BOARD'S REPORT 1. Your directors have pleasure in presenting the 42nd Annual Report together with the Audited Accounts for the year ended March 31, 2016 (the year). 2 DIVIDEND With a view to maintain the dividend payment track record of the Company, your directors decided to recommend payment of Dividend at 20% for the year, same as the previous year, subject to the approval of the bankers of the Company. 3 MANAGEMENT DISCUSSION AND ANALYSIS Core business of the company is manufacture and sale of cotton yarn. The management discussion and analysis given below discusses the key issues of the Industry with specific reference to the cotton yarn spinning sector. a) INDUSTRY PERFORMANCE The year 2015-16 has been a year of major challenges faced by the spinning industry, which faced almost year long downtrend in Selling prices, coupled with wide fluctuations in cotton prices. The power situation was also bad in the first few months but got stabilized in the subsequent period. Market demand for yarn was also continuously subdued which forced many units to reduce the working days and lower their production for export orders from global retail giants. On the other hand, the marketing challenges are forcing established players to move away from traditional market to develop new markets where the quality, efficiency and productivity play a major part. In addition, those with latest sophisticated machinery have an edge, as they could shift between various products within a short production cycle time. The major challenge for the leading players is to be prepared for adapting to changes in the market and cater to smaller market lots and shorter cycle time of order to cash. This required rearrangement of their existing production facilities to adapt to market dynamics and improve their capability to cater to wider variety of markets. Since Spinning is feeder industry to weaving and knitting sectors, its fortunes mainly depend upon the dynamics of those sectors. The weakest link in the Indian Industry has been weaving, knitting and finishing as compared to global leaders such as China, Italy, Germany and Turkey. Even the developing countries like Indonesia, Vietnam and Philippines have become our competitors due to lot of susidies available in their respective countries. To strengthen the spinning, weaving and knitting sectors, a major thrust has been exerted by the consolidated efforts of the Indian Textile Machinery Manufactures Association, end users and the Government to undertake a moonshot and come up with alternative technologies suited to Indian textile environment affordable to these sector. This should be feasible in the coming years, if dedicated efforts are undertaken with the financial support for R & D by the Government through its various schemes, such as Textile Modernisation Fund and 'Make-In-India' campaigns. This will naturally have a cascading effect on the spinning sector, which feed the weaving and knitting sectors. b) COMPANY'S PERFORMANCE (.i.) During the year under review, your Company's turnover reduced to Rs.205.92 crores as against Rs.243.20 crores recorded in the previous year mainly due to subdued market conditions. Your Company's performance was adversely affected due to steep fall in the price of yarn both in the export market and domestic market. Export orders were much lower coupled with uneconomic price due to competition from other developing countries like Indonesia, Vietnam, Bangladesh and Philippines. In order to cope-up with the market conditions, production was reduced and several cost reduction measures were adopted by the Company such as tie-up with Private Power Producers to get the required power at a price lesser than the TANGEDCO Power, securing dedicated power supply from EB Substation to all the three units of the Company and minimum use of diesel Gensets, supported by your Company's Wind Turbine generated power. These measures helped to achieve improved level of plant utilization to maintain production and quality of the product and achieve reasonable profit after tax of Rs.42 lakhs as against Rs.345 lakhs recorded in the previous year. (ii) Your Company's Wind Turbine Generators (WTGs) recorded generation of electric power of the value of Rs.860 lakhs during the year (Rs.920 lakhs in 2014-15). Loss of Rs.595 lakhs in wind power generation during the year under review (as against Rs.1455 lakhs recorded during the year 2012- 13) was on account of TANGEDCO imposing back-outing (not allowing full generation and not accounting fully the Wind Turbine generated power) during the high wind season which resulted in loss of possible generation of about 110 lakh units during the year. (iii) Even though Bank interest rates remained high during the year, Management's conscious decision to exercise strict control on inventory levels helped to reduce the working capital requirement resulting in considerable saving up to Rs.37.31 lakhs in the finance cost during the year. c.) OUTLOOK FOR 2016-17 Industry expects improvement during the current financial year as cotton prices are stabilizing and yarn prices have started improving from the first quarter of the financial year 2016-17. Considering the present market demand for products like Viscose, Modal, Linen Fiber and value added products like Gassed and Mercerized Yarn, your Company has planned to produce these new products in addition to the existing products Viz., Combed, Carded and Compact Yarn. The Company also started converting its yarn into fabric as a measure of value addition. During the year 2016-17, power generated by the Company's Wind Turbine Generators are expected to be fully fed through its Grid by TANGEDCO (without back-out) which would result in securing full benefit of the Company's Wind Turbine Generators. In order to gain maximum benefit from the Wind Turbine generated power and the group captive power purchased from private power producers even during the power cut and load shedding period, dedicated feeder line connection from the E.B substation to all the three units of your Company has been secured. This will ensure uninterrupted power supply to the spinning mills of your company which will reduce the dependence on diesel generated power and also maximize production through out the day. Further, life of the electrical components could be enhanced due to avoidance of down time during frequent power cuts and thereby quality of the product could be maintained / improved further. As part of future plans, the deferred expansion project at Unit III will be taken up for implementation, at the appropriate time. d) RISKS AND CONCERNS Your Company has devised risk management policy which involves identification of the risks associated with the business risks as well as the financial risks, its evaluation, monitoring, reporting and mitigation measures. Audit Committee and the Board of Directors of the Company periodically review the risk management policy of the Company so that the management controls the risk through properly defined network. Heads of departments are responsible for implementation of the risk management system as may be applicable to their respective areas of functioning and report to the Board and the Audit Committee. Details of the risk management mechanism and key risks faced by the Company are enumerated in the risk management policy. Risk Management Policy adopted pursuant to the provisions of Section 134 (3) (n) of the Companies Act 2013 is hosted on the website of the Company under the web link e) ENVIRONMENT PROTECTION, HEALTH AND SAFETY (EHS) EHS continues to receive the highest priority in all operational and functional areas at all locations of your Company. Systematic process safety analysis, audits, periodic safety inspections are carried out by expert agencies and suitable control measures adopted for ensuring safe operations at the site. Various processes as required for Pollution Control and Environmental Protection are strictly adhered to. f) INTERNAL CONTROL AND SYSTEMS Your company has in place well established internal control procedures covering various areas such as procurement of raw materials, production planning, quality control, maintenance planning, marketing, cost control and debt servicing. Steps are taken without loss of time, whenever any weakness is observed, to correct the same. Your Company is certified ISO 9001, ISO14001 and OHSAS18001 for the systems. Further, your Company's laboratory is also certified by NABL. http://www.corporate@sambandam.com g) HUMAN RESOURCES MANAGEMENT Employees are your Company's most valuable resource. Your Company continues to create a favourable environment at work place. Your Company has formulated and implemented various welfare measures for the employees. The Company also recognizes the importance of training and consequently deputes its work force in various work related courses/seminars including important issues like Total Quality Management (TQM), behavioral skills, soft skills, etc. Because of these labour welfare and improvement measures, your Company is able to attract and retain well trained and dedicated workforce. The fact that relationship with the employees continues to be cordial is testimony to the Company's ability to retain high quality workforce. In view of the aforesaid relationship no man days were lost during the year under report. h) DISCLOSURE AS PER THE SEXUAL HARASSMENT OF WOMEN AT WORK PLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT 2013 The Company has in place an Anti Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at Work place (Prevention, Prohibition and Redressal) Act 2013. Management of the Company has set up an Internal Complaints Committee (ICC) to redress any complaint received regarding sexual harassment. All the employees of the Company are covered under this policy. Out of 773 permanent employees on the rolls of the Company, 146 are women and 627 are men. No complaint on sexual harassment has been received from any employee during the year and no complaint is pending at the end of the year. .i.) COST AUDIT In accordance with the provisions of the Companies Act 2013 and the Rules framed there under, Cost Audit for the Company was not applicable for the year 2014-15. However, it is applicable for the financial year commencing from 1st April 2015. On the recommendation of the Audit Committee, Board of Directors of the Company approved the appointment of M/s. S.MAHADEVAN & CO., Cost Accountants, Chennai, for audit of Cost Accounts of the Company for the years 2015-16 and 2016- 17and the resolution for ratification of the remuneration payable to the Cost Auditor for the year 2016- 17 will be placed before the members for their ratification at the 42nd Annual General Meeting of the Company scheduled to be held on 6.8.2016. In view of the Company maintaining the cost records continuously and in order to provide the comparable audited figures for the year 2014-15 in the Cost Audit Report for the year 2015-16, your directors decided to continue the Cost Audit for the year 2014-15 on a voluntary basis. The Cost Auditor will submit to the Board of Directors his report for the year 2015-16 after duly certifying the cost records. Cost Audit Report for the year 2015-16 will be submitted in XBRL format well before the due date. j) BOARD MEETINGS : During the year under review five board meetings were held and the intervening gap between any two board meetings did not exceed 120 days. Dates of the board meetings and details of directors' attendance at the meetings are furnished in the Corporate Governance report at Annexure – VI. k) DIRECTORS At the 40th Annual General Meeting of the Company held on 28.9.2014 members had appointed Sri P.S.Ananthanarayanan, Dr.V.Gopalan, Sri N.Asoka, Sri S.Gnanasekharan and Sri Kameshwar M Bhat, as Independent Directors of the Company for a term of five consecutive years from the date of that AGM till the conclusion of the 45th AGM of the Company. Since all the five Independent Directors are not liable to retire by rotation, out of the remaining five non-independent directors, Sri S.Dinakaran opted to retire by rotation at the ensuing 42nd Annual General Meeting. However, he is eligible for reappointment by members at the 42nd AGM of the Company. The Chairman and Managing Director (CMD) and the two Joint Managing Directors (JMDs) were appointed by members at the 41st AGM of the Company held on 27.9.2015 for a term of 3 years from 1.10.2015 to 30.09.2018 in accordance with the recommendation of the Nomination and Remuneration Committee and the Board of Directors of the Company and the revised (increased) remuneration payable to them during that period was also approved by members by passing Special Resolution at the 41st AGM. However, the CMD and the two JMDs have not availed the increased remuneration till 31.3.2016 in view of the Company's sub-due performance. l) DIRECTORS' RESPONSIBILITY STATEMENT AS PER SECTION 134(5) OF THE COMPANIES ACT, 2013 Pursuant to the requirement of Section 134(5) of the Act, and based on the representations received from the management, the directors hereby confirm that: .i. in the preparation of the annual accounts for the financial year 2015-16, the applicable accounting standards have been followed and there are no material departures; ii. they 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 of the Company for the financial year; iii. they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Act. They confirm that there are adequate systems and controls for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating properly; and vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. m) SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS During the year under view no significant material orders were passed by the Regulators or Courts or Tribunals impacting the going concern status and the operations of the Company. n) PARTICULARS OF EMPLOYEES - information pursuant to Rule 5 (2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 None of the employees or directors of the Company has drawn remuneration exceeding Rs.5 lakhs per month or Rs.60 lakhs per annum during the year. o) BOARD EVALUATION Board of Directors carried out annual evaluation of its own performance and that of the Committees and the individual directors pursuant to the provisions of Section 134(3)(p) of the Companies Act 2013, and the corporate Governance requirements prescribed in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015. Performance of the Board was evaluated after seeking input from the Directors on the basis of the criteria such as the Board Composition, effectiveness of board process, information flow and functioning of the Board. Performance of the Committees was evaluated by the Board after seeking inputs from the Committee Members on the basis of the criteria such as composition of the Committees, effectiveness of the Committee meetings, etc. and it was observed that the performance of the Board as well as the Committees was adequate. Performance of the non-independent Directors were evaluated by the Independent directors at the meeting of the Independent directors on the basis of six criteria, viz. attendance and participation; Qualification, knowledge, skill and enterprise; updating of skill and knowledge; individual contribution; adherence to Company's policies and procedures and benefits derived by the Company. On the basis of the above criteria performance of all the non-independent directors were found to be adequate. As regards the performance of the Chairman & Managing Director, after taking into consideration the views of the Executive Directors and the non-executive directors the Independent Directors were of the unanimous view that the Chairman & Managing Director is not only well informed and knowledgeable about the Industry but also has the requisite experience to execute his duties as Chairman and Chief Executive of the Company. His insight and forward looking policies have elevated the status of the Company in the eyes of the stakeholders and the wholesome performance of the Company is in his safe hands and the future of the Company is bright. Board's evaluation of the independent directors was recorded by the entire board excluding the director being evaluated. p) FAMILIARIZATION PROGRAMME OF THE INDEPENDENT DIRECTORS Periodic presentations are made by Senior Management and Internal Auditors at the Board meetings and Committee meetings on the business and performance updates of the Company, global business environment, business risks and its mitigation strategy, impact of regulatory changes on strategy etc. Updates on relevant statutory changes encompassing important laws are regularly intimated to all the Directors including the Independent Directors. q) DEPOSITS Following are the details of deposits covered under Chapter V of the Companies Act 2013 : i. Deposits Accepted from shareholders during the year (2015-16) : Rs. 303.65 lakhs ii. Deposits remaining unpaid or unclaimed as at the end of the year : NIL iii. Any default in repayment of deposits or payment of interest thereon during the year : NIL iv. Total Deposits outstanding at the end of the year - - : Rs. 516.70 lakhs Company has duly complied with the provisions of Section 73 of the Companies Act, 2013 read with relevant rules with respect to fixed deposits. r) INDUSTRY ASSOCIATIONS Sri S.Dinakaran, Joint Managing Director of the Company is a member of the Committee of Administration and Chairman of the Yarn Committee of the Cotton Textiles Export Promotion Council (TEXPROCIL), Mumbai and the Confederation of Indian Textile Industry (CITI), Delhi. By virtue of the offices he holds, Sri Dinakaran has been representing to the Industries and Finance Ministries at the appropriate time to get relief to the ailing Textile Industry. s) REPORT ON PERFORMANCE OF THE ASSOCIATE COMPANIES : There are two associate Companies – SPMM Health Care Services Pvt. Ltd. - 49.75% investment in the share capital This Company has recorded total revenue of Rs.3,18,59,942 and profit after tax (PAT) of Rs.47,29,843 during the year ended 31.3.2016 as against Rs.3,92,43,571 Revenue and Rs.43,63,920 PAT recorded in the previous year. Salem IVF Centre Pvt. Ltd. – 34.70% investment in the share capital of that Company. This Company incorporated on 17th November 2014 has recorded total revenue of Rs.1,81,97,704 and Loss of Rs.93,31,265 during the second year (first full year) of its operations as against the revenue of Rs.22,47,925 and loss of Rs45,00,915 recorded in the Previous Year (Period from 17.11.2014 to 31.3.2016). t) CHANGES OR COMMITMENTS AFTER THE YEAR END ON 31.3.2016 No material change or commitment affecting the financial position of the Company has occurred between the close of the financial year on 31.3.2016 and the date of this report. 23 AUDITORS Auditors, M/s. M.S. Krishnaswami & Rajan, Chartered Accountants, retire at the ensuing annual general meeting and they have confirmed their eligibility and willingness to accept office, if reappointed. On the recommendation of the Audit Committee your Company's Board is placing the Resolution u/s 139(2) of the Company's Act 2013 for appointing him as the Statutory Auditors of the Company for the current financial year – 2016-17. 24 CAUTIONARY NOTE Statements in the Board's report and the management discussion and analysis describing the Company's objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results might differ materially from those expressed in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other related factors such as litigation and industrial relations. 25 VIGIL MECHANISM / WHISTLE BLOWER POLICY The Company has an established vigil mechanism for Directors / Employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of the code of conduct or ethics policy. It also provides for adequate safeguards against victimization of directors/ employees who avail of the mechanism. The Company affirms that no personnel have been denied access to the audit committee. The Company has formulated a Policy on Vigil Mechanism and has established a mechanism that any personnel may raise Reportable Matter after becoming aware of the same. All suspected violations and Reportable Matters are reported to an Independent Director and member of the Audit Committee at his e-mail id ksg_comsec@yahoo.com. The key directions/actions are informed to the Managing Director of the Company. The Company has adopted Whistle Blower Policy in line with the provisions of Section 177(9) of the Companies Act 2013 which can be accessed on the Company's Website under the web link http://www.corporate@sambandam.com 26 REPORTS OF STATUTORY AUDITORS AND SECRETARIAL AUDITORS Reports of the Statutory Auditors and the Secretarial Auditors for the year under review are free from any qualification, reservation or adverse remark or disclaimer. Secretarial Audit Report in Form MR-3 is attached, which forms part of this report – refer Annexure VII. 27 EXTRACT OF ANNUAL RETURN Extract of Annual Return in Form MGT-9 pursuant to Section 92(3) of the Companies Act 2013 is also attached, which forms part of this report – refer Annexure VIII. 28 ACKNOWLEDGEMENT Your directors thank the Company's customers, vendors and investors for their continued support during the year. Your directors place on record their appreciation for the contribution made by the employees at all levels. Your Company's consistent growth has been made possible by the hard work, solidarity, cooperation and support of the management team. Your directors thank State Bank of India, Karnataka Bank Limited, Canara Bank, Axis Bank Limited and IDBI Bank Limited and the State and Central Government departments for their support, and look forward to their continued support in future. D.Niranjan Kumar Chief Financial Officer R.S.Shanmugam Company Secretary S.Dinakaran Joint Managing Director S. Devarajan Chairman & Managing Director Salem May 21, 2016 |