Your directors have pleasure in submitting their 41st Annual Report together with theaudited accounts for the year ended March 31 2017 (the year).
|Performance Highlights ||2016 - 17 ||2015 - 16 |
| ||(Rupees in Lakhs) |
|Export - Direct ||803 ||179 |
|- Merchandise ||519 ||7544 |
|Domestic ||6379 ||6740 |
|Other Operating Income ||101 ||15 |
|Total Turnover ||7803 ||14478 |
|Gross profit/(Loss) (i.e. Profit before interest and depreciation) ||(698) ||868 |
|Cash profit/(Loss) (i.e. Profit / before depreciation) ||(1949) ||(375) |
|Profit/(Loss) before exceptional Item and tax ||(2661) ||(1134) |
|Exceptional Item Profit on sale of Windmill ||1545 || |
|Profit/(Loss) after exceptional Item (before tax) - PBT ||(1116) ||(1134) |
|Profit/(Loss) after exceptional Item and tax PAT ||(1116) ||(1134) |
|Earnings per share - basic and diluted Rs. ||(28.99) ||(29.45) |
In view of the loss incurred during the year no dividend could be recommended by yourBoard of Directors for the financial year 2016-17.
Reserves and Surplus
The current year loss of Rs. 1116 lakhs has been added to the deficit at the beginningof the year of Rs. 1258.62 lakhs and the deficit aggregates to Rs. 2374.51 lakhs at theend of the year.
Financial Performance with respect to Operational Performance:
During the financial year 2016-17 your Company was not able to run all the units atfullest capacity. The capacity utilisation of all the units got reduced resulting in lowerproduction of 32.90 lakh kgs and the Company was able to achieve only a turnover of Rs.7803 lakhs as against the turnover of Rs. 14478 lakhs of the previous year 2015-16.
The cash loss incurred by the Company during the previous year 2015-16 and thecontinued adverse market behaviour and abnormal increase in cotton prices and lower yarnprices resulted in losses during the current year also. Despite aforesaid adversefactors the Company made repayment of term loans (nearly Rs. 20 crore) which has affectedthe entire working capital. The financial crunch affected the timely repayment of termloans and creditors payments. In view of the delayed payments to creditors theprocurement of raw material was also affected.
As a consequence of the above and also due to non-recovery of fixed costs since theCompany had not run at the fullest capacity during the year your Company incurred loss ofRs. 2661 lakhs as against previous year 2015-16 loss of Rs. 1134 lakhs
To overcome this situation and to ease off the financial crisis strategic decision ofselling windmill assets and Unit III of the Company was taken. The proceeds from the saleof windmill assets were utilised for bank repayments and certain creditor payments. Saleof Unit-III is under progress and the proceeds will be utilised for remaining paymentobligations of the Company and also for the working capital needs to run the business.
The above said loss of Rs. 2661 lakhs got reduced by the profit on sale of Windmillassets of Rs. 1545 lakhs resulting in net loss of Rs. 1116 lakhs for the financial year2016-17
MANAGEMENT DISCUSSION AND ANALYSIS
The core business of the company is manufacture and sale of cotton yarn. The managementdiscussion and analysis given below discusses the key issues of the cotton yarn spinningsector.
(a) Industry structure and developments:
The FY 2016-17 witnessed high volatility and abnormal increase in cotton prices andsluggish demand for yarn products both in domestic and international markets. Cottonprices were uneconomical in relation to market price of yarn. Surplus productionuneconomical exports and reduced demand for medium quality yarn in the domestic market aresome of the reasons for the lower performance of the industry. These circumstances havecreated challenges of shifting towards new value added products selling at higher priceor premium price for the better quality of yarn better productivity and enhancingmarketing strategies for evolution of new markets. Decision to reduce exports at thepresent juncture due to the uneconomical prices also aggravated situation due tocompetition from other developing countries like Indonesia Vietnam BangladeshPhilippines etc.
The industry expects an improvement during the current year. Further there is anincreasing demand for value added yarns and also other cellulosic fibres in both domesticand international markets. In view of these factors Company's performance is expected toimprove substantially during the year 2017-18.
(c.) Strategies and Future plans
By using the sale proceeds of Unit-III asset your company propose to repay asubstantial portion of term loans and other payment obligations and propose to utilise thebalance sale proceeds towards working capital requirements. Further for betterment in theoperations of the Company in addition to cotton yarn your directors have planned toproduce value added products viz. Viscose Polyester and Mlange varieties of yarn basedon the market requirements. And the production of these varieties had already been startedand it is well received in the market. The profitability is also quite good as compared tocotton yarn.
(d) Risks and Concerns
Your Company has devised Risk Management Policy which involves identification of thebusiness risks as well as the financial risks its evaluation monitoring reporting andmitigation measures. The Audit Committee and Board of Directors of the Companyperiodically review the Risk Management Policy of the Company so that management controlsthe risk through properly defined network. Head of Departments are responsible forimplementation of the risk management system as may be applicable to their respectiveareas of functioning and report to the Board and the Audit Committee. The details of riskmanagement mechanism and key risks faced by the Company are enumerated in the riskmanagement policy. Risk management policy is uploaded in the company's websitewww.kandagirimills.com.
(e) Internal control systems
The Company has in place a well established internal control procedures coveringvarious areas such as procurement of raw materials production planning quality controlmaintenance planning marketing cost management and debt servicing. Necessary checks andbalances have been instituted for timely correction with an effective internal auditsystem.
Your company is certified ISO 9001: 2008 for Quality Management System Standards(Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management SystemStandards (the systems). Further your company's laboratory is also certified by NABL.
(f) Human resources management
Employees are your company's most valuable resource. Your Company continues to create afavourable environment at work place.
The company also recognises the importance of training and consequently deputes itswork force to various work related courses/seminars including important areas like TotalQuality Management (TQM) Technical skills etc. The fact that the relationship with theemployees continued to be cordial is testimony to the company's ability to retain highquality workforce.
(g) Environmental Protection Health and Safety (EHS)
EHS continues to receive the highest priority in all operational and functional areasat all locations of your Company. Systematic process safety analysis audits periodicsafety inspections are carried out by expert agencies and suitable control measuresadopted for ensuring safe operations at the site. Various processes as required forPollution Control and Environmental Protection are strictly adhered to.
(h) Corporate Social Responsibility
Board of Directors of the Company has constituted Corporate Social Responsibility (CSR)Committee and devised a CSR policy to carry out CSR initiatives in line with therequirements specified under the Companies Act 2013. Since the Company has no average netprofit there is no CSR Obligation for the FY 2016-17. However Company has spent Rs. 1.23lakhs towards unspent CSR obligation of previous year which the details have been given inthe annexure to this report. The CSR policy has been hosted on the website of the Companywww.kandagirimills.com.
Extract of Annual Return
The extract of annual return in Form MGT 9 has been annexed with this report and formspart of this report.
Number of Board Meetings
The details pertaining to meetings of the Board has been explained under CorporateGovernance Report annexed with this report and forms part of this report.
Establishment of Vigil Mechanism
The Company has established a vigil mechanism for Directors and employees to reporttheir genuine concerns. The policy has been uploaded on the Company's website under theweb-link: http://www.kandagirimills.com/investors/ksml2014-wbp.pdf
Declaration by Independent Directors
Independent directors of the Company have submitted a declaration that each of themmeets the criteria of independence as provided in Sub-Section (6) of Section 149 of theAct. Further there has been no change in the circumstances which may affect their statusas Independent director during the year.
Secretarial Auditors' Report
Company appointed M/s B. K. Sundaram & Associates Practising Company Secretariesas Secretarial Auditors to conduct Secretarial Audit of the Company for the financial year2016-17. The report of the Secretarial Audit for the financial year 2016-17 in FORM MR-3is annexed to this report and forms part of this report. There are no disqualificationsreservations or adverse remarks or disclaimers in Secretarial Auditors Report.
Details of Composition of Audit Committee are covered under Corporate Governance Reportannexed with this report and forms part of this report. Further during this year all therecommendations of the Audit Committee have been accepted by the Board.
Policy of Directors Appointment and Remuneration
Company's policy on Directors' appointment and remuneration including criteria fordetermining qualifications positive attributes independence of a director and othermatters provided under section 178(3) of the Act are covered under Nomination andRemuneration Policy and it is available in the web link of the Companyhttp://www.kandagirimills.com/investors/ksml2015-nrp.pdf. Further information aboutelements of remuneration package of individual directors is provided in the extract ofAnnual Return as provided under Section 92(3) of the Act in prescribed form MGT-9 annexedwith this report and forms part of this Report.
Independent Auditors' Report
There is no qualification in the Independent Auditors' Report except IndependentAuditor has pointed out the delay in repayment of bank term loan principal and interestdues to the bankers. Your directors wish to state that due to cash flow constraints therewas delay in repayment of bank term loan principal and interest dues which has beensubsequently paid off.
Particulars of Employees
The information required under section 197 of the Act and rules made there-under withsubsequent amendments thereto in respect of employees of as shown below: (a) Employedthroughout the year and in receipt of remuneration aggregating to Rs.10200000 or more -Nil (b) Employed for part of the year and in receipt of remuneration of Rs.850000 ormore per month - Nil Note : Remuneration includes salary and value of perquisites andnature of employment is contractual.
Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 (with subsequent amendments thereto) is annexed withthis report and forms part of this report.
Related Party Transactions
Transactions entered with related parties have been explained in Form AOC -2 annexedwith this report and forms part of this report. Further Policy on dealing with RelatedParty Transactions has been uploaded on the Company's website under the web link:http://www.kandagirimills.com/investors/ksml2014-ptp.pdf
The Board of Directors has carried out an annual evaluation of its own performanceboard committees and individual directors pursuant to the provisions of the CompaniesAct 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.
The performance of the board was evaluated by the board after seeking inputs from allthe directors on the basis of criteria such as the board composition and structureeffectiveness of board processes information and functioning etc. as provided by theGuidance Note on Board Evaluation issued by the Securities and Exchange Board of India onJanuary 5 2017.
The performance of the committees was evaluated by the board after seeking inputs fromthe committee members on the basis of criteria such as the Composition of committeeseffectiveness of committee meetings etc.
The Board and the Nomination and Remuneration Committee reviewed the performance ofindividual directors on the basis of criteria such as the contribution of the individualdirector to the board and committee meetings like preparedness on the issues to bediscussed meaningful and constructive contribution and inputs in meetings etc.
In a separate meeting of independent directors performance of non-independentdirectors performance of the board as a whole and performance of the Chairman wasevaluated taking into account the views of executive directors and non-executivedirectors. The same was discussed in the board meeting that followed the meeting of theindependent directors at which the performance of the board its committees andindividual directors were also discussed. Performance evaluation of independent directorswas done by the entire board excluding the independent director being evaluated.
None of the Independent directors are due for reappointment.
Familiarisation Programme of the Independent Directors
Periodic presentations are made by Senior Management Statutory and Internal Auditorsat the Board/Committee meetings on business and performance updates of the Company globalbusiness environment business risks and its mitigation strategy impact of regulatorychanges on strategy etc. Updates on relevant statutory changes encompassing important lawsare regularly intimated to the Independent directors.
The following are the details of deposits covered under Chapter V of the Act
.i. Deposits Accepted from shareholders during the year (2016 - 17): Rs. 17.66 lakhs
ii. Remained unpaid or unclaimed as at the end of the year : NIL
iii. Any default in repayment of deposits or payment of interest thereon during theyear: NIL
Company has duly complied with the provisions of section 73 of the Companies Act 2013read with relevant rules with respect to fixed deposits.
Cost Audit Report
Cost Audit Report for the FY 2015-16 in XBRL format was filed with MCA on 23.08.2016vide SRN G09734229. M/s. S. MAHADEVAN &CO. Cost Accountants were reappointed as CostAuditors of the Company for the FY 2016-17 and the Cost Audit report for the year 2016-17in XBRL format will be filed with MCA well within the due date.
Though it is not mandatory as a best Corporate Governance practice by way of rotationin place of existing cost auditors of the Company M/s. S. MAHADEVAN &CO. Board on therecommendation of the Audit Committee appointed CMA K.M. Krishnamurthy Cost Accountantas Cost Auditor of the Company for the FY 2017-18. Board places before the members theresolution for ratification of remuneration payable to the Cost Auditor for the FY2017-18.
During the year Independent directors of the Company viz. Sri P.S. Ananthanarayanan(w.e.f 11.02.2017) Dr. V. Gopalan (w.e.f. 06.05.2017) and Sri N. Asoka (w.e.f 06.05.2017)were resigned from the Board due to their pre-occupations and other commitments. The Boardplaces on record its appreciation and gratitude for the invaluable contributions made bythese directors during their tenure as a member of the Board of Directors.
The other Independent Directors Sri S. Gnanasekharan and Sri Kameshwar M. Bhat wereappointed at the 38th AGM of the Company held on 28.09.2014 for a term of five consecutiveyears and shall hold office upto the conclusion of the 43rd AGM of the Company.
Board has appointed Dr. V. Sekar (on 25.03.2017) Dr. R. Ramarathnam (on 06.05.2017)and Sri D. Balasundaram (on 06.05.2017) as Additional Directors (Non-ExecutiveIndependent) and they shall hold office upto the ensuing (41st) AGM of the Company.Resolutions proposing their appointment as Independent Directors of the Company to holdoffice upto the conclusion of the 45th AGM of the Company included in the notice of the41st AGM of the Company for members' approval.
Non- Executive director Sri M. Rajamani retires by rotation this year and he desiresnot to get re-elected and in his place Sri. S. Sivakumar has been proposed for appointmentas Non-executive director of the Company liable to retire by rotation and the resolutionis placed before the members for approval. Board recorded its appreciation for thevaluable services rendered by Sri S. Rajamani to the Company during the tenure of hisoffice.
Company's Code of Conduct applicable to the board has been adopted by the board and alldirectors of the company have confirmed compliance with the Code of Conduct
Key Managerial Personnel
Members at the AGM held on 27.09.2015 approved the revision in the remuneration packageof Chairman and Managing Director Sri R. Selvarajan and Chief Financial Officer and NonExecutive director Sri S. Vijay Shankar. Sri S. Vijay Shankar receives remuneration onlyin his capacity as Chief Financial Officer and do not receive sitting fees etc. in hiscapacity as non-executive director. In view of the unsatisfactory financial performance ofthe Company CMD and CFO had forgone their increase in salary as a gesture.
Change in designations of Directors
Chairman and Managing Director Sri R. Selvarajan has tendered his resignation from theposition of Chairman of the Company and expressed his willingness to continue as ManagingDirector of the company with effect from 01.06.2017. Board at its meeting held on06.05.2017 accepted his resignation and on the recommendation of the Nomination andRemuneration Committee elected Non-Executive Director Sri S. Devarajan as Non-ExecutiveChairman of the Company effective from 01.06.2017. Chairman and Managing Director Sri R.Selvarajan will be continued as Managing director of the Company with effect from01.06.2017.
The auditors M/S M.S. Krishnaswami & Rajan Chartered Accountants retire at theensuing annual general meeting. In accordance with the provisions of Section 139 of theCompanies Act 2013 read with the relevant rules by rotation in place of retiringAuditors M/S M.S. Krishnaswami & Rajan Chartered Accountants on the recommendationof the Audit Committee your Company's board is placing the resolution for appointment ofM/s R. Sundararajan & Associates Chartered Accountants (who confirmed theireligibility and willingness to accept office if appointed) as statutory Auditors of theCompany for the financial year 2017-18.
Particulars of Loans Guarantees or Investments under Section 186 of the Companies Act2013
Details of loans guarantees and investments covered under the provisions of Section186 of the Companies Act 2013 are given in note 3.20 to the notes to the financialstatements.
Disclosure as per Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013
The Company has zero tolerance for sexual harassment at workplace and has adopted apolicy on prevention prohibition and redressal of sexual harassment at workplace in linewith the provisions of Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013 and the rules framed thereunder. The Company has set up aCommittee for addressing issues related to women and during the financial year 2016-17there were no complaints received on sexual harassment.
Performance of Associate Company
Your Company has an associate M/s SPMM Healthcare Services Private Limited within themeaning specified under Section 2 (6) of Companies Act 2013. M/s SPMM Healthcare servicesprivate Limited has recorded a total revenue of Rs. 374.39022/- during the year 2016-17as against Rs. 31859942/- in the previous year and profit after tax of Rs.1797013/-during the year 2016-17 as against Rs. 4729843/- in the previous year. A separatestatement containing the salient features of the financial statement of the associate inFORM AOC -1 has also been annexed with this report as per the requirements of provisionsof section 129 of the Companies Act 2013 and forms part of this report.
Significant and Material Orders passed by the Courts Or Tribunals impacting the Company: NIL
Material Changes and Commitments during the year if any
There were no material changes and commitments between the end of the period underreview and the date of this report which could have an impact on the Company's operationin the future or its status as a going concern .
Annexures to this Report
The following are the annexures to this report:
1. Director's Responsibility Statement in Annexure-1.
2. Conservation of energy technology absorption Research and development and foreignexchange earnings and outgo in Annexure -2.
3. Statement containing salient features of the financial statement of associatecompany (Form AOC 1) in Annexure -3.
4. Form AOC - 2 in Annexure -4.
5. Extract of Annual Report (Form MGT-9) in Annexure -5.
6. Secretarial Audit Report (Form MR-3) in Annexure -6.
7. Details of CSR Expenditure in Annexure -7.
8. Particulars of Remuneration in Annexure -8.
9. CEO / CFO Certification in Annexure- 9.
10. Corporate Governance Report in Annexure -10.
Statements in the Directors' report and the management discussion and analysisdescribing the Company's objectives expectations or predictions may be forward lookingwithin the meaning of applicable securities laws and regulations. Actual results mightdiffer materially from those either expressed or implied in the statement. Importantfactors that could influence the Company's operations include global and domestic demandand supply conditions affecting selling prices of finished goods input availability andprices changes in government regulations tax laws economic developments within thecountry and other related factors such as litigation and industrial relations.
Directors of your Company record their sincere appreciation of the dedication andcommitment of all employees in achieving and sustaining excellence in all areas of thebusiness. Your directors thank the Shareholders Customers Suppliers Bankers and otherstakeholders for their continued support during the year. Your Company's consistent growthhas been made possible by the hard work solidarity cooperation and support of themanagement team. The directors of your company thank State Bank of India Karnataka BankLimited and Axis Bank Limited Central/State Governments and other government agencies fortheir support and look forward to their continued support in future.
| ||For and on behalf of the Board of |
| ||Kandagiri Spinning Mills Limited |
|Salem ||R. Selvarajan |
|May 06 2017 ||Chairman and Managing Director |
|. || |