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Tata Steel

BSE: 500470|NSE: TATASTEEL|ISIN: INE081A01012|SECTOR: Steel - Large
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Directors Report Year End : Mar '17    Mar 16

To the Members,

The Directors take pleasure in presenting the 2nd Integrated Report (prepared as per the framework set forth by the International Integrated Reporting Council) and the 110th Annual Accounts on the business and operations of the Company, along with the summary of standalone and consolidated financial statements for the year ended March 31, 2017.

A. FINANCIAL RESULTS

(Rs. crore)

Particulars

Tata Steel Standalone

Tata Steel Group

2016-17

2015-16

2016-17

2015-16

Gross revenue from operations

53,260.96

42,697.44

1,17,419.94

1,06,339.92

Total expenditure before finance cost, depreciation (net of expenditure transferred to capital)

41,385.01

35,085.65

1,00,412.12

98,371.59

Operating Profit

11,875.95

7,611.79

17,007.82

7,968.33

Add: Other income

414.46

391.16

527.47

412.22

Profit before finance cost, depreciation, exceptional items and taxes

12,290.41

8,002.95

17,535.29

8,380.55

Less: Finance costs

2,688.55

1,848.05

5,072.20

4,221.41

Profit before depreciation, exceptional items and taxes

9,601.86

6,154.90

12,463.09

4,159.14

Less: Depreciation

3,541.55

2,962.28

5,672.88

5,306.35

Profit/(Loss) before share of profit/(loss) of joint ventures & associates, exceptional items & tax

6,060.31

3,192.62

6,790.21

(1,147.21)

Share of profit / (loss) of Joint Ventures & Associates

-

-

7.65

(110.42)

Profit/(Loss) before exceptional items & tax

6,060.31

3,192.62

6,797.86

(1,257.63)

Add/(Less): Exceptional Items

(703.38)

(1,649.28)

(4,324.23)

3,990.38

Profit before taxes

5,356.93

1,543.34

2,473.63

2,732.75

Less: Tax Expense

1,912.38

587.69

2,778.01

689.96

(A) Profit/(Loss) after taxes - from Continuing operations

3,444.55

955.65

(304.38)

2,042.79

Profit/(loss) before tax from Discontinued operations

-

-

(770.86)

(2,485.45)

Less: Tax expense of Discontinued Operations

-

-

8.01

54.43

Profit/(Loss) after tax from Discontinued Operations

-

-

(778.87)

(2,539.88)

Profit/(Loss) on Disposal of Discontinued Operations

-

-

(3,085.32)

-

(B) Net Profit/(loss) after tax - from Discontinued operations

-

-

(3,864.19)

(2,539.88)

(C) Net Profit/(Loss) for the Period [ A B ]

3,444.55

955.65

(4,168.57)

(497.09)

Total Profit/(Loss) for the period attributable to:

Owners of the Company

-

-

(4,240.80)

(382.78)

Non controlling interests

-

-

72.23

(114.31)

(D) Total other comprehensive income

675.79

(3,407.13)

(563.06)

(1,898.17)

(E) Total comprehensive income for the period [ C D ]

4,120.34

(2,451.48)

(4,731.63)

(2,395.26)

Retained Earnings: Balance brought forward from the previous year

10,075.75

6,852.56

(2,415.49)

(5,925.75)

Add: Profit for the period

3,444.55

955.65

(4,240.80)

(382.78)

Less: Distribution on Hybrid perpetual securities

266.10

266.17

266.10

266.17

Add: Tax effect on distribution of Hybrid perpetual securities

92.09

92.11

92.09

92.11

Add: Other Comprehensive Income recognised in Retained Earnings

(142.42)

(3.28)

(3,549.43)

1,644.93

Add: Other movements within equity

1.75

3,371.15

(142.57)

3,348.44

Balance

13,205.62

11,002.02

(10,522.30)

(1,489.22)

Which the Directors have apportioned as under to:-

(i) Dividend on Ordinary Shares

776.97

776.97

776.97

776.97

(ii) Tax on dividends

147.74

149.30

147.74

149.30

Total Appropriations

924.71

926.27

924.71

926.27

Retained Earnings: Balance to be carried forward

12,280.91

10,075.75

(11,447.01)

(2,415.49)

The Company has adopted Indian Accounting Standard (‘Ind AS’) with effect from April 1, 2016 and accordingly these financial results along with the comparatives have been prepared in accordance with the recognition and measurement principles stated therein, prescribed under Section 133 of the Companies Act, 2013 read with the relevant rules issued thereunder and the other accounting principles generally accepted in India.

Note:

During the year, the exceptional items primarily include:

a) Provision for demands and claims (Rs.218 crore), charge on account of Employee Separation Scheme (‘ESS’) under Sunehere Bhavishya Ki Yojana (‘SBKY’) scheme (Rs.207 crore), provision for advances given for repurchase of Equity shares in Tata Teleservices Ltd. from NTT DoCoMo Inc. (Rs.125 crore) at Tata Steel India.

b) Impairment Charges (Rs.268 crore) in respect of property, plant and equipment (including CWIP) and intangible assets mainly relating to European & South-East Asian Operations.

c) Restructuring and other provisions (Rs.3,614 crore) primarily include curtailment charge relating to closure of Tata Steel Europe’s British Steel Pension Scheme (‘BSPS’) to future accrual.

d) Profit on sale of investments in subsidiaries, associates and joint ventures (Rs.23 crore) and Profit on sale of assets of a subsidiary in South-East Asia on liquidation (Rs.86 crore).

The exceptional items in Financial Year 2015-16 primarily represents:

a) Provision for demands and claims (Rs.880 crore), charge on account of Employee Separation Scheme (‘ESS’) under Sunehere Bhavishya Ki Yojana (‘SBKY’) scheme (Rs.556 crore), provision in respect of advances related to a project which the Company has decided to discontinue (Rs.73 crore) at Tata Steel India.

b) Impairment Charges (Rs.1,530 crore) in respect of property, plant and equipment (including CWIP) and intangible assets mainly at certain Subsidiaries, Tata Steel Europe & Tata Steel India.

c) Net gain (Rs.6,983 crore) primarily on account of changes to BSPS and Stichting Pensioenfonds Hoogovens (‘SPH’) scheme and other restructuring exercise relating to the European operations.

d) Profit on sale of investments in subsidiaries, associates and joint ventures (Rs.47 crore).

1. Dividend

The Board recommended a dividend of Rs.10 per Ordinary Share on 97,12,15,889 Ordinary Shares of Rs.10 each for the year ended March 31, 2017. (Financial Year 2015-16: Rs.8 per Ordinary Share on 97,12,15,439 Ordinary Shares of Rs.10 each).

The dividend on Ordinary Shares is subject to the approval of the shareholders at the Annual General Meeting (‘AGM’) scheduled to be held on August 8, 2017. The dividend will be paid on and from August 10, 2017. The total dividend pay-out works out to 34% (Previous Year: 97%) of the net profit for the standalone results.

The Register of Members and Share Transfer Books will remain closed from July 22, 2017 to August 8, 2017 (both days inclusive) for the purpose of payment of the dividend for the Financial Year ended March 31, 2017 and the AGM.

2. Dividend Distribution Policy

The Securities and Exchange Board of India (‘SEBI’) vide its notification dated July 8, 2016, requires the top 500 listed entities (based on the market capitalization calculated as on March 31 of every financial year) to formulate a dividend distribution policy and disclose the same in their annual reports and on their websites.

In terms of the above requirement, the Board of Directors of the Company have formulated a Dividend Distribution Policy (‘the Policy’). As per the policy, the Company endeavours to pay dividend up to 50% of profit after tax of the Company (as determined by the Board of Directors and approved by the shareholders) subject to the applicable rules and regulations. The detailed policy is annexed to this report (Annexure 1) and is also available on our website www.tatasteel.com

3. Transfer to Reserves

The Board of Directors has decided to retain the entire amount of profits in the profit and loss account.

4. Capex and Liquidity

During the year, the Company on a consolidated basis spent Rs.7,716 crore on capital projects across India, Europe, South-East Asia, Canada and Africa largely towards essential sustenance and replacement as also on growth projects in India and Netherlands. Despite this significant spend, the Company was able to keep the gross debt level stable during the year.

The Company’s liquidity position remains strong at Rs.19,777 crore as on March 31, 2017, which includes undrawn lines.

5. Management Discussion and Analysis

The Management Discussion and Analysis as required by the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) is incorporated herein by reference and forms an integral part of this report. (Annexure 2)

B. INTEGRATED REPORT

In keeping with the Company’s valued tradition - “thinking about society and not just the business’, the Company, in the previous reporting year, moved from compliance based reporting to governance based reporting. The Company adopted the <IR> framework developed by the International Integrated Reporting Council and presented to its stakeholders the 1st Integrated Report for the period ended May 2016.

The Board is happy to present the 2nd Integrated Report which endeavours to comprehensively articulate the measures that contribute to long-term sustainable value and the role the Company plays in the society.

C. EXTERNAL ENVIRONMENT

1. Macro-Economic Environment

During the Financial Year 2016-17, the global economy continued its modest pace of growth at 3% amidst weak international trade, subdued industrial production and investment. The advanced economies witnessed recovery in manufacturing and trade other than industrial production at different points in time. The emerging and developing economies grew at a diverse pace due to the global trade related policy measures and commodity price movement.

The United States of America (‘USA’) witnessed economic growth of 1.6%, slowest in the past three years. Better than expected economic indicators such as lower unemployment, business activity and improved sentiment post the Presidential elections did not translate into increased spending. Eurozone continued its 14th consecutive quarter of growth of 1.8%, as business confidence continued to remain resilient despite Britain’s vote to leave the European Union (‘EU’). In Japan, strong domestic demand and net exports helped achieve growth of 1%. Among the emerging and developing economies, China continued to maintain its growth rate at ~7%, aided by policy support, while growth in India slowed down to 7.1% due to the temporary impact of demonetization on key sectors including construction and financial services. Growth in Middle East and sub-Saharan Africa was impacted by geo-political/ domestic conflicts. The rise in commodity prices in latter part of the year helped trigger cyclical recovery in certain regions and thus helped overall global growth.

2. Economic Outlook

According to International Monetary Fund (‘IMF’), global growth is projected to rise to 3.5% in 2017 and 3.6% in 2018, moving closer to the long-term growth trend of 4%. The outlook indicates a likely up cycle of modest recovery after three successive shocks - the global financial crisis of 2007-09, the Eurozone crisis of 2009-13 and decline in commodity prices during 2014-15. However, the uncertainty with respect to sustainable growth remains. While the continued recovery and gradual closing of output gaps are likely to maintain growth momentum in the advanced economies over the next few years, supportive policy and adjusting to current price levels by commodity exporting countries are expected to aid growth in emerging and developing economies.

US growth is expected to recover as investments increase and domestic policies aid growth. The euro area recovery is expected to proceed at a broadly similar pace in 2017-18 as in 2016. The modest recovery is projected to be supported by a mildly expansionary fiscal stance, accommodative financial conditions and a weaker euro. The medium-term outlook for the euro area is likely to be impacted by weak productivity, adverse demographics, and, in some countries, unresolved legacy problems of public and private debt overhang, with a high level of non-performing loans. Further, uncertainty about the European Union’s future relationship with the United Kingdom (‘UK’) is expected to weigh on economic activity. China is expected to continue its gradual economic transition to a more service economy and coupled with partial recovery in commodity prices, it is expected to drive growth in certain emerging and developing economies.

As per IMF, India is expected to grow at 7.2% in 2017 and surpass the UK and France in 2017 to become the world’s fifth largest economy. The macro-economic stability with inflation below 5% continues to be the foundation of economic success which is reflected by growth in its key sectors - agriculture, industrial and services. Government initiatives like Make-in-India, Invest India, Start Up India and e-biz Mission Mode Project under the national e-governance plan are helping to improve ease of doing business in the country. In addition, the biggest tax reform since Independence, Goods and Services Tax (‘GST’) will help simplify India’s tax regime and is likely to boost GDP and reduce inflation in the long-term despite the threat of a potential slowdown in economic activity during the transition to the GST in the near term.

However, structural issues continue to pose a significant risk to the growth cycle. Firstly, initiative of the US Government of advancing ‘Buy American Hire American’ and political trends in Europe and elsewhere suggest a rising wave of protectionism which may lead to reversals of trade liberalization and geo-political conflicts. Secondly, economic policy uncertainty continues to be high, given USA’s expansive pro-growth reforms and China taking lead in globalization 2.0. This poses a risk of high level of volatility in the financial markets. Thirdly, debt and deficits among emerging market and developing economies are on the rise making them susceptible to increase in borrowing costs. Fourthly, outcome of the Brexit negotiations is likely to impact the pace of recovery in UK as well as Eurozone economy.

D. STEEL INDUSTRY

1. Global Steel Industry

Global steel markets recovered during Financial Year 2016-17 registering better than estimated production & demand growth. During the year, the global steel demand grew by 1% to 1.52 billion tonnes on the back of stronger than expected demand growth in China (1.3%) coupled with optimism on supply-side structural reforms and restocking. The crude steel production was 1.63 billion tonnes, up by 0.8% compared to the previous year. China remains the world’s largest crude steel producer with the production at 0.8 billion tonnes. China’s apparent steel consumption has continued to remain structurally below its production level leading to exports of 0.1 billion tonnes in spite of global protectionism. The global capacity utilization ratio remained around 70% in spite of proactive measures being undertaken in China and Europe. For instance, Chinese Government intends to reduce steel production capacity by 100-150 million tonnes by 2020, and has also announced merger of two major Chinese steel producers in the previous year.

The overcapacity of steel production in the developing world particularly in China has weighed on global steel prices for quite some time. During the year under review, the raw material prices remained volatile especially for coking coal due to supply related issues. In addition, prolonged oversupply in iron ore has led to lower level for raw material prices despite steel realizations getting support from cost push as raw material prices fluctuated on supply issues in the second half of 2016. However, regulatory measures announced by the Indian Government during the year have continued to aid domestic steel prices. The Indian steel industry has increased its capacity in the recent years, though the demand growth has remained muted. This has resulted in financial stress in the balance sheet of the steel players. The Government of India and the Reserve Bank of India is currently deeply engaged to find a structural solution to the above issue. The domestic crude steel capacity rose to 122 million tonnes, an increase of 11% year-on-year while the production of finished steel was around 101 million tonnes. The Financial Year 2016-17, saw a modest consumption growth of 3% due to low growth in construction sector and impact of demonetisation and a sharp decline in imports as domestic supply rebounded to the extent that India became a net exporter of steel, after a gap of three years.

In Europe, anti-dumping legislation, currency movement, growth in apparent demand and low inventory levels have led to an increase in demand by 2% to 155 million tonnes compared to 2015. During the year, the total activity in the steel end use sectors especially automotive rose by 1.7%, similar to the previous two years.

2. Outlook For Steel Industry

As per the World Steel Association (‘WSA’), global steel demand is expected to grow at 1.3% in 2017 to 1.54 billion tonnes and a further 0.9% in 2018 to 1.55 billion tonnes. Recovery in developed economies and accelerating growth in emerging and developing markets especially Russia, Brazil and India is expected to aid demand growth and keep inventory levels low which in turn is expected to support global steel prices. However, low level of capacity reduction than targeted by nations and continued oversupply in raw materials especially iron ore are likely to weigh down on the prices in the absence of effective trade measures and/ or increase in steel demand.

China’s steel demand which accounts for 45% of global steel demand is expected to be flat this year at 681 million tonnes while falling by 2% to 667 million tonnes in 2018. However, as per WSA, steel demand in emerging and developing economies excluding China is expected to grow at 4-5% per annum in the next two years to 475 million tonnes. In addition, the advanced economies are expected to grow at 1% for the next two years.

India’s prospects continue to remain bright albeit with few shortterm headwinds in the form of imports and surplus capacity. Proactive policy measures by the Government are expected to address most of these concerns. For instance, a Steel Price Monitoring Committee was formed by the Government with an aim to monitor price rationalization, analyse price fluctuations and advise all concerned regarding any irrational price behaviour of steel commodity. As per WSA, steel demand in India is expected to grow at 6-7% per annum in the next two years, compared to 4% in 2016.

European prospects for 2017 and 2018 are mildly positive. As per WSA, EU is expected to grow at 0.5-1.5% per annum in the next two years due to improving domestic demand with private consumption as key driver in 2017 and investment taking over the lead in 2018. The Government measures to counter cheap imports would support domestic prices in the near term. In addition, weaker euro is expected to improve domestic competitiveness against imports.

E. OPERATIONS AND PERFORMANCE

1. Tata Steel Group

During the year under review, the Tata Steel Group (‘the Group’) recorded total deliveries of 23.88 million tonnes (previous year - 23.54 million tonnes). The steel deliveries increased at Tata Steel India by 15%, primarily due to ramp up of the Kalinganagar Steel Plant. This increase was offset by lower deliveries at Tata Steel Europe by 9% due to sale of the long products business and closure of Llanwern mill to focus on higher value sales mix.

During the year, the turnover for the Group was at Rs.1,17,420 crore, an increase of 10% over the previous year. The growth is largely driven by strong performance from Indian Operations with volume growth in steel and ferro alloys business and supportive global pricing environment. The Group EBITDA was Rs.17,025 crore, an increase of 114% compared to previous year EBITDA of Rs.7,951 crore. This improvement comes on the back of strong global market conditions, strong volume growth in India and the impact of the implementation of transformation program and restructuring efforts in Europe to improve the underlying performance.

During the year, the industry witnessed recovery in steel prices mainly driven by increase in coking coal and iron ore prices improvement in underlying global demand and lower seaborne imports. However, the timing and extent of continued price recovery or the sustenance of the current demand cycle is uncertain. In response to recent declines and higher volatility in steel and raw material prices, the Company has implemented a number of cost-saving measures intended to improve operating income as well as measures to enhance cash generation from the business.

The Group reported a consolidated loss after tax (including discontinuing operations) of Rs.4,169 crore as against a loss of Rs.497 crore in the previous year. The year’s loss includes an exceptional charge of Rs.4,324 crore mainly due to British Steel Pension Scheme (‘BSPS’) curtailment charges, while an exceptional gain of Rs.3,990 crore was recorded in the Financial Year 2015-16.

2. India

In Financial Year 2016-17, Tata Steel India deliveries grew by 15%, significantly better than the broader market and reached a level of 11 million tonnes (previous year - 9.5 million tonnes). This is a testament of the strength of the business model of the Indian operations, the strength of the business relationships, the power of the product brands and the robustness of the distribution channel. The Company’s sales to the automotive segment increased by approximately 9% over previous year, as the Company continued to partner with its automotive customers in the drive towards localization. New model launches, aided by a strong growth in the passenger vehicle segment, also helped the Company to increase the market share in the automotive space. Similarly, the Company’s Industrial Products, Projects and Exports vertical witnessed a 47% year-on-year growth.

The Company’s branded products portfolio has been growing strongly and the Company continues to invest in this portfolio with the aim of gaining greater market share. In India, the Company launched 31 new products and the branded products contributed to around 45% of the revenue.

The newly launched ‘Services & Solutions’ business is performing as per plan and the Company is optimistic about its potential to generate 20% of its revenue in the future. The Company is already engaged in development of several solution products based on steel, including doors, windows, modular housing, toilets and water ATMs etc. The Company is also foraying into furniture space and the products would have wood or wood-like finish but blended steel structure.

During the year, revenues from Indian operations increased to Rs.53,261 crore (previous year - Rs.42,697 crore). The EBITDA was Rs.11,953 crore, 53% higher than the previous year EBITDA of Rs.7,792 crore. The Profit after tax was also higher at Rs.3,445 crore (previous year - Rs.956 crore). During the year, the various improvement initiatives including Shikhar25 contributed improvement savings of over Rs.3,400 crore.

The strong performance during the year under review is due to supportive realisations and strong growth in deliveries due to ramp up ofthe Kalinganagar plant. The Kalinganagar operations continues to ramp up well both in terms of quantity and quality. The plant crossed 2.2 million tonnes of Hot Metal and 1.5 million tonnes of Hot Rolled Coil production since commissioning in May 2016. Moreover, the performance of the Ferro Alloys & Minerals division registered sharp improvement backed by improved market conditions. The full year operating profit of the division at Rs.1,165 crore was higher by Rs.1,040 crore compared to the previous year.

3. Europe

During the year, the mild steel demand growth in the European Union was fully absorbed by imports, with import volumes at historically high levels, although anti-dumping measures provided some relief in the market prices, supported by lower raw material costs.

Several strategic and critical re-structuring initiatives were undertaken in TSE during the year, such as the sale of Long Products business to Greybull Capital LLP, closure of Llanwern Mill in the UK, right sizing of manpower, announcement of collaboration with strategic players, sale of Speciality Steel business to Liberty House and closure of the defined Benefit Pension Scheme to the future accruals.

On the operational front, TSE launched a number of new digital services to transform the customer experience and deliver value viz. Tata Steel in Europe Customer Portal, Tata Steel in Europe eShop, Connecting Systems and Building Information Modelling.

TSE also launched 20 new products and was able to increase the share of differentiated products to 37% and of new products to 8%. TSE’s focus remains on developing differentiated products and services like Serica and MagiZinc products which improve car body appearance and performance.

The Hot Strip Mill at Port Talbot in the UK broke its previous financial year volume record of 3.22 kt to produce 3.32 kt in the current financial year. The Galvanising Line 3 in IJmuiden, Netherlands broke its previous financial year volume record of 552 kt to produce 562 kt in the current financial year. The customer complaints for the year in the Strip Products business in Mainland Europe were the lowest at 0.18%.

During the year, the revenues remained flat at Rs.52,085 crore compared to previous year - at Rs.53,555 crore while the EBITDA improved very significantly to Rs.4,705 crore from the EBITDA loss of Rs.513 crore in the previous year. The strong performance is due to stronger market conditions during the year, focussed transformation program in the UK and sustainable profit program in the Netherlands, including the supply chain transformation programme which went live during the year.

During the year, TSE was recognized as the best supplier of steel and nominated for future supplies by Renault, Ford and Toyota. TSE was also awarded the “Quality through Excellence award” by Volvo, a first time award given to a steel supplier. The ‘PeopleLink’ project team within TSE was selected as the Gold Winner of the SAP UKI Quality Awards in the HR Cloud Category.

4. South-East Asia

During the year, the performance in South-East Asia was strong on the back of continued thrust by the Government on infrastructure projects, particularly in Thailand. The revenues stood at Rs.8,245 crore (previous year - Rs.7,851 crore), the EBITDA was Rs.528 crore (previous year - Rs.222 crore) and the Profit after tax was Rs.175 crore (previous year - loss of Rs.237 crore). The improvement in performance is mainly attributable to improved realizations, better spread management and cost rationalization initiatives.

NatSteel Holdings (‘NSH’) operations improved significantly. Domestic market demand for steel bars remained weak in Financial Year 2016-17 due to sluggish construction market. Continuous cost reduction initiatives, including re-alignment of optimal capacity level with demand achieved a fixed cost saving of Sm. Mothball of NatSteel Xiamen (‘NSX’) operations in mid Financial Year 2015-16 had improved EBITDA. Further, during the year, NSX sold its land and other assets and has realized Rs.86 crore.

During the year, Tata Steel Thailand (‘TSTH’) delivered better performance on all fronts as compared to previous year. TSTH achieved reduction in conversion costs both at steel plant and rolling mill stage. TSTH is committed to deliver value added products and services to its customers. In this regard sale of High Tensiles, Siesmic and cut and bend Rebars surpassed the previous records. TSTH invested in phase 3 of state-of-the art cut and bend facility at NTS plant and completed the project in March 2017.

During the year, sale of new products at TSTH touched new heights. Wire rods business saw a significant improvement in the second half of the financial year due to higher import prices from China, anti-dumping duties announced by Thai Government and strong customer relationship. During the year, TSTH collected more than a million tonnes of domestic scrap and also developed billet sources from India, Russia, South America and other regions.

F. STRATEGY

While Financial Year 2015-16 saw a contraction in global steel demand, steel demand grew by 1% in the Financial Year 2016-17 largely driven by strong growth in India and South-East Asia. Despite a recovery in steel prices on the back of better than expected Chinese steel demand, concerns regarding excess capacity and uncertainty in Chinese steel demand over the medium-term persist and contribute towards increased volatility in prices.

The Company continues to pursue its vision to become the global benchmark in ‘value creation’ and ‘corporate citizenship’ in the steel industry and aims to develop long-term partnerships with customers in the chosen markets. It endeavours to make the most of the growing demand for steel by investing in new facilities. Expansion plans for both - Kalinganagar and Jamshedpur sites are in development. Along with volume growth, the Company is committed to move towards more value added products and offer services and solutions to further enhance revenues and reduce the linkage of revenues to volatile steel prices.

The Company has identified Digital as a driver to enhance customer centricity, productivity and sustainable performance. A large number of projects across the value chain have been identified where value can be created via utilization of existing and emerging digital technologies. The Company is working on leveraging its online presence to enhance customer experience via creation of platform to onboard stakeholders, facilitate peer reviews and ease access. Capabilities in data analytics are being built via its Analytics Centre of Excellence. Jamshedpur has been LORAWAN (Low Power WAN) enabled allowing the Company to explore Internet of things (‘IOT’).

In the medium-term, the Company expects the external environment to remain challenging. In response, the Company is working towards rationalizing it’s existing operations and designing new facilities to maximize productivity and improve cost competitiveness. It has set the following five priorities for the medium-term to help attain its vision and goals - (a) Customer Focus, (b) Innovation, (c) Operational Excellence, (d) Responsible behaviour and (e) People.

Customer focus: The Company has plans in place to keep pace with the growing needs of customers across sectors with a special focus on automotive and attractive segments in the construction sector eg. Individual House Builder. New facilities planned will ensure that shift of demand to wider, lighter and high strength steel in the automotive sector is adequately met. The Company is also expanding its presence in other attractive segments like Oil & Gas and Lifting & Excavation enabled by it’s new plant at Kalinganagar. The Company also aims to leverage its brands to increase revenues from B2C sales -including increasing reach in rural markets. It further aims to enhance value for customers through services and solutions and value added products.

Innovation: The focus area for research is to develop new and differentiated products and services for customer segments, reduce carbon footprint, optimally use inferior raw materials, utilize solid waste and move towards a system of Zero Water Discharge. The Company conducts research programmes through strategic collaboration with academic institutions in India and overseas. It has made a breakthrough in low cost graphene production and graphene based coating solutions for steel. Going ahead it is investing in scaling these solutions and developing other applications.

Operational excellence: It is the Company’s endeavor to establish best-in-class facilities and it constantly invests to upgrade its manufacturing and distribution facilities in order to improve performance and cost competitiveness. The focus areas are achieving superior steel properties, higher efficiency in iron ore & coal beneficiation, lower carbon rate in iron-making, optimized product mix, reducing waste generation, energy efficient processes and higher material utilisation.

Responsible behaviour: The Company acts responsibly towards the environment, focusing on sustainable usage of raw materials, water and energy conservation, waste utilization, emissions reduction and land reclamation. It explores and supports the development of breakthrough technologies to deal with the challenge of carbon emissions. Reduction of CO2 emissions through energy conservation remains the prime corporate strategy to ensure business sustainability while mitigating climate change. Jamshedpur Steel Works is the National Benchmark in CO2 emission intensity and Specific Energy Consumption within Steel Sector (Coal based Integrated Works, BF-BO). The Company supports the communities it operates by promoting sports & education, sustainable livelihood, health and ethnicity. It also supports the economic, environmental and social development of its communities through financial support, provision of materials and the time and enthusiasm of its employees.

People: The safety of the people who work on the Company’s sites is number one priority. The Company is committed to the people who are instrumental to its success. Committed to Zero is Company’s top priority, with the target of having Zero Lost Time Injuries (‘LTIs’). The Company has taken safety and health strategic initiatives on capability building, leadership development, contractor safety, process risk, rail & road safety and employee health. The Company fosters teamwork, nurtures talent, enhances leadership capability and encourages employees to act with pace, pride and passion. There is an increased focus on encouraging diversity and inclusion in terms of gender and representation of the underprivileged sections of the community as well as people who are specially abled.

G. KEY DEVELOPMENTS

1. India

Kalinganagar Steel Plant

During the year, the Company commenced commercial production at its Kalinganagar Steel Plant. The facility produces flat steel for high-end applications enabling the Company to expand its product portfolio in the ship building, defence equipment, energy & power, infrastructure and aviation sectors. This plant will help the Company to consolidate its leadership position in the domestic automotive segment. Tata Steel Kalinganagar (‘TSK’) has achieved one of the fastest ramp-up in a Greenfield project in India. Crude steel production in Financial Year 2016-17 was 1.68MnTPA while, crude steel capacity was ramped up to 88% with the Coke Plant & Hot Strip Mill reaching 100% capacity in Financial Year 2016-17. The Coke Plant at Kalinganagar achieved 1.5 million tonnes of gross coke production and generated revenue worth Rs.70 crore through the sale of coal tar during Financial Year 2016-17. The facility dispatched first rake of HR coils on June 8, 2016 and first rake of Ferro-shots on September 12, 2016. During the year, the Sinter Plant at Kalinganagar achieved production of 2 million tonnes of net Sinter. The Blast Furnace achieved 2 million tonnes of hot metal production and started Top Recovery Turbine. It achieved lowest ever monthly average coke rate in all coke operation of 532 kg/t of hot metal. The Hot Strip Mill at Kalinganagar, achieved production of 1.5 million tonnes of HR coil and crossed ABP target of 1.54 million tonnes in Financial Year 2016-17 by achieving production of 1.78 million tonnes. The capacity of the Plant can be expanded further to meet the customer needs and make Tata Steel more profitable and sustainable in the future.

Acquisitions

Brahmani River Pellets Limited

In order to make the Kalinganagar Steel Plant more competitive, in December 2016, the Company executed a definitive agreement to acquire 100% equity shares of Brahmani River Pellets Limited (‘BRPL’) for a value of Rs.900 crore plus closing adjustments. BRPL owns a 4MnTPA pellet plant in Jajpur, Odisha and 4.7MnTPA iron ore beneficiation plant in Barbil, Odisha connected through a 220 km underground slurry pipeline. The above transaction is currently pending regulatory approvals.

Subarnarekha Port Private Limited

Logistics is a critical element in the supply-chain of an integrated steel facility. Considering the future logistics needs of the Indian Operations, in January 2017, the Company executed a definitive agreement to acquire 51% equity stake in Creative Port Development Private Limited for the development of Subarnarekha Port at Odisha through a wholly-owned subsidiary,

Subarnarekha Port Private Limited. Given the location of the proposed port, the acquisition will enhance competitive position of Indian operations and de-risk the in-bound and out-bound supply-chain. This is a greenfield project and currently the Company is undertaking detailed feasibility studies.

Divestments

TM Harbour Services Pvt. Ltd

On December 7, 2016, TM International Logistics Limited, a Tata Steel Group company divested its entire stake in its wholly-owned step down subsidiary TM Harbour Services Pvt. Ltd. (‘TMHSPL’) to Adani Ports and Special Economic Zone Limited for a total consideration of Rs.106.27 crore. TMHSPL was engaged in the business of providing Tug services at Dhamra Port and owned 3 tug boats.

Issue of Debt Securities

On October 4, 2016, the Company allotted 8.15% 10,000 Unsecured, Redeemable, Non-Convertible Debentures having a face value of Rs.10 lakh each for an amount aggregating to Rs.1,000 crore on private placement basis to identified investors.

Credit Ratings

In October 2016, Brickworks revised the rating for Non-Convertible Debentures from BWR ‘AA ’/ Outlook Stable to BWR ‘AA’/ Outlook Negative as well as downgraded the ratings for Perpetual Hybrid Securities from BWR ‘AA’/ Outlook stable to BWR ‘AA’/ Outlook negative.

As per the Ratings Agency, the change in ratings was due to the uncertainty consequent to the change in top management at the Tata Group level which could in turn slow down vital decisions such as cost cutting and deleveraging the Balance Sheet concerning the unprofitable UK operations and restructuring of the European business.

In January 2017, CARE has revised the ratings for Non-Convertible Debentures and long-term rupee loans from CARE ‘AA ’/ Outlook stable to CARE ‘AA’/ Outlook stable and for Perpetual Hybrid Securities from CARE ‘AA’/ Outlook stable to ‘AA-’ / Outlook stable. This revision in rating was triggered due to uncertainties relating to the restructuring of the Company’s UK business.

2. Europe

British Steel Pension Scheme

On March 7, 2017, Tata Steel UK (‘TSUK’), a wholly-owned indirect subsidiary of Tata Steel Limited and the principal sponsor of the British Steel Pension Scheme (‘BSPS’) completed consultation with its employees with regard to the closure of the defined benefit section of the BSPS to future accruals with effect from April 1, 2017. This followed an agreement between TSUK and the trade unions in December 2016 in the same regard, where it was also agreed that subject to the structural de-risking and de-linking of the BSPS from the business, TSUK will continue the existing blast furnace configuration of Port Talbot until 2021 and, based on achieving the necessary financial performance and cash flows as per the transformation plan of the UK business, it will also continue its investment to enhance its competitive position in European steel industry. An employment pact was also offered until 2021.

Subsequently, after prolonged and intense discussions and negotiations with the BSPS Trustee(s), The Pensions Regulator (‘TPR’) and the Pension Protection Fund (‘PPF’), the key commercial terms of a Regulated Apportionment Arrangement (‘RAA’) were agreed in-principle between TSUK and the BSPS Trustee(s). These terms are in line with the published principles of TPR and PPF. However, as of May 16, 2017, the RAA remains subject to detailed documentation, formal approval by TPR, non-objection from the PPF and the formal agreement of the individual entities who would be party to the RAA. These parties are in positive discussions and are hopeful of reaching final agreement shortly. If an agreement is reached and the necessary approvals are obtained, the RAA will become effective once agreed conditions are satisfied, including the payment by a member of the Tata Steel Group of an agreed settlement amount of GBP 550 million to the BSPS and the provision of a 33% equity stake in TSUK.

TSUK has also agreed in principle, that subsequent to the RAA, TSUK would sponsor a closed new pension scheme (the ‘New Scheme’). TSUK sponsorship of the New Scheme is conditional upon satisfaction of certain qualifying conditions. If those conditions are satisfied, members of the BSPS would be offered an option to transfer to the New Scheme. The New Scheme would have lower future annual increases for pensioners and deferred members than the BSPS and therefore an improved funding position which would pose significantly less risk for TSUK. There is presently no certainty with regards to the eventual existence, size, terms or form of the New Scheme and the funding position and membership of any New Scheme would be dependent on a voluntary membership transfer exercise.

Divestments

Sale of Long Products Europe Business

TSUK signed an agreement on April 11, 2016, to sell its Long Products Europe Business to Greybull Capital LLP for a nominal consideration. On May 31, 2016, TSUK completed the sale of Long Products Europe business, which will trade under the name of British Steel. The Long Products business in the UK includes the Scunthorpe steelworks, two mills in Teesside, an engineering workshop in Workington, a design consultancy in York, associated distribution facilities as well as a rail mill in northern France. With this, Tata Steel Europe crude steel capacity stood at 12.9 million tonnes.

TSUK’s Speciality Steel Business

As an overall restructuring strategy of the UK portfolio, TSUK (an indirect subsidiary of the Company) signed a Letter of Intent on November 28, 2016 and a definitive sale agreement on February 9, 2017 with Liberty House Group for sale of Speciality Steel business for a total consideration of GBP 100 million. The sale covers several South Yorkshire based assets including electric arc steelworks and bar mill at Rotherham, the steel purifying facility in Stocksbridge, a mill in Brinsworth and service centres in Bolton and Wednesbury, UK and in Suzhou and Xi’an, China. The sale was completed on May 2, 2017. Speciality Steel business directly employed about 1,700 people making steel for aerospace, automotive and the oil and gas industries. With this, Tata Steel Europe crude steel capacity stands at 12.1 million tonnes.

3. Canada

Tata Steel Minerals Canada

Tata Steel Minerals Canada Ltd. (‘TSMC’) is engaged in development of iron ore deposits in Quebec and Newfoundland & Labrador in Canada. The investment is deployed towards setting up mining operations and multiple processing facilities including the state-of-the-art beneficiation plant. The project has also enabled the development of infrastructure facilities including rail, roads, telecommunications and port that has had significant positive impact in the socio-economic landscape in Quebec, Newfoundland and Labrador.

In October 2016, TSMC signed the definitive agreements with Government of Quebec’s investment entities, Resource Quebec and Investment Quebec respectively for providing C5 million financial assistance in the form of equity and debt. With this investment, the Government of Quebec holds 18% stake in TSMC and the balance is held between the Company (77.66%) and New Millennium (4.32%), a publicly owned Canadian mining company.

On March 24, 2017, TSMC signed a multi-user-concept based non-binding MOU between PPP’s partners: Society of Plan Nord (‘SPN’) and other mining players, which will facilitate the connectivity of the existing material handling facilities at Point Noire to the new Multi User Deep Sea Terminal (‘MUD’) and further enable detailed assessment of improvements to the infrastructure, cost-efficient Port operations, scalability in volume and asset allocation among others. The Company has been awarded John T Ryan Award for Safe Mining for two consecutive years - 2015 and 2016 by the Canadian Institute of Mining, Metallurgy and Petroleum (‘CIM’).

4. South-East Asia Divestments

Kalzip Guanzhou Limited

In March 2017, Kalzip Guanzhou Limited, a wholly-owned subsidiary of the Company, divested its entire stake to Shanghai Qinheng International Trace Co. Ltd. for a net consideration of Euro 5.2 million. Kalzip Guanzhou Limited was engaged in the business of supplying aluminum roofs for construction projects in China.

H. SUSTAINABILITY

In the words of the Company’s founder, J N Tata - ‘In a free enterprise the community is not just another stakeholder in business, but is in fact the very purpose of its existence.’

This belief has been embedded in the Company’s vision and values as it continues to strike a balance between value creation and being a leader in corporate citizenship. Sustainability is at the very heart of what the Company does. As one of the world’s leading steel producers, the Company is dedicated to both managing its operations responsibly and striving towards continuous improvement. The Company is committed to designing more sustainable products which are lighter, long lasting and require fewer resources to be produced. The Company’s steel goes into the world’s most sustainable buildings and transport infrastructure and supports the performance of the most efficient vehicles in the market. Above all, the Company operates in a way that is safe for all employees and respectful to the environment. The Company’s endeavour is to act with utmost responsibility and care towards the communities surrounding it which are impacted by its operations.

The Company’s sustainability approach as articulated in the Sustainability Policy reinforces the triple bottom-line approach in its systems and processes. The Company has also established various platforms for engaging with its stakeholders to recognize their concerns and opinions that are then prioritized and embedded in its business objectives and strategies. The Company is actively associated with various industry bodies like Confederation of Indian Industry (‘CII’), Global Reporting Initiative (‘GRI’), International Integrated Reporting Council (‘IIRC’) and the Taskforce on Climate-related Financial Disclosures (‘TCFD’) of the Financial Stability Board in order to mainstream the best practices on sustainability in different functions and processes across the organization.

The Company has a dedicated Corporate Sustainability Group that tracks the global best practices related to sustainability and facilitates its incorporation in the key processes of the Company. The Group also drives various external assessments and makes comprehensive disclosures on sustainability to stakeholders. In December 2016, the Jamshedpur Works underwent the GreenCo assessment conducted by CII-Green Business Council and was awarded with Platinum rating (the highest rating on the GreenCo rating scale) thus making it the first and only Integrated Steel Plant to be awarded the Platinum rating. Globally, the Company has been adjudged as the Industry Leader by the Dow Jones Sustainability Index (the most trusted and widely accepted rating by investors globally) for the year 2016.

Aligned with the UN Global Sustainable Development Goals, the Company is now taking on the challenge of further reducing its carbon and water footprints and enhancing the impact of its CSR activities in the Company’s areas of presence.

1. Environment

Respecting and safeguarding the environment is a fundamental principle held by all Tata Group companies. The Company has implemented environmental management systems that meet the requirements of international standard ISO14001 at all its leading manufacturing sites. These systems provide the Company with a framework for managing compliance and achieving continuous improvement. The Group-wide leadership in environmental matters is provided by the Board’s Safety, Health and Environment Committee and its overall performance is subject to on-going and detailed scrutiny of the Board of Directors.

The Company’s first priority is to be fully compliant with conditions for environmental permits and with other legal requirements that are applicable within the jurisdictions in which it operates. The Company’s efforts are channelized towards adopting sustainable practices and ensuring continuous improvement in environmental performance. It continues to focus on operational excellence aimed at resource efficiency through “Recovery, Reuse and Recycle” approach to minimize the ecological footprint.

In India, during the previous financial year, the Company adopted the maiden Biodiversity Policy and revised the Energy Policy to include therein Renewable & Non-Conventional Energy. The Company is member of World Steel Association Environment Policy Committee, Central Pollution Control Board’s National Taskforce, Indian Steel Association and various other organizations and it continues to pursue advocacy on policy and regulatory issues through these forums. During the year, the Company actively participated in the Taskforce of Climate related Financial Disclosure (‘TCFD’) formed by the Financial Stability Board aiming to make markets more efficient and economies more stable and resilient through increased disclosure and transparency. The Company is engaging with International Union for Conservation of Nature (‘IUCN’), the world’s largest global environmental network, to implement biodiversity conservation plans at its mining locations. The Company has completed a pilot program on natural capital valuation as part of its capacity building program. It also has a dedicated Research & Development team to work on Life Cycle Assessment. The Company has commenced valuation of carbon emissions with the introduction of shadow price at US$ 15/tCO2e which will enable it to consider the environmental aspects of projects before it decides to pursue them. This is being used for appraisal of all capital expenditure proposals including growth plans.

In Europe, the Company is a leading member of ULCOS (Ultra-Low CO2 Steel-making) - a pioneering partnership of 48 companies and organizations from 15 European countries that recently completed the first phase of a co-operative research initiative to achieve a step change in CO2 emissions from steel-making. The ultimate and ambitious aim of the ULCOS project, which began in 2004 and which is supported by the European Commission, is to reduce CO2 emissions per tonnes of steel produced by at least 50% by 2050.

2. Climate Change

Climate change is one of the most pressing issues the world faces today. Climate change is a global phenomenon which requires global measures in the long-term to effectively deal with this real threat to sustainable human life. Tata Steel aims to play a leadership role in addressing challenges of climate change. Climate change is the defining issue of the early 21st Century and the Company recognizes that it has an obligation to minimize its own contribution to climate change. However, the Company also understands that steel products will be an integral part of the solution to climate change and that local, short-term action will not necessarily help to tackle this global, long-term issue. Considering all these factors, the Company has formulated a climate change strategy based on 5 key themes as listed below:

Emissions Reduction: The Company will continue to improve its current processes to increase its energy efficiency and to reduce its carbon footprint. The Company targets to reduce its carbon dioxide emissions per tonnes of liquid steel by at least 20% compared to 1990 levels.

Investing in Technology: The Company will continue to invest in long-term breakthrough technologies through initiatives such as ULCOS.

Market Opportunities: The Company endeavors to develop such new products and services that reduces the environmental impact over its products’ life-cycles and helps its customers to reduce their carbon footprints.

Employee Engagement: The Company will actively engage its workforce and encourage everyone to contribute to its strategy.

Lead by Example: The Company will further develop its pro-active role in global steel sector initiatives through the World Steel Association.

3. Health and Safety

Health and safety remains the Company’s top most priority and the Company aspires to be the industry benchmark in safety. The Company has made some significant achievements through the ‘Committed to Zero’ programme. The Company’s strategic efforts are directed towards ensuring committed leadership, engaged employees and effective systems in order to minimize risk. At the Group level, the Company has achieved 39% decline in Lost Time Injury Frequency Rate (‘LTIFR’) from 2010.

The Company also continues to focus on its competency development programs in health and safety leadership. In collaboration with Ashome Hill, UK, safety and health excellence programmes were conducted for leaders across levels of the Company and Members of the Union from all locations of Tata Steel India. A total of 3,200 Officers and 505 union committee members were trained. This programme has been utilized in all regions and was recognized as H&S excellence by World Steel Association in October 2016. Leadership engagement at the shop floor has improved by way of safety line walks with ‘Find It - Own It - Fix It’ approach.

Alongside leadership, the Company’s strategic priorities include contractor management, process safety management, industrial hygiene and road & rail safety management. Five high-hazard departments have started the Process Safety Centre of Excellence in collaboration with the TSE team. Similarly, two departments have started quantitative and qualitative study on Industrial Hygiene with cross learning from TSE.

NSH also achieved a 22% decline in LTIFR as compared to previous year while TSTH finished the year with zero loss time injury to any employee or contract workmen. Deploying long-term safety improvement plan, regular sharing of best practices and learning from incidents from other companies in the Tata Group has strengthened the occupational safety, health and environment process in both TSTH and NSH.

4. Research and Development

The Company has best-in-class research facilities to develop and deliver high quality value added products for its customers and significant process improvements for its business units. During the year, the Company undertook several initiatives in India to help the business units achieve their goals and some of these initiatives have been successfully executed at the plant level. JK DM Cyclone is one such initiative which has been operational since November 2016 in stream No. 1 of washery#3 at West Bokaro. The JK DM Cyclone process helps in better separation of clean coal from middlings. This process is expected to reap an annual benefit of approximately Rs.10 crore in one washery on complete implementation and is now considered to be a global benchmark. Another such initiative is the setting up of the Nano Membrane UHLA Desalination pilot plant in Haldia for removal of chloride by tailor made ion through selectively charged Nano filtration membrane. This initiative, being a first of its kind, has helped to reduce the operational cost by at least 50%. The Company has undertaken many other research initiatives during the year which are expected to provide fruitful solutions in the future.

In Europe, the Company is continuously engaged in various research and technology initiatives. To illustrate, the Company invests in short to medium term energy efficiency improvements aimed at reduction in CO2 emission through HIsarna project i.e. a collaborative project amongst the major steelmakers in Europe to develop a more flexible new smelting reduction technology to produce steel from lower grade raw materials without the need for coke making or agglomeration processes.

In Singapore, the Company is focusing on solution driven value propositions and piloting Building Information Modeling (‘BIM’) as well as Developing Mobile Apps for select customers for complete visibility of the projects across the value chain leading to increased productivity & efficiency. R&D activities are mostly focusing on developing advanced wire materials for construction and automotive applications. The Company is building a new Research and Development Centre at wire factory in Thailand which will focus on development of new wire and related products for the group.

The Company is also exploring ways to make Graphene based value-add products, with a focus on development of high value niche market segments for coated products.

Further, during the year, the Company’s process technology program focused on creating robust and stable manufacturing processes, making better use of raw materials and finding solutions to quality issues and thereby also supporting its differentiated product strategy.

5. New Product Development

The Company recognizes that to become a long-term partner to its customers, it must develop an in-depth understanding of their needs. Above and beyond meeting certification and legislative requirements, customers are also seeking to improve the sustainability performance of their operations and products. There is a growing emphasis on being able to rely on a responsible supplier.

The Company is responding to customer needs by including sustainability principles in its new product development process, focusing on lowering greenhouse gas emissions over the full life cycle of steel products, reducing water consumption, avoiding the use of hazardous and potentially toxic chemicals, optimising resource efficiency and reducing waste in production, improving the circularity of products, ensuring responsible supply and increasing the social value of products and optimising total cost of ownership.

During the year, in India the Company’s efforts in the area of new product development has been directed towards increasing customer satisfaction and having products with differentiated quality. About 37 new products were developed in the Flat Products area, the major ones being in the hot rolled category. The most noteworthy amongst these is the DP600 low Si, which is expected to reduce scale issues and thereby increase customer satisfaction. The HS800 in 5 mm section has been specifically developed for commercial vehicles in the automotive segment and is in the final stage of trials. The IF390 in cold rolled category is another significant example of a new product of a high strength grade developed for automotive customers. The focus at the Company’s Kalinganagar facility has been to develop and increase the sales of value added products by leveraging the plant’s superior capabilities. In the Long products area, it has been making concerted efforts to increase productivity. During the year, it has developed high strength SAW Wire Rods, Low Manganese High carbon Wire Rods and Couplers for Construction segment. In India, the Company launched 31 new products during the year.

In Europe, the Company launched 20 new products in the year. These launches include major developments for the automotive, construction, engineering and packaging markets. Prominent examples of product launches include XPF800 and Trimawall®. XPF800 is its new range of breakthrough steels aimed at helping car makers reduce the weight of undercarriages and increase fuel efficiency. Trimawall® caters to the construction segment, offering a foam insulated wall sandwich panel with a completely flat outer surface, providing customers with an architecturally state-of-the-art flat panel. In the last five years, Tata Steel Europe has introduced over 160 new products. The share of differentiated products in Financial Year 2016-17 increased by 3% as compared to previous year and reached 37% of prime sales. These differentiated products give customers enhanced capabilities for specific applications and are manufactured by only a few steel producers.

In Singapore, the Company’s operations got certification for Malaysia Authorities’ New Standard for bars requiring 5m cycle of fatigue tests for export of bars to Malaysia and also rolled out grade 600 bars, Steel Carpet and Fan Mesh to multiple projects in Singapore construction sector. The wire units in Thailand (Siam Industrial wires and TSN wires) launched zinc aluminium for fishery tools & poultry cages, low carbon automotive wires, barbed wires, sprig wires and galvanised PC strand for rock engineering in local Thai markets as well as international markets. In continuation of its efforts towards branding its products, SENTEC brand was launched for galvanised wires.

6. Customer Relationship

The Company endeavors to build sustainable long-term value-creating partnerships with its customers and channel partners through a wide range of product offerings, innovative services and unique solutions.

In India, the Company’s customers are segmented into three categories i.e. B2B, B2C and B2ECA (‘Emerging Corporate Accounts’). These categories are then micro-segmented based on applications and buying behavior. The Company’s focus is to understand the expectations and requirements of current and potential customers/market segments, to deliver customer-specific products & services and to provide collaborative value-creating solutions.

The Company engages with B2B customers through cross-functional customer service teams to generate value-creating ideas, develop new products and focus on quality improvements thereby helping to achieve operational excellence. By leveraging its investments in Research & Development facilities, the Company has deepened its engagement with key automotive customers to provide cost and weight reduction solutions and advanced product application support. This has enabled the Company to partner with its customers for their future product launches. The Company has also enhanced its engagement with Emerging Corporate Accounts by facilitating direct interactions with Subject Matter Experts (‘SMEs’) through programs such as “ECafez Webinars” and “Skills4 India”

The Company’s B2C brands have embraced digital solutions to substantially enhance the consumer buying experience. Tata Tiscon has built an online e-sales platform to reach out to around 2.5 lakh consumers. To overcome the cash crunch post demonetization in November 2016, the Company’s B2C brands have installed over 1,500 Point-of-Sales (‘POS’) machines across its dealer network. To reach out to the rural consumers at the last mile, intensive mobile marketing campaigns were conducted under the program of “Ek Kadam Parivartan ki Ore” where the consumers were educated about the benefits of Tata Shaktee vis-a-vis other roofing solutions prevalent in the region. The Group Rural Action Mission (‘GRAM’) focuses on harnessing synergies with other group companies for creating rural consumers awareness and lead generation programs.

Knowledge-sharing platforms such as “Driving Steel”, “Wired 2 Win”, “Steelopedia” are organized to provide insights on current and future industry trends and promotes new services & solution offerings. The senior leadership team frequently interacts with strategic and key customers in customer meets, seminars, during plant visits undertaken by the customers and celebration events to commemorate the milestones achieved.

In Europe, the Company aims to develop long-term partnerships with customers by unlocking the potential of steel. The Company is focused on strengthening customer relationships by continuously introducing new, innovative and high quality steel products, jointly developing smart solutions for products and services to unlock customer value and creating new partnerships to optimize the supply chain. A number of new digital services have been launched to make it easier for customers to do business including eShop and Electronic Data Interchange (‘EDI’) connections.

To increase customer focus, the Company is convinced that advancing strategy of customer intimacy, building strong partnerships with satisfied loyal customers will be as important as any other factor to shape a successful, sustainable future for the business. To do so, insights gained from the Tata Business Excellence Model assessment, an Employee Survey and a Customer Satisfaction Survey were taken and integrated into a consistent, cross-functional approach across Europe. The Journey to Commercial Excellence programme is central to the ambition to develop a culture that is customer focused and performance driven. To develop a service based decisive competitive advantage, the Company is focusing on increasing its delivery performance to the market. This business change is being supported by transformation of IT under the Supply Chain Transformation programme. The first phase of this initiative went live in September 2016. Tata Steel UK is pursuing a transformation programme “Delivering Our future” to increase customer value and reduce operating costs.

In Singapore, the Company’s Reinforcing Knowledge Cluster team is working very closely with customers and project managers for driving solutions and services. The Company continues to strengthen its relationship through various projects in Singapore as well as with international customers through Customer Value Management.

During the year, the Company entered the B2C wire markets in Thailand and Indonesia with the appointment of distributors and retailers to serve the wire customers at the retail level. In Vietnam, Retail Value Management remains the key focus in Independent House Builders (‘IHB’) segment.

In Thailand, customer relationship was strengthened further through dedicated Customer Service Teams. The Company also engaged with Engineering Institute of Thailand and leading Universities in the country for research and promotion of specialized Rebars.

7. Human Resources Management & Industrial Relations

From its foundation over a century ago, Tata Steel Group’s employment philosophy and practices have been based on the recognition that its people are the primary source of its competitiveness.

The Group consistently abides by human resources policy that is found on a set of following principles: equality of opportunity, continuing personal development, fairness, mutual trust and teamwork. These principles are, in turn, underpinned by the five Tata Group core Values of Pioneering, Integrity, Excellence, Unity and Responsibility. The Company also believes as a matter of principle that, diversity within its workforce greatly enhances its overall capabilities. The Company is an equal opportunity employer and it does not discriminate on the basis of race, caste, religion, colour, ancestry, gender, marital status, sexual orientation, age, nationality, ethnic origin or disability. All decisions relating to promotion, compensation and any other forms of reward and recognition are based entirely on performance and merits.

The Company’s ambition is to be a modern employer offering employees long-term prospects for a meaningful professional career. This is why the Company’s collective labour agreement focuses on four aspects: health & vitality, career development & skills, employee productivity and employment conditions.

During the year, the Company focused on improvement in areas related to diversity & inclusion and training & development. Many initiatives were undertaken to bring about a change in the mindset of the workforce regarding these aspects.

In India, the Company’s efforts to improve gender diversity included ‘Women of Mettle’, an engagement and scholarship program for recruiting women talent from technical schools, revision of maternity benefits, work from home option, extension of additional privilege leave to non-officer lady employees and many other measures taken to retain and attract its women employees and cater to their needs for adequate balance between work and personal duties. Under the Company’s Affirmative Action programs, it introduced the Tata Steel scholarship program under which it gave pre-placement offers to 17 Affirmative Action candidates who hold under-graduate degree in engineering.

The Company’s focus on learning & development underwent a shift in pedagogy this year. The Company introduced various e-learning courses on managerial and functional competencies through the Skillsoft learning platform. It also rolled out other initiatives such as ‘Lunch & Learn, ‘NPTEL technical skill modules’, modules on Internet of Things/Big Data, etc. In continuation with the previous years, 17 new academies were rolled out during the year to institutionalize the academy approach of learning and development. During the year, the Company also commenced a program called Felt Leadership Training, wherein senior leaders as trainers share with the workforce their learning and experiences on matters pertaining to health and safety.

The Company is concentrating its efforts on leveraging digitalization to enhance Productivity, Predictability, Capability, Stakeholder Experience and Safety in its business through constant discussions with the members of the Unions.

The Company’s achievements in Human Resource Management were recognized through several accolades. Business Today has, for the 2nd time in a row, declared the Company as the ‘Best Place to Work’ in the Core Sector. The Company has also been certified as a ‘Great Place to Work’ as per the Great Place to Work study conducted for the year 2017. The Company bagged the BML Munjal Award for Business Excellence through Learning & Development under Sustained Excellence Category and was also adjudged Best Training Establishment of India by CII in 28th National Works Skill Competition held in Bangalore. During the year, Capability Development group also secured the certification of ISO 9001:2015 Quality Management System standard.

TSE promotes a healthy work environment and lifestyle through various initiatives such as central and local fitness programmes, training to prevent and deal with stress and local labour conditions improvement initiatives. The career development and skills initiative is focused in stimulating long-term employability and creating a flexible workforce through career counselling, pension advice and ‘Matching’ bureau to identify options for part-time working. TSE also emphasises on employment conditions and industrial relations by focusing on creating modern employment conditions that ensure healthy long-term employability. This is achieved through flexible working hours at the Hot Strip Mill and reviewing overtime arrangements.

The Tata Steel Academy in Europe focuses on strengthening the organisation’s competitive advantage by enabling its people to achieve the highest standards of technical and professional expertise. The Academy uses an approach known as ‘blended learning’ - a mix of practical, computer-based and classroom training. The majority of training remains ‘on the job’, but is structured through the creation of 12 distinct faculties focused on leadership, health & safety, sales & marketing, manufacturing, engineering, technical, supply chain, finance, HR, IT, procurement and total quality management.

The Company’s South-East Asian entities focused initiatives towards enhancing technical knowledge in the areas of steel making, rolling and maintenance with the support of external experts. Regular best practices sharing with other companies in Tata Group facilitated horizontal deployment. Coaching and mentoring ability of the leadership team was also enhanced.

The Company continues to be very constructively engaged with the Unions in all geographies where it operates including the Tata Workers Union in Jamshedpur, the European Works Council for the TSE and all other unions in different parts of the world. Employees and unions are very important stakeholders for the Company and the Management team is in continuous engagement through the year to ensure seamless and transparent communication on all important issues that relates to the employees and the future of the Company.

8. Corporate Social Responsibility

The Company’s vision is to be a global benchmark in ‘value creation’ and ‘corporate citizenship’. The objective of the Company’s Corporate Social Responsibility (‘CSR’) initiatives is to improve the quality of life of communities through long-term value creation for all stakeholders. This objective is in alignment with the Tata Group core purpose.

For decades, the Company has pioneered various CSR initiatives. The Company continues to remain focused on improving the quality of life and engaging communities through health, education, sports and infrastructure development. During the year, it spent Rs.194 crore on CSR activities. The Annual Report on CSR activities, in terms of Section 135 of the Companies Act, 2013, is annexed to this report (Annexure 3).

The Company has always had a very visible presence in its communities. In Europe, the Company is committed to working with local communities to support their social and economic wellbeing. The Company puts future generations at the centre of its local community strategy, which has three anchors: education & learning, health & well-being and environment & sustainability. The Company has formed education and learning partnerships with local organisations. The Company works with them and aims to increase the social skills and confidence of young people, boost pupils’ level of understanding about the steel industry and improve understanding & ambition of students - particularly girls - in STEM (Science, Technology, Engineering and Math) subjects. The Company also runs, its own vocational school in IJmuiden. Every year, about 100 students start their education in mechanics, electro or process technology.

The Company has partnerships with organizations such as Age Cymru and Young Careers Network whose work helps to combat some of the issues such as lack of access to good health, protection from crime and clean & safe environment. The Company also helps fund Port Talbot Women’s Aid in their on-going work with children affected by domestic violence. The Company has had a long-standing partnership with the Triathlon Trust in the UK and hosted free-to-access junior triathlons for 8-14 year olds across the country. It also is a partner in the Steel Valley Project which aims to help people understand and care for their local environment to create healthy and sustainable communities.

In Singapore, the Company organizes monthly outings with its beneficiaries, namely, The Society for the Physically Disabled, Fernvale Gardens School catering to children with intellectual disability. The Company has also partnered with the initiative ‘Food from the Heart’, a non-profit voluntary group which distributes food to those in need.

In Thailand, initiatives in the area of education such as ‘Grow Smart with Tata Steel’ reached 248 schools in 52 provinces. As a responsible citizen, the Company along with its employees also supported the Government relief initiatives post the floods in Southern Thailand.

I. CORPORATE GOVERNANCE

The Company constantly endeavours to follow the corporate governance guidelines and best practices sincerely and disclose the same transparently. The Board is conscious of its inherent responsibility to disclose timely and accurate information regarding the Company’s operations, performance, material corporate events as well as on the leadership and governance matters relating to the Company.

During the second half of the year under review, the Company faced challenges owing to leadership change at Tata Sons (the Promoter). Amidst the leadership transition, there were references to involvement of Tata Trusts and Tata Sons in the business and operations of the Company. The Board likes to categorically state that the Company upholds the highest standards of corporate governance, has very robust processes and has a duly constituted and independent Board of Directors (‘Board’) that conducts itself independently keeping in line the best tradition of a Tata company. The Board, at all times exercises its independence both, in letter and in spirit and the Directors fully understand their fiduciary duties. The Directors have always acted in the best interest of the Company and will continue to do so in the future. It is equally important to state that the Company has a professional and competent leadership team for the management of the business. The Board guides, supports and compliments the Management team towards achieving the set objectives to make the enterprise more sustainable and valuable in the future.

During the course of the leadership transition in Tata Sons, clarifications were also sought by Regulators with respect to sharing of information with the Chairman Emeritus and the Board of Tata Sons. The Board would like to state clearly that the Company has robust systems and processes in place to ensure compliance with applicable rules and regulations on sharing of information. The Board confirms that the Company has acted in accordance with the applicable regulatory framework at all times. The Company ensures that confidential information is handled with due care and is shared on a need-to-know basis in furtherance of legitimate purpose of Company’s business.

Certain allegations were also made to investment decisions with respect to acquisition of Corus Group Plc (‘Corus’) in 2007 and its subsequent performance. The Board wishes to place on record that the acquisition and subsequent financing arrangements were undertaken following due governance processes and under the supervision and oversight of the Board. The acquisition of Corus was based on the long-term strategy of the Company to pursue growth through international expansion and enhance the portfolio of value-added products. The Board discussed the acquisition proposal and financing requirements at various meetings held between October 12, 2006 and April 17, 2007 and approved the same without dissent from any Member of the Board. Being a responsible listed company, necessary disclosures were made in this regard to the Regulators.

The performance of Corus in the two years post acquisition validated the Company’s growth strategy. The ‘black swan’ event in the form of the global financial crisis structurally impacted the underlying demand across many geographies and had a significant impact across the global steel industry and more specifically to the European steel industry which witnessed 30% structural reduction in demand. In response to the above challenges, the Management of the Company has undertaken several strategic and operational interventions to ensure the future sustenance of the European business including restructuring of the portfolio, investment in improving asset quality and reliability, manpower rightsizing to improve productivity, focusing on significantly enhancing the product portfolio and differentiate offering to the customers and new product development. The Board did undertake detailed review and based on such review supports the Management in all its endeavours. The macroeconomic condition and its impact on the Company’s European operations in general, on the UK operations in particular and the various interventions of the Board were disclosed each year in the Directors’ Report between Financial Years 2009 through 2016.

Certain questions were also raised on independence of Mr. Jacobus Schraven, Mr. Andrew Robb and Ms. Mallika Srinivasan. The Board reviewed the issues raised, sought advice from eminent jurists/legal counsels. Based on the review of documents and the advice so received, the Board was fully satisfied of the independence of these directors. All three Directors are eminent personalities with extraordinary business acumen and exhibit very high sense of integrity. The three Directors during their tenure have added enormous value to the Board deliberations and the Board has immensely benefitted from their knowledge, experience and insights.

The Board closely monitored the events that unfolded during the leadership transition. The Audit Committee of the Board (‘Committee’) reviewed the aforementioned issues including the correspondence between the Regulators and the Company including the queries raised on the representations made by Mr. Cyrus P. Mistry and Mr. Nusli N. Wadia in terms of Section 169 of the Companies Act, 2013 and allegations made in this regard in the proceedings before the National Company Law Tribunal initiated against the Promoter. The Committee also reviewed the Company’s interventions, the processes implemented and followed with respect to various compliances and disclosures and the rigours applied when such strategic investment decisions were taken. After due deliberations with relevant stakeholders and review of relevant documents, the Committee expressed its confidence in the Company’s processes to ensure compliance with the provisions of SEBI Regulations. The Committee noted that appropriate procedures were followed by the Company in preparing its financial statements and addressing the business risk issues and that there has been compliance with all legal requirements and corporate governance standards. It follows therefore to conclude that the Company at all points has followed the due corporate governance process and the Board and Management of the Company has conducted the business with due care and in the best interest of the Company.

1. Extra-Ordinary General Meeting

Upon the Requisition and Special Notice received from Tata Sons Limited, Company’s Principal Shareholder, the Company convened an Extra-Ordinary General Meeting (‘EGM’) on December 21, 2016. The Requisitionist placed proposals for removal of Mr. Cyrus P. Mistry and Mr. Nusli N. Wadia as Directors of the Company.

The Company held the EGM at 3:00 PM (IST) on December 21, 2016. A total of 1,868 shareholders (including 5 authorised representatives of the Promoter and Promoter Group) were present in person and through proxies.

Resolution No. 1 in the notice convening the EGM relating to removal of Mr. Cyrus P Mistry was dropped at the EGM since the same was rendered infructuous upon the resignation submitted by Mr. Mistry on December 19, 2016.

The Meeting considered Resolution No. 2, relating to removal of Mr. Nusli N. Wadia as a Director of the Company. Mr. Wadia was not present at the meeting but had sent a communication to the Company Secretary and had requested that the same be read out to the shareholders. The Company Secretary read the said communication verbatim.

A total of 88 members spoke at length at the meeting. At the end of the meeting, the Chairman of the Meeting, Mr. O P Bhatt, Independent Director, responded to all the questions raised by the Members. The meeting concluded at 9:30 PM (IST).

The result of the shareholders vote is given below:

Category

Total Votes polled

Votes cast in favour

Votes cast against

No. of votes

%

No. of votes

%

No. of votes

%

Promoters

29,59,17,367

97.18

29,59,17,367

100.00

-

-

Institutions

31,99,25,078

75.02

26,38,77,467

82.48

5,60,47,611

17.52

Retail Shareholders

96,14,960

4.00

81,21,947

84.47

14,93,013

15.53

All Shareholders

62,54,57,405

64.40

56,79,16,781

90.80

5,75,40,624

9.20

Pursuant to the Listing Regulations, the Corporate Governance Report and the Auditors’ Certificate regarding compliance of conditions of Corporate Governance are annexed to this report (Annexure 4).

2. Board Meetings

For seamless scheduling of meetings, a calendar is prepared and circulated in advance. The Board has also adopted an activity guidance giving them visibility on the upcoming topics for discussions.

The Board met 11 times during the year, the details of which are given in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and the Listing Regulations.

3. Selection of New Directors and Board Membership Criteria

The Nomination and Remuneration Committee (‘NRC’) works with the Board to determine the appropriate attributes, skills and experience for the Board as a whole and its individual members with the objective of having a Board with diverse backgrounds and experience in business, government, education and public service. Characteristics expected of all Directors include independence, integrity, high personal and professional ethics, sound business judgment, ability to participate constructively in deliberations and willingness to exercise authority in a collective manner. The Policy on appointment & removal of Directors and determining Directors’ independence was adopted by the Board on March 31, 2015 and was annexed to the Board Report of Financial Year 2014-15. During the year, there have been no changes to the Policy. Hence, the same is not annexed to this Report, but is available on the website at www.tatasteel.com

4. Familiarization Programme for Independent Directors

All new Independent Directors (‘IDs’) inducted on the Board go through a structured orientation programme. Presentations are made by Executive Directors and Senior Management giving an overview of our operations to familiarize the new IDs with the Company’s business operations. The new IDs are given an orientation on the Company’s products, group structure and subsidiaries, Board constitution and procedures, matters reserved for the Board, and the major risks and risk management strategy.

Details of orientation given to the existing IDs in areas of strategy, operations & governance, safety, health and environment, industry & regulatory trends, competition and future outlook are provided in the Corporate Governance Report and is also available on the website at www.tatasteel.com

5. Evaluation

The Board evaluated the effectiveness of its functioning, that of the Committees and of individual Directors. The Board, through NRC, sought the feedback of Directors on various parameters such as:

- Degree of fulfillment of key responsibilities towards stakeholders (by way of monitoring corporate governance practices, participation in the long-term strategic planning, etc.);

- The structure, composition and role clarity of the Board and Committees;

- Extent of co-ordination and cohesiveness between the Board and its Committees;

- Effectiveness of the deliberations and process management;

- Board/Committee culture and dynamics; and

- Quality of relationship between Board Members and the Management.

The Chairman of the Board had one-on-one meetings with the IDs and the Chairman of NRC had one-on-one meetings with the Executive and Non-Executive Directors. These meetings were intended to obtain Directors’ inputs on effectiveness of the Board/Committee processes.

The Board considered and discussed the inputs received from the Directors. Also, the IDs at their meeting reviewed the performance of the Board, Chairman of the Board and that of Non-Executive Directors.

The evaluation process endorsed the Board Members’ confidence in the ethical standards of the Company, the resilience of the Board and Management in navigating the Company during challenging times, cohesiveness amongst the Board Members, constructive relationship between the Board and the Management and the openness of the Management in sharing strategic information to enable Board Members to discharge their responsibilities.

In the coming year, the Board intends to enhance focus on diversity of the Board through the process of succession planning, strategic plan for portfolio restructuring of Tata Steel Europe and exploring new drivers of growth for the Group.

6. Compensation Policy for the Board and Senior Management

Based on the recommendations of NRC, the Board has approved the Remuneration Policy for Directors, Key Managerial Personnel (‘KMP’) and all other employees of the Company. As part of the policy, the Company strives to ensure that:

- the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the Company successfully;

- relationship between remuneration and performance is clear and meets appropriate performance benchmarks; and

- remuneration to Directors, KMP and Senior Management involves a balance between fixed and incentive pay, reflecting short, medium and long-term performance objectives appropriate to the working of the Company and its goals.

The Remuneration Policy for Directors, KMP and other Employees was adopted by the Board on March 31, 2015 and was annexed to the Board Report of Financial Year 2014-15. During the year, there have been no changes to the Policy. Hence, the same is not annexed to this Report, but is available on our website at www.tatasteel.com

7. Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed to this report.

In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits set out in the said Rules forms part of the report (Annexure 5).

8. Independent Directors’ Declaration

The Company has received the necessary declaration from each ID in accordance with Section 149(7) of the Companies Act, 2013, that he/she meets the criteria of independence as laid out in Section 149(6) of the Companies Act, 2013 and the Listing Regulations.

9. Directors

The year under review saw major changes to the Board of Directors (‘Board’), including that of the position of the Chair of the Board.

The Board, on November 25, 2016, appointed Mr. O. P. Bhatt as the Chairman of the Board in place of Mr. Cyrus P. Mistry. The Board appointed Mr. Bhatt as the Chairman keeping in mind the principles of good corporate governance and to provide impartial leadership to the Company in its preparation and conduct of the EGM. The Company convened and held the EGM on December 21, 2016 upon the Requisition and Special Notice received from Tata Sons, Company’s Principal Shareholder (‘Requisitionist’). The Requisitionist placed proposals for removal of Mr. Cyrus P. Mistry and Mr. Nusli N. Wadia as Directors of the Company.

The appointment of Mr. Bhatt as the Chairman was also to ensure stability to the Company and in the larger interest of Company’s stakeholders, including but not limited to employees, trading partners, financial stakeholders and local community around Company’s operations. Mr. Bhatt served as the Chairman of the Board through December 22, 2016.

The Board placed on record its deep appreciation towards Mr. Bhatt for his leadership during challenging times.

Inductions to the Board

On the recommendations of the Nomination and Remuneration Committee, the Board appointed:

- Mr. N. Chandrasekaran as Additional (Non-Executive) Director of the Company effective January 13, 2017 and as the Chairman of the Board effective February 7, 2017. Mr. Chandrasekaran brings to the Board his extensive and outstanding experience in successfully leading and managing a large and valuable global corporation.

- On February 7, 2017, the Board appointed Dr. Peter (Petrus) Blauwhoff as Additional (Independent) Director of the Company. The appointment was effective immediately. Dr. Blauwhoff brings a wealth of experience to the Board with his knowledge of the global manufacturing industry, technology focus in general and of the energy, oil and gas business in particular. Dr. Blauwhoff brings valuable insights and guidance in the areas of safety, health and environment. On March 29, 2017, the Board appointed Mr. Aman Mehta as Additional (Independent) Director of the Company. The appointment was effective immediately. Mr. Mehta brings a wealth of experience to the Board with his extensive experience in the field of banking & finance and proven track record of successfully managing large multinational enterprises.

- On March 29, 2017, the Board appointed Mr. Deepak Kapoor as Additional (Independent) Director of the Company. The appointment was effective April 1, 2017. Mr. Kapoor brings to the Board his experience in successfully steering the Indian arm of a Global Consulting and Advisory firm during very challenging times and strengthening the firm’s footprint in India. The Board will also draw on his extensive global experience in the audit function as well as business advisory related work encompassing multiple industries.

The resolution(s) for confirming the above appointments will come before you at the ensuing Annual General Meeting (‘AGM’) scheduled to be held on August 8, 2017. We seek your support and hope you will enthusiastically vote in confirming the above appointments to the Board.

Re-appointments

As per the provisions of the Companies Act, 2013, Mr. D. K. Mehrotra and Mr. Koushik Chatterjee will retire at the ensuing AGM and being eligible, seek re-appointment. The Board recommends and seeks your support in confirming re-appointment of Mr. D. K. Mehrotra and Mr. Koushik Chatterjee.

The profile and particulars of experience, attributes and skills that qualify all of the above Directors for the Board membership is disclosed in the Notice convening the AGM.

Cessation

In accordance with the retirement policy applicable for the Company’s Board of Directors (Independent Directors to retire on attaining 75 years of age), Mr. Jacobus Schraven and Mr. Subodh Bhargava, Independent Directors, retired from the Board on February 7, 2017 and March 29, 2017 respectively. Mr. Cyrus P. Mistry resigned as the Member of the Board effective December 19, 2016. Mr. Nusli N. Wadia, in terms of a shareholder vote ceased to be the Member of the Board effective December 21, 2016.

The Board of Directors place on record their deep appreciation for the contribution of these Directors during their tenure.

10. Key Managerial Personnel

Pursuant to Section 203 of the Companies Act, 2013, the Key Managerial Personnel of the Company are - Mr. T. V. Narendran, Managing Director (India and South-East Asia), Mr. Koushik Chatterjee, Group Executive Director (Finance, Corporate & Europe) and Mr. Parvatheesam K, Company Secretary. During the year, there has been no change in the Key Managerial Personnel.

11. Audit Committee

The Audit Committee was constituted in the year 1986. The Committee has adopted a Charter for its functioning. The primary objective of the Committee is to monitor and provide effective supervision of the Management’s financial reporting process, to ensure accurate and timely disclosures, with the highest levels of transparency, integrity and quality of financial reporting.

The Committee met 7 times during the year, the details of which are given in the Corporate Governance Report. As on date of this Report, the Committee comprises Mr. O. P. Bhatt (Chairman), Mr. Ishaat Hussain, Mr. Andrew Robb and Mr. Aman Mehta.

12. Internal Control Systems

The Board of Directors of the Company is responsible for ensuring that Internal Financial Controls have been laid down in the Company and that such controls are adequate and operating effectively. The foundation of Internal Financial Controls (‘IFC’) lies in the Tata Code of Conduct (‘TCoC’), policies and procedures adopted by the Management, corporate strategies, annual business planning process, management reviews, management system certifications and the risk management framework.

The Company has IFC framework, commensurate with the size, scale and complexity of its operations. The framework has been designed to provide reasonable assurance with respect to recording and providing reliable financial and operational information, complying with applicable laws, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. The controls, based on the prevailing business conditions and processes have been tested during the year and no reportable material weakness in the design or effectiveness was observed. The framework on IFC over Financial Reporting has been reviewed by the internal and external auditors.

The Company uses various IT platforms to keep the IFC framework robust and the Information Management Policy governs these IT platforms. The systems, standard operating procedures and controls are implemented by the executive leadership team and are reviewed by the internal audit team whose findings and recommendations are placed before the Audit Committee.

The scope and authority of the Internal Audit function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee. The Internal Audit team develops an annual audit plan based on the risk profile of the business activities. The Internal Audit plan is approved by the Audit Committee, which also reviews compliance to the plan.

The Internal Audit team monitors and evaluates the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective action(s) in their respective area(s) and thereby strengthen the controls. Significant audit observations and corrective action(s) thereon are presented to the Audit Committee.

The Audit Committee reviews the reports submitted by the Internal Auditors in each of its meeting. Also, the Audit Committee at frequent intervals has independent sessions with the external auditor and the Management to discuss the adequacy and effectiveness of IFC.

13. Risk Management

Risk is an essential part of business and taking risk is a fundamental driving force in business. In fact, it is the unique differentiator between companies who thrive and those who merely survive or otherwise. This has never been more important than in today’s VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world.

There are several rapid, unprecedented and unpredictable changes taking place all the time. The size, scale and scope of these changes in today’s world are enormous. Many of these are driven by changes in technology and have consequential impacts on supply chain, manufacturing, assembling, logistics and costs. The geo-political environment is extremely volatile and regulatory framework uncertain which in-turn is leading to changes in the supply-demand equation, commodity prices, market forces and competition. The aforementioned uncertainties warrant robust process and framework to minimize the threats and capture opportunities to create sustainable value for the organization.

The Company follows a robust 5 step Enterprise Risk Management (‘ERM’) process to address the risks associated with its business. The ERM process framework has evolved and matured over the years and is based on international standards such as ISO 31000 and Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’) with inputs drawn from the best practices of leading companies across industries.

The ERM is aimed at developing a “Risk Intelligent Organization” that supports risk informed business decisions, strengthens organizational risk resiliency and provides agility to the organization for preserving as well as enhancing long term value for all stakeholders.

In order to achieve the stated ERM objectives, the Company has constituted a robust governance structure comprising of three levels of risk management responsibilities as: Risk Oversight, Risk Infrastructure and Risk Ownership.

- The Risk Oversight function consists of the Board, Risk Management Committee (‘RMC’) and Group Risk Review Committee (‘GRRC’) that provide clear directions and guidelines for spearheading the ERM framework & policy across the organization. The RMC of Board assists the Board in framing the Risk Management Plan for the Company and reviewing and guiding the risk policy. It also reviews key risks to the Tata Steel Group and actions deployed by the Management with respect to their identification, impact assessment, mitigation and monitoring.

GRRC is a Management Committee comprising Senior Management personnel as its members. The GRRC has the primary responsibility of implementing the Risk Management Policy of the Company and achieving the stated objective of developing a risk intelligent culture that helps improve the Company’s performance.

- The Company has laid down a strong foundation for a successful risk management process by setting up the risk infrastructure in the form of a dedicated organizational unit called ERM headed by Group Head - Corporate Finance & Risk Management, who acts as the Chief Risk Officer (‘CRO’) of the Company.

- The ownership of risk tracking and mitigation rests with the senior executives of various functional units who as the risk owners review and monitor key risks of the division periodically in order to avoid any undue deviations or adverse events by designing and implementing suitable mitigation plans proactively. Regular and extensive reviews at business units lead to robust implementation of mitigation plans which ultimately create value for the business.

The robust governance structure has also helped in the integration of the ERM process with the Company’s strategy & planning processes where emerging risks are used as inputs in the strategy and planning process. Risk is also integrated with the capital allocation process and risk assessments form important considerations for key decisions on investment proposals for organic and inorganic growth.

During the year, the Company has undertaken various focused initiatives and process improvements aimed at strengthening, widening & deepening the scope and coverage of ERM across the Company. The risk maturity assessment process has been rolled out to the domestic and overseas subsidiaries and the process has been strengthened through a customized in-house built IT solution to facilitate real time reporting of risks, provide visibility, drill-down and appropriate escalation mechanisms across the Enterprise.

During the year, the Company undertook various external and internal training programs/sessions along with communication campaigns to promote awareness of the ERM process.

The Board is happy to report that the Company has been conferred the honour of the ‘Best Risk Management Practice’ in the category of Metals & Mining at the 3rd India Risk Management Awards 2017. This is indicative of the Company’s commitment towards cultivating a robust and proactive risk intelligent culture.

14. Vigil Mechanism

The Company’s Vigil Mechanism provides a formal mechanism for all Directors, employees and business associates to approach the Ethics Counselor / Chairman of the Audit Committee and make protective disclosures about the unethical behaviour, actual or suspected fraud or violation of the TCoC.

The Vigil Mechanism comprises 3 policies viz., the Whistle Blower Policy for Directors & Employees, Whistle Blower Policy for Business Associates and Whistle Blower Reward & Recognition Policy for Employees. The same is available on our website www.tatasteel.com

The Whistle Blower Policy for Directors & employees is an extension of the TCoC that requires every Director or employee to promptly report to the Management any actual or possible violation of the TCoC or any event wherein he or she becomes aware of that which could affect the business or reputation of the Company.

The Whistle Blower Policy for Business Associates provides protection to vendors from any victimization or unfair trade practices by the Company.

The Whistle Blower Reward and Recognition Policy for Employees has been implemented in order to encourage employees to genuinely blow the whistle on any misconduct or unethical activity taking place in the Company. The disclosures reported are addressed in the manner and within the time frames prescribed in the Whistle Blower Policy.

During the year, a series of communication awareness on the “Code of Conduct” of the Company were sent to business associates and “Neeti Katha” i.e. storytelling through snippet series were mailed to employees as part of the awareness campaign. Each snippet consisted of a short story based on situations related with accepting of gifts and hospitality from business associates.

As a tribute to late Mr. J R D Tata, for over a decade, the Company has been celebrating the month of July as Ethics Month. This practice has helped in reinforcing employee involvement and passion in driving the Management of Business Ethics. A workshop on Tata Values, Tata Code of Conduct and Governance process was initiated with an objective of training employees.

During the year, the Company also adopted the Conflict of Interest Policy. The policy requires employees to act in the best interest of the Company without any conflicts and declare conflicts, if any (real, potential or perceived), to the Ethics Counsellor.

During the year, the Company received 382 whistle-blower complaints of which 348 were investigated and appropriate action was taken. Investigations are underway for the remaining complaints.

15. Related Party Transactions

There have been no materially significant related party transactions between the Company and the Directors, the Management, the subsidiaries or the relatives except for those disclosed in the financial statements.

Accordingly, particulars of contracts or arrangements with related parties referred to in Section 188(1) along with the justification for entering into such contracts or arrangements in Form AOC-2 does not form part of the Report.

16. Disclosure as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition And Redressal) Act, 2013

The Company has zero tolerance towards sexual harassment at the 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.

During the year, the Company received 26 complaints of sexual harassment, out of which 19 complaints have been resolved by taking appropriate actions. The remaining 7 complaints are under investigation.

17. Directors’ Responsibility Statement

Based on the framework of internal financial controls established and maintained by the Company, work performed by the internal, statutory, cost and secretarial auditors and external agencies including audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by the Management and the relevant Board Committees, including the Audit Committee, the Board is of the opinion that the Company’s internal financial controls were adequate and effective during Financial Year 2016-17.

Accordingly, pursuant to Section 134(5) of the Companies Act, 2013, the Board of Directors, to the best of their knowledge and ability confirm:

a) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

b) that we have 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 or loss of the Company for that period;

c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) t hat the annual accounts have been prepared on a going concern basis;

e) that proper systems to ensure compliance with the provisions of all applicable laws were in place and that such systems were adequate and operating effectively; and

f) that proper internal financial controls were laid down and that such internal financial controls are adequate and were operating effectively.

18. Business Responsibility Report

The Securities and Exchange Board of India (‘SEBI’) requires companies to prepare and present to stakeholders a Business Responsibility Report (‘BRR’) in the prescribed format. SEBI, however, allows companies to follow an internationally recognized framework to report on the environmental and social initiatives undertaken by the Company. Further, SEBI has on February 6, 2017 advised Companies that are required to prepare BRR to transition towards an Integrated Report.

As stated earlier in the Report, the Company has followed the framework of the International Integrated Reporting Council to report on all the six capitals that it uses to create long-term stakeholder value. The Company’s Integrated Report has been assessed and Bureau Veritas (India) Private Limited has provided the required assurance. The Company has also provided the requisite mapping of principles between the Integrated Report, the Global Reporting Initiative (‘GRI’) and the Business Responsibility Report as prescribed by SEBI. The same is available on the website www.tatasteel.com.

19. Subsidiaries, Joint Ventures and Associates

The Company has 255 subsidiaries, 19 joint ventures and 22 associate companies as on March 31, 2017. During the year, the Board of Directors reviewed the affairs of material subsidiaries. The Company has, in accordance with Section 129(3) of the Companies Act, 2013 prepared consolidated financial statements of the Company and all its subsidiaries, which form part of the Integrated Report. Further, the report on the performance and financial position of each of the subsidiary, associate and joint venture and salient features of the financial statements in the prescribed Form AOC-1 is annexed to this report (Annexure 6).

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and financial statements of each of the subsidiary will be available on our website www.tatasteel.com. These documents will also be available for inspection during business hours at the Registered Office of the Company.

The names of companies that have become or ceased to be subsidiaries, joint ventures and associates are disclosed in the annexure to this report (Annexure 7).

20. Auditors Statutory Auditors

In terms of the provisions of the Companies Act, 2013 (‘Act’), statutory auditors need to be rotated on completion of two consecutive terms of five years each. For those of the companies that have firms audit their accounts for more than ten years as of April 1, 2014, the Act provided such companies a transition period of three years to comply with the provisions of the Act. The current statutory auditors, M/s Deloitte Haskins & Sells LLP (‘DHS LLP’) completed two consecutive terms as of April 1, 2014 and hence the Company availed the benefit of the transition period which came to an end on March 31, 2017. Accordingly, the Company would need to appoint a new audit firm to audit its books of account for the year ending March 31, 2018 and onwards.

The Management under the guidance ofthe Audit Committee initiated the process of selection of auditors and had detailed interactions with certain eligible audit firms and assessed them against a defined eligibility and evaluation criteria. The assessment was undertaken by a Steering Committee constituted for this purpose.

The Audit Committee of the Board considered the findings of the Steering Committee and has decided to appoint Price Waterhouse & Co Chartered Accountants LLP (‘PW’) as the statutory auditors of the Company for a period of five years commencing from the conclusion of the ensuing 110th Annual General Meeting scheduled to be held on August 8, 2017 through the conclusion of 115th Annual General Meeting of the Company to be held in the year 2022.

The Board, at its meeting held on May 16, 2017, considered the recommendations/decision of the Audit Committee with respect to the appointment of PW as the statutory auditor. Based on due consideration, the Board recommends for your approval the appointment of PW as the statutory auditor of the Company.

The Audit Committee and the Board of Directors considered the following factors in recommending the appointment of PW as the statutory auditor of the Company:

- Experience of the firm in handling audits of large global metal and mining corporations;

- Competence of the leadership and the proposed audit team of the firm in auditing the financial statements of the Company;

- Ability of the firm to seamlessly scale and understand the Company’s operations, systems and processes; and

- Geographical presence and ability of the firm in servicing the Company and its subsidiaries at multiple locations.

The Board seeks your support in approving the appointment of PW as the new statutory auditor of the Company.

DHS LLP, Chartered Accountants, are the auditors of the Company and will hold office until the conclusion of the ensuing AGM. On your behalf and on our own behalf we place on record our sincere appreciation for the services rendered by DHS LLP during its long association with the Company.

Cost Auditors

As per Section 148 of the Companies Act, 2013 (‘Act’), the Company is required to have the audit of its cost records conducted by a Cost Accountant in practice. In this connection, the Board of Directors of the Company has on the recommendation of the Audit Committee, approved the appointment of M/s Shome & Banerjee as the cost auditors of the Company for the year ending March 31, 2018.

In accordance with the provisions of Section 148(3) of the Act read with Rule 14 of the Companies (Audit and Auditors) Rules, 2014, the remuneration payable to the Cost Auditors as recommended by the Audit Committee and approved by the Board has to be ratified by the members of the Company. Accordingly, appropriate resolution forms part of the Notice convening the AGM. The Board seeks your support in approving the proposed remuneration of Rs.18 lakh plus out-of-pocket expenses payable to the Cost Auditors for the Financial Year ending March 31, 2018.

M/s Shome & Banerjee have vast experience in the field of cost audit and have conducted the audit of the cost records of the Company for the past several years under the provisions of the erstwhile Companies Act, 1956.

The due date for filing the Cost Audit Report of the Company for the Financial Year ended March 31, 2016 was September 30, 2016 and the same was filed in XBRL mode by the Cost Auditor on September 2, 2016.

Secretarial Auditors

Section 204 of the Companies Act, 2013 inter-alia requires every listed company to annex with its Board’s report, a Secretarial Audit Report given by a Company Secretary in practice, in the prescribed form.

The Board appointed Parikh & Associates, practicing Company Secretaries as Secretarial Auditor to conduct Secretarial Audit of the Company for the Financial Year 2016-17 and their report is annexed to this report (Annexure 8). There are no qualifications/ observations/reservations/adverse remarks in the said report.

The Board has also appointed Parikh & Associates as Secretarial Auditor to conduct Secretarial Audit of the Company for Financial Year 2017-18.

21. Extract of the Annual Return

The details forming part of the extract of the Annual Return in Form MGT 9 as per provisions of the Companies Act, 2013 and Rules thereto are annexed to this report (Annexure 9).

22. Significant and Material orders passed by the Regulators or Courts

There have been no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and the Company’s operations. However, Members’ attention is drawn to the statement on contingent liabilities, commitments in the notes forming part of the Financial Statements.

23. Particulars of Loans, Guarantees or Investments

Particulars of loans, guarantees given and investments made during the year in accordance with Section 186 of the Companies Act, 2013 is annexed to this report (Annexure 10).

24. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

Details of the energy conservation, technology absorption and foreign exchange earnings and outgo are annexed to this report (Annexure 11).

25. Deposits

During the year, the Company has not accepted any public deposits under the Companies Act, 2013.

J. ACKNOWLEDGEMENTS

We thank our customers, vendors, dealers, investors, business associates and bankers for their continued support during the year. We place on record our appreciation of the contribution made by employees at all levels. The Company’s resilience to meet challenges was made possible by their hard work, solidarity, co-operation and support.

We thank the Government of India, the State Governments where we have operations and other government agencies for their support and look forward to their continued support in the future.

On behalf of the Board of Directors

sd/-

N. Chandrasekaran

Mumbai Chairman

May 16, 2017 (DIN: 00121863)

Source : Dion Global Solutions Limited
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