Installed fencing (1500 Mtr) on both sides of the railway track to avoid chances of accident at Jhansi plant. • Extended Fire Hydrant system at Jhansi plant and installed Water Foam Monitors at fuel tank farm area and Fire Hydrant at Imlai plant. • Constructed approximately 2000 meter pathway for pedestrian safety at all the plants. • Route Risk Analysis carried out for two routes, Narsingarh-Damoh and Narsingarh-Patharia Mines, by an external agency. AWARDS AND ACCOLADES The Company continued to pursue excellence in all areas of its operations, and we are happy to report that it won the following awards and honours: ? Certificate of Merit for National Energy Conservation was given by Ministry of Power to Narsingarh Plant. ? Best Contributor Management award was given by MP State Welfare Board, Bhopal to Narsingarh Plant. ? "National Energy Conservation Award - Second prize -Cement Sector" was given to Narsingarh Plant. ? 2nd Prize for Overall Performance and 1st Prize for Safety Song/Slogans was awarded by Mines Safety Association, Karnataka, Zone-3 to Yerekatte limestone mines during the Mines Safety Week celebrations. CORPORATE GOVERNANCE The Company believes in and practices the highest standards of corporate governance. All the Directors and employees are bound by the Codes of Conduct setting out the fundamental standards to be followed in all actions carried out on behalf of the Company. Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on Corporate Governance, together with a certificate from M/s. Nityanand Singh & Co., a firm of Company Secretaries in Practice, confirming compliance with conditions of Corporate Governance, forms an integral part of this Report. A Management Discussion and Analysis Report is also given as an addition to this Report. A certificate furnished by Mr. Jamshed N. Cooper, CEO & Managing Director and Mr. Anil Sharma, Chief Financial Officer in respect of the financial statements and the cash flow statement for the period ended 31st March 2015 is annexed as Annexure 'B' to this Report. DIRECTORS During the period under review, Mr. Ashish Guha (DIN: 00004364) tendered his resignation from the position of Chief Executive Officer and Managing Director (CEO&MD) of the Company on 2nd May 2014. The Board of Directors accepted the resignation and relieved Mr. Guha with effect from close of business hours on 30th June 2014. The Board places on record its appreciation for the valuable services rendered by him during his tenure. The Board has, subject to the approval of the members, appointed Mr. Jamshed N. Cooper (DIN: 01527371) as an Additional Director and also as CEO&MD of the Company with effect from 1st July 2014 in place of Mr. Guha. Mr. Cooper has rich and vast experience of more than 30 years in the cement industry. The Company has received a notice under Section 160(1) of the Companies Act, 2013 from a member proposing his appointment as a director at the ensuing AGM. A brief profile of Mr. Cooper is given in the Notice of AGM. The Board recommends the appointment of Mr. Cooper by the members at the ensuing AGM. The Board has, subject to the approval of the members, reappointed Mr. Sushil Kumar Tiwari (DIN: 03265246) as Wholetime Director of the Company for a further period of two years from 10th June 2015 to 9th June 2017. The Board recommends the reappointment of Mr. Tiwari by the members at the ensuing AGM. Dr. Bernd Scheifele (DIN: 01467699) has tendered his resignation from the position of Director of the Company with effect from close of business hours on 10th September 2014. The Board places on record its appreciation for the valuable guidance provided by Dr. Scheifele during his tenure. The Board has appointed Ms. Soek Peng Sim (DIN: 06958955) as an Additional Director on 16th September 2014. Ms. Sim has rich experience of more than 25 years in finance function. As an Additional Director Ms. Sim holds office up to the date of the ensuing Annual Genral Meeting. The Company has received a notice under section 160(1) of the Companies Act, 2013 from a member proposing her appointment as a director at the ensuing AGM. A brief profile of Ms. Sim is given in the Notice of AGM. The Board recommends her appointment by the members at the ensuing AGM. Dr. Albert Scheuer (DIN: 02170574) retires by rotation at the ensuing Annual General Meeting (AGM) and being eligible offers himself for re-appointment. The Board recommends his reappointment by the members at the ensuing AGM. Mr. P.G. Mankad (DIN: 00005001), Mr. S. Krishna Kumar (DIN: 01785323) and Mr. Pradeep V. Bhide (DIN: 03304262) were appointed as Independent Directors by the members for a term of five years from 1st April 2014 up to 31st March 2019 in the last Annual General Meeting held on 19th June 2014 and they continue to be on the Board of Directors. All the independent directors have given declarations regarding fulfiling the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. DISCLOSURES UNDER COMPANIES ACT, 2013 Number of Board Meetings: During the fifteen months period ended 31st March 2015, six board meetings were held. The details of the same are given in the Corporate Governance Report. Composition of Audit Committee: The Company has an Audit Committee comprising four members namely, Mr. S. Krishna Kumar (Chairman of the Committee), Mr. P.G. Mankad, Mr. P. V. Bhide and Mr. Jamshed N. Cooper. Other details about the said Committee are given in the Corporate Governance Report. All the recommendations made by the Audit Committee were accepted by the Board. Board Evaluation: In accordance with the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually and the performance evaluation of all the Committees constituted by it, namely, the Audit Committee, Nomination and Remuneration Committee, CSR Committee and Stakeholders' Relationship Committee. The manner in which the performance evaluation has been carried out has been explained in the Corporate Governance Report. Nomination and Remuneration Policy: The Board has, on the recommendation of the Nomination and Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management Personnel and their remuneration. The salient features of the same are given in the Corporate Governance Report. The Policy can be accessed at the website of the Company, www.mycemco.com . Extract of Annual Return: The extract of the Annual Return in the prescribed form, MGT - 9 is annexed herewith as Annexure 'C'. Appointment of Key Managerial Personnel: Mr. Anil Kumar Sharma and Mr. Rajesh Relan who were already working with the Company as Chief Financial Officer and Legal Head & Company Secretary respectively were designated as Key Managerial Personnel in compliance with the provisions of Section 203 of the Companies Act, 2013. INTERNAL FINANCIAL CONTROLS The Company has in place various internal controls, policies and procedures to ensure orderly and efficient conduct of its business. During the period under review the Internal Financial Controls were tested and no reportable material weakness in the design or operation were observed. DIRECTORS' RESPONSIBILITY STATEMENT To the best of their knowledge and belief and according to the information and explanations obtained by them and based on the assessment of the management, your directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013 : (a) that in the preparation of the accounts for the fifteen months period ended 31st March 2015 the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; (b) that such accounting policies have been selected and applied consistently and judgments and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2015 and of the profit of the Company for the fifteen months period ended on that date; (c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) that the financial statements for the fifteen months period ended 31st March 2015 have been prepared on a going concern basis; (e) that proper internal financial controls were in place and that such internal financial controls were adequate and were operating effectively; and (f) that systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and were operating effectively. RELATED PARTY TRANSACTIONS All the transactions entered into between the Company and its related parties during the fifteen months period ended 31st March 2015 were in the ordinary course of business and on an arm's length basis. The particulars of such transactions have been disclosed in the notes to accounts of the Balance Sheet presented in the Annual Report. The Company has not entered into any fresh contract or arrangement or modified any existing contract or arrangement after the date on which Section 188 of the Companies Act, 2013 became effective. A statement of all related party transactions is placed before the Audit Committee on a quarterly basis, specifying the nature and value of the transactions. Pursuant to Clause 49 of the Listing Agreement, the Company has framed a Policy on Related Party Transactions and a framework for the purpose of assessing the basis of determining the arm's length price of relevant transactions. The same have been posted on the Company's website. The web-link to access the said policy is <http://mycemco.com/> related-party-transaction-policy. RISK MANAGEMENT The Company has a sound risk management system and a structured risk management policy in place. The business risks have been classified under the broad heads - strategic, operational, financial and legal & compliance risks. The Company's Risk Management Policy lays down a bottom-up process comprising risk identification, analysis and evaluation, treatment and controlling. Risk owners identify and analyse all risks in their area of operations. The business risks are reviewed by the Senior Management and thereafter evaluated by the Audit Committee and the Board of Directors on a quarterly basis. VIGIL MECHANISM The Company has established a vigil mechanism to deal with the instances of fraud and mismanagement. The details of the vigil mechanism are given in the Corporate Governance Report and the same is also posted on the website of the Company. AUDITORS In accordance with the provisions of Section 139(1) of the Companies Act, 2013 the members had at the last Annual General Meeting (AGM) held on 19th June 2014 appointed S.R. Batliboi & Co. LLP, Chartered Accountants, as statutory auditors of the Company for three consecutive financial years i.e., up to the conclusion of the 58th AGM. Section 139(1) of the Companies Act, 2013, further provides that the appointment of statutory auditors shall be placed before the members at every AGM for ratification. Accordingly, a Resolution seeking member's ratification for the continued appointment of S.R. Batliboi & Co. LLP, Chartered Accountants, as statutory auditors of the Company is included at Item No. 3 of the Notice convening the AGM. S.R. Batliboi & Co. LLP have given their consent and confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules made thereunder for continuing as statutory auditors of the Company. The Board recommends the aforesaid resolution for approval of the members. The observations of the Auditors in their report on Accounts read with the relevant notes are self-explanatory. The Auditors' Report does not contain any qualification, reservation or adverse remark. COST AUDIT The Cost Audit for the financial year ended 31st December 2013 was conducted by M/s R.J. Goel & Co., Cost Accountants, Delhi and as required Cost Audit Report was duly filed with Ministry of Corporate Affairs, Government of India. The Audit of the cost accounts of the Company for the fifteen months period ended 31st March 2015 is being conducted by the said firm and the Report will be filed within the stipulated time. In accordance with Section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit) Amendment Rules, 2014 the Board of Directors has on the recommendation of the Audit Committee, appointed M/s. R.J. Goel & Co., Cost Accountants as Cost Auditor of the Company for the financial year 2015-16 on a remuneration of INR 0.225 million. Pursuant to Section 148(3) of the Companies Act, 2013, a resolution seeking member's ratification for the remuneration payable to M/s. R.J. Goel & Co., Cost Accountants is included at Item No. 8 of the Notice convening the AGM. The Board recommends the aforesaid resolution for approval of the members. SECRETARIAL AUDIT The Board has appointed M/s. Nityanand Singh & Co., a firm of Company Secretaries in Practice as Secretarial Auditor for carrying out secretarial audit of the Company for the fifteen months period ended 31st March 2015 in accordance with the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The Report of the Secretarial Auditor is annexed herewith as Annexure 'D'. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. PARTICULARS OF EMPLOYEES The particulars of employees required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 shall be provided on request. In accordance with the provisions of Section 136 of the Act, the Board's Report and the Accounts for the fifteen months period ended 31st March 2015 are being sent to the members and others entitled thereto, excluding the information on employees' particulars which is available for inspection by the members at the Registered Office of the Company during business hours on all working days up to the date of the ensuing Annual General Meeting. If any member desires to have a copy of the same, he may write to the Company Secretary in this regard. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules 2014, forming part of this Report are annexed as Annexure 'E'. DISCLAIMER It is brought to the notice of the members that the Ministry of Corporate Affairs had vide its Circular No. 08/2014 dated 4th April 2014 clarified that the financial statements and the documents required to be attached thereto, the Auditor's and Boards' Report in respect of the financial year under reference shall continue to be governed by the relevant provisions of the Companies Act, 1956, schedules and rules made thereunder. Accordingly, whilst the financial statements and the Auditor's Report as aforesaid are prepared as per the requirements of the Companies Act, 1956, the Company, as a good corporate practice, has to the extent possible provided the information in the Board's Report and the Corporate Governance Report in accordance with the provisions of the Companies Act, 2013. ACKNOWLEDGEMENTS Your Directors are thankful to all stakeholders including Customers, Bankers, Suppliers, Distributors, Dealers, and Contractors for their continued assistance, co-operation and support. The Directors wish to place on record their sincere appreciation to all employees for their commitment and continued contribution to the Company. The Directors are grateful for the confidence, faith and trust reposed by the shareholders in the Company. We are thankful to various agencies of the Central and State Government(s) for their continued support and co-operation. For and on behalf of the Board P.G. Mankad Chairman Place: Gurgaon Date: 25th May 2015 |