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Clariant Chemicals India

BSE: 506390|NSE: CLNINDIA|ISIN: INE492A01029|SECTOR: Dyes & Pigments
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Mar 16
Notes to Accounts Year End : Mar '17

Company Information:

Clariant Chemicals (India) Limited (the ‘Company’) is a public limited Company domiciled in India and is listed on the BSE Limited (‘BSE’) and the National Stock Exchange of India Limited (‘NSE’). Its registered office is situated at Reliable Tech Park, Gut no. 31, Village Elthan, off Thane-Belapur road, Airoli, Navi Mumbai - 400 708, Maharashtra, India. The company is engaged interalia, in manufacturing and selling Specialty Chemicals. The Company has its own manufacturing sites in the State of Maharashtra, Tamil Nadu, Gujarat and Madhya Pradesh.

Note 1: Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Company’s accounting policies.

This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The areas involving critical estimates or judgements are:

- Estimation of taxes — Note34

- Estimated goodwill impairment —Note 4B.

- Estimation for the accounting of employee benefits — Note 42

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Company and that are believed to be reasonable under the circumstances.

Note 2: First time adoption of Ind AS - mandatory exceptions, optional exemptions

These financial statements, for the year ended March 31, 2017 are the first the Company has prepared in accordance with Ind AS. The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended March 31, 2017, the comparative information presented in these financial statements for the 15 months period ended March 31, 2016 and in the preparation of an opening Ind AS balance sheet at January 1, 2015 (the Company’s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the group’s financial position, financial performance and cash flows is set out in the notes.

Overall principle

The Company has prepared the opening balance sheet as per Ind AS as of January 01, 2015 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities. However, this principle is subject to the certain exception and certain optional exemptions availed by the Company as detailed below.

Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same in accordance with previous GAAP (after adjustment to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at January 1,2015 are consistent with the estimates as at the same date in conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVOCI and

- Impairment of financial assets based on expected credit loss model.

Past business combinations

The Company has elected not to apply Ind AS 103 Business Combinations retrospectively to past business combinations that occurred before the transition date of January 01, 2015. Consequently,

- The Company has kept the same classification for the past business combinations as in its previous GAAP financial statements;

- the Company has excluded from its opening balance sheet those items recognised in accordance with previous GAAP that do not qualify for recognition as an asset or liability under Ind AS;

- the Company has tested the goodwill for impairment at the transition date based on the conditions as of the transition date.

Derecognition of financial assets and financial liabilities

The Company has elected to apply the derecognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

Deemed cost for property, plant and equipment, investment property, and intangible assets

The Company has elected to continue with the carrying value of all of its plant and equipment, investment property, and intangible assets recognised as of January 01, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.

Equity investments at FVOCI

The Company has designated investment in equity shares of Asahi Songw on Colors Limited and Akshar Chem (India) Limited as FVOCI on the basis of facts and circumstances that existed at the transition date.

Share-based payment transaction

The Company has not applied requirement of Ind AS 102 Share based payment to equity instruments that vested before the date of transition i.e. January 01, 2015.

Shares bought back during the 15 months period ended March 31, 2016:

The Board of Directors at its meeting held on April 22, 2015 approved the proposal of buyback of 35,78,947 equity shares of Rs.10 each from shareholders of the Company in accordance with the relevant provisions of Companies Act, 2013 and Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1988 at a price of Rs.950 per equity share, aggregating to Rs.34000 Lakhs. Consequently, a sum of Rs. 3545.65 Lakhs and Rs.30096.45 Lakhs has been utilised in respect of the buy back from Securities premium account and General reserve respectively. Further a sum ofRs. 357.89 Lakhs has been appropriated from General reserve to Capital redemption reserve and the same has been reduced from the paid up share capital.

3 a Rights, preferences and restrictions attached to shares

The Company has one class of equity share having a par value of Rs. 10/- per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing annual general meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining asset of the Company after distribution of all preferential amounts, in proportion to their shareholding.

4 b Dividend on equity shares

The Board of Directors at its meeting held on May 20,2016, recommended the payment of final dividend of Rs. 10 per equity share for the 15 months period ended March 31, 2016. The same was approved by the shareholders at the Annual general meeting held on August 12, 2016 and paid during the year, resulting in a cash outflow of Rs. 2778.08 Lakhs including corporate dividend tax. The final dividend with the interim dividend ofRs.140 per equity share paid in January 2015, made a total dividend of Rs.150 per equity share for the 15 months period ended March 31, 2016, resulting in a total cash outflow (including corporate dividend tax) of Rs. 47566.16 Lakhs over the two periods.

The Board of Directors at its meeting held on May 23,2017, have recommended the payment of final dividend of Rs. 25 per equity share for the financial year ended March 31, 2017. The same is subject to approval by the shareholders at the forth coming Annual general meeting and if approved would result in a cash outflow of approximately Rs. 6945.20 Lakhs (including corporate dividend tax of Rs. 1174.75 Lakhs).

5 Financial instruments and risk review Capital management

The Company’s objectives when managing capital are to :

(i) Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders; and

(ii) Maintain an optimal capital strucrure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

The capital structure of the Company consists of equity of the Company (comprising issued capital, reserves and retained earnings as detailed in notes 16 and 17). The Company is a zero debt company with no long-term borrowings as at 31.03.2017. The Company is not subject to any externally imposed capital requirements.

At the end of the reporting period, there are no significant concentrations of credit risk for financial assets measured at FVTPL. The carrying amount reflected above represents the Company’s maximum exposure to credit risk for such Financial assets.

Financial risk management framework

The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to reduce potential adverse effects on the Company’s financial performance at reasonable hedging costs. The Company uses derivative financial instruments to hedge risks on net exposure basis.

Management identifies, evaluates and hedges financial risks under approved policies to manage overall foreign exchange risk, credit risk and investing surplus liquidity (counterparty risk).

Market risks Foreign exchange risk

The Company has exports to other countries and is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the Euro and the US-dollar. Foreign exchange risks arise from recognized assets and liabilities, when they are denominated in a currency other than Indian Rupee.

To manage the foreign exchange risk arising from recognized assets and liabilities, Company use spot transactions foreign currencies / foreign exchange forward contracts, on net exposure basis in major foreign currencies.

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.

Following is the analysis of foreign exchange risk sensitivity impacting the profit where the Indian Rupee strengthens and weakens by 1% against the relevant currency. A positive number below indicates an increase in profit and negative number below indicates a decrease in profit.

Other price risks

The Company was exposed to equity price risks arising from equity investments. Equity investments were held for strategic rather than trading purposes. The Company does not actively trade in these investments.

Following is the sensitivity analysis as a result of the changes in fair value of equity investments measured at FVTOCI, determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher/lower, other comprehensive income would increase/decrease as follows for :

The year ended 31.03.17 : by Rs. Nil Lakhs 15 months ended 31.03.16 : by Rs. 58.36 Lakhs

Credit risk

Credit risk arises from entering into derivative financial instruments, from deposits with banks and financial institutions, as well as from credit exposures to customers, including outstanding receivables.

Customer credit risk exposure is triggered by customer default risk and country risk. As at balance sheet date, the Company does not have significant concentration of credit risk either due to size of customers or due to country risk.

Company has a credit risk policy in place to ensure that sales are made to customers only after an appropriate credit risk rating and credit line allocation process. Procedures are standardized within credit risk policy and supported by the IT system with respective credit management tools. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining collaterals viz Security Deposit or bank Guarantee as per Credit Policy, as a means of mitigating the risk of financial loss from defaults. The average credit period on sales of goods is 60 to 90 days.

The credit risk on Cash & cash equivalents and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by credit-rating agencies.

Liquidity risk

Liquidity risk management:

The Company is currently debt free having no long term financial liabilities. Management monitors the forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet its operational needs while maintaining sufficient headroom on its undrawn borrowing facilities. Considering the liquidity advantage, funds surplus to the operational needs are invested in the liquid and liquid plus schemes of mutual funds and bank deposits. The cash & cash equivalents and investments in mutual munds are highly liquid and are readily available for payment of liabilities.

The following table analyses the maturity profile of the Company’s financial liabilities. The amounts disclosed are the contractual undiscounted cash flows. The contractual maturity is based on the earliest date on which the Company may be required to pay.

6 Fair value measurement and related disclosures Fair value of the Company’s financial assets that are measured at fair value on a recurring basis:

Some of the Company’s financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation technique(s) and inputs used).

Note: Investment in equity instruments are not held for trading. Instead, they are held for medium or long-term strategic purpose. Upon the application of Ind AS 109, the Company has chosen to designate investments in equity instruments at FVTOCI as the management believe that this provides a more meaningful presentation for medium or long-term strategic investments, rather than reflecting changes in fair value immediately in profit or loss.

Fair value of financial assets that are not measured at fair value (but fair value disclosures are required):

The management consider that the carrying amounts of financial assets and financial liabilities recognised in the balance sheet approximate at their fair values.

7 Corporate social responsibility

(a) Gross amount required tobe spent by the company during the year Rs.99.83 Lakhs (Previous period :Rs.161.77 Lakhs)

(b) Amount spent during the period on :

8 Share based payments

Few of the employees under senior management level have right to participate in Clariant Stock Option Plans introduced by the ultimate holding Company, Clariant AG, Switzerland.

Under the Group Senior Management - Long Term Incentive Plan (GSM-LTIP) a certain percentage of the actual bonus is granted to the plan participants in the form of registered shares of Clariant (investment shares). These shares vest immediately upon grant, but are subject to a 3-year blocking period. The plan participants receive an additional share free of cost (matching share) for each investment share held at the end of the blocking period.

Performance Share Unit (PSU) plan is a three-year vesting period plan. The vesting is conditional upon achievement of the performance targets at the end of the vesting period. If the performance targets are achieved, each PSU will be converted into one Clariant share and the plan participants receive Clariant share free of cost.

The total amount to be expensed in the statement of profit or loss is determined by reference to the fair value of the options granted and is recognised over the vesting period. Assumptions are made concerning the forfeiture rate which is adjusted during the vesting period so that at the end of the vesting period there is only a charge for the vested amounts.

Set out below is the summary of shares granted under the plans:

The weighted average share price at the date of exercise of options during the year ended 31.03.17 was CHF19 per share (31.03.16: Nil). The fair value of shares granted is calculated based on market value of shares as at the grant date.

9 Related party disclosures as required by Ind AS-24 “Related Party Disclosures” are given below :

(a) Enterprises where control exists:

(i) Ultimate Holding Company

- Clariant AG, Switzerland

(ii) Principal Shareholders (subsidiaries of the Ultimate Holding Company) :

- EBITO Chemiebeteiligungen AG

- Clariant Plastic & CoatingAG (Erstwhile known as Clariant Participations AG)

- Clariant International AG

(b) Other related parties in the Clariant group with whom the Company has transactions:

Fellow subsidiary companies:

Clariant (Argentina) SA Clariant Plastics & Coatings (Argentina) SA

Clariant (Australia) Pty. Ltd. Clariant Masterbatches (Deutschland) GmbH

Clariant (China) Ltd. Clariant Masterbatches (Shanghai) Ltd.

Clariant (Gulf) FZE Clariant Masterbatches (Thailand) Ltd.

Clariant (Japan) K.K. Clariant Chemicals (Guangzhou) Ltd.

Clariant Plastics & Coatings, (Italia) S.p.A. Clariant Turkey Plastik Boya ve Kimyevi Maddeler ve

(Formerly Known as Clariant Materbatches (Italia) S.p.A) Madencilik Sanayi ve Ticaret A.S.

Clariant (Mexico) S.A. de C.V. Clariant Plastics & Coatings (Deutschland) GmbH

Clariant (Osterreich) GmbH Clariant Masterbatches (Saudi Arabia) Ltd.

Clariant (Singapore) Pte. Ltd. Clariant Medical Specialties India Limited

Clariant (Turkiye) Boya ve Kimyevi Maddeler Sanayi ve Clariant Plastics & Coatings (Argentina)

Ticaret A.S.

Clariant Chemicals (China) Ltd. Clariant Plastics & Coatings (Japan) K.K.

Clariant Plastics & Coatings Mexico, S.A. de C.V Clariant Plastics & Coatings AG

Clariant Chemicals (Taiwan) Co., Ltd. Clariant Polska, Sp. z.o.o.

Clariant Chemicals Pakistan (Pvt.) Ltd Clariant (New Zealand) Ltd.

Clariant Corporation Clariant S.A.

Clariant Masterbatches (Malaysia) Sdn Bhd Clariant Plastics & Coatings Polska Sp.z o.o.

Clariant India Limited Clariant Services (Poland) SP. z o.o.

Clariant Produkte (Deutschland) GmbH Clariant Plastics & Coatings Southern Africa (Pty) Ltd Clariant Plastics & Coatings USA Inc.

(c) Key management personnel:

Executive Directors

Dr. Deepak Parikh

B.L. Gaggar (upto 30.06.15)

Non-Executive Directors

Kewal Handa (from 05.11.15)

Sunirmal Talukdar (from 05.11.15)

Indu Shahani Alfred Muench Karl Holger Dierssen Mario Brocchi (from 12.02.15)

Bharat V. Patel (upto 20.10.15)

Y. H. Malegam (upto 15.10.15)

10 Segment information :

(a) Information reported to the Chief operating decision maker (CODM) for the purposes of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. No operating segments have been aggregated in arriving at the reportable segments of the Company.

The Company’s reportable segments under Ind AS 108 are as follows:

(i) Plastics & Coatings :

Includes pigments, pigment preparations, additives and master batches.

(ii) Specialty Chemicals:

Includes dyestuff, synthetic resins, functional effects and coating, auxiliaries and chemicals.

(b) During the year the Company has renamed it’s Segment names from “Pigments and Colors” to “Plastics and Coatings” and “Dyes and Specialty Chemicals” to “Specialty Chemicals”.

(c) The following is an analysis of the Company’s revenue and results from continuing operations by reportable segment and reconciliation of segment revenue and Segment profit with total revenue and profit before tax respectively:

(d) Segment revenue reported above represents revenue generated from external customers. There were no inter -segment sales.

(e) The accounting policies of the reportable segments are the same as the Company’s accounting policies described in note 1. Segment results represents the profit before tax earned by each reportable segment without allocation of central administration costs, other income, finance costs as well as exceptional items. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

(f) For the purposes of monitoring segment performance and allocating resources between segments:

All assets are allocated to reportable segments other than investments, loans, certain financial assets and current and deferred tax assets. Goodwill is allocated to reportable segments; and

All liabilities are allocated to reportable segments other than borrowings, other financial liabilities, current and deferred tax liabilities.

(g) The secondary segments of the Company are geographical segments mainly:

(i) India

(ii) Outside India

(h) Non-current assets exclude financial assets.

(i) Revenues of approximately Rs.20182.46 Lakhs (31.03.16 : Rs.24004.57 Lakhs) is arising from sales to the Company’s largest customer of Plastics and Coatings segment. No other single customers contributed 10% or more to the Company’s revenue.

11 Discontinued Operations

(a) The Company executed the Business Transfer Agreement on July 31, 2015 and has sold/transferred on August 01, 2015 the business of Industrial and Consumer Specialties (ICS), included in the Specialty Chemicals (earlier known as Dyes and Specialty Chemicals) Segment, along with employees, assets, liabilities and including all licenses, permits, consents and approvals on a going concern basis by way of a slump sale on a “as is where is basis” to Clariant India Ltd. for an aggregate consideration of Rs. 4200.00 Lakhs. The profit on sale of the ICS business amounting to Rs.2656.23 Lakhs is shown under “Exceptional Items, credit (net)” (Refer note 33). The Capital Gains tax arising from the transaction is included in “Tax Expense of discontinued operation”.

12 Business combinations

The Company after obtaining necessary approvals from the Board of Directors, vide an agreement dated March 31, 2015, acquired the “Carbon Black Business” from Lanxess India Private Limited (Lanxess) effective close of business hours on March 31,2015, comprising the Carbon Black Dispersion plant located at Nagda, India, together with its respective assets, liabilities and employees as a going concern on a slump sale basis for a lump sum consideration of Rs.1345.66 Lakhs (including non compete fees) after working capital adjustment, as at March 31,2015. The excess of consideration paid to Lanxess over the fair value of net assets acquired is considered as goodwill amounting to Rs.894.11 Lakhs. Goodwill recognised is on account of control premium, benefit of expected synergies, revenue growth and future market development. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

This acquisition of business was strategic for the Company for survival of its current business in similar products. Entire consideration has been paid to the acquiree in cash. Since the Company has not obtained control on any cash and cash equivalent, the net cash outflow in the acquisition of the business is equal to the consideration paid. Company has not incurred any significant cost towards acquisition of this business.

Company''s current business and acquired business is in similar products and therefore Company does not maintain separate records for the acquired business. Hence it is impraticable to disclose the revenue and profit or loss of the combined business as though the acquisition date for business combination that occurred during the previous period was April 01, 2015.

13 Reconciliations

The following reconciliations provides the effect of transition to Ind AS from IGAAP in accordance with Ind AS 101

A. Equity as at 01-01-15 and 31-03-16

B. Net profit for the 15 months and year ended 31-03-16

C. Explanations for reconciliations

14A Explanations for reconciliation of balance sheet and profit and loss as previously reported under IGAAP to INDAS

1 Goodwill

Goodwill is not amortised since transition to Ind AS, but tested for impairment at the balance sheet date under Ind AS compared to it being amortised over the period of 5 years under IGAAP.

2 Investment

Investments in mutual funds are carried at fair value through profit and loss under Ind AS compared to being stated at lower of cost and fair value under IGAAP. The corresponding deferred tax liability has been recognised and disclosed under Deferred tax liabilities (Net)

Investment in equity instruments are carried at fair value through OCI under Ind AS compared to being stated at cost less diminution in value, other than temporary under IGAAP.

3 Other financial assets and current assets - Loans

Long term deposits paid for renting of premises are measured at their fair value at initial recognition and subsequently at amortised cost. Under IGAAP, these financial assets were carried at transaction price. The difference of fair value and the transaction price is debited to the unamortised rent expenses which is amortised as rent expenses over the lease term on straight line basis. The corresponding deferred tax liability has been recognised and disclosed under Deferred tax liabilities (Net).

4 Deferred tax liabilities (Net)

Under Ind AS, deferred tax is calculated using balance sheet approach comparing the tax base with book balance after considering the adjustments on account of transition to Ind AS and other tax effects shown in notes 2,3 and 7.

5 Provisions

Under Ind AS, dividend on equity shares (including corporate dividend tax) are recognised when declared by the shareholders in the Company’s annual general meeting as compared to its recognition in the financials statement as a liability when recommended by the Board of directors after end of the reporting period. Adjustments reflect dividend (including corporate dividend tax), declared and approved post reporting period.

6 Employee share based payments

Under Ind AS, the cost of equity-settled employee share-based payments is recognised based on the fair value of the shares as on the grant date. Under IGAAP, such cost was not recognised in the statement of profit and loss since the share based payments transaction was at the parent company level.

7 Employee benefit cost

Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability / asset and is recognised in other comprehensive income. Under IGAAP, actuarial gains and losses were recognised in profit or loss. Consequently, the deferred tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of profit or loss.

8 Expenses on buy back of shares

Under Ind AS, expenses incurred for buy back of equity shares are accounted as reduction from equity. Under IGAAP, these expenses had been charged to statement of profit and loss under the head ‘exceptional items’.

9 Other equity

Adjustments to retained earnings and other comprehensive income has been made in accordance with Ind AS, for the above mentioned line items.

15 Details of Specified Bank Notes (SBN) and other SBNs held and transacted during the period from November 08, 2016 to December 30, 2016.

16 Pursuant to change in accounting year of the Company from January-December to April-March with effect from 01-01-15, the figures for the twelve months ended 31-03-17 are not directly comparable with those of the 15 months period ended 31-03-16.

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