DIRECTORS' REPORT To The Members, SOUTHERN MAGNESIUM AND CHEMICALS LIMITED, Your Directors hereby presents the 29th Annual Report of your Company together with the Audited Statement of Accounts and the Auditors' Report of your company for the financial year ended, 31s1 March, 2015. The summarized financial results for the year ended 31st March, 2015 are as under REVIEW OF OPERATIONS: During the period revenue of the Company increased to Rs. 546.64 lakhs as compared to Rs. 175.68 Lakhs of the previous year. The net profit before tax has also increased to Rs. 337.33 Lakhs from Rs. 23.69 Lakhs of the previous year. DIRECTORS' RESPONSIBILITY STATEMENT The Board of Directors confirm that in the preparation of Profit & Loss Account for the year end and Balance Sheet as at that date ("Financial Statements") that: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (d) the directors had prepared the annual accounts on a going concern basis; and' (e) The directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. (f) The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. DISCLOSURES UNDER SECTION 134 OF THE COMPANIES ACT, 2013 1. State of affairs of the company: The Company deals in the business of Magnesium Metal. During the year, the Company has seen growth in terms of the Sale which is reflected in the financial results of the Company for the year. 2. Amounts, if any, carried to reserves: The company transferred Rs. 3.36 crores to the general reserve out of the amount available for appropriation. 3. Dividend: The Company has declared the dividend amounting to Rs 77.25 Lakhs, which includes the arrear of the outstanding cumulative preferential Dividend and also redeemed the said preference shares out of the current year profits. 4. Inter - Corporate deposits: (i) The details relating to deposits are as follows:1 The Company has received Inter Corporate Deposits, the details of which is given below. (a) Accepted during the year - Nil (b) Remained unpaid or unclaimed as at the end of the year - Rs. 37,50,000/- (c) Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved at the beginning of the year; -Nil Maximum outstanding during the year; Rs. 37,50,000/-Outstanding at the end of the year; Rs. 35,50,000/- (ii) The details of deposits which are not in compliance with the requirements of the Act- NIL. 6. Board Evaluation: The board of directors has carried out an annual evaluation of its own performance, Board Committees and individual directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by'Securities and Exchange Board of India ("SEBI") under Clause 49 of the Listing Agreements ("Clause 49"). The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The Board and the Nomination and Remuneration Committee ("NRC") reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the board and committee meetings like preparedness of the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In a separate meeting of Independent Directors, performance of Non- Independent directors, performance of the Board as a whole and performance of the Chairman was evaluated, taking into accounts the views of Executive Directors and Non-Executive Directors. The same was discussed in the board meeting that followed the meeting of the Independent Directors, at which the performance of Board, its committee and individual directors was also discussed. 7. Policy on Directors' appointment and remuneration and others details: The company's policy on Directors appointment and remuneration and other matters provided in section 178(3) of the companies act has been disclosed in the Corporate Governance Report, which forms part of this directors' report. 8. Directors: There is no change in the offices held by the Directors of the company. 9. Internal Financial Control Systems and their Adequacy: The details in respect of internal financial control and their adequacy are included in the Management Discussion & Analysis and which forms a part of this report. 10. Audit Committee The details pertaining to composition of Audit Committee are included in Corporate Governance Report, which forms a part of this report. 11. A statement on declaration given by independent directors under Sub-Section (6) of Section 149: The provisions of Section 149(6) relating to Independent Directors has been complied with. 12. Risk Management: The Board of the company regularly reviews and had adopted measures to frame, implement and monitor the risk management plan for the company. The Board is responsible for reviewing the risk management plan and ensuring its effectiveness. The audit committee has additional oversight in the area of financial risks and controls. Major risk indentified, if any, by the business functions are systematically addressed through mitigating actions on a continuing basis. 13. Particulars of Loans, Guarantees or Investments Under Section 186 of the Companies Act, 2013: There were no loans, guarantees or investments made by the Company under Section 186 of the Companies Act, 2013 during the year under review. 14. Particulars of contracts or arrangements made with related parties Under Section 188 of the Companies Act, 2013: None of the transactions with related parties falls under the scope of section 188(1) of the act. Information on transaction with related parties pursuant to section 134(3)(h) of the act read with rule 8(2) of the companies (Accounts) Rules, 2014 are given in Annexure-1 in Form AOC-2 and the same forms part of this report. 15. The change in the nature of business, if any: There was no change in the nature of Business. 16. The details of directors or key managerial personnel who were appointed or have resigned during the year: There was no appointment or resignation of any director or Key Managerial Personnel since the last Annual General Meeting. 17. The names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year: The Company does not have any Subsidiary, Joint venture or associate company which have become or ceased to be its Subsidiaries, joint ventures or associate company during the year. 18. The details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future: There are no material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future. However the company has received some show-cause notices from stock exchanges for which company have replied accordingly. 19. Particulars of Employees: The information required under section 197 of the act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, are given below: k. The key parameters for any variable component of remuneration availed by the directors: The Board has approved one months bonus pay to all its employees at its meeting held on 14.02.2015 including its Executive Directors. I. The ratio of remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: Not Applicable m. Affirmation that the remuneration is as per the remuneration policy of the company: The Company affirms remuneration is as per the Remuneration policy of the company. 20. Disclosure as per Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013: Your company has zero tolerance for sexual harassment at work place and has adopted a policy on prevention, prohibition and redressal of sexual harassment at work place in line with the provision of Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013 and rules framed there under. No compliant have been received by the company on sexual harassment during the financial year 2014-2015. 21. Disclosure Requirements: As per Clause 49 of the listing agreement entered into with the stock exchange, corporate governance report with certificate from Practising Company Secretary thereon and management discussion and analysis are attached, which form part of this report. The company has formulated a whistle blower policy. A copy of the same is made available at the registered office of the company. The provisions of this policy are in line with the provisions of section 177(9) of the act and the revised Clause 49 of the Listing Agreements with the stock exchanges. Your Company has a vigil mechanism to deal with instances of fraud and mismanagement, if any. The Whistle Blower Policy enables reporting of unethical behaviour, actual or suspected fraud or violation of the Company's code of conduct or ethics policy, to the management. The Vigil mechanism also ensures strict confidentiality is maintained and provided adequate safeguards against victimization of employees who avail of the mechanism and also provided for direct access to the Chairman of the Audit committee in exceptional cases. 22. Auditors: Pursuant to the provision of section 139 of the act and the rules framed thereunder, M/s. K.S.Rao & . Co (Firm Registration No. 003109S)., Chartered Accountants, were appointed as Statutory Auditors of the company from the conclusion of 28th Annual General Meeting held on 30.09.2014 till the conclusion of 31s1 Annual General Meeting of the company to be held in the year 2017, subject to ratification of their appointment at every subsequent Annual General Meeting. 23. Secretarial Auditors' Report: The company has appointed M/s D.Hanumanta Raju & Co, Company Secretaries, Hyderabad as the Secretarial Auditor of the company to undertake audit as per the provisions of section 204 of the Companies Act, 2013 and the report of the secretarial auditor is annexed to this report. Management replies to the observations, comments and qualifications made by the secretarial auditor is as under: 1. The company has paid accumulated preference dividend out of the current year profits inspite of accumulated fosses and has redeemed those preference shares out of current year profits without creating Capital Redemption Reserve. The provisions of section 55(3) are not yet enforced by the regulator. As such the company is governed by the provisions of Companies Act, 1956 for redemption of preference shares. As per the said provisions the company was to approach to Company Law Board (CLB) for extension of the time for redemption. However the preference shareholder on request for extension for redemption period have not agreed to co-operate and agree for the same. The company was confident to make higher profits and was considering to redeem the same as per the relevant provisions. Also due to continuous losses the company was unable to create capital redemption reserve. However due to some inadvertent and unforeseen contingencies the company did not perform as expected. By the time it was crystallised that the company will not be able to redeem as per the provisions, company has lost the time to make an application and get approval of the CLB. As such the Board has discussed the same at length and decided to redeem the same along with cumulative outstanding dividend from the current year profits while ensuring liquidity and working capital requirements of the company are not adversely effected. Also as the shares are not listed on the stock exchange the same was not intimated to the stock exchange. 2. There was no appointment of Company Secretary. The board of directors of the company have discussed in board meeting that the company is required to appoint a Company Secretary as per the provisions of section 203 of the Companies Act 2013, and the relevant rules made thereunder, Also they expressed their inability to find a suitable candidate for the post in-spite of continuous efforts made by them. They have discussed the requirement of a good candidate with a few professors and reputed Practicing Company Secretaries and Chartered Accountants known to them and are hoping to find a suitable candidate soon to meet the requirements as per the Act. 3. The company has not maintained any functional website. The company was continuously maintaining the official website i.e wj/msoiJtoejiimat^sJiJ^ However due to some technical problems the website of the company is inactive and the company is under the process of resolving the issue. The company is taking steps to have a fully updated website with all required particulars and has initiated steps in this regard. 4. The company has received few show cause/penalty notices from Stock Exchange. The company replied to such notices & there is no further communication/information from Stock Exchange. The company has received few show cause notices/ penalty notices from stock exchange. Company replied to such notices and there is no further communication/ information from stock exchange. If any further communication/ information will be required by stock exchange, the same will be relevantly replied and dealt with by the company. 24. Clarifications on Auditors Comments in Auditors Report Management replies to the observations, comments and qualifications made by the statutory auditor is as under: 1. Company had paid preference dividend on cumulative preference shares without setting off accumulated losses and depreciation and preference shares are also redeemed despite unavailable profits for distribution of dividends, thereby the Company has not complied with the provisions of Section 55 of the Companies Act 2013. The provisions of section 55(3) are not yet enforced by the regulator. As such the company is governed by the provisions of Companies Act, 1956 for redernption of preference shares. As per the said provisions the company was to approach to Company Law Board(CLB) for extension of the time for redemption. However the preference shareholder on request for extension for redemption period have not agreed to co-operate and agree for the same. The company was confident to make higher profits and was considering to redeem the same as per the relevant provisions. Also due to continuous losses the company was unable to create capital redemption reserve. However due to some inadvertent and unforeseen contingencies the company did not perform as expected. By the time it was crystallised that the company will not be able to redeem as per the provisions, company has lost the time to make an application and get approval of the CLB. As such the Board has discussed the same at length and decided to redeem the same along with cumulative outstanding dividend from the current year profits while ensuring liquidity and working capital requirements of the company are not adversely effected. Also as the shares are not listed on the stock exchange the same was not intimated to the stock exchange. 2. The Company has not adopted and complied with the requirements ofAS-15 'Employee Benefits' in respect of the Gratuity liability, which constitutes a departure from the Accounting standards referred to in section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. In view of this the liability of the company in this regard could not be ascertained. Consequently, we are unable to comment about the impact of this on the profit for the year, income tax and shareholder's funds In view of the losses of the company, the board has taken decision to provide for gratuity when it materializes. 3. We draw attention to Note 21.1 in the financial statements which state that the Company's current liabilities exceeded its current assets by Rs. 56.05 lakhs. Further, as indicated by the Company's Balance Sheet as at March 31, 2015, the net worth of the Company has eroded completely. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Although this net worth of the Company has been eroded, the Company is presently making profits and hopes to come to positive net worth in the coming years. 25. Annual Return: The extracts of Annual Return pursuant to the provisions of Section 92 read with Rule 12 of the Companies (Management and Administration) Rules, 2014 is furnished in Annexure II and is attached to this Report. 26. Conservation of energy, technology absorption, foreign exchange earnings and outgo: The information pertaining to conservation of energy, technology absorption, Foreign exchange Earnings and outgo as required under Section 134 (3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is as under. (A) Conservation of energy NIL (B) Technology absorption Not Applicable (C) Foreign exchange earnings NIL (D) Foreign exchange outgo Rs. 2,06,22,043/27. Acknowledgement: Your Directors wish to place on record their gratitude to shareholders and thank the customers, bankers, vendors, State and Central Governments Authorities for their continued support to your Company's growth. Your Directors also wish to place on record, their appreciation for the contribution made by the employees at all levels, who, through their competence, sincerity, hard work, solidarity and dedicated support enabled to your company to make continued progress. For and on behalf of the Board Southern Magnesium and Chemicals Limited Sd/- Mr. Rajender prasad Nuthakki Jt. Managing Director & CFO (DIN- 00145659) Sd/- Mr. Ravi Prasad Nuthakki Managing Director & CEO (DIN- 00319537) Place: Hyderabad Date: 03.08.2015 |