GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED ANNUAL REPORT 2009-2010 DIRECTOR'S REPORT To The Members The Directors hereby present the Seventy-Nineth Annual Report of the Company together with the Audited Statement of Accounts for the year ended 31st March, 2010. 1. FINANCIAL RESULTS: The Company's performance during the year ended 31st March, 2010 as compared to the previous year, is summarized below: Rs. '000 Previous Year Rs. '000 Net Sales (excluding Excise Duty) 43,621,790 40,351,778 Other Income from Operations 1,057,627 1,123,661 Profit on Sale of Investments (Net) 62,711 440,713 Profit/(Loss) on Sale/Transfer/Disposal of Fixed Assets (Net) 3,686 (2,982) Total Income 44,745,814 41,913,170 Profit before taxes as per Profit and Loss Account amounted to 4,676,806 2,958,602 Deducting there from: (a) Provision for Taxes 1,297,600 538,419 (b) Prior Years' Tax Expense 16,667 5,802 Profit after taxes as per Profit and Loss Account amounted to 3,362,539 2,414,381 Adding thereto surplus brought forward 5,193,010 3,448,203 The amount available for disposal was 8,555,549 5,862,584 which the Directors recommend should be appropriated as follows: (a) Proposed Equity Dividend: 900% (Previous Year: 600%) 596,619 397,746 (b) Corporate Dividend Tax (Net) 61,618 27,828 (c) Transfer to General Reserve 340,000 244,000 (d) Surplus carried forward 7,557,312 5,193,010 TOTAL 8,555,549 5,862,584 2. DIVIDEND: The Directors are pleased to recommend payment of a Dividend for the financial year 2009-10 at the rate of Rs. 900 per Equity Share of Rs. 100 (Rs. 600 per Share for the previous year); the Dividend, if approved by the Members at the Annual General Meeting, will absorb a sum of Rs.698,014,000, inclusive of taxes, which is provided in the accounts. 3. SCHEME OF AMALGAMATION OF GODREJ CONSUMERBIZ LTD. AND GODREJ HYGIENE CARE LTD. WITH GODREJ CONSUMER PRODUCTS LTD. WITH EFFECT FROM 1ST JUNE, 2009: The Scheme of Amalgamation of the Company's wholly-owned subsidiary Godrej Consumer Biz Ltd. and Godrej Hygiene Care Ltd. (a wholly-owned subsidiary of Godrej Industries Ltd. - a subsidiary of the Company), with Godrej Consumer Products Ltd. (GCPL) and their Respective Shareholders ('the Scheme'), filed in accordance with the provisions of Sections 391 and 394 of the Companies Act, 1956, with the Hon'ble High Court of Judicature at Bombay (`the Court') on 12th June, 2009, came up for its final hearing on 8th October, 2009, whereat the Court issued an Order sanctioning the Scheme. In accordance with the directions of the Court, certified copies of the Order of the Court sanctioning the Scheme were filed with the Registrar of Companies, Maharashtra, on 15th October, 2009 and the Scheme took effect from that date. With effect from the Appointed Date, i.e. 1st June, 2009, and upon the Scheme becoming effective, the whole undertaking of the erstwhile GCBL, stood transferred to and vested in GCPL as a going concern and GCBL, without any further act, stood dissolved without being wound-up. Upon the Scheme coming into effect, in consideration of the transfer of and the vesting of the entire undertaking of GCBL in GCPL with effect from 1st June, 2009, the Company (as the sole equity shareholder of GCBL) was issued and allotted 30,296,727 equity shares of Re. 1 each by GCPL, on 9th November, 2009, in lieu of 33,326,400 equity shares of Re. 1 each held by the Company in GCBL. For further details on the amalgamation of GCBL with GCPL, please refer to Note 7(a) of Schedule 'T' - Notes Forming Part of the Accounts. 4. FIXED DEPOSITS MATURED BUT NOT CLAIMED: 395 Deposits totalling Rs. 15,059,180 and due for repayment on or before 31st March, 2010, were not claimed by the depositors on due dates. As at the date of this Report, Rs. 6,075,180 thereof involving 111 Deposits have been claimed and repaid or renewed. 5. DIRECTORS: Mr. B.A. Hathikhanavala resigned from the Board with effect from 24th April, 2010. Mr. Hathikhanavala joined the Board on 25th November, 1997 and has served in that capacity for over 12 years. Mr. Hathikhanavala was also a Member of the Audit and Remuneration Committee. The Board records its sincere appreciation of the contribution made by him during his tenure as a Director of the Company. Mr. N.J. Godrej was appointed as an Additional Director to function as a Whole-time Director designated as Executive Director, for a period of three years with effect from 1st May, 2010. Pursuant to Section 260 of the Companies Act, 1956, he holds office until the date of the next Annual General Meeting. Notice under Section 257 of the Companies Act, 1956, has been received from a Member, along with the requisite deposit, signifying his intention to propose the appointment of Mr. N. J. Godrej as a Director of the Company. Mr. N. J. Godrej possesses considerable expertise in brand management and design-related areas. It is desirable that the Company should continue to receive the benefit of his expertise as a Director of the Company. The Board recommends that the Resolution proposing his appointment as a Director be passed. In accordance with the provisions of the Companies Act, 1956, and the Articles of Association, Mrs. Anita Ramachandran, Mr. F.P. Sarkari and Mr. K.N. Petigara, retire from the Board by rotation, and being eligible, offer themselves for re-appointment. 6. REMUNERATION COMMITTEE: The Remuneration Committee of Directors as constituted by the Board of Directors of the Company comprises Mr. F.P. Sarkari (Chairman), Mr. K.N. Petigara and Mr. B.A. Hathikhanavala. In view of Mr. Hathikhanavala resigning from the Board of Directors with effect from 24th April, 2010, and consequently also as a Member of the Remuneration Committee, Mrs. Anita Ramachandran was appointed as a Member of the Remuneration Committee in his place. The Company Secretary acts as the Secretary of the Remuneration Committee. The Remuneration Committee met twice during the year under review. 7. AUDIT COMMITTEE: The Audit Committee of Directors as constituted by the Board of Directors of the Company comprises Mr. F.P. Sarkari (Chairman), Mr. B.A. Hathikhanavala, Mr. K.N. Petigara and Mr. K.A. Palia. In view of Mr. Hathikhanavala resigning from the Board of Directors with effect from 24th April, 2010, and consequently also as a Member of the Audit Committee, Mrs. Anita Ramachandran was appointed as a Member on the Audit Committee in his place. The Company Secretary acts as the Secretary of the Audit Committee. During the year under review, the Audit Committee met four times. The Audit Committee had met with the Company's Auditors on 24th April, 2010, for a review of the annual accounts, before their adoption by the Board of Directors. 8. SUBSIDIARIES: The results of the Company's following subsidiaries are given in their Annual Reports and Accounts appended to this Report: A. Subsidiaries (with the Company's direct equity holdings in excess of 50%): (1) Godrej Industries Ltd. (2) Wadala Commodities Ltd. (3) Godrej Infotech Ltd. (4) Godrej (Malaysia) Sdn. Bhd. (incorporated in Malaysia) (5) Godrej (Singapore) Pte. Ltd. (incorporated in Singapore) (6) Veromatic International BV (incorporated in the Netherlands) B. Subsidiaries of Veromatic International BV: (7) Veromatic Services BV (incorporated in the Netherlands) (8) Water Wonder Benelux BV (incorporated in the Netherlands) C. Subsidiaries and Sub-subsidiaries of Godrej Industries Ltd. (GIL): a. Subsidiaries of GIL: (9) Natures Basket Ltd. (10) Ensemble Holdings & Finance Ltd. (11) Godrej International Ltd. (incorporated in the Isle of Man) (12) Godrej Agrovet Ltd. (GAVL) (13) Godrej Properties Ltd. (GPL) b. Subsidiaries of GAVL: (14) Golden Feed Products Ltd. (15) Godrej Oil Palm Ltd. (16) Cauvery Palm Oil Ltd. c. Subsidiaries of GPL: (17) Godrej Realty Pvt. Ltd. (18) Godrej Waterside Properties Pvt. Ltd. (19) Godrej Developers Pvt. Ltd. (20) Godrej Real Estate Pvt. Ltd. (21) Godrej Sea View Properties Pvt. Ltd. (22) Godrej Estate Developers Pvt. Ltd. (23) Happy Highrises Ltd. During the year under review, Godrej ConsumerBiz Ltd. and Godrej Hygiene Care Ltd. have ceased to be subsidiaries of the Company. As required by Section 212 of the Companies Act, 1956, a statement regarding subsidiary companies is also appended to this Report. 9. DIRECTORS' RESPONSIBILITY STATEMENT: As required under Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representations received from the Operating Management, and after due enquiry, confirm that: (a) in the preparation of the annual accounts for the financial year ended 31st March, 2010, the applicable accounting standards had been followed along with proper explanation relating to material departures; (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 the Company at the end of the financial year and of the profit of the Company for that year; (c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, 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 annual accounts have been audited by the Company's Auditors Messrs. Kalyaniwalla & Mistry, Chartered Accountants, and their report is appended thereto. 10. AUDITORS: The Auditors of the Company, Messrs. Kalyaniwalla & Mistry, Chartered Accountants, retire and are eligible for re-appointment. 11. COST AUDIT IN RESPECT OF THE REFRIGERATORS MANUFACTURED BY THE COMPANY: As per the directions given by the Central Government, the Company has, based on application made, received the Government approval for re- appointment of Mr. P.D. Dani, of Messrs. P.D. Dani & Co., Cost Accountants, as the Cost Auditor for the year ending 31st March, 2011 in respect of Refrigerators manufactured by the Company. 12. COST AUDIT IN RESPECT OF THE ELECTRIC MOTORS MANUFACTURED BY THE COMPANY: As per the directions given by the Central Government, the Company has, based on application made, received the Government approval for re- appointment of Mr. P.D. Dani, of Messrs. P.D. Dani & Co., Cost Accountants, as the Cost Auditor for the year ending 31st March, 2011 in respect of Electric Motors manufactured by the Company. 13. SPECIAL BUSINESS: As regards the item of the Notice of the Annual General Meeting relating to the Special Business, the Resolution incorporated in the Notice and the Explanatory Statement thereto fully indicate the reasons for seeking the approval of the Members to the proposal. The Members' attention is drawn to this. 14. DISCLOSURE UNDER SECTION 217(1)(e) OF THE COMPANIES ACT 1956: As required under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, the additional information relating to conservation of energy, technology absorption, and foreign exchange earnings and outgo, is given in Annexure I forming part of this Report. 15. PARTICULARS OF EMPLOYEES AS PER SECTION 217(2A) OF THE COMPANIES ACT, 1956: The information required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is given in Annexure II forming part of this Report. For and on behalf of the Board J.N. GODREJ Chairman & Managing Director Place : Mumbai, Date : 27th July, 2010 Registered Office: Pirojshanagar, Vikhroli, Mumbai 400 079. ANNEXURE I TO DIRECTORS' REPORT: A. CONSERVATION OF ENERGY: (a) Energy Conservation Measures taken: 1. Installation of variable frequency drives on machines, pumps, fans and blowers. 2. Switched over from diesel to agri-waste fuel by way of Producer Gas for ovens at Shirwal & Mohali plants. 3. Energy-efficient design, and installation of screw compressor chillers with associated controls like VFDS, modulating valves controlled by BMS system, in the HVAC systems. 4. Installation of polycarbonate sheets on GI roof for natural light on the shop floor. 5. Modification in air-conditioning system and area. 6. Installed capacitor banks for improvement in PF and reduction in MD. 7. Replaced sodium vapour lamps and mercury vapour lamps by metal halide lamps. 8. Maintained unity power factor. 9. Installation of transvector nozzles compressed air line for material cleaning purpose. 10. Replacement of thyristor based welding machines by inverter type welding machines. 11. Replacement of conventional T8 tube lights by T5 tube lights with low mercury content. 12. Modification in WD/PC ovens and switching off one burner. (b) Additional investments and proposals being implemented for reducing energy consumption: 1. Conduct energy audit, identify high head pumps and replace them with low head pumps in process and air-conditioning. 2. Install dimming device and LED lamps on street lights. 3. Conduct energy audit at various plant locations and implement follow-up measures. 4. Install BMS (Building Management System) in HVAC systems. 5. Install solar concentrator for hot water generation. 6. Install variable frequency drives on pumps, fans and blowers. 7. Minimize the use of artificial lights in daytime by providing transparent strip on lean-to roof for natural light to penetrate on the shop floor. 8. Install proper energy monitoring and measurement system in various plants (Remote metering). 9. Install bio-methanisation plant for waste management and generate gas for industrial purpose. (c) Implementation of various measures would result in increased energy savings, greater energy conservation awareness, better control over steam and electricity consumption, and use of more cost-efficient source of energy. B. RESEARCH AND DEVELOPMENT (R&D): (a) R&D efforts made and benefits derived: 1. Design and development of Peltier based cooling system, Chotucool range, in the capacities of 30L and 45L. 2. Introduction of i-Fresh series of refrigerators (271L, 294L and 330L) and EON range, with new doors and handles. 3. Design and development of new series of high efficiency compressors and hermetic motors. 4. Use of nanotechnology for improved performance of compressor. 5. Introduction of high efficiency DC Pentacool refrigerators. 6. Designed and developed 173L NEO refrigerator. 7. Tested and received certification of compliance as per European Safety standard (IEC 10335) for six refrigerator models. 8. Development of dining table with integrated food warmer, integration of appliances in kitchen cabinets, and use of servo motor for push open action of kitchen drawer. 9. 5H hardness PU painting technology adapted in table top. 10. Ergo-meter developed as a tool to help gather data on human body dimensions relevant for seating design along with software to analyze data and suggest appropriate chair to user. 11. Deployed roto-molding technology for healthcare products parts. 12. Design of variable speed induction motor with controller for HVAC application. 13. Use of aluminum windings for hermetic motors. 14. Introduction of new locks and latches. 15. Developed and launched first indigenous 1.2T electric reach truck with lift height of 7.2m for handling and stacking palletized loads in the warehouses. 16. Electric counterbalance stackers launched with alternate drive train for better cost competitiveness. 17. Development of gas burners to avoid direct flame impingement by construction of SS 310 special perforated enclosures around burners which also guide hot air to save energy. 18. Qualification FCAW welding procedures for P4 & P5 Cr-Mo steels to enhance productivity. 19. Design products and processes for critical assemblies and components for power generation and steel industries. 20. Bezel facia, top cover, drip tray and water storage tank designed and developed for new range of beverage vending machines. 21. Innovative beam design having the best load-to-weight ratio for pallet racking applications. 22. Development of racking products for storage of paintings. 23. Developed large die-casting dies for 4-wheeler engine parts. (b) Future Plans: 1. Motorized motion with soft touch control using embedded technology to various movements in hospital bed. Using microban technology to achieve antibacterial property in plastic components of healthcare furniture. 2. Motorized lifting of mattress panel in bed to access storage area. 3. Pre-treatment in EAZY chair before powder coating to make it all weather proof. 4. Development of electronic commutating motor. 5. Development of motor for variable speed compressor. 6. Development of new models of locks. 7. Development of diesel trucks in range of 20T and above, using better engines to meet the growing needs for handling heavier loads. 8. Usage of argon for shielding in place of helium for cost saving without compromising the welding quality. 9. Development and productionising of the 5-canister instant vending machines for local and export markets. 10. Developed capability to design Seismic resistant racks for various parts of the world meeting global seismic code. 11. Develop SSG R&D centre as an approved research centre by Anna University, Chennai. 12. Narrow groove welding for submerged arc welding for heavy wall thickness welding. 13. Development of large die-casting dies for 4-wheeler parts like clutch housing, gear box housings, bed plate, oil pans, etc. (c) During the year under review, the Company spent Rs. 201,027,000 (inclusive of capital expenditure: Rs.189,000) on R&D which was equivalent to 0.45% of net turnover. C. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION: 1. Use of nano materials for improved performance of appliances. 2. Introduction of palladium based deodorizer for better and life-long performance. 3. Development of electronics for EON range. 4. Introduction of three stage purification, i.e., sediment filtration, UV purification and carbon filtration, in water purifiers. 5. Robots for bending, spot welding, pick and place and pouring 6. Incorporation of advanced EXS and EVVA lock in cupboard. 7. Integrating LED lights in furniture. 8. Use of memory foam as back support of chair for uniform load distribution resulting in better surface contact with body and relieve stress concentration. 9. Incorporation of anti-bacterial powder coating in mass seating products. 10. Design registration certificate received for new locks developed. 11. Diesel and electric trucks developed using imported gearboxes, axles, motors and electronic controllers, to have product offerings at different price points and features. 12. New design methodology in drive-in racking. 13. Integrated embedded electronics to detect and alarm rack overloading. D. EXPORTS: 1. The Company's exports for the year under review aggregated to Rs.3,820,289,000 as against Rs. 4,962,964,000 in the previous year. 2. Participation in international exhibitions and trade fairs like NeoCon 2009 (USA), Intersec (Dubai), Ifsec (UK), MLA (UK , Australia), Furniture Show (Stockholm), Practical World (Koln), Xenia (Athens), Security Expo (Australia), Aditel (France), Indonesia 2009 and ACHEMA 2009. 3. Focus on obtaining international certificates from the finest test houses in the world, thereby opening avenues of sale of physical security equipment in the advanced markets of UK, Europe and USA. 4. Obtained product certification for our Tambour Door (Steel Storage Units) from Australian Furniture Research & Design Institute which is mandatory for supplying to Government Departments of Australia. 5. Strongly pursuing all leads in OEM contract manufacturing to boost forklift exports. 6. Product re-engineering projects are undertaken to develop more advanced products which would appeal more to international markets. 7. Business promotion tours and visits. 8. Working with Danfoss team for export of hermetic wound stators and rotors. 9. Indigenously developed and exported 6000 soup machines and, also developed `Delicato', a 3-canister instant machine for the European market. 10. Plan to grow exports through deeper penetration in existing markets and product categories and by entering new markets and new product categories. E. FOREIGN EXCHANGE EARNINGS AND OUTGO: The Company's foreign exchange earnings and outgo for the year amounted to Rs.3,825,843,000 and Rs.5,639,370,000 respectively.