Directors Report & Management Discussion and Analysis
THE MEMBERS OF
The Directors take pleasure in presenting the Seventy Eighth Annual Report togetherwith the audited financial statements for the year ended December 31, 2013. The ManagementDiscussion and Analysis has also been incorporated into this report.
1. HIGHLIGHTS OF PERFORMANCE
Consolidated income for the year decreased by 2% to Rs. 11,389 crore as compared to Rs.11,621 crore in 2012. Consolidated profit before tax in 2013 was Rs. 1,214 crore asagainst Rs. 1,441 crore in 2012. Similarly, consolidated profit after tax was Rs. 1,095crore as against Rs. 1,059 crore in 2012.
2. FINANCIAL RESULTS
| || |
| ||Rs. Crore || || ||Rs. Crore |
| ||2013 ||2012 ||2013 ||2012 |
|Revenue from Operations (Net) and other income ||11,388.55 ||11,621.47 ||11,392.73 ||11,622.78 |
|Profit Before Tax (PBT) ||1,213.64 ||1,440.99 ||1,226.96 ||1,451.49 |
|Provision for Tax ||131.91 ||391.08 ||131.20 ||390.30 |
|Profit After Tax (PAT) ||1,094.67 ||1,059.28 ||1,095.76 ||1,061.19 |
|Balance brought forward from previous year ||3,845.79 ||3,591.12 ||3,861.83 ||3,821.54 |
|Adjustment pursuant to Amalgamation ||- ||- ||- ||(216.29) |
|Profit available for Appropriations ||4,940.46 ||4,650.40 ||4,957.59 ||4,666.44 |
|Appropriations: || || || || |
|Interim Equity Dividend ||206.52 ||206.52 ||206.52 ||206.52 |
|Proposed Final Equity Dividend ||356.72 ||356.72 ||356.72 ||356.72 |
|Tax on Equity Dividends ||95.72 ||91.37 ||95.72 ||91.37 |
|Previous Year Tax on Equity Dividends ||2.76 ||- ||2.76 ||- |
|General Reserve ||120.00 ||150.00 ||120.00 ||150.00 |
|Surplus carried to the next years account ||4,158.74 ||3,845.79 ||4,175.87 ||3,861.83 |
Your Directors are pleased to recommend a final dividend of Rs. 19/- per equity shareof Rs. 10 each. The Company had distributed an interim dividend of Rs. 11/- per equityshare of Rs. 10 each in August 2013. The total dividend for the year ended December 31,2013 would accordingly be Rs. 30/- per equity share of Rs. 10 each which was the same asthe dividend declared for the year ended December 31, 2012. The total outgo for thecurrent year amounts to Rs. 658.96 crore, including dividend distribution tax of Rs.95.72 crore as against Rs. 654.61 crore including dividend distribution tax of Rs. 91.37crore in the previous year and Rs. 2.76 crore being the dividend distribution taxpertaining to previous year.
4. ECONOMIC SCENARIO AND OUTLOOK
Indian economic growth in 2013 had slowed down to 4.5%-5% which is the lowest in adecade. The high borrowing cost to combat inflation coupled with lower privateconsumption, low investment in infrastructure and other sectors were responsible for this.Although agriculture and allied sectors had shown improvement following a good monsoon andexports grew due to the depreciation in the value of the Indian Rupee, the economic growthwas mainly pulled down by the contraction of the manufacturing sector. The low economicgrowth appears to have bottomed out and a gradual increase in economic activity isexpected from the middle of 2014.
5. CEMENT INDUSTRY OUTLOOK AND OPPORTUNITIES
The Indian Cement Industry has an installed capacity of Rs.350 million tonnes and thedomestic consumption in the calendar year 2013 was 260 million tonnes. Cement consumptionhad grown at the rate of 4% to 5% in the calendar year 2013. Although, cement consumptionis believed to have a multiplying factor of 1.2 to the GDP growth, such lower thanexpected consumption growth was mainly due to the high cost of borrowing and lowinvestment in the infrastructure and commercial segments.
Your Company had a marginally negative volume growth during the last calendar year asour large capacity in South and West could not be placed in the market due to overcapacityin these regions and also on account of negative consumption growth in our key markets ofMaharashtra and Karnataka. The sales volume was however, in line with other large cementmanufacturers in India.
The overall cement demand is estimated to grow at the rate of 4% to 5% in the calendaryear 2014. The consumption growth may pick up beyond 5% if investment is made in theinfrastructure segment. With the gradual reduction in fiscal deficits and Consumer PriceIndex, it is expected that the interest rates would gradually come down which wouldstimulate demand in the housing sector. Even with a modest increase in the consumptiongrowth, the cement industry will continue to have a huge capacity surplus in 2014,particularly in the South. Your Company's continued focus on cost reduction under the"Institutionalizing Excellence" programme, its thrust on increasing the sale ofits premium products and various other customer excellence initiatives should help inpresenting an improved performance.
6. CEMENT BUSINESSPERFORMANCE AT A GLANCE
| || || || |
| ||2013 ||2012 ||Change % |
| || || || |
|Production - million tonnes ||23.86 ||24.12 ||-1 |
|Sales Volume - million tonnes ||23.93 ||24.11 ||-1 |
|Sale Value - (Rs. crore) ||10,908.41 ||11,130.45 ||-2 |
|Operating EBITDA -(Rs. crore) ||1,628.79 ||2,195.57 ||-26 |
Your Company's constant focus on cost reduction through various efficiency improvementmeasures taken at the plants and in the areas of logistics under "InstitutionalizingExcellence" programme helped in partially covering the high cost of inflation.
Introduction of premium products such as F2R, Concrete+, ACC Gold in the retail segmentin many of our markets proved to be successful. It has been decided to replicate thissuccess on an all India basis.
7. INSTITUTIONALIZING EXCELLENCE
In 2012, your Company had launched the Institutionalizing Excellence programme acrossall functions to sustain overall performance excellence so as to deliver superior value tocustomers and pursue cost leadership. The programme helped the Company offset inflationarypressure by managing its operating costs and enhancing customer value through improvementsin manufacturing, sales, logistics and procurement processes. The InstitutionalizingExcellence journey continues with a strong focus on Occupational Health &Safety.
In Manufacturing Excellence, some plants have already achieved and have even surpassedtheir individual aspirational targets in respect of plant performance such as clinkerfactor, thermal and electrical energy efficiencies. Efforts are now directed towardsraising the overall efficiency parameters closer to the aspirational targets and pursuefurther reductions in input costs of coal, gypsum, slag and flyash.
The Customer Excellence programme continued to focus on measures to achieve volume andprice improvement and steps for the enhancement of brand equity.
The Logistics Excellence journey saw visible and significant initiatives to optimizecost-to-serve and time-to-serve, reduce lead distances, eliminate multiple handlingand enable the creation of modern infrastructure at our plants and warehouses. The RFIDand GPS modules which were successfully deployed at three plants are being replicated atall plants of the Company in a phased manner.
The on-going Jamul project in Chhattisgarh, which comprises a newstate-of-the-art clinkering line of 2.79 million tonnes per annum capacity and a grindingfacility of 1.10 million tonnes per annum capacity is progressing well and has reached itshalfway mark. The project will be completed in a phased manner by mid 2015. During theyear, work also commenced on the Sindri grinding unit in Jharkhand, which will receiveclinker from the new Jamul plant.
Your Company's first Waste Heat Recovery Boiler plant, with an output of Rs.7.5 MW, wascommissioned at the Gagal Cement Plant in Himachal Pradesh.
9. READY MIXED CONCRETE (RMX)
The Companys RMX business turned around during the year with its operating EBITDAimproving substantially to Rs. 19.61 crore from Rs. 2.1 crore in the previous year,though concrete sales volume increased marginally. The improvement in profitability wasmainly a result of close monitoring of operating and logistic costs and offering ourcustomers value added products and solutions. Customer focus has been sharpened bywidening the customer base and by leveraging the cement sales network to target the retailsegment.
The RMX market in the country has become more fragmented and competitive with many newentrants from the unorganized segment. Larger investments are foreseen in real estate andinfrastructure projects across India in the coming year leading to growth in theconstruction sector. The increased demand is expected to come from the markets of Mumbai,Chennai and Bengaluru. The Company is taking suitable steps to consolidate its RMXbusiness by striving to increase volumes from its existing assets, through on-site andcommercial projects.
| || || || |
| ||2013 ||2012 ||Change % |
| || || || |
|Production- Lakh Cubic Meters ||15.96 ||16.54 ||-4 |
|Sales Volume-Lakh Cubic Meters ||18.00 ||17.97 ||- |
|Sale Value -(Rs. crore) ||655.91 ||617.06 ||6 |
|Operating EBITDA-(Rs. crore) ||19.61 ||2.12 ||825 |
10. SUSTAINABLE DEVELOPMENT
Sustainability is an integral part of our business philosophy. The Company is in theprocess of consolidating inputs for a new roadmap for sustainable development for theperiod 2014-2017.
The cement operations of your Company are certified under various management systemsfor quality, environment and safety. In addition to Corporate Social Responsibility (CSR),Human Resources (HR) and Occupational Health & Safety (OH&S), which are addressedlater in this report, the important initiatives of your Company's sustainable developmentagenda emissions, reduction in include reduction in CO2 stack and fugitiveemissions, water management and biodiversity.
10.1 CO2 Emissions:
Your Company co-chaired the group involved in developing a Low Carbon Technologyroadmap for the Indian Cement Industry under the aegis of the Cement SustainabilityInitiative in India (CSI) of World Business Council for Sustainable Development (WBCSD).The roadmap comprises a comprehensive plan to achieve reduction in direct emissionsleading upto the year 2050. This is the first plan of its kind which is a country-specificand sector-specific long term action plan to cut emissions and mitigate CO2 climatechange risks. Keeping in mind these reduction targets, your Company is working on thefollowing levers simultaneously:
* Increasing the use of Alternative Fuels and Raw materials (AFR).
* Reducing Thermal Energy and Electrical Energy.
* Reducing clinker factor by producing blended cements using industrial waste materialslike flyash and slag.
* Increasing the use of renewable energy.
* Waste heat power generation from process waste heat.
Efforts in these areas helped your Company to maintain a leadership position inreduction of emissions in the country, as illustrated by the CO2 following:
* Specific emissions for Portland CO2 Pozzolona Cement (PPC) during the yearwas 529 kg CO2/tonne of cement as compared to 545 kg CO2/tonne of cement inthe previous year.
* Specific emissions for Portland Slag CO2 Cement (PSC) during the year was352kg CO2/tonne of cement as compared to 367 kg CO2/tonne of cement in theprevious year.
The above reduction helped the Company to maintain overall specific emissions, at CO2538 kg CO2/tonne of cement despite increase in the production of Ordinary Portland Cement.
10.1.1 Alternative Fuels and Raw Materials (AFR):
Your Companys initiatives in utilizing Alternative Fuels and Raw Materials (AFR)in the cement manufacturing process is gaining momentum in an effort to mitigate therising cost of conventional fossil fuels and raw materials. Forty six co-processing trialsof different waste materials have so far been carried out after obtaining necessaryclearances from the concerned authorities at the State and Centre levels. These trialshave demonstrated that co-processing is environmentally and ecologically a moresustainable technology for managing waste than other technologies that are in practicetoday, such as landfill and incineration. Our waste management services through cementkiln co-processing are gaining wider acceptance.
Based on the demonstrated success of the suitability of co-processing technology forwaste streams, the Company has received clearances for co-processing 127 different wastestreams generated by diverse industry segments such as automobiles, chemicals,engineering, power, steel, refineries and petrochemicals. During the year under review,the Company conducted seven co-processing trials of different waste materials. Twentythree new industries accepted the co-processing services offered by the Company as aresult of which thirty two new streams for co-processing have been added in variousplants. Currently, different types of waste streams are being co-processed fromindustrial, agricultural and municipal sources as AFR.
During the year 2013, a quantum leap was achieved in the usage of AFR, thereby enablinga Thermal Substitution Rate (TSR) of 4.36% against a target of 4.12%. The focus on AFR,enabled your Company to reduce fuel consumption in kilns, captive power plants and indryers.
Your Company is also engaged in co-processing segregated non-recyclable plasticwaste from municipal solid waste, thereby assisting Society with the disposal of plasticwaste. Your Company is in an active engagement with fifteen municipalities and localbodies in this regard and has co-processed 433.38 tonnes of non-recyclable plasticsduring the year.
To increase the AFR utilization substantially, three pre-processing platforms are beingset up at our plants which will prepare AFR material of uniform quality from various kindsof wastes that have different types of physical and chemical characteristics. Two of thesefacilities are expected to be ready during the course of this year.
10.1.2 Reduction of Thermal Energy:
Many initiatives were taken to reduce specific thermal energy in the manufacture ofclinker as part of the Manufacturing Excellence initiatives, which resulted in a reductionof 10 MJ specific thermal energy/tonne of clinker as compared to 2012. In many plants,higher percentage of petcoke is being used to reduce the cost of thermal energy and coalcosts.
10.1.3 Clinker Factor:
Clinker Factor in both varieties of blended Cements viz. Portland Pozzolana Cement(PPC) and Portland Slag Cement (PSC) was reduced through product innovation and researchefforts. Your Companys blended Cement initiatives is one of the biggest CleanDevelopment Mechanism (CDM) project of its kind in the Indian Cement Industry. Continuousefforts to control clinker content in PPC has helped emissions over a period of inreducing CO2 four years in four plants and this is currently under review for issuance of8,46,313 CERs (Certified Emission Reductions) by United Nations Framework Convention onClimate Change (UNFCCC).
10.1.4 Renewable Energy:
Your Company's Renewable Energy portfolio consists of 19 MW in the form of wind farmsacross three states viz. 9 MW in Tamil Nadu, 7.5 MW in Rajasthan and 2.5 MW inMaharashtra. Cumulatively, a total of 23.53 million units of wind power has beengenerated. These units helped the Company meet its non-solar renewable purchase obligationfor Madukkarai and Lakheri Plants. In Maharashtra, the Company was issued Renewable EnergyCertificates (RECs), besides meeting the power needs of our Thane complex and part of therequirement of our Subsidiary Company, Bulk Cement Corporation (India) Limited atKalamboli. The non-solar renewable power obligations of other plants viz. Wadi, Kymore,Bargarh, Tikaria and Jamul were met by purchasing RECs. The Tamil Nadu Wind Mill Projectrealized 21,745 CERs from UNFCCC.
10.1.5 Waste Heat Power generation from process waste heat:
The Waste Heat Recovery System at Gagal is expected to reduce 44,180 tonnes of CO2 perannum. This is an important milestone in the Companys sustainable developmentjourney.
10.2 Stack Emissions and Fugitive Emissions:
The Company has implemented various initiatives/measures for improving theenvironmental performance of its Plants. The current average Kiln Stack emissions are <30mg/Nm3,as against the regulatory compliance requirement of 30mg/Nm3. The specific kiln dustemissions per tonne of cement have decreased by Rs.18% as compared to the previous year.This was achieved through various measures like conversion of Electrostatic Precipitators(ESPs) to Baghouse and installation of Polytetrafluoroethylene (PTFE) membrane filter bagsin place of conventional filter bags. Many initiatives were undertaken to minimizefugitive as well as stack emissions across all Plants. These include installation of dustsuppression systems, dust extraction systems for material handling, loading, unloadingareas of raw materials, intermediate and finished products. In some plants, coveredstorage has been provided to prevent fugitive emissions. Online continuous ambient airquality monitoring stations were installed in some plants to monitor environmentparameters.
10.3 Water-positive initiatives:
Your Company has adopted a two pronged strategy i.e. working simultaneously on reducingfresh water intensity by reducing water demand in process/non-process needs and wastewater recycling after treatment, whilst simultaneously working on rain water harvesting inplants, mines, housing colonies and community areas. During the year 2013, theCompanys specific water consumption per tonne of cement was reduced by 2%. As partof its water-positive initiatives, the Company has taken up many water harvesting schemesduring the year. Installation of water metering systems and increasing the usage ofrecycled water will help the Company to become water-positive in the near future.
As part of your Company's overall objective to create a positive impact onbiodiversity, a risk assessment excercise of all mines has been carried out and variousinitiatives are being undertaken in this regard. The green belt area in all cement plantsis being increased to maintain atleast 33% as green coverage. During the year 2013,approximately 1 lakh trees were planted under afforestation programmes across all plants.
11. COMMUNITY DEVELOPMENT
The Board of Directors constituted a Corporate Social Responsibility (CSR) Committeewhich reviewed and restated the Companys CSR policy in order to make it morecomprehensive and aligned with the activities specified in Schedule VII of the CompaniesAct, 2013. The new policy statement emphasizes the purpose of delivering superior andsustainable value to our stakeholders and simultaneously indicates key performance areasand specific deliverables mainly in respect of education, health & sanitation andsustainable livelihoods.
During the year 2013, the Companys community development efforts successfullytouched the lives of almost 6 lakh people spanning ~130 villages across the country.Overall CSR expenditure incurred during the year was Rs. 22.76 crore. Efforts to enhancethe quality of education in the plants neighbourhood schools benefitted approximately18,000 students during the year. Scholarships were awarded to 650 meritorious studentsfrom weaker sections of society to help them continue their education. Technology aidededucation initiatives like smart classes and interactive kiosks in rural schools reachedout to about 12,700 rural children to keep pace with modern methods of learning. Specificsupport was provided to revive education to about 850 girl children who had dropped out ofschool. The Company continued to support
7 Government run ITIs under the Public Private Partnership Schemes with Ministry ofLabour and Employment, Government of India. Skill development training programmes wereimparted to unemployed youth in partnership with specialized NGOs, which helped about2,500 youth get job placements in various manufacturing and service sector enterprises.Your Company supported the formation of 737 Self Help Groups (SHGs) and theirstrengthening through structured training activities. Members of these SHGs saved close toRs. 1.50 crore which helped them to secure matching grants from banks and other financialinstitutions to start micro-enterprises.
In matters of health and nutrition, your Companys initiatives benefitted morethan 1 lakh people. Support to 102 "anganwadi centres" helped approximately3,000 children get access to better health and nutrition. Nearly 1,500 HIV/AIDSaffected persons were supported through counselling, testing and treatment.
Your Company supported the process of Aadhaar enablement of the local communities toenhance their access to government subsidies and entitlements. A substantial part of thepeople living around our plants now have Aadhaar identification cards.
Your Company has also been engaged in leadership roles in CSR at various platforms. ACChas been nominated as an Industry representative in the Global Fund for IndiasCountry Co-ordination Mechanism on Health. The Company has also been appointed inthe CIIs Sanitation Committee to promote initiative of Government of India on bettersanitation coverage in India.
Your Company was quick to respond in providing timely relief to the people affected intwo major disasters that struck the nation in 2013. The Chief Minister of Uttarakhandacknowledged the prompt efforts and unstinted help rendered by the Companysemployees to the victims of the landslide and flash floods in June 2013.
12. OCCUPATIONAL HEALTH & SAFETY (OH&S)
In pursuit of ensuring "No harm anywhere to anyone associated with ACC",Occupational Health & Safety (OH&S) remains the Companys top priority.Accordingly, the endeavour in 2013 was to instill OH&S as our license to lead. Throughwidely communicated initiatives such as "Suraksha Laher", efforts were directedto create an appropriate infrastructure, improve OH&S systems to make them more robustby identifying and addressing deficiencies and by building OH&S capabilities of lineand functional personnel. There was a new thrust on visible leadership in creating astructure within plants that ensures accountability and incorporates a concept of Zoneownership. A Centre of Excellence has been created to implement safety processes andsystems uniformly at all plants, for capability building and for sharing experiences andbest practices. The centre has three fulltime executives to implement OH&S priorityareas. It is also intended to involve and engage Shop Floor Associates (SFAs) and contractworkers to identify their safety concerns and execute safety projects with a view toachieve focused improvements in their respective work areas. The behaviour based safetyinitiative "ACC Chetna", launched in 2012, continued to form part of the basicbehaviour expected as a practice from employees to prevent incidents.
Reaching beyond plant operations, your Company also addressed the subject of LogisticsSafety to prevent vehicle related incidents. This programme included carefully plannedinterventions in people development and training in safe driving for drivers. Plant-levelhealth and safety checks have been initiated in phases with the help of externalconsultants. The safety checks include examination of factors influencing vehicular safetysuch as overall plant layout, packing house layout, truck parking yards, inward andoutward flow of traffic, storage areas and infrastructure for road and rail transport.
Various steps were taken to demonstrate that health constitutes an essential part ofOccupational Health & Safety. The focus on occupational health in the areas of healthsurveillance, upgradation of emergency medical response and pro-wellness programmes helpedsave valuable lives while reducing health risk factors.
13. HUMAN RESOURCES
Success of any organization depends upon the engagement and motivation levels of itsemployees. In Human Resources, our emphasis was to give autonomy to people at differentlevels and create a sense of ownership in order to unleash their potential.
The Human Resources Division has played a significant role in achieving the overallbusiness objectives by creating a common vision, building capability amongst people andmore importantly, involve and engage employees in improvement programmes across thefunctions for achieving higher results. This process of engagement and involvement throughspecial projects has created learning opportunities for the employees.
* To support business, processes were re-engineered to bring about variouschanges in systems in order to provide proactive support. Some of the initiatives are asunder:
* Recruitment and On-BoardingRight-fit talent is hired and exposed to a year-longinduction programme in newly created On Boarding Centers.
* Employee Engagement ProgrammesEmployee feedback through various surveysconducted show that the employees are experiencing a greater sense of engagement.
This has been achieved through various on-the-job engagement initiatives. OrganizationExcellenceThe Company has carried out a variety of initiatives in this regard, afterbenchmarking Indian and Global best-in-class organization designs.
* Skill EnhancementA plan has been put in place for upgrading the skills of SFAsthrough training and engaging them in a variety of improvement programmes to enable themto align with business and perform better. The unions and other stakeholders are highlyappreciative of this initiative.
* Capability BuildingYour Company believes that capability can be built byhands-on experience and exposure. Series of programmes are being conducted whereunder alarge number of middle and senior level leaders are assigned various turnaround projects.A continuous monitoring as well as a recognition and reward model has also been createdaround this initiative to encourage and recognize people in larger forums.
* Creating a future leadership pipelineWith a view to motivating and retainingtalent and providing growth opportunities for them in their respective work areas,identified talent has been given new challenges through engagement, mobility and specialprojects.
Proactive Industrial RelationsA great deal of time is spent in engaging Unionsand sharing relevant information with them to enable them to participate in the growthjourney.
Your Companys cash and cash equivalent as at December 31, 2013 was Rs. 2,621crore. The Company continues to focus on judicious management of its working capital.Receivables, inventories and other working capital parameters are kept under strict checkthrough continuous monitoring. The Companys debt programme continues to enjoy an"AAA" rating from CRISIL.
During the year under review, the Company had given an option of premature redemptionof Non-Convertible Debentures to the holders of its Privately Placed Debentures.
Non-Convertible Debentures of the aggregate value of Rs. 105 crore, stand prematurelyredeemed whilst debentures of the aggregate value of Rs. 20 crore, stand redeemed onmaturity as on December 31, 2013.
As on date, Non-Convertible Debentures aggregating Rs. 32 crore remain outstanding.
15. FIXED DEPOSITS
Despite efforts to identify and repay unclaimed deposits, the total amount of fixeddeposits matured and remaining unclaimed as on December 31, 2013 was Rs. 0.02 crore.
16. SUBSIDIARY COMPANIES
16.1 ACC Mineral Resources Limited (AMRL)
The wholly owned Company ACC Mineral Resources Limited is a Joint Venture Partner infour Coal Blocks allotted by the Madhya Pradesh State Mining Corporation Limited (MPSMC).
Preliminary and pre-development activities in the three Coal Blocks out of four are inprogress. The Bicharpur Coal Block in the Shahdol District is in an advanced stage ofdevelopment and will cater to the coal requirement of some of your Companys cementplants when i