Andhra Paper Ltd Directors Report.

Dear Members,

The Board of Directors has the pleasure in presenting its 55th Report along with the Audited Accounts for the year ended March 31, 2019.

Performance Review

During the financial year 2018-19, the Company recorded an impressive performance by recording its highest EBITDA and Profit After Tax (PAT). While EBITDA registered an increase by 73%, PAT improved by 140%. These results were driven by highersalesvolume,highersalespricerealizationandlowerinput cost. Improved productivity from our mills helped to generate more volume for sales revenue and lower manufacturing cost from more efficient operations. The Company continued to focus on important initiatives for improving safety and environmental compliance as well as improving the customer experience and operational efficiencies.

Summary of Financial Results (In Rs. Crores)
Particulars March 31, 2019 March 31, 2018
Sales and other operating income 1427.33 1279.80
Earnings before interest, depreciation and taxation (EBITDA) 393.16 226.72
Finance costs 8.54 26.09
Depreciation 67.87 65.81
Profit before exceptional items 316.75 134.82
Exceptional items (5.42) (8.37)
Profit before tax 311.33 126.45
Tax expense 111.26 43.39
Profit for the year 200.07 83.06

Dividend

In order to conserve the resources for meeting future capital needs related to maintenance, regulatory, cost reduction and potential strategic projects, the Board of Directors have decided not to recommend dividend on the equity shares of the Company.

Markets, Customers and Commercial Excellence

Demand for Writing & Printing papers in India continues to grow. From education to publishing, to office use, the consumption of paper is moving with the many market segments that are fueling the economic growth of India. The supply and demand for paper during 2018-19 was balanced with domestic and foreign producers competing for customers and supply position. Foreign producers importing into India are aggressively positioning their products and establishing capable supply lines for selling quality products into India. As a relatively small producer, IP APPM must have high quality products, but must also distinguish itself among the competition. Over time, customers expect more from us so the commercial team is focused on improving the overall customer experience. The product itself is just one piece of the equation and we must deliver value to the customer including product choice, dependable and consistent service and capable technical support. Our Forecast Accuracy of 81% and On-Time-in-Full delivery rate of 92% are among the best in the Industry. This high service level has helped our channel partners to better plan their resources and commitments thus increasing the value that we can provide for both the distributer and customer. Our concept of "Think Customer" is yielding better results to enhance customer satisfaction by way of increased speed, better On-Time-in-Full delivery and reduced Turn-Around-Time to address quality improvements. The focus on high service and delivering more value to our customers has ultimately resulted in our ability to grow sales volume by ~3% over last year.

Manufacturing, Operations and Safety

The manufacturing teams use a systematic approach and programs for managing safety and manufacturing excellence. Each year, we build improvement targets into the operating plans. The results of these programs have helped to improve safety performance by reducing incidents to the lowest level recorded among employees. The mill manufacturing teams have improved pulp and paper productivity to record levels during FY 2018-19. The productivity improvements drove lower costs for fiber, energy and chemicals and delivered record paper production and sales.

Raw Material Security

Long term access to cost effective fiber is important to our strategy. The IP APPM forestry team is building lasting partnerships with farmers, research institutions and vendors. These partnerships are important to ensure that each participant gets a benefit from their investment.

The Company continued to focus on a long term fiber security strategy by providing high quality Casuarina clones and seedlings to farmers, with an eye to develop sustained fiber supply within a catchment of 150 km radius. The Company also partnered with private nurseries to build capacity for production and distribution of clones. The Company also continued to partner with the Institute of Forest Genetic & Tree Breeding, Coimbatore (IFGTB) to ensure the broadest approach to sharing best practices, gaining knowledge and performing R&D for enhancing productivity. All these activities shall ensure sustainable supply and long term security of virgin fiber to our mill. Our farm forestry program has led to the plantation of 2.5 million high yielding Casuarina clones, along with 32 million Casuarina seedlings within a radius of 150 Km of the mill. This covered 3,834 hectares of plantation and generated 1.92 million man-days of employment for farmers. The Companys policy to bring down the procurement area near to the mill has further helped in rationalizing the cost of virgin fiber during 2018-19.

Employee Development and Engagement

The Companys agenda for engaging and developing its employees includes initiatives to attract, develop and retain talent. The key focus areas included diversity and inclusion, succession planning, developing a talent pool for critical positions, quality of life programs and leadership development. We have taken a professional approach to industrial relations. While upholding the IP philosophy of treating people with dignity and respect as well as important principles of labor relations, we engaged with the union leaders, management and government. The Company successfully signed a long-term collective bargaining agreement, for the period January 2017 to June 2020, with Rajahmundry unit workmen on January 7, 2019. In line with the philosophy of treating people with respect and equity, the Company introduced medical insurance policy for mill workers and their spouses that will cover their hospitalization expenses.

The annual leadership conference was attended by Companys top 70 leaders. The Company used this opportunity to recognize its leaders accomplishments as well as review the success, failures and learnings from 2018. Finally, with all of the top leaders in one room, the Company reviewed the goals for next year and made sure that all are aligned on the 2019 priorities.

In May / June, 2019 the Company conducted MyView Employee Engagement Survey which is aimed at building an exceptional engagement culture that takes everyones view into consideration – a culture that allows for greater understanding and empowers each employee to make a positive impact. The participation rate was around 98%. The survey results are expected in August, 2019 after which necessary action plan on the feedback will be initiated.

Leveraging the power of Information Technology

In an effort to enable better decision making, provide improved management of information and ultimately provide better control of manufacturing processes, the Company has initiated a program that utilizes technology for automation and data analytics. In the long term, the benefits of automation and data analytics should create value by saving time, lowering cost and improving productivity.

Community Service and Engagement

The Company is committed to support of the communities where it operates by supporting Education, Health & Wellness and Community Engagement.

The Company had adopted a CSR Policy which is placed on the Companys website: www.ipappm.com. The Members of Corporate Social Responsibility Committee as on March 31, 2019 comprised of: Mr. M. S. Ramachandran (Independent Director) – Chairman Ms Ranjana Kumar (Independent Director) – Member Mr. Donald P. Devlin (Chairman & Managing Director) – Member As per Section 135 of the Companies Act, 2013, the Company is required to spend a sum of Rs. 111.32 lakhs during the financial year 2018-19 whereas the Company spent a sum of Rs. 113.79 lakhs (Including donation of Rs. 13.83 lakhs given to IP India Foundation, a Section 8 Company) for supporting various CSR initiatives in these focus areas.

The Annual Report on CSR activities is at Annexure- 1to the report.

Awards

During the year under review, the Company received the following Awards: a. Certificate of Appreciation for good practices in safety systemswaspresentedinSeptember2018toInternational Paper APPM Ltd. - Unit Kadiyam by Federation of Indian Chambers of Commerce and Industry; and b. CSR award 2018 was presented by Janmabhoomi Committee to International Paper APPM Limited for impactful CSR projects undertaken by it in the areas of health and wellness, education and community engagement.

Related Party Transactions

All related party transactions that were entered into during the financial year under review were at arms-length basis and also in the ordinary course of business. There are no materially significant related party transactions entered into by the Company with the promoters, directors, key managerial personnel which may have a potential conflict with the interests of the Company at large.

The Board of Directors approved a policy on related party transactions which is placed on the Companys website. The related party disclosures are given in Note No.35 to the financial statements.

Remuneration Policy

The Company has adopted the Nomination and Remuneration Committee Charter which includes the Companys Policy on directors appointment and remuneration including criteria for determining the qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) of the Companies Act, 2013.

Pursuant to Section 178(4) of the Companies Act, 2013, the Company also adopted Remuneration Policy relating to remuneration for the directors, key managerial personnel and senior executives in the rank of vice president and above. The Remuneration Policy is placed on Companys website.

Technology Absorption & Energy Conservation

Particulars of 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(3) of the Companies (Accounts) Rules, 2014 are given in Annexure - 2 attached to this Report.

Risk Management

The Company has a robust business risk management framework to identify and evaluate business risks and opportunities. This framework aims to create transparency, minimize adverse impact on the business objectives and enhance the Companys competitive advantage. The key business risks identified by the Company and its mitigation plans are as under:

a. Fiber Procurement The Company spends approximately 40% of its total cost on procurement of fiber viz. casuarina, subabul, mixed hard wood, eucalyptus etc. Keeping in view the criticality of this factor, the Company has been expanding farm forestry program to secure fiber supply.

b. Competition Risk The paper industry is becoming intensely competitive with the expansion of capacities by the existing players and lower import duties. To mitigate this risk, the Company is leveraging on its expertise and experience by enhancing its brand equity/visibility and product portfolio.

c. Occupational Health & Safety (OH&S) Safety of employees is of paramount importance to the Company. In order to inculcate safety culture in the Company, it has identified Occupational Health & Safety as one of its focus areas. Various training programs have been conducted at the plants and other locations. Accountability has been strengthened by integrating OH&S objectives into job descriptions with the introduction of management personnel and safety professionals.

Directors

a. Meetings of the Board

The Company prepares Calendar of Meetings for each calendar year and circulates the same in advance to all the Directors. During the year under review, four Board meetings and four Audit Committee meetings were held. The details of the meetings held are given in the Corporate Governance Report forming part of this Report.

b. Non-Executive Directors: As per the provisions of Companies Act, 2013, Mr. Russell V. Harris will retire by rotation at the forthcoming Annual General Meeting and being eligible offered himself for reappointment.

c. Independent Directors Pursuant to the Companies Act, 2013 and erstwhile Listing Agreement the Members, at the 50th Annual General Meeting held on August 27, 2014, appointed Mr. Praveen P. Kadle, Mr. Adhiraj Sarin, Ms Ranjana Kumar, Mr. Milind Sarwate and Mr. M.S. Ramachandran as Independent Directors of the Company, each for a term of five years up to March 31, 2019. The tenure of Independent Directors expired on March 31, 2019. The Company received communication from Ms Ranjana Kumar, expressing her unwillingness for reappointment due to personal commitments. Accordingly, Ms Ranjana Kumars office as an Independent Director of the Company ceased with effect from closure of business hours on March 31, 2019. The Board placed on record its appreciation for her valuable guidance as Independent Director of the Company.

The Board of Directors at their meeting held on January 30, 2019, based on the recommendation of Nomination and Remuneration Committee and subject to approval of members by special resolution, reappointed Mr. M.S. Ramachandran, Mr. Praveen P. Kadle, Mr. Adhiraj Sarin and Mr. Milind Sarwate as Independent Directors of the Company, for a second term of three years effective April 1, 2019. Further, Mr. M.S. Ramachandran shall be attaining the age of seventy five years during this second term and hence approval of members by special resolution is also being sought for the same, at the forthcoming Annual General Meeting.

All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and that they are independent from the Management of the Company.

Separate Meetings of Independent Directors were held on May 2, 2018 and October 24, 2018.

d. Key Managerial Personnel Mr. Donald P. Devlin, Chairman & Managing Director, Mr. C. Prabhakar, Company Secretary and Mr. Anish T. Mathew, Chief Financial Officer are the Key Managerial Personnel of the Company.

e. Performance Evaluation Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has carried out the annual performance evaluation of performance of Board, as well as the evaluation of the working of its Committees.

A separate exercise was carried out to evaluate the performance of individual directors including the Chairman & Managing Director who were evaluated on parameterssuchaslevelofengagementandcontribution, independence of judgment, safeguarding the interests of the Company and its minority shareholders etc. The outcome of Board evaluation for the financial year 2018-19 was discussed by the Board at the Meeting held on May 2, 2019.

f. Board Training and Induction At the time of appointing a Director, a formal letter of appointment is given to him/her, which inter alia explains the role, function, duties and responsibilities expected of him/her as a Director of the Company. The Director is also explained in detail the compliances required from him/her under the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other relevant Laws and Regulations. Details of Familiarization of Directors are disclosed on the Companys website.

g. Audit Committee The Audit Committee as on March 31, 2019 comprised of Mr. Praveen P. Kadle as Chairman and Messrs. Milind Sarwate, Adhiraj Sarin and W. Michael Amick Jr. as other Members. All the recommendations made by the Audit Committee were accepted by the Board.

Annual Return

In terms of Section 134 of Companies Act, 2013, the Annual Return for the financial year ended March 31, 2019 is placed on the website of the Company.

Particulars of Employees

The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, will be provided upon request. The Directors Report and Accounts 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 of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary at the Registered Office in this regard.

Vigil Mechanism

The Company has adopted Whistle Blower Policy to deal with instance of fraud or any unethical or improper practices. A copy of this Policy is placed on the Companys website.

Internal Financial Controls

The Company established internal financial control(s) commensurate with the size, scale and complexity of the operations. Internal audit function is being handled by a professional firm of chartered accountants. The main function of Internal Audit is to monitor and evaluate adequacy of internal control system in the Company, its compliance with the operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners take corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions are reported to the Audit Committee.

Statutory Auditors audited the Internal Financial Controls (IFC) over financial reporting of the Company as of March 31, 2019 in conjunction with audit of the financial statements of the Company for the year ended on that date. Unmodified opinion on IFC was given by them.

Statutory Auditors

The Members at the Annual General Meeting held on August 27, 2014 appointed Messrs Deloitte Haskins & Sells, Chartered Accountants, Hyderabad, as Auditors of the Company for a period of five years to hold office from the conclusion of 50th Annual General Meeting to the conclusion of the fifth consecutive annual general meeting. The term of appointment of Messrs Deloitte Haskins & Sells, Chartered Accountants concludes at this Annual General Meeting. Pursuant to the provisions of Companies Act, 2013, Messrs Deloitte Haskins & Sells, Chartered Accountants are eligible for re-appointment as Statutory Auditors of the Company for a second term of three years. Messrs Deloitte Haskins & Sells, Chartered Accountants have provided their consent and also confirmed their eligibility, for the reappointment.

Re-appointment of M/s. Deloitte Haskins & Sells is being submitted for approval of the Members at the forthcoming Annual General Meeting.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed Messrs D. Hanumanta Raju & Co., a firm of Company Secretaries in Practice to undertake the secretarial audit of the Company. Secretarial Audit Report under Section 204(1) of the Companies Act, 2013 issued by Messrs D. Hanumanta Raju & Co., Practicing Company Secretaries in respect of financial year 2018-19 is attached as Annexure-3 to this Report.

Cost Auditors

In terms of Section 148 of the Companies Act, 2013 read with the Companies (Audit & Auditors) Rules, 2014, the Board at their meeting held on May 2, 2019 appointed Messrs Narasimha Murthy & Co., Cost Accountants as Cost Auditors of the Company at a remuneration of Rs. 7.75 lakhs (excluding applicable taxes) plus reimbursement of travelling and out-of-pocket expenses on the recommendation of Audit Committee for the financial year ending March 31, 2020 and their remuneration is submitted for ratification by the Members at the forthcoming Annual General Meeting.

Cost Accounting Records and Cost Audit

Cost accounting records for the financial year under review were maintained as per the Companies (Cost Records and Audit) Rules, 2014. M/s. Narasimha Murthy & Co., Cost Accountants were appointed as Cost Auditors of the Company to audit the Cost Records for the financial year ended March 31, 2019. The Cost Audit Report for the financial year ended March 31, 2018 was filed with the Ministry of Corporate Affairs in August, 2018.

The Cost Audit Report for the year ended March 31, 2019 will be filed before September 30, 2019.

Public Deposits

The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.

Particulars of loans, guarantees or investments

No loans, guarantees, security and investments covered under the provisions of Section 186 of the Companies Act, 2013 were given during the year under review.

Subsidiary Company

The Company made an investment of Rs. 5 lakhs by way of share capital in IP India Foundation, incorporated under Section 25 of the Companies Act, 1956, wherein the excess of income over expenditure will be applied for promoting its objectives. Accordingly, the accounts of IP India Foundation were not consolidated, since the holding Company will not derive any economic benefit from its investment in IP India Foundation. During the financial year ended March 31, 2019, the Foundation recorded a surplus of Rs. 20.75 lakhs.

The Company undertakes that annual accounts of IP India Foundation and the related information will be made available to the members of holding company seeking such information at any point of time. The annual accounts of IP India Foundation are placed on the Companys website and are also available for inspection by any Member at the Registered Office of the Company during business hours on working days of the Company. Statement containing salient features of the financial statement of IP India Foundation for the financial year ended March 31, 2019 is attached as Annexure-4 to this Report.

Material changes and commitments affecting the financial position of the Company which occurred between end of financial year and date of the Report

On May 29, 2019, the promoters of the Company namely International Paper Investments (Luxembourg) S.A.R.L and IP International Holdings Inc. holding 21,856,033 equity shares of Rs. 10 each and 79,71,496 equity shares of Rs. 10 each respectively, comprising 75% of the issued and paid up capital of the Company on a fully diluted basis, have executed a Share Purchase Agreements ("SPA") with West Coast Paper Mills Limited (Purchaser) to sell such number of equity shares of the Company aggregating to a minimum of 51% and up to a maximum of 60% of the issued and paid up capital of the Company as per the terms and conditions stated in the SPA.

The aforesaid transaction is subject to receipt of requisite regulatory approval(s), as applicable.

The Company was a party to Share Purchase Agreement for the limited purpose of undertaking certain obligations viz., carrying business in ordinary course, not to sell business or assets otherwise than in ordinary case, not to alter the constitutional documents etc.,

Directors Responsibility Statement

The Board of Directors hereby confirms and declares that:

• in the preparation of final accounts for the year ended March 31, 2019 the applicable accounting standards had been followed;

• they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the financial year ended March 31, 2019 and of the profit of the Company for the year;

• they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

• they had prepared the accounts for the year ended March 31, 2019 on a ‘going concern basis;

• they had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

• they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

General

• During the year under review, the Chairman & Managing Director of the Company has not received any remuneration or commission from the subsidiary company.

There were no significant material orders passed by the regulators or courts which would impact the going concern status of the Company and its future operations.

The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder for prevention and redressal of complaints of sexual harassment at workplace. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All women employees (permanent, contractual, temporary, trainees) are covered under this policy.

• During the year, one complaint was filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the respondent against whom the complaint has been filed has subsequently resigned from the services of the Company.

Acknowledgements

The Board of Directors wish to place on record their gratitude to the Central Government, Government of Andhra Pradesh, Government of Telangana, State Bank of India, Axis Bank Limited, Citibank N.A., BNP Paribas, JPMorgan Chase Bank N.A. and Bank of America N.A. for their continued support during the year.

The Board of Directors wish to convey their thanks to the valued customers and dealers for their continued patronage and place on record their appreciation of the contribution made by all the employees during the year under review.

For and on behalf of the Board
Place: Hyderabad Donald P. Devlin
Date: June 30, 2019 Chairman & Managing Director