Akzo Nobel India Ltd Management Discussions.

Industry structure

Indian Coatings industry has been growing over past several years at a rate ahead of the country’s GDP growth. The industry has two main segments: Decorative Paints and Performance Coatings, comprising Protective, Powder, Metal, Marine, Vehicle Refinishes and Coatings for specialised applications, and consists of both organised and unorganised sectors.

Decorative Paints account for a major part of the industry. The main drivers for the growth of this business have been shortening of repainting cycle and better demand from smaller towns. Another important driver for demand for Decorative paints is the new homes underpinned by rising income levels and shift from joint families to nuclear families.

Performance Coatings business is essentially a B2B market in contrast to the Decorative paints, which is largely B2C market. This business is technology intensive with a diverse set of growth drivers, which include key customer relationships, sustained focus on R&D and innovation, with strong emphasis on offering a solution rather than a product.

Business Performance

Coatings Coatings segment recorded total revenue of Rs 24,153 million during the year 2014-15, compared to the previous year’s Rs 23,243 million, a growth of 4%. Segment Profit, however, improved by 43% to Rs 2,111 million, re3ecting impact of cost control, soft input prices and enriched sales mix.

Your Company continued to pursue its long-term objectives through investment in brands, RD&I, distribution expansion and capability building. Highlights of different business units within the Coatings segment are given below:

Decorative Paints

• Strong campaigns that included television advertising, digital and on-ground activation on Dulux SuperClean and Dulux WeatherShield Max, led growth in those product lines.

• Dulux SuperClean won the product of the year award in the paints category.

• Dulux was nominated as one of the 100 most valuable brands in India and also SuperBrand of the year.

• Consumer Centric Innovation with the launch of New Dulux Promise, Promise Primer, Dulux Weathershield Signature and Dulux Satin Stay Bright.

• Launch of the new Dulux website and the Dulux Visualizer, which has so far seen over 1 lakh downloads.

• Projects business grew modestly during the year, though growth in New Build segment was encouraging

• Scale up of the distributor model to expand distribution in un-serviced markets

• The business continued to remain focused to build lean cost structure across functions and capitalise on cost saving opportunities. As a result, the business has been able to realise savings through localisation of raw materials, alternate material/ vendor development, improved process/ material usage ef3ciency and energy reduction, among others.

Performance Coatings

• Marine Coatings business focuses on coating solutions for ships, trawlers, supply vessels and coastal 3shing boats, new ship construction, as well as maintenance and repair. The business continues to face pressure on both volumes and margins. Initiatives to expand into new avenues to propel growth, as well as de-risking were continued.

• Protective Coatings business provides coating solutions to segments like oil and gas, infrastructure projects such as airports and stadia, power generation, mining and minerals, among others. Some of the products introduced during the year were Isopthalic Polyester Glass Flake Linings for internal of pipelines, Ceilcote and Enviroline range for FGD and ef3uent treatment plants.

Though the overall market for protective coatings faced several challenges from delays in project completion and liquidity issues, there are indications of revival of demand in the industry. In the year ahead, the business will be focusing on growth opportunities in maintenance and repair business in Chemicals, Pharma, Oil and Gas and Wind Energy sectors.

• Powder Coatings business caters mainly to architecture, white goods, automotive and general industry, and registered a healthy growth. Opportunities in certain other Profitable segments are being explored.

• Metal Coatings business saw low growth during the early part of the year as domestic steel production was impacted adversely by low cost imports of coated steel. The business has commissioned a manufacturing facility for Packaging coatings products at Thane site during the year.

• Vehicle Refinishes business showed positive growth over previous year, with major contribution from commercial vehicles segment. Necessary enabling agreements for transfer of technology and technical support (including product approvals and referrals) from Akzo Nobel NV to support this business have been put into operation.


This segment, consisting of Polymer Chemistry and Surface Chemistry businesses, recorded a turnover of Rs 1,117million,comparedtopreviousyear’sRs 936million, a growth of 19%. Segment Profit also kept pace, growing to Rs 129 million from Rs 103 million. Opportunities to manufacture/ source some products locally, using AkzoNobel’s proven technologies are being explored.

To support local customer requirements, an Agrochemicals Laboratory was commissioned at Thane site during the year.

Going forward, your Company will continue to closely monitor the global trends in the availability and prices of all key inputs, to ensure supply security. Cost reduction and value creation initiatives have been ingrained in the business processes and are progressing on target. However, slow demand growth, volatility in currency exchange rates could negate the effects of some of the above actions and put pressure on business performance.

The Company follows a Risk Management policy under which all material foreign currency exposures are hedged through forward covers to protect against swings in exchange rates.

Your Company will continue to stay focused on growing Profitably ahead of the market, with emphasis on serving its consumers through innovative technical solutions and continuous efforts to expand footprint in its areas of strength.

Corporate Governance

A report on Corporate Governance, along with a certificate from a practicing Company Secretary con3rming compliance with the conditions of corporate governance, is attached as Annexure I to this report.

Your Company is also participating in an initiative ‘Women on Corporate Boards’ by mentoring and grooming suitable woman candidates to familiarise themselves with the operation and process of Corporate Boards. Under this programme, the Board has selected Ms Shalini Hinduja to participate in the board/committee meetings under the mentorship of the Chairman.

Responsible Care / Corporate Social Responsibility

Your Company recognises that its business activities have direct and indirect impact on the environment in which it operates and is 3rmly committed to conduct its business in a socially and environmentally responsible way for the Benefit of all its stake-holders viz. shareholders, consumers, employees, and the community at large. Towards this objective, various programmes were conducted to create safety awareness and reinforce the Company’s vision of Zero injury.

During the year, your Company implemented several CSR initiatives on its own with employee volunteers, as well as in partnership with external agencies. Such activities covered the areas of health, education and development of the society’s underprivileged sections and environment protection. A report on the CSR activities and initiatives undertaken by the Company during the year is attached as Annexure II.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

Your Company continues to use its research and development base to bring new products with improved performance features and products for special applications. Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo, pursuant to Section 134 of the Act, are given in Annexure III to this report.

Information Technology

During the year, multiple businesses of your Company across the country have been brought under a common Global ERP platform at the respective business unit level to facilitate implementation of global processes. It has helped the Company to achieve synergy on the use of assets and resources.

To automate and streamline critical processes, the Company has gone live with Global Master Data solution for its raw materials code creation and validation process. This system will be able to help the Company integrate its master data across all its businesses and countries, which will in turn ensure a single source of master data, thereby providing full visibility of materials sourced from vendors across business units.

To facilitate collaboration with the Company’s suppliers, an interface has been setup, connecting the Company’s SAP system with the supplier’s ERP systems. This interface helps in automating the operational transactions between the Company and the supplier. This process has been initiated with some of the Company’s biggest vendors, covering majority of the category spend. Plans are underway to extend it further to cover all major vendors.

Human Resources

Your Company had cordial relations with employees across all locations during the year. Your Company’s Human Resources agenda for the year was focused on strengthening four key areas:

• building a robust and diverse talent pipeline,

• enhancing individual and organisational capabilities for future readiness,

• driving greater employee engagement; and

• capability building at the grass root level.

The Company has seen a significant improvement in the engagement score (which indicates the level of engagement, and hence commitment to the Company’s goals and values) of its employees through sustained communication and development programmes. The total number of employees on the rolls of the Company as at 31 March 2015 was 1,792 (previous year 1,854).

Information as per section 197 of the Act, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this Report. However, as permitted under the provisions of section 137 of the Act, the Report and Accounts are being sent to the members excluding the statement containing the said information. Any member interested in obtaining such particulars may inspect the same at the Registered Official of the Company or write to the Company Secretary for a copy.

In accordance with Section 178 and other applicable provisions of the Act, the Board has formulated the Nomination and Remuneration Policy of the Company by suitably de3ning the terms of reference of the Nomination and Remuneration Committee. More details in this regard have been outlined in the Corporate Governance report annexed to this report (Annexure I).

The following further disclosures are made in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:

(i) Ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the Financial year 2014-15:

Name Status Ratio
Mr Nihal Kaviratne CBE Non-Executive 1.6
Mr Jayakumar Krishnaswamy Managing Director 22.7
Mr Himanshu Agarwal Wholetime Director 18.9
Mr R Gopalakrishnan Non-Executive 1.8
Mr Amit Jain Non-Executive -
Mr Raj S Kapur Non-Executive 1.9
Dr Sanjiv Misra Non-Executive 1.7
Ms Kimsuka Narasimhan Non-Executive 0.2
Mr Arvind Uppal Non-Executive 1.7

(ii) Details of percentage increase in the remuneration of each Director and Company Secretary in the Financial year 2014-15:

Name Status Percentage increase
Mr Nihal Kaviratne CBE Non-Executive 14% increase in Commission
Mr Jayakumar Krishnaswamy Managing Director 5% of Annual Base salary with effect from 15 January 2015
Mr Himanshu Agarwal Wholetime Director 5% of Annual Base salary, pro rated from the date of joining the Company (Actual: 3% with effect from 1 April 2014)
Mr R Gopalakrishnan Non-Executive 14% increase in Commission
Mr Amit Jain Non-Executive Nil
Mr Raj S Kapur Non-Executive 14% increase in Commission
Dr Sanjiv Misra Non-Executive 14% increase in Commission
Ms Kimsuka Narasimhan Non-Executive Joined the Board on 30 January 2015 – hence, not applicable
Mr Arvind Uppal Non-Executive 14% increase in Commission
Mr R Guha Company Secretary 8% of Annual Base salary with effect from 1 April 2014

Internal Control Systems/Risk Management

Your Company has an effective risk management framework, which helps the Board to monitor the state of controls in key business processes. Your Company also has well-established procedures for internal controls, commensurate with its size and operations. The organisation is appropriately staffed with quali3ed and experienced personnel for implementing and monitoring the internal control environment. The internal audit function reports to the Audit Committee.

Vigil Mechanism

Your Company has a Vigil Mechanism in place as required under section 177 of the Act and the Listing Agreement. More details in this regard have been outlined in the Corporate governance report annexed to this report (Annexure I).

Policy Against Sexual Harassment

Your Company has formulated a policy for prevention and deterrence of acts of sexual harassment. The Policy also de3nes the procedures for the resolution and settlement of complaints, if any. Internal Complaints Committees have been constituted in accordance with the requirements under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, which ensures implementation and compliance with the law, as well as the policy at every unit. There were no cases/ complaints reported in this regard during 2014-15. A copy of the policy against sexual harassment is posted on the Company’s website at https://www.akzonobel.com/in/corporate_governance/ policies.

Related Party Transactions

All contracts / arrangements / transactions entered by the Company during the Financial year with related parties were in the ordinary course of business and on an arm’s length basis. During the year, the Company had not entered into any contract / arrangement / transaction with related parties, which could be considered material in accordance with the policy of the Company on materiality of related party transactions.

Your Directors draw attention of the members to Note 5.16 to the Financial statements which sets out related party disclosures.

Loans, Guarantees & Investments

There are no loans given or guarantees issued that are covered under Section 186 of the Act read with the Rules made thereunder. Details of investments made under the said section are covered in Notes 3.9 and 3.12 of the Financial statements.

Extracts of the Annual Return

As required under section 134(3)(a) of the Act, read with the Companies (Management and Administration) Rules, 2014, an extract of the Annual return in the prescribed form is attached as Annexure IV.

Directors & Key Managerial Personnel

Mr Robert Molenaar, Director, resigned from the Board with effect from 9 September 2014. Mr Arabinda Ghosh was appointed as a Director with effect from 28 May 2015 in the casual vacancy caused by the resignation of Mr Robert Molenaar.

Ms Renu Karnad resigned from the Board with effect from 9 September 2014 to comply with certain regulatory restrictions. Ms Kimsuka Narasimhan was appointed as a Director with effect from 30 January 2015 in the casual vacancy caused by Ms Renu Karnad’s resignation.

Appointment of Mr R Gopalakrishnan and Mr Arvind Uppal as Independent Directors for a term of 3ve years with effect from 12 August 2014, Ms Renu Karnad for the period from

12 August 2014 to 8 September 2014 and Ms Kimsuka Narasimhan for a term of 3ve years with effect from 30 January 2015 are subject to approval by the shareholders at the forthcoming Annual General Meeting.

Mr Amit Jain will be retiring by rotation at the forthcoming Annual General Meeting and is eligible for re-appointment.

Your board wishes to place on record its deep appreciation of the contributions of Mr Robert Molenaar and Ms Renu Karnad during their respective tenures.

Declaration by Independent Directors

Your Company has received necessary declarations from each Independent Director under section 149(7) of the Act that he/ she meets the criteria of independence, laid down in section 149(6) of the Act and clause 49 of the Listing Agreement.


Statutory Auditors

M/s B S R & Associates LLP will retire as the Auditors of the Company at the conclusion of the forthcoming Annual General Meeting, and being eligible have offered themselves for reappointment. The Auditors’ Report for the Financial year 2014-15, does not contain any qualification, reservation or adverse remark.

Cost Auditors

The Board has appointed M/s Chandra Wadhwa & Associates as the Cost Auditors for conducting Cost Audit for the Financial year 2014-15. Their report for the previous year ended 31 March 2014, was 3led with MCA within the stipulated time.

Secretarial Auditors

In terms of section 204 of the Act, the Board has appointed M/s A K Labh & Co, Kolkata to conduct a Secretarial Audit for 2014-15. Their report is attached as Annexure V.

Directors’ Responsibility Statement

As required under section 134(5) of the Act, the Board states that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed and there are no material departures from the same;

(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 your 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 suf3cient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) the Directors had prepared the annual accounts on a going concern basis;

(e) the Directors had laid down proper internal Financial controls to be followed by the Company and that such internal Financial controls are adequate and were operating effectively; and

(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.


Your Directors state that no disclosure or reporting is required in respect of the following items, as there were no transactions on these items during the year under review:

1. The Company has issued only one class of equity shares with equal rights.

2. The Company has not issued any shares during the year, under ESOPs or Sweat Equity or otherwise.

3. The Company does not have any subsidiary; hence, the question of the Managing Director or Wholetime Directors of the Company receiving any remuneration or commission from any of its subsidiaries does not arise.

4. No significant or material orders were passed by the Regulators or Courts or Tribunals, which could impact the going concern status and the Company’s operations in future.

Cautionary Statement

Some of the statements in this report, describing your Company’s objectives and expectations expressed in good faith, may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ materially from those, in the event of changes in the assumptions/ market conditions.


Your Directors wish to convey their gratitude and appreciation to all the employees of the Company for their valuable contribution during the year. They also wish to place on record their appreciation of the Company’s customers, shareholders, investors, bankers, agents, suppliers, distributors and other business associates for their cooperation and support.

For and on behalf of the Board
28 May 2015 Nihal Kaviratne CBE
Gurgaon Chairman