carrier airconditioning refrigeration ltd Directors report

DIRECTORS REPORT

Dear Members,

Your Directors have immense pleasure in presenting their 22^nd Annual Report together with the Audited Statement of Accounts of your Company for the financial year ended 31 March, 2014.

Operating Results: Sales & Profit Growth

During the period under review, the net revenue from operations of your Company has decreased 18% from Rs. 103,749 Lakhs in the previous year to Rs 84,988 Lakhs in current year. Resultantly, the profits for the year have also decreased 32.8% from Rs. 6,053 Lakhs in the previous year to Rs. 4,067 Lakhs in current year. The decrease in net revenue on a year over year is primarily driven by the exit of Company from the manufacturing of window room air conditioners and Carrier branded hi-walls effective end of September 2012. The drop in profits on a year over year basis is driven by volume drop through and depreciation of Indian currency against US$ in 2013.

An update on performance of your Companys main business segments is mentioned herein below:

Light Commercial air conditioning (LC): Your Company launched the full range of localized Cassettes manufactured at the Gurgaon facility. Your Company also started manufacturing of the Package units at our Gurgaon facility. These units are available in 11.0 TR & 17.0 TR capacities. With continued focus on product improvement, we also refreshed many of our existing light commercial products with new features, improved efficiency etc. Your company also started imports of the complete range of Carrier brand Slimpac units. In addition, to capture the high growing VRF market segment, import of full range of Carrier brand VRF system has also started.

Commercial air conditioning: The business consolidated its position further in 2013. The key driver being introduction of full range of high efficiency Air-cooled Screw Chillers manufactured in Gurgaon factory. While the economy was slow, your company gained market share in almost every segment we operate in and our high efficiency products were well accepted across segments and applications.

Toshiba: The business unit continued its growth trajectory in the year 2013. Your Company sees significant growth in the Light Commercial range which has Inverter High Walls, Inverter Cassettes and Ducted products. During the year, your Company launched some new products like the Side discharge VRF in 10 & 12 HP. The sourcing of the products also shifted from Japan to Thailand for the VRF products and for Digital Inverters. Toshiba brand products have strengthened its positioning as a premium energy efficient range and have been well accepted in segments like Hospitality, Condominiums, Institutions and Corporates.

Commercial and Toshiba service: Your Company had taken multiple initiatives during the year to strengthen the way the services are delivered with clear focus on safety of the technicians and the customers we serve. Personal protective equipments were provided to the key dealers and safe working trainings have been conducted at all locations. The company invested in latest tools & equipments for faster & accurate diagnosis of problems. The organization also worked on an initiative - UTC Skill School wherein the technicians were identified from the local private ITIs and trained on specific Carrier products before inducting into the field. This initiative would go a long way to improve the quality of services. In commercial service segment, Company invested in latest tools & equipments for faster & accurate diagnosis of the problem.

Totaline: The Business grew at 9% compared to last year with focus on Carlyle compressor sales to OEMs. The business achieved a good breakthrough with Marine and off shore customers. New products were added in trading segment with focus on Project applications. Business witnessed good traction on the new products and may serve good platform for steering the business in new direction.

Commercial Refrigeration: The Sales witnessed de-growth of 6% during the year under review on account of slowdown in the modern retail sector with major contribution coming from Cold Rooms, Plug-ins and Aftermarket. The cold room segment envisaged moderate growth in revenues with expansion of our foot print in Distribution Center, Food Processing, Horticulture, Pharmaceutical & Food Services. Efficient monitoring and execution of the turnkey projects helped in improving customer satisfaction & loyalty apart from optimizing costs.

The Modern retail sector has seen slowdown due to the deferment of store opening by major retailers due to lack of clarity in foreign direct investment policy. However, we effectively positioned our energy saving solutions such as Compressor Rack & Localized Condensing units with two stage Carlyle compressors coupled with robust application and project management support helping sustain our share of wallet with existing key accounts as well as expanding our foot print to local retailers/independents entering the fray.

As member of the National Cold Chain Center, set up by Ministry of Agriculture, your Company is actively involved in various aspects of cold chain evolution in India. Your Company has been actively participating in various forums with United States of America Trade Development Agency (USTDA) & Global Cold Chain Alliance along with National Horticulture Board to improve its presence and visibility.

Transicold: Refrigerated transportation is an important link of the Cold Chain which is fast growing, driven by changing consumption and increased awareness on quality. Carrier Transicold continues to be one of the largest system providers in the refrigerated truck market. Fully built reefer trucks with Carrier systems offered by leading commercial vehicle manufacturers are gaining favour with large fleet operators. The small van last mile distribution segment is still a fast growing segment as more and more products get transported in temperature controlled vans.

Responding to the growing demand in India for reliable and cost-effective cooling units that also deliver efficient cold chain protection, Carrier Transicold India recently launched the Citimax™ and Citifresh™ range of units. These units are ideal for medium size vans and trucks engaged in transportation of frozen and chilled products such as fruits, vegetables, milk, dairy etc.

Carrier Transicold India is an active member of the Confederation of Indian Industry (Cll) Cold Chain Task Force and the National Center for Cold Chain Development (NCCD) set up by the Government of India to promote the usage of the cold chain.

Environment Health & Safety (EH&S)

Your Company has demonstrated excellent results and continued to make sustained improvements in the implementation of the UTC EH&S system over the past several years.

Though we live in a challenging environment, your company has worked for more than 17 Million hours without a lost work incident, received a best-in-class UTC EHS AR score of 87 in the most recent assessment.

Specific EHS initiatives include establishment of a safety first campaign, focused EH&S SP champions (SP003 - SP018), dedicated management teams to conduct audits and monitor improvement activities, reward and recognition system to report near-miss incidents, engagement of the broader community on environmental related issues to promote awareness. EH&S functional leadership continued involvement and guidance in helping to reach new milestones and execute solidly on the EH&S priorities.

Gaurang Pandya, Managing Director, in one of the EH&S event, stated -"EH&S is one of the foundation elements on which our business is built and each one of us is accountable for it. You are empowered to refuse work in unsafe locations and situations. It is of paramount importance that we abide by our cardinal rules. We would like to ensure all our employees and partners go home safely to their families every day".

Your Company also made significant improvement in energy, water usage, air emissions, recycled and non-recycled waste reduction over a period by implementing various projects, Kaizen & Value Stream Mapping (VSM) events.

Dividend

In order to augment reserves and to cater to the working capital requirements, no dividend is being recommended.

Corporate Social Responsibility

Your Company is committed to the belief that it exists not just to run business and generate profits, but also to fulfill its duties as a responsible corporate citizen. As a responsible corporate citizen, your Company recognized its need to deliver value to the society, which is the reason for its existence.

Keeping in view of the above, the Company is operating the Green Shoots Program which essentially drives supporting primary school education in rural areas. The Company engages employee volunteers into various schools, presently operational in Ahmedabad, Bangalore, Chennai, Gurgaon, Hyderabad and Kolkata. The employees work towards improving learning environment for children in impoverished communities. In 2013, our employee volunteers focused on making the campaigns more interesting and educational, with more knowledge integrated into games and classes designed to encourage children mentally and help them materially. Going forward, the Green Shoots Program will be expanded to more schools in India.

Your Company also launched another initiative "Cll Green I" which is contest for schools across India. Your Company recognizes the importance of environment and sustainability and is keen to promote these concepts among the youth.

Restructuring of Companys business

As part of United Technologies Corporation (UTC) group global strategy of restructuring and consolidation of various businesses and focus on providing single-window solutions to its esteemed customers, your Company had ventured into two new business segments, fire safety and electronic security systems.

Fire safety includes detection and alarm systems, suppression equipment, fire-fighting equipment, specialty detection, and residential and commercial fire safety products and solutions. Your Company also provides expert fire and security services such as design, installation, testing, inspection and monitoring of fire and security systems. Vide Asset purchase agreements dated 29th Jaunuary, 2014 executed between the Company and UTC Fire & Security India Limited (UTCFS), Mumbai, the Company purchased the inventory and fixed assets belonging to UTCFSs business of suppression systems. The total consideration comprised of Rs.15.65 Crores for inventory and Rs. 80 Lakhs for fixed assets net of reserve for inventory obsolescence of Rs 1.02 Crores.

As another step towards restructuring the business and increasing our footprints in an additional business line, your Company had purchased entire business of Onity India Private Limited (Onity), Delhi on a going concern basis for a monetary value not exceeding Rs. 5.3 Crores with effect from 1st June, 2014. Onity is a world renowned entity in the field of Electronic Security systems for the Hospitality Industry since past 3 decades. In India, Onity has installed its products in over 750 hotels and 80,000 rooms. The product offerings include:

• Electronic Locks & Smart-Card Systems

• Electronic In-Room Safes

• Energy Management Systems.

• Minibars

Directors Responsibility Statement as per Section 217 (2AA) of the Companies Act. 19S6

i. The Directors confirm that in the preparation of annual accounts for the year ended 31 March, 2014, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period;

iii. The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. The accounts have been prepared on a going concern basis.

Directors

As on date, Companys Board comprises of six Directors. Mr. Chitrabhanu Ghosh & Mr. Sanjeev Joshi, Non-executive Directors of the Company resigned w.e.f. 25 March, 2014 & 30 April, 2014 respectively. Mr. Vineet Kashyap & Ms. Nandita Luthra had been inducted as Board members effective 14th August, 2014. In accordance with Section 255 & 256 of the Companies Act, 1956 and applicable Articles of Association of the Company, Mr. Aditya Kumar, Director of the Company shall retire by rotation at the ensuing Annual General Meeting. The Board recommends his reappointment for your approval.

Audit Committee

The Audit Committee has been reconstituted and comprises of Mr. Gaurang Pandya, Managing Director as Chairman, Mr. Vineet Kashyap and Ms. Nandita Luthra, Non-executive Directors as Members of the Committee.

Share Transfer Committee

The Share Transfer Committee has been constituted and comprises of Mr. Gaurang Pandya, Managing Director as Chairman, Mr. Ashok Mirchandani, Mr. Aditya Kumar, Mr. Nanda Lakkaraju, Mr. Vineet Kashyap and Ms. Nandita Luthra, Directors as Members of the Committee.

Fixed Deposits

Your Company has not accepted any deposits within the meaning of Section 58A of the Companies Act, 1956 and as such, no amount of principal or interest was outstanding as on the balance sheet date.

Auditors and Auditors Report

Your Company had appointed M/s. Price Waterhouse & Co. Bangalore, Chartered Accountants, as Statutory Auditors of the Company for the conduct of audit of accounts for the year ended 31 March, 2014. Their term of appointment expires at the conclusion of the forthcoming Annual General Meeting (AGM), and being eligible, offer themselves for reappointment for 3 (three) consecutive years, to hold office from the conclusion of this Annual General Meeting, until the conclusion of 25th Annual General Meeting, subject to ratification at every Annual General Meeting. The notes to the Accounts, as referred to in the Auditors Report by the retiring Auditor, are self-explanatory and therefore do not call for any further comments and explanations.

The Company has received confirmation from M/s Price Waterhouse & Co. Bangalore, Chartered Accountants, to the effect that their re-appointment, if made, would be within the prescribed limits under Section 141 of the Companies Act, 2013 and that they are not disqualified for re-appointment.

There are no qualifications of Auditors on the Accounts of the Company for the Financial Year ended 31st March, 2014 requiring further comment from the Board of Directors.

Cost Accounting Records

As per the requirement of Central Government and pursuant to Section 233B of the Companies Act, 1956, your Company carries out an audit of Cost records relating to manufacturing activities. Subject to the approval of the Central Government, the Company appointed M/s Jain Sharma & Associates as Cost Auditor to audit the cost accounts of the Company for the Financial Year 2013-14. The Cost audit report for the Financial Year 2012-13 which was due to be filed with the Ministry of Corporate Affairs on 30 September, 2013 was filed on 26 September, 2013.

Conservation of Energy. Technology Absorption. Research & Development. Foreign Exchange Earnings and Outgo

The particulars as prescribed under Section 217(l)(e) of the Companies Act, 1956 read with the prescribed rules are set out in the Annexure A and forms an integral part of this report.

Particulars of Employees

Statement pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, forms part of this Report and is set out in Annexure B to the Report.

Acknowledgement

Your Directors wish to express their gratitude to the Companys Dealers, Suppliers, Bankers, Auditors, Customers, Central and State Government Departments and Local Authorities for their continued guidance, support, help and encouragement they extend to the Company.

Your Directors also like to place on record their sincere appreciation to Business associates and employees at all levels for their unstinting efforts in ensuring all round operational performance. Last but not the least, your Directors would also like to thank valuable shareholders and other stakeholders for their support and contribution. We look forward to your continued support in the future.

For and on behalf of the Board
Aditya Kumar	Gaurang Pandya
Whole-time Director & CFO	Managing Director

Monica Pandey

Company Secretary

Place: Gurgaon

Date: 27 August, 2014

ANNEXURE A TO THE DIRECTORS REPORT

Report on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo as required to be disclosed under Section 217(l)(e) of the Companies Act, 1956.

A. CONSERVATION OF ENERGY

(a) Energy conservation measures taken:

• Replacement of higher energy consumption lights with TL5 energy efficient lights on shop floor and store area.

• Clear sheet on roof to use day lighting on production floors.

• Productivity Improvement in Manufacturing Processes through Kaizen event resulting in avoidance of additional shift to meet requirement. Thus achieved the increased customer demand with reduced shift running and achieving saving in regard to utility, lighting & air cooling.

• Implementation of "lights-off" and "machines-off" when not in use in manufacturing by creating employee awareness & a "My Machine" concept.

• Compressed air leak management program executed to reduce energy losses.

(b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy

Additional investments and proposals: Rs 7.0 lakhs (Rupees Seven Lakhs)

(c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods

As a result of energy conservation measures undertaken by the Company, there had been significant reduction of overall energy consumption.

(d) Total energy consumption and energy consumption per unit of production

Although the Company does not come under purview of the industries mentioned under Schedule to the Companies (Disclosure of particulars in the Report of Board of Directors) Rules, 1988 yet the information on total energy consumption and energy consumption per unit is being provided as per Form A annexed to the said Rules for information sake.

Power fuel consumption

Particulars	Year ended 31 March, 2014	Year ended 31 March, 2013
1. Electricity
(a) Purchased
Units (in Lakhs)	12.12	16.51
Total amount (in Lakhs)	122.94	117.43
Rate/unit (Rs.)	10.15	7.11
(b) Own generation
(i) Through diesel generator	-	-
Units (in Lakhs)	16.52	16.11
Units per litre of diesel oil	3.15	3.15
Cost/unit (Rs.)	18.15	13.28
(ii) Through steam turbine/generator
Units	-	-
Units per litre of fuel oil/gas	-	-
Cost/unit (Rs.)	-	-
2. Coal
Quantity (Tonnes)	-	-
Total cost (Rs.)	-	-
Average rate (Rs.)	-
3. Furnace oil
Quantity (K. Itrs.)	-	-
Total amount (Rs.)	-	-
Average rate (Rs.)	-	-
4. Other/internal generation
Quantity (Unit)	-	-
Total cost (Rs.)	-	-
Rate/unit (Rs.)	-	-

B. TECHNOLOGY ABSORPTION

(a) Research and Development (R&D)

(i) Specific areas in which R&D carried out by the Company

• Introduced new Air Cooled package units in 11 & 17 Ton capacities and refreshed various models of Cassette air-conditioners with R410a & R 22 refrigerant.

• Localized full range of 30XA air-cooled chillers along with various options

• Designed Water Cooled Screw chillers to efficiency under India specific conditions and facility established for performance testing of these chillers

• Extending the range of localized higher capacity air cooled condenser.

• Localized semi hermetic compressor rack with combination of Medium temperature and Low Temperature compressor.

• Introduced open plug in Multi deck in 4 feet size.

(ii) Benefits derived as a result of the above R&D

• Designed products as per India specific requirements for local market

• Competitive advantages in terms of cost and additional revenue generation.

• Improvement in the performance and reliability of the units.

Lead time reduction for product availability by localization of commercial products (Hi) Future plan of action

• Develop new products in keeping upcoming market requirements.

• Localize more products for cost/lead time benefit to customers.

• VAVE to optimize product cost and improve performance.

• Provide energy efficient solutions.

• Quality/reliability improvement for products supplied from factory.

• Low temperature application condensing unit to bridge the gap with existing range

• Extending the range of Evaporators for higher capacity.

(iv) Expenditure on R&D

During the period under review, the Company has incurred following expenditure on R&D:

(a) Capital Rs. 8.56 Lakhs

(b) Recurring Rs. 233Lakhs

(c) Total Rs. 241.56 Lakhs

(d) Total R&D expenditure as a percentage of turnover: 0.28%

(b) Technology absorption, adaptation and innovation

(i) Efforts, in brief, made towards technology absorption, adaptation and innovation

• Technology transfer for various products improve market share.

• Technology transfer on satellite rack.

(ii) Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution etc.

The above stated efforts have resulted in improving capability of producing of various products and helped in better customer service through cost/lead time reduction. Also this will help in increasing revenue and profitability.

(iii) In case of imported technology (imported during last 5 years reckoned from the beginning of the financial year 2010), following information may be furnished:

Technology imported	Year of import	Has technology been fully absorbed?	If not fully absorbed, areas where this has not taken place, reasons therefore and future plans of action.
-	-	-	-

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

Activities relating to Exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans.

During the year under review, the Foreign Exchange Earnings and Outgo of the Company was Rs. 3,118 Lakhs and Rs. 35,594 Lakhs respectively, which were mainly on account of the following:

Foreign Exchange Earnings:
(On accrual basis)
FOB Value of Exports	Rs. 1,640 Lakhs
Commission	Rs. 1,478 Lakhs
Foreign Exchange Outgo:
C.I.F. value of Imports:
Raw Material and components	Rs. 15,208 Lakhs
Finished Goods	Rs. 19,096 Lakhs
Capital Goods .	Rs. 498 Lakhs
Expenditure (On accrual basis-net of tax)
Royalty	Rs. 51 Lakhs
Training	Rs. 21 Lakhs
Other matters	Rs. 720 Lakhs

ANNEXURE B TO THE DIRECTORS REPORT

As on 31.03.2014

Statement showing details of the employees as required under Section 217(2A) of the Companies Act, 1956

s. No.	Name	Designation	Qualification	Previous Experience (Yrs)	Joining Date	Other Terms & Conditions	Remuneration (Rs.)	Age (Yrs)	Last Employment Held
1.	Mr. Gaurang Pandya	Managing Director	B.Com (H), ACCA	8	13-Feb-08	-	15,136,229	37	General Manager- Carrier Guam
2.	Mr. Ashok Mirchandani	Director-Transicold, Asia Pac & Japan	B Tech, MBA	22	Ol-Jan-97	-	14,975,627	63	Head of Operations, SRF Ltd. New Delhi
3.	Mr. Subhajit Mitra	Director-HR	Masters in Personnel Management & Industrial Relations	9	Ol-Sep-10		6,943,912	37	National Manager - HR, Hindustan Coca-Cola Beverages Pvt Ltd, New Delhi
4.	Mr. Arun Bhatia	Director-Commercial Sales	Post Diploma (Mech Engg), & PDGM	4	06-Sep-95		6,633,834	44	Project Engineer, VoLtas Limited, New Delhi.
5.	Mr. Nanda Lakkaraju	Director-Operations & Engineering	B. Tech, M S (Mech Engg & MBA)	13	Ol-Mar-09		6,449,629	42	BU Manager, Carrier Tyler Refrigeration (Mech Systems Div) Niles
6.	Sanjay Sudhkaran (*)	Managing Director, UTC CCS (BIS Division)	B.E.	Nil	26-Jul-93		8,216,765	43	N.A.

Notes:

1. None of the above employment is/was on contractual basis.

2. None of the employees, as listed in Annexure B is related to any Director of the Company.

3. None of the employees, as listed in Annexure B holds (by himself or along with his spouse and dependant children) equity shares in the Company.

Remarks

(*) Employed for part of the year