Directors Report Dear Stakeholders, Your Directors submit the 22nd Annual Report of the Company along with the audited financial statements for the financial year ended March 31, 2016. Consolidated Financial results Being a Holding Company of different vertical business operations, your Company doesn't have independent operating revenues other than O&M fee, incentives and dividends, if any, from its subsidiaries, Interest and other treasury income earned on surplus funds. Following is the summary of consolidated financial results of the Company, its subsidiaries and associates. Our total income from operations increased by 36.56% to Rs.416,447 Lakhs from Rs.304,965 Lakhs in the previous year. The Power segment contributed an income of Rs.96,387 Lakhs compared to Rs.29,040 Lakhs in the previous year. The Transportation segment contributed an income of Rs.35,847 Lakhs as compared to Rs 29,983 Lakhs in the previous year. Airport Segment contributed an income of Rs. 283,918 Lakhs as compared to Rs 245,479 Lakhs in the previous year. The other segment contributed Rs. 295 Lakhs as compared to Rs 463 Lakhs. The net loss after tax, share of profit from associate and minority interest was Rs.93,418 Lakhs as against net loss of Rs.83,468 Lakhs in the previous year The losses during the year are attributable mainly to the restricted supply of gas for power plants as a result of which the plants did not operate at full capacity, one-time loss on write-off of investment in Oil & Gas , Road and other projects amounting to Rs 162 Crs and higher finance cost. Dividend The Board of Directors of your Company has not recommended any dividend for the financial year 2015-16. Management Discussion and Analysis In terms of the provisions of Regulation 34 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 Management's Discussion and Analysis is set out in a separate section forming part of the Annual Report. Corporate Governance Corporate Governance, as required under relevant provisions of SEBI (LODR) Regulations, 2015, a certificate from the Company Secretary in Whole Time Practice on compliance with the mandatory recommendations of the Narayana Murthy Committee on Corporate Governance is annexed to the Directors Report. As in the past, your Company continues to follow best of Corporate Governance policies. Subsidiaries and Consolidated Financial Statements As on March 31, 2016 your Company has 8 direct Subsidiaries, 17 step down Subsidiaries and 2 Associate Companies. There has been no material change in the nature of the business of the Company and its subsidiaries. Details of major subsidiaries of the Company and their business operations during the year under review are covered in the Management Discussion and Analysis Report. A statement containing salient features of the financial statement of these companies as required to be provided under section 129(3) of the Act, are enclosed herewith in the specified form, as Annexure A. Accordingly, this annual report does not contain the reports and other statements of the subsidiary companies. Any member intends to have a certified copy of the Balance Sheet and other financial statements of these subsidiaries may write to the Company Secretary. These documents are available for inspection during business hours at the registered office of the Company and that of the respective subsidiary companies. The Policy for determining material subsidiaries as approved may be accessed on the Company's website at the link: <http://> www.gvk . comunderinvestorrelations/investors/policyfordeterminingmaterialsubsidiaries Developments in the existing assets (i) Energy As informed in the last annual report, the validity period of PPA for Jegurupadu Phase I power plant was expired on 20th June, 2015 and APDISCOM has issued buy-out notice on 19th June, 2015. Agreement for Buy out of the Project was signed on 8th February, 2016. In terms of this agreement, APDISCOM has taken over the Phase I Power project on 22nd April, 2016 with a Terminal Value of Rs.261.27 Crore. Discussions are being held with APPCC/APDISCOMs regarding lease amount for utilizing the land for Phase-II power plant and cost of operating the shared facilities. Once these are crystalised, a lease agreement would be executed with them. Construction of 330MW Shrinagar Hydro Electric Project has been completed in all respects. This power plant comprises of four units of 82.5MW each. Commissioning and synchronization of all units to the grid have been done in a phased manner and was completed by June, 2015. The plant achieved Capacity Index of 96.01% for the FY 2015-16 with a Plant Load Factor of 43.08%. Based on the water flows, the plant is being operated with at least one turbine, either on part or full load. All four turbines are expected to run this monsoon season. Construction of 2 x 270MW Coal based power plant situated at Goindwal Sahib, Tarn Tarn District in the State of Punjab is completed in all respects. The Punjab State Power Corporation Limited (PSPCL) had confirmed and accepted 16th April, 2016 as the Commercial operations Date (CoD) after receiving the Independent Engineers Final Test Certificate. However, the plant has been shut down on 22nd April, 2016 due to non-availability of Coal. The Ministry of Power / Ministry of Coal are yet to finalize the long term coal linkage policy. Company will apply for suitable schedule-I coal mines, to be auctioned (shortly) to have permanent source of coal linkage for long term planning. (ii) Airports During the year under review, Mumbai International Airport Private Limited (MIAL) has handled total of 296,634 aircraft movements compared to 269,456 during the previous year, an increase of 10.01%. On an average 810 flights were operated per day during the current year as against 738 flights per day during the previous year. MIAL handled 41.67 million passengers during the year compared to 36.63 million passengers during the previous year, an increase of 13.76%. On an average 113,853 passengers travelled per day through the airport during the year as against 100,369 passengers during the previous year. Bangalore International Airport Limited (BIAL) has handled 18.97 Mio (PY 15.40 mio) passengers, 153,831 ATMs (PY 134,209 ATMs) and 291,920 MT (PY 279,532 MT) of Cargo resulting in an increase of 23.20%, 14.60 % and 4.40 % respectively during the year. It has received its 100 Millionth Passenger since AOD on 18th March 2016 and has achieved the distinction of becoming the first Airport in the country to achieve the Greenco platinum rating from CII Green Building council. BIAL has received GreenCo best practices Award for solid waste management organized by CII in June 2015. Kempegowda International Airport, Bengaluru has achieved an overall satisfaction score of 4.66 for the year 2015 in the ACI Airport Service Quality passenger survey (ASQ) and was ranked 29 among 258 participating airports worldwide. (iii) Transportation Partial Commercial Operations for the 83.04 km Deoli-Kota Road Project, in the State of Rajasthan, have commenced from August, 2015 and full commercial operations started from March 2016. Directors / Key Managerial Personnel (KMP) Appointments by rotation In accordance with the provisions of the Companies Act, 2013 read with the Articles of Association of the Company and Regulation 36(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 Mr. Krishna Ram Bhupal, Director of the Company will retire by rotation at this meeting and being eligible, your Board recommends his re- appointment. Details of the director seeking re-appointment at this meeting have been given separately under the corporate governance section of this report. During the year review, there is no change in the Key Managerial Personnel of the Company. Each of the Independent Directors have given a declaration to the Company that they meet the criteria of independence as required under section 149(7) of the Companies Act, 2013 and Regulation 25 of SEBI (Listing Obligations & Disclosure Requirements) Regulations,2015 of the Listing Agreement with the Stock Exchanges. Based on the recommendations of the Nomination and Remuneration Committee, the Board of Directors have formulated and adopted a policy on appointment / remuneration of directors including criteria for determining qualifications, positive attributes, independence of the Directors and other matters. This policy also covers the performance evaluation of all directors, Board, Committees and Key Managerial Personnel. An exclusive meeting of the Independent Directors of the Company has been held on 12th February, 2016 which was attended by all the Independent Directors. They have reviewed the performance of the non-independent directors and the Board as a whole, performance of chairperson and quality of information to the Board as provided under Schedule IV of the Companies Act, 2013. The Company has adopted a program on familiarisation of Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of business and the industry in which the Company operates among other things. The same is put up on the website of the company at the following link; <http://www.gvk.comunderinvestorrelations/investors/> familiarisationprogrammeofindependentdirectors. Mechanism for Evaluation of Board Evaluation of all Board members is done on an annual basis. The evaluation is done by the Board, Nomination and Remuneration committee and Independent Directors with specific focus on the performance and effective functioning of the Board and individual Directors. 1. Criteria for evaluation of Board of Directors as a whole i) The frequency of meetings; ii) The length of meetings; iii) The administration of meeting; iv) The number of committees and their notes; v) The flow of information to board members and between board members vi) The quality and quantity of information; and vii) The disclosure of information to the stakeholders 2. Criteria for evaluation of the Individual Directors 1. Ability to contribute and monitor corporate governance practices; 2. Ability to contribute by introducing best practices to address top management issues; 3. Participation in long term strategic planning; 4. Commitment to the fulfilment of director obligations and fiduciary responsibilities; 5. Guiding strategy; 6. Monitoring management performance and development; 7. Statutory compliance & Corporate governance; 8. Attendance and contribution at Board/Committee meetings; 9. Time spent by each of the member; and 10. Core competencies Nomination and remuneration policy Objectives of the Policy: a) To lay down criteria and terms and conditions with regard to identifying persons who are qualified to become Directors (Executive and Non-Executive) and persons who may be appointed in Senior Management and Key Managerial positions and to determine their remuneration. b) To determine remuneration based on the Company's size and financial position and trends and practices on remuneration prevailing in peer Companies. c) To carry out evaluation of the performance of Directors, d) To provide them reward linked directly to their effort, performance, dedication and achievement relating to the Company's operations. e) To retain, motivate and promote talent and to ensure long term sustainability of talented managerial persons and create competitive advantage. f) The brief Nomination and Remuneration policy is annexed to this report. Board Committees All Committees of the Board of Directors are in line with the provisions of the Companies Act, 2013 and the applicable SEBI (LODR) Regulations, 2015. Directors' Responsibilities Statement Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory, and secretarial auditors including Audit of internal financial controls over financial reporting by the Statutory Auditors and the reviews performed by 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 the financial year 2015-16 Pursuant to the requirements under Section 134(5) of the Companies Act, 2013, with respect to the Directors' Responsibilities Statement, it is hereby confirmed that; i) in the preparation of the annual accounts for the financial year ended March 31, 2016, the applicable Accounting Standards have been followed along with proper explanations relating to material departures; ii) 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 as at March 31, 2016 and of the profit or loss of the Company for the said period; iii) that the directors had taken proper and sufficient care 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; iv) the directors had prepared the annual accounts for the financial year ended March 31, 2016 on a "going concern" basis; v) they have laid down internal financial controls in the company that are adequate and were operating effectively and vi) they have devised proper systems to ensure compliance with the provisions of all applicable laws and these are adequate and are operating effectively. Financial Statements As required under the Listing Agreement entered into with the Stock Exchanges, a consolidated financial statement of the Company and all its subsidiaries is attached. The consolidated financial statements have been prepared in accordance with the relevant accounting standards as prescribed under section 133 of the Companies Act, 2013 read with Rule 7 of The Companies (Accounts) Rules, 2014. These financial statements disclose the assets, liabilities, income, expenses and other details of the Company, its subsidiaries and associate companies. Indian Accounting Standards (Ind AS) - IFRS Converged Standards Your Company will adopt Indian Accounting Standards (Ind AS) with effect from 1st April, 2016 pursuant to the Companies (Indian Accounting Standard) Rules, 2015 as notified by the Ministry of Corporate Affairs on 16th February, 2015. The implementation of Ind AS is a major change process and the preliminary impact assessment on Company's standalone financial statements would be prepared and presented to the Board. Secretarial Auditor The Board had appointed M/s Narendar & Associates, Company Secretaries in Whole-time Practice to carry out the Secretarial Audit under the provisions of section 204 of the Companies Act, 2013 and the Rules made thereunder. The report of the Secretarial Auditor in form MR-3 is enclosed to this report as Annexure B. Statutory Auditors In terms of the sub-section (2) of section 139 of the Companies Act, 2013 (effective from 01-04-2014) no Listed Company shall appoint or re-appoint an Auditing Firm as the Auditor for more than two terms of five consecutive years. Provided that the firm is eligible to be re-appointed in the same Company for another five years from the completion of first term. In pursuance of the above, every listed Company shall comply with this requirement within a transitional period of three years from the date of commencement of the Act i.e. 1st April, 2014. M/s. S R Batliboi & Associates LLP, the existing Auditors, have been appointed on 13-09-2002 as the Statutory Auditors of the Company for auditing the annual financial statements of the company from the financial year 2002-03 and have completed the permissible period of two terms of five years each as on date. At the Board meetings held on 29-05-2014 and 16-05-2015, the Board had reappointed them for financial years 2014-15 & 201516 separately and the company now proposes to re-appoint M/s. S R Batliboi & Associates LLP as Statutory Auditors for another financial year i.e. 2016-17 subject to approval of the Shareholders. This will be the last financial year, for which, they can be reappointed as the Statutory Auditors within the transitional period of 3 years and the Company will appoint a new firm of Chartered Accountants as its Statutory Auditors to comply with the provisions of the Companies Act,2013 as amended from time to time. Based on the recommendations of the Audit Committee and subject to the approval of the shareholders, it is proposed to re-appoint M/s. S R Batliboi & Associates LLP as the Statutory Auditors of the Company for another financial year i.e. 2016-17. M/s. S R Batliboi & Associates LLP, the Statutory Auditors of the Company will retire at the conclusion of this Annual General Meeting and being eligible, they have offered themselves for re-appointment as Statutory Auditors and have confirmed that their re-appointment, if made, would be within the limits prescribed under section 141 of the Companies Act, 2013. Accordingly, the Board recommends their reappointment at this AGM. The Notes to Accounts forming part of the financial statements are self-explanatory and need no further explanation. Management's response on the Statutory Auditors Qualification / Comments Qualification on recoverability against carrying value of assets of GVK Coal (Tokisud) Private Limited GVK Coal (Tokisud) Private Limited was incorporated for developing a coal mine with minable reserve of 52 Million Tons (geological reserve of around 92 Million Tons) in the state of Jharkhand as a captive coal mine to meet the requirements of coal of one of the step down subsidiary i.e. GVK Power (Goindwal Sahib) Limited, which is implementing a 540 MW Power Plant at Goindwal Sahib in Punjab. The Honorable Supreme Court vide is decision of September 24, 2014 held that allotment of various coal blocks including those allotted to GVK Coal (Tokisud) Company Private Limited is arbitrary and illegal and had cancelled the allotment. Subsequently, the government promulgated The Coal Mines (Special Provisions) Ordinance 2014, which intends to take appropriate action to deal with situation arising pursuant to the Honorable Supreme Court's judgment. GVK Coal Tokisud, subsidiary company has filed writ petition before the Hon'ble High Court of Delhi challenging the decision of the Nominated Authority, Ministry of Coal which quantified the compensation payable to GVK for taking over the Tokisud Coal Block as Rs.11,129 Lakhs against the carrying value of assets of Rs.34,862 Lakhs. The matter has been heard and kept reserved for judgement. Management believes that the subsidiary will be appropriately reimbursed for cancelled coal mine accordingly no provision was required to be made on carrying value of assets. Awards and recognitions Following are some of the awards and recognitions that your Company / its Subsidiaries / Associates received during the current year. Certifications, Recognitions and Awards for Bengaluru International Airport (BIAL) a) Company has received its 100 Millionth Passenger since AOD on 18th March 2016 at 15:20 hours arriving from Mumbai on 9W 394. Mr. Vinay Kulkarni who was identified as our 100 Millionth Passenger was felicitated at the terminal. b) Kempegowda International Airport, Bengaluru has achieved the distinction of becoming the first Airport in the Country to achieve the GreenCo Platinum rating from CII Green Building Council (GBC). c) Kempegowda International Airport, Bengaluru has achieved an overall satisfaction score of 4.66 for the year 2015 in the ACI Airport Service Quality passenger survey (ASQ) and was ranked 29 among 258 participating airports worldwide. d) The Business Continuity Management Systems surveillance Audit by the British Standard Institutions (BSI) under ISO 22301:2012 was successfully completed and the ISO BCM certification has been recommended for continuation until December 2017. e) Successfully renewed Airport Carbon Accreditation Certificate for Level - 3 (Optimization level) for year 2015 - 16 in May 2015. This is successfully achieved for 3 years now. f) BIAL received GreenCo Best Practices Award for Solid Waste Management, organized by CII in June 2015. g) The Business Continuity Management Systems surveillance audit by the British Standard Institutions (BSI) under ISO 22301:2012 was successfully completed in the last week of September 2015. Subsequently, it is recommended for continuation of the ISO BCM certification until December 2017. h) CII "Energy Efficient Unit" Award in September 2015.CII "GreenCo Best Practice" Award on 24th June 2015. i) All the 13 QC projects that were nominated for the Quality Circle Forum of India Competition 2015 has been awarded Gold Category. Certifications, Recognitions and Awards for Mumbai International Airport Private Limited (MIAL) Awards, Accolades and Accreditation a) GVK CSIA has been voted as the Best Airport in India and Central Asia by Skytrax World Airport Awards 2016 b) GVK CSIA has been inducted in the ACREX Hall of Fame for its world class design, architecture, infrastructure and operational efficiency. c) GVK MIAL has been rated as the World's Best Airport in the 25-40 million passengers per year category by ACI in the Airport Service Quality Awards 2015. d) GVK MIAL has bagged the 'Cargo Airport of the Year - Region India' award for the second consecutive year at the 'STAT Trade Times International Awards' for excellence in Air Cargo. e) GVK CSIA has become the first Brownfield airport to receive the 'GreenCo Gold Rating'. f) GVK MIAL's Cargo division has bagged the 'Air Cargo Terminal Award 2014-15' at the Economic Times Logistics Awards. g) GVK MIAL has been awarded the 'Best Airport - National' for excellence in connecting air cargo community by 'Air Cargo Agents Association of India' during the 42nd ACAAI Annual Convention. h) GVK CSIA has been selected as the 'World's Leading Airport Lounge - First Class' at the World Travel Awards 2015. i) GVK CSIA has been awarded the Golden Peacock National Award for Risk Management. j) GVK CSIA has been rated as the 'Smartest Airport Building in India' and the 'Smartest Building in India' at the recently concluded 'Times of India and Honeywell Smart Building Awards' for 2015. k) Obtained CII GREENCO Gold certification (A rating system to analyze business impact on environment) l) GVK CSIA's has bagged the 'Innovation in Tunnels Award' for its proposed Airside Road Tunnel project at the Third Arabian Tunnelling Conference & Exhibition 2015, Dubai. m)GVK CSIA has been awarded the Asia Pacific Airport of the Year 2015 at the CAPA Aviation Awards for Excellence 2015. n) CSIA's GVK Lounge at Terminal 2 has been conferred as Asia's Leading Airport Lounge at the World Travel Awards 2015. o) GVK CSIA has been bestowed with the 'Dr. A Ramakrishna Award 2015 for the Best Project with Precast Concrete in India' by Indian Concrete Institute. p) Pranaam GVK Guest Services has been recognized for its service excellence with the 'Best Customer Experience award' by Customer Experience Management (CEM) Asia. q) GVK CSIA has bagged the Asia Training & Development Excellence Awards 2015 for 'Best Change Management Initiative or Program'. r) Mr. R. K. Jain, CEO, Mumbai International Airport Private Limited was conferred with the 'Best CEO with HR Orientation Award' at the 6th Asia's Best Employer Brand awards. s) GVK MIAL has received the ISO 50001:2011 accreditation for its efforts towards effective Energy Management System. Particulars of Loans given, Investments made and Guarantees given and Securities provided: Particulars of loans given, investments made, guarantees given and securities provided under Sec 186 of the Companies Act, 2013 forms part of the Notes to the financial statements are provided in this Annual Report Contracts and Arrangements with the Related Parties: All the related party transactions that were entered during the financial year were on an arm's length basis and were in the ordinary course of business. These transactions, for a financial year, are placed before the Audit Committee and the Board for their prior approvals. During the year, the Company had not entered into any contract / arrangement / transaction with related parties which could be considered material in accordance with the policy of the company on a materiality of related party transactions. Particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013 in the prescribed Form AOC-2,is appended as Annexure C to the Board's report. Extract of Annual Return An extract of the Annual Return for the financial year ended 31st March, 2016 as required under Section 92(3) of the Act is enclosed herewith, in the specified format, as Annexure D Internal Control Systems and their adequacy The Management continuously reviews the internal control systems and procedures for the efficient conduct of the Company's business. The Company adheres to the prescribed guidelines with respect to the transactions, financial reporting and ensures that all its assets are safeguarded and protected against losses. The Internal Auditor of the Company conducts the audit on regular basis and the Audit Committee periodically reviews internal audit reports and effectiveness of internal control systems. Apart from the above, the Company in consultations with the external and independent consultants adopted a policy for development and implementation of risk management for the company including identification of elements of risk, if any, that may threaten the existence of the Company and a mechanism to mitigate the same. Public Deposits During the year under review, your Company has neither invited nor accepted any fixed deposits from the public. Vigil Mechanism In terms of section 177(9) & (10) of the Companies Act, 2013, a Vigil Mechanism for Directors and employees to report genuine concerns has been established by the Board along with the whistle blower policy. The Vigil Mechanism and whistle blower policy have been uploaded on the website of the Company. The same can be accessed at the link www.gvk.comunderinvestorrelations/ investors/codeofconduct. Corporate Social Responsibility Since, there are no average net profits for the Company during the previous three financial years, there are no specific funds that are required to be set aside and spent by the Company during the year under review. Members can access the CSR Policy on the website of the Company at link <http://www.gvk.comunderinvestorrelations/investors/corporategovernance/CSR> Policy Particulars of employees and related disclosures In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, none of the employees are in receipt of the remuneration which is in excess of the limits as specified in the regulation. Disclosures pertaining to remuneration and other details as required under Section 197(12) read with Rule 5(1) of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 are enclosed to this report. General Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. Details relating to deposits covered under Chapter V of the Act. 2. Issue of equity shares with differential rights as to dividend, voting or otherwise. 3. Issue of shares (including sweat equity shares) to employees of the Company under any scheme save and except ESOS referred to in this Report. 4. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. Your Directors further state that during the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Acknowledgements The Directors of your Company thank the Government of India, various State Governments and their concerned Department / Agencies / Regulatory Authorities for their continued support and cooperation. The Directors also wish to place on record the support extended by various Banks, Financial Institutions and every stakeholder of the Company. The Directors further wish to appreciate and value the contributions made by every employee of the GVK Family. For and on behalf of the Board of Directors Dr. GVK Reddy Chairman & Managing Director Place : Hyderabad Date : May 20, 2016 |