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Andhra Paper Ltd.

BSE: 502330 Sector: Industrials
BSE 00:00 | 24 Apr Andhra Paper Ltd
NSE 05:30 | 01 Jan Andhra Paper Ltd
OPEN 200.80
52-Week high 464.00
52-Week low 115.00
P/E 4.08
Mkt Cap.(Rs cr) 734
Buy Price 184.50
Buy Qty 25.00
Sell Price 185.50
Sell Qty 100.00
OPEN 200.80
CLOSE 191.80
52-Week high 464.00
52-Week low 115.00
P/E 4.08
Mkt Cap.(Rs cr) 734
Buy Price 184.50
Buy Qty 25.00
Sell Price 185.50
Sell Qty 100.00

Andhra Paper Ltd. (ANDHRAPAP) - Director Report

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Company director report

Dear Members

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

Performance Review

During the financial year 2018-19 the Company recorded an impressive performance byrecording its highest EBITDA and Profit After Tax (PAT). While EBITDA registered anincrease by 73% PAT improved by 140%. These results were driven byhighersalesvolumehighersalespricerealizationandlowerinput cost. Improved productivityfrom our mills helped to generate more volume for sales revenue and lower manufacturingcost from more efficient operations. The Company continued to focus on importantinitiatives for improving safety and environmental compliance as well as improving thecustomer 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


In order to conserve the resources for meeting future capital needs related tomaintenance regulatory cost reduction and potential strategic projects the Board ofDirectors 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 topublishing to office use the consumption of paper is moving with the many marketsegments that are fueling the economic growth of India. The supply and demand for paperduring 2018-19 was balanced with domestic and foreign producers competing for customersand supply position. Foreign producers importing into India are aggressively positioningtheir products and establishing capable supply lines for selling quality products intoIndia. As a relatively small producer IP APPM must have high quality products but mustalso distinguish itself among the competition. Over time customers expect more from us sothe commercial team is focused on improving the overall customer experience. The productitself is just one piece of the equation and we must deliver value to the customerincluding 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 bestin the Industry. This high service level has helped our channel partners to betterplan their resources and commitments thus increasing the value that we can provide forboth the distributer and customer. Our concept of "Think Customer" is yieldingbetter results to enhance customer satisfaction by way of increased speed betterOn-Time-in-Full delivery and reduced Turn-Around-Time to address quality improvements. Thefocus on high service and delivering more value to our customers has ultimately resultedin 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 andmanufacturing excellence. Each year we build improvement targets into the operatingplans. The results of these programs have helped to improve safety performance by reducingincidents to the lowest level recorded among employees. The mill manufacturing teams haveimproved pulp and paper productivity to record levels during FY 2018-19. The productivityimprovements drove lower costs for fiber energy and chemicals and delivered record paperproduction and sales.

Raw Material Security

Long term access to cost effective fiber is important to our strategy. The IP APPMforestry team is building lasting partnerships with farmers research institutions andvendors. These partnerships are important to ensure that each participant gets a benefitfrom their investment.

The Company continued to focus on a long term fiber security strategy by providing highquality Casuarina clones and seedlings to farmers with an eye to develop sustained fibersupply within a catchment of 150 km radius. The Company also partnered with privatenurseries to build capacity for production and distribution of clones. The Company alsocontinued to partner with the Institute of Forest Genetic & Tree Breeding Coimbatore(IFGTB) to ensure the broadest approach to sharing best practices gaining knowledge andperforming R&D for enhancing productivity. All these activities shall ensuresustainable supply and long term security of virgin fiber to our mill. Our farm forestryprogram has led to the plantation of 2.5 million high yielding Casuarina clones alongwith 32 million Casuarina seedlings within a radius of 150 Km of the mill. This covered3834 hectares of plantation and generated 1.92 million man-days of employment forfarmers. The Company's policy to bring down the procurement area near to the mill hasfurther helped in rationalizing the cost of virgin fiber during 2018-19.

Employee Development and Engagement

The Company's agenda for engaging and developing its employees includes initiatives toattract develop and retain talent. The key focus areas included diversity and inclusionsuccession planning developing a talent pool for critical positions quality of lifeprograms and leadership development. We have taken a professional approach to industrialrelations. While upholding the IP philosophy of treating people with dignity and respectas well as important principles of labor relations we engaged with the union leadersmanagement and government. The Company successfully signed a long-term collectivebargaining agreement for the period January 2017 to June 2020 with Rajahmundry unitworkmen on January 7 2019. In line with the philosophy of treating people with respectand equity the Company introduced medical insurance policy for mill workers and theirspouses that will cover their hospitalization expenses.

The annual leadership conference was attended by Company's top 70 leaders. The Companyused this opportunity to recognize its leaders' accomplishments as well as review thesuccess failures and learnings from 2018. Finally with all of the top leaders in oneroom the Company reviewed the goals for next year and made sure that all are aligned onthe 2019 priorities.

In May / June 2019 the Company conducted MyView Employee Engagement Survey which isaimed at building an exceptional engagement culture that takes everyone's view intoconsideration – a culture that allows for greater understanding and empowers eachemployee to make a positive impact. The participation rate was around 98%. The surveyresults are expected in August 2019 after which necessary action plan on thefeedback will be initiated.

Leveraging the power of Information Technology

In an effort to enable better decision making provide improved management ofinformation and ultimately provide better control of manufacturing processes the Companyhas initiated a program that utilizes technology for automation and data analytics. In thelong term the benefits of automation and data analytics should create value by savingtime lowering cost and improving productivity.

Community Service and Engagement

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

The Company had adopted a CSR Policy which is placed on the Company's The Members of Corporate Social Responsibility Committee as on March 312019 comprised of: Mr. M. S. Ramachandran (Independent Director) – Chairman MsRanjana Kumar (Independent Director) – Member Mr. Donald P. Devlin (Chairman &Managing Director) – Member As per Section 135 of the Companies Act 2013 theCompany is required to spend a sum of Rs. 111.32 lakhs during the financial year 2018-19whereas the Company spent a sum of Rs. 113.79 lakhs (Including donation of Rs. 13.83 lakhsgiven to IP India Foundation a Section 8 Company) for supporting various CSR initiativesin these focus areas.

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


During the year under review the Company received the following Awards: a. Certificateof Appreciation for good practices in safetysystemswaspresentedinSeptember2018toInternational Paper APPM Ltd. - Unit Kadiyam byFederation of Indian Chambers of Commerce and Industry; and b. CSR award 2018 waspresented by Janmabhoomi Committee to International Paper APPM Limited for impactful CSRprojects undertaken by it in the areas of health and wellness education and communityengagement.

Related Party Transactions

All related party transactions that were entered into during the financial year underreview were at arm's-length basis and also in the ordinary course of business. There areno materially significant related party transactions entered into by the Company with thepromoters directors key managerial personnel which may have a potential conflict withthe interests of the Company at large.

The Board of Directors approved a policy on related party transactions which is placedon the Company's website. The related party disclosures are given in Note No.35 to thefinancial statements.

Remuneration Policy

The Company has adopted the Nomination and Remuneration Committee Charter whichincludes the Company's Policy on directors' appointment and remuneration includingcriteria for determining the qualifications positive attributes independence of adirector 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 adoptedRemuneration Policy relating to remuneration for the directors key managerial personneland senior executives in the rank of vice president and above. The Remuneration Policy isplaced on Company's website.

Technology Absorption & Energy Conservation

Particulars of conservation of energy technology absorption and foreign exchangeearnings and outgo as required under Section 134(3)(m) of the Companies Act 2013 readwith Rule 8(3) of the Companies (Accounts) Rules 2014 are given in Annexure - 2 attachedto this Report.

Risk Management

The Company has a robust business risk management framework to identify and evaluatebusiness risks and opportunities. This framework aims to create transparency minimizeadverse impact on the business objectives and enhance the Company's 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 onprocurement of fiber viz. casuarina subabul mixed hard wood eucalyptus etc. Keeping inview the criticality of this factor the Company has been expanding farm forestry programto secure fiber supply.

b. Competition Risk The paper industry is becoming intensely competitive with theexpansion of capacities by the existing players and lower import duties. To mitigate thisrisk the Company is leveraging on its expertise and experience by enhancing its brandequity/visibility and product portfolio.

c. Occupational Health & Safety (OH&S) Safety of employees is of paramountimportance to the Company. In order to inculcate safety culture in the Company it hasidentified Occupational Health & Safety as one of its focus areas. Various trainingprograms have been conducted at the plants and other locations. Accountability has beenstrengthened by integrating OH&S objectives into job descriptions with theintroduction of management personnel and safety professionals.


a. Meetings of the Board

The Company prepares Calendar of Meetings for each calendar year and circulates thesame in advance to all the Directors. During the year under review four Board meetingsand four Audit Committee meetings were held. The details of the meetings held are given inthe 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 andbeing eligible offered himself for reappointment.

c. Independent Directors Pursuant to the Companies Act 2013 and erstwhileListing Agreement the Members at the 50th Annual General Meeting held on August 27 2014appointed Mr. Praveen P. Kadle Mr. Adhiraj Sarin Ms Ranjana Kumar Mr. Milind Sarwateand Mr. M.S. Ramachandran as Independent Directors of the Company each for a term of fiveyears 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 forreappointment due to personal commitments. Accordingly Ms Ranjana Kumar's office as anIndependent Director of the Company ceased with effect from closure of business hours onMarch 31 2019. The Board placed on record its appreciation for her valuable guidance asIndependent Director of the Company.

The Board of Directors at their meeting held on January 30 2019 based on therecommendation of Nomination and Remuneration Committee and subject to approval of membersby 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 secondterm of three years effective April 1 2019. Further Mr. M.S. Ramachandran shall beattaining the age of seventy five years during this second term and hence approval ofmembers by special resolution is also being sought for the same at the forthcoming AnnualGeneral Meeting.

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16(1)(b) of Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations 2015 and that they are independent from the Management of theCompany.

Separate Meetings of Independent Directors were held on May 2 2018 and October 242018.

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

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

A separate exercise was carried out to evaluate the performance of individual directorsincluding the Chairman & Managing Director who were evaluated onparameterssuchaslevelofengagementandcontribution independence of judgment safeguardingthe interests of the Company and its minority shareholders etc. The outcome of Boardevaluation for the financial year 2018-19 was discussed by the Board at the Meeting heldon May 2 2019.

f. Board Training and Induction At the time of appointing a Director a formalletter of appointment is given to him/her which inter alia explains the role functionduties and responsibilities expected of him/her as a Director of the Company. The Directoris also explained in detail the compliances required from him/her under the Companies Act2013 SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and otherrelevant Laws and Regulations. Details of Familiarization of Directors are disclosed onthe Company's 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. MichaelAmick Jr. as other Members. All the recommendations made by the Audit Committee wereaccepted by the Board.

Annual Return

In terms of Section 134 of Companies Act 2013 the Annual Return for the financialyear 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 employeesof the Company will be provided upon request. The Directors' Report and Accounts arebeing sent to the Members and others entitled thereto excluding the information onemployees' particulars which is available for inspection by the Members at the RegisteredOffice of the Company during business hours on all working days of the Company up to thedate of the ensuing Annual General Meeting. If any Member is interested in obtaining acopy thereof such Member may write to the Company Secretary at the Registered Office inthis regard.

Vigil Mechanism

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

Internal Financial Controls

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

Statutory Auditors audited the Internal Financial Controls (IFC) over financialreporting of the Company as of March 31 2019 in conjunction with audit of the financialstatements of the Company for the year ended on that date. Unmodified opinion on IFC wasgiven by them.

Statutory Auditors

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

Re-appointment of M/s. Deloitte Haskins & Sells is being submitted for approval ofthe 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 hadappointed Messrs D. Hanumanta Raju & Co. a firm of Company Secretaries in Practice toundertake the secretarial audit of the Company. Secretarial Audit Report under Section204(1) of the Companies Act 2013 issued by Messrs D. Hanumanta Raju & Co. PracticingCompany Secretaries in respect of financial year 2018-19 is attached as Annexure-3 to thisReport.

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 MessrsNarasimha Murthy & Co. Cost Accountants as Cost Auditors of the Company at aremuneration of Rs. 7.75 lakhs (excluding applicable taxes) plus reimbursement oftravelling and out-of-pocket expenses on the recommendation of Audit Committee for thefinancial year ending March 31 2020 and their remuneration is submitted for ratificationby 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 theCompanies (Cost Records and Audit) Rules 2014. M/s. Narasimha Murthy & Co. CostAccountants were appointed as Cost Auditors of the Company to audit the Cost Records forthe financial year ended March 31 2019. The Cost Audit Report for the financial yearended 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 September30 2019.

Public Deposits

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

Particulars of loans guarantees or investments

No loans guarantees security and investments covered under the provisions of Section186 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 IndiaFoundation incorporated under Section 25 of the Companies Act 1956 wherein the excessof income over expenditure will be applied for promoting its objectives. Accordingly theaccounts of IP India Foundation were not consolidated since the holding Company will notderive any economic benefit from its investment in IP India Foundation. During thefinancial 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 relatedinformation will be made available to the members of holding company seeking suchinformation at any point of time. The annual accounts of IP India Foundation are placed onthe Company's website and are also available for inspection by any Member at theRegistered Office of the Company during business hours on working days of the Company.Statement containing salient features of the financial statement of IP India Foundationfor 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 whichoccurred 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 21856033 equity sharesof Rs. 10 each and 7971496 equity shares of Rs. 10 each respectively comprising75% of the issued and paid up capital of the Company on a fully diluted basis haveexecuted 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 minimumof 51% and up to a maximum of 60% of the issued and paid up capital of the Company as perthe terms and conditions stated in the SPA.

The aforesaid transaction is subject to receipt of requisite regulatory approval(s) asapplicable.

The Company was a party to Share Purchase Agreement for the limited purpose ofundertaking certain obligations viz. carrying business in ordinary course not to sellbusiness or assets otherwise than in ordinary case not to alter the constitutionaldocuments 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 theapplicable accounting standards had been followed;

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

• they had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;

• 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 andthat such internal financial controls are adequate and were operating effectively;

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


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

There were no significant material orders passed by the regulators or courts whichwould 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 apolicy on prevention prohibition and redressal of sexual harassment at workplace in linewith the provisions of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 and the Rules thereunder for prevention and redressalof complaints of sexual harassment at workplace. Internal Complaints Committee (ICC) hasbeen set up to redress complaints received regarding sexual harassment. All womenemployees (permanent contractual temporary trainees) are covered under this policy.

• During the year one complaint was filed under the Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013 and the respondent againstwhom the complaint has been filed has subsequently resigned from the services of theCompany.


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

The Board of Directors wish to convey their thanks to the valued customers and dealersfor their continued patronage and place on record their appreciation of the contributionmade 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