BOARD'S REPORT Dear Members, Your Directors are pleased to present the 22nd Annual Report of the Company along with the Audited Financial Statements for the financial year ended 31 March 2015. STATE OF THE COMPANY'S AFFAIRS During the year under review, your Company achieved total income of Rs. 81.86 Crores as against Rs. 49.89 Crores during the previous year. The Net profit after tax stood at Rs. 15.74 Crores (Rs. 9.33 Lakhs for the previous year). The Earnings Per Share (EPS) of face value of Rs. 1/- each is Rs. 2.04 (previous year's EPS Rs. 0.01). The order book size as on 31 March 2015 is around Rs. 118.94 Crores including AMCs of worth Rs. 79.04 Crores as against Rs. 3.84 Crores excluding AMCs for the previous year. During the year, the R&D expenditure (capital and revenue) is Rs. 13.07 Crores (previous year 20.66 Crores). The R&D products developed during the year have substantial scope for revenue generation and are expected to become commercially viable in the next two years. STRATEGIC ALLIANCE During the year under review, your Company signed a Memorandum of Understanding (MoU) with Rockwell Collins, an American Company having facilities in Hyderabad and near New Delhi to combine their strengths in simulation and training to offer industry-leading, high fidelity solutions to Indian military customers. This alliance marks the first time that a global simulator original equipment manufacturer has partnered with an Indian simulator manufacturing company to cater to the Indian Defence market. Further to MoU, your Company and Rockwell Collins joined their forces in military flight simulation by unveiling a next generation rotary wing simulator at Aero India 2015. This strategic alliance will produce high fidelity innovative solutions while also ensuring cost benefits for customers across the region since the alliance's capabilities are indigenized, including in software, electronics and visuals. With the rotary wing platform launch, both companies aim to emerge, in the near future, as key partners to the Indian Armed Forces. DIVIDEND Your Directors have recommended a dividend of Rs. 0.35 per Equity Share (35 percent) of face value of Rs. 1.00 each of the Company for the financial year ended 31 March 2015, amounting to Rs. 3.25 Crores, (including dividend tax of Rs. 0.55 Crores). The dividend, if approved, at the ensuing Annual General Meeting to be held on 26 September 2015, will be paid to those members whose names appear in the Register of Members as on record date. The Register of Members and Share Transfer books of the Company will remain closed from 22 September 2015 to 26 September 2015 (both days inclusive) for the purpose of payment of dividend for the financial year ended 31 March 2015 and the AGM. TRANSFER OF AMOUNT TO RESERVES An amount of Rs. 1.39 Crores out of the current profits for the year are transferred to General Reserves. An amount of Rs. 11.10 Crores is proposed to be retained in the surplus. SUB-DIVISION OF EQUITY SHARES AND CONSEQUENT AMENDMENT IN MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY During the year, with a view to broad-base the investor base by encouraging the participation of the small investors and also to increase the liquidity of Equity Shares of the Company, the Company after obtaining members approval on 18 September 2014 through Postal Ballot has sub-divided each Equity Share of face value of Rs. 10/- (Rupees Ten only) as existing on the Record Date (24 November 2014) into 10 (Ten) Equity Shares of face value of Rs. 1/- (Rupee One only) each fully paid-up, with effect from the Record Date. Consequent upon sub-division of Equity Shares of the Company, the Capital Clause of Memorandum of Association and Article 4 of the Articles of Association of the Company were amended with the approval of the members through Postal Ballot i.e. from Rs. 20,00,00,000/- (Rupees Twenty Crores only) divided into 2,00,00,000 (Two Crores) Equity Shares of Rs. 10/- (Rupees Ten only) each to 20,00,00,000 (Twenty Crores) Equity Shares of Rs. 1/- (Rupees One only) each. ESTABLISHMENT OF 100% WHOLLY OWNED SUBSIDIARY COMPANY AT AJMAN FREE ZONE AUTHORITY, AJMAN, UAE As a part of the expansion program, the Board accorded its consent to establish a 100% wholly owned subsidiary company at Ajman Free Zone Authority, Ajman, UAE to tap the global market for the products of the company. ALLOCATION OF SUB-LIMITS FOR PORTFOLIO INVESTMENT WITHIN THE DEFAULT PORTFOLIO INVESTMENT LIMIT OF 24% OF THE PAID-UP EQUITY SHARE CAPITAL OF THE COMPANY In terms of applicable provisions of the Foreign Exchange Management Act, 1999 (which along with the regulations framed thereunder be referred to as "FEMA"), Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (including any statutory modification(s), amendment or re-enactment thereof for the time being in force), and pursuant to Reserve Bank of India A.P. (DIR Series) Circular No. 46 dated 8 December 2014 on Foreign Direct Investment (FDI) in India - Review of FDI policy -Sector Specific conditions-Defence, the Company passed Special Resolution on 9 March 2015 by way of Postal Ballot for allocation of sub-limits for Portfolio Investment for Registered Foreign Portfolio Investor/s (including Qualified Foreign Investor/s and Foreign Institutional Investor/s), Foreign Venture Capital Investor/s up to 20% and for Non Resident Indian/s up to 4% in the shares of the Company, within the default portfolio investment limit of 24% of the paid-up equity share capital of the Company and to enable RBI to monitor the RFPIs, FVCIs and NRIs holdings of the Company. Accordingly, Reserve Bank of India vide its Press Release dated 13 March 2015 advised that FIIs/RFPIs can invest up to 20% and Non Resident Indian (NRI)/Persons of Indian Origin (PIO) can invest up to 4% of the paid up capital of Zen Technologies Limited under the Portfolio Investment Scheme (PIS). LISTING OF COMPANY'S EQUITY SHARES ON THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBAI The Company had made application to the National Stock Exchange (NSE) for getting the shares listed on the Exchange. NSE vide its letter dated 26 March 2015, granted listing approval stating that the equity shares of the Company shall be listed and admitted to dealings on the Exchange w. e. f. 30 March 2015. Accordingly, the equity shares of the Company got listed on NSE with effect from 30 March 2015. PERFORMANCE AND FINANCIAL POSITION OF EACH OF THE SUBSIDIARIES, ASSOCIATES AND JOINT VENTURE COMPANIES Pursuant to Rule 8 of the Companies (Accounts) Rules, 2014, report on the performance and financial position of the subsidiary included in the consolidated financial statements is appended as Annexure 1 to this Report. SUBSIDIARY VERSION 2 GAMES LTD As per the provisions of Section 129(3) of the Companies Act, 2013 read with Rule 5 of Companies (Accounts) Rules, 2014, a separate statement containing the sailent features of the financial statements of the subsidiary in the prescribed format AOC-1 is appended to this Annual Report. CONSOLIDATED FINANCIAL STATEMENTS In accordance with Section 129(3) of the Companies Act, 2013, consolidated financial statements of the Company and its subsidiary have been prepared in accordance with the requirements of Accounting Standards issued by Institute of Chartered Accountants of India (ICAI) and as per the provisions of the Companies Act, 2013, which form part of the Annual Report. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements of the Company, including the consolidated financial statements and audited accounts of its subsidiary, are placed on the Company's website www.zentechnologies.com A copy of separate audited financial statements of subsidiary will be provided to the shareholders at their request. EXTRACT OF ANNUAL RETURN In accordance with Section 134(3)(a) of the Companies Act, 2013, an extract of the annual return in the prescribed format in Form MGT-9 as per the provisions of the Companies Act, 2013 and Rule 12 of Companies (Management and Administration) Rules, 2014 is appended as Annexure 2 to this report. NUMBER OF MEETINGS OF THE BOARD During the year 2014-2015, six Board Meetings were held. The dates on which the Board meetings were held are 5 April 2014, 24 May 2014, 9 August 2014, 8 November 2014, 5 January 2015 and 9 February 2015. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirement under Section 134 of the Companies Act, 2013, the Directors confirm that: i. In the preparation of Annual Accounts, the applicable accounting standards had been followed along with proper explanation 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 at the end of the financial year and of the profit and loss of the Company for that period. iii. 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. iv. The Directors had prepared the annual accounts on a going concern basis. v. The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively and vi. The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. STATEMENT ON DECLARATION GIVEN BY INDEPENDENT DIRECTORS UNDER SUB-SECTION (6) OF SECTION 149 The independent directors have submitted the declaration of independence, as required pursuant to Section 149(7) of the Companies Act, 2013 stating that they meet the criteria of independence as provided in Section 149(6) and Clause 49 of the Listing Agreement. The Board of Directors, on recommendation of the Nomination and Remuneration Committee framed a Nomination and Remuneration policy on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) of the Companies Act, 2013. The Policy is posted under the Investors section of the Company's website at: <http://www>. zentechnologies.com/investor_relations/Nomination-Remuneration-Policy.pdf PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS Particulars of loans, guarantees or investments as required under the provisions of Section 186 of the Companies Act, 2013 read with Companies (Meetings of Board and its Powers) Rules, 2014 are provided in the notes to the Financial Statements. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES 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 3 to the Board's report. All Related Party Transactions are placed before the Audit Committee as also the Board for approval. The Board of Directors framed a policy for Related Party Transactions to ensure a process for approval and reporting of transactions between the Company and its Related Parties. The policy is posted under the Investors section of the Company's website at: <http://www.zentechnologies.com/investor_relations/Related-Party-Transaction-Policy.pdf> There are no material changes and commitments affecting the financial position of the Company from the financial year ended 31 March 2015 to the date of signing of the Board's Report. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars as prescribed under Section 134(3)(m) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 with respect to Conservation of Energy, Technology Absorption, and Foreign Exchange Earnings and Outgo are provided in Annexure 4 to this Report. DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY The Board formulated a Risk Management Policy identifying different kinds of risks and the mitigation measures adopted and to be adopted for dealing with the risks of the Company. The Board constituted a Risk Management Committee constituting Mr Ashok Atluri, Chairman and Managing Director, Mr M Ravi Kumar, Whole-time Director and Mr P V Krishna Mohan, Chief Financial Officer. The Committee regularly meets to monitor and review the risk management policy. The Audit Committee and Board reviews and evaluates the internal financial controls and risk management systems of the Company. DEVELOPMENT AND IMPLEMENTATION OF CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICY Pursuant to Section 135 of the Companies Act, 2013, the Board constituted Corporate Social Responsibility Committee constituting Mr G Prasad, Independent Director, Mr Ashok Atluri, Chairman and Managing Director and Mr M Ravi Kumar, Whole-time Director. The Committee formulated and recommended to the Board the CSR Policy. On the recommendations of the CSR Committee, the Board approved and adopted the CSR Policy of the Company. The Corporate Social Responsibility Policy is posted under the Investors section of the Company's website at: <http://www.zentechnologies.com/investor_relations/CSR-Policy.pdf> As per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, annual report on CSR is prepared and the same is enclosed as Annexure 5 to this Report. ANNUAL EVALUATION OF PERFOMANCE OF BOARD, COMMITTEES AND INDIVIDUAL DIRECTORS The Board of Directors evaluated the annual performance of the Board as a whole, its committee's and the directors individually in accordance with the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement with specific focus on the performance and effective functioning of the Board and Individual Directors. A separate meeting of Independent Directors was held on 9 February 2015 to review the performance of the Non-Independent Directors and the Board as a whole, review the performance of Chairperson of the Company and assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties. CRITERIA FOR PERFORMANCE EVALUATION a. Ability of the candidates to devote sufficient time and attention to his professional obligations as Independent Director for informed and balanced decision making. b. Adherence to the Code of Conduct in letter and in spirit by the Independent Directors. c. Bringing objectivity and independence of view to the Board's discussions in relation to the Company's strategy, performance, and risk management d. Statutory Compliance and ensuring high standards of financial probity and Corporate Governance e. Responsibility towards requirements under the Companies Act, 2013, Responsibilities of the Board and Accountability under the Director's Responsibility Statement CHANGE IN THE NATURE OF BUSINESS There is no change in the nature of the business of the Company. DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL WHO WERE APPOINTED OR HAVE RESIGNED DURING THE YEAR During the year, Mr P V Krishna Mohan was appointed as the Chief Financial Officer of the Company. Mr P V Krishna Mohan, Chief Financial Officer has resigned from the services of the Company with effect from the close of business hours on 30 June 2015. Names of companies which have become or ceased to be its subsidiaries, joint ventures or associate companies during the year: NIL FIXED DEPOSITS Your Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding on the date of the Balance Sheet. 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 No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future. DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS In every quarter during the approval of Financial Statements, Internal Audit Report is presented by the Internal Auditor. The Audit Committee reviews the Internal Audit Report along with the Management Replies. The internal financial controls are evaluated and reviewed by the Audit Committee and the Board for ensuring orderly and efficient conduct of its business, including adherence to Company's policies safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and the timely preparation of reliable financial statements. VIGIL MECHANISM The Board of Directors, on recommendation of the Audit Committee, established a vigil mechanism for Directors and Employees called "Whistle Blower Policy" pursuant to the provisions of Companies Act, 2013 and Listing Agreement to report genuine concerns or grievances about unethical behavior, actual or suspected fraud or violation of the Company's code of conduct or ethics policy and to provide adequate safeguards against victimization of persons who use such mechanism and to provide for direct access to the Chairperson of the Audit Committee in appropriate or exceptional cases. The Whistle Blower Policy is posted under the Investors section of the Company's website at: <http://www.zentechnologies.com/investor_relations/Whistle-Blower-Policy-2014.pdf> SEXUAL HARASSMENT POLICY The Company has adopted policy on Prevention of Sexual Harassment of Women at Workplace in accordance with The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. During the financial year ended 31 March 2015, the Company has not received any Complaints pertaining to Sexual Harassment. MANAGEMENT DISCUSSION & ANALYSIS REPORT A Report on Management Discussion & Analysis forms part of the Annual report as per the requirements of Listing Agreement with the Stock Exchanges. DIRECTORS Cmde Sarvotham Rao retired as an Independent Director from the Board of Directors of the Company on 29 June 2015 in accordance with the retirement age policy for Directors of the Company. The Board places on record its sincere appreciation for Cmde Sarvotham Rao's long and fruitful association with the Company and thank him for providing valuable guidance to the Company during his tenure. On the recommendation of Nomination and Remuneration Committee, Mr Venkat Samir Kumar Oruganti, was appointed as an Additional Director (Non-Executive Independent) of the Company in the Board Meeting held on 14 August 2015, pursuant to Section 161 of the Companies Act, 2013 read with Articles of Association of the Company and holds office up to the date of this AGM. In accordance with the provisions of Section 149 of the Act, Mr Venkat Samir Kumar Oruganti, is proposed to be appointed as an Independent Director to hold office as per the tenure of appointment mentioned in the Notice of the forthcoming AGM of the Company. In accordance with the provisions of Companies Act, 2013 and the Articles of Association of the Company, Mr Ashok Atluri, Chairman and Managing Director will retire by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re-appointment. The aforesaid appointment/reappointment of Independent Director and Managing Director are subject to your approval. The Company has received declarations from all the Independent Directors of the Company confirming that they continue to meet with the criteria of independence as prescribed under sub-section (6) of Section 149 of the Companies Act, 2013 and under Clause 49 of the Listing Agreement with the Stock Exchanges. AUDITORS Statutory Auditors: At the 21st Annual General Meeting held on 27 September 2014, M/s Gokhale & Co., Chartered Accountants, were appointed as Statutory Auditors of the Company to hold office till the conclusion of the 24th Annual General Meeting to be held in the calendar year 2017. In terms of the first proviso to Section 139 of the Companies Act, 2013, the appointment of the auditors shall be placed for ratification at every Annual General Meeting. Accordingly, the appointment of M/s Gokhale & Co., Chartered Accountants, as Statutory Auditors of the Company, is placed for ratification by the shareholders. In this regard, the Company has received a certificate from the auditors to the effect that if they are reappointed, it would be in accordance with the provisions of Section 141 of the Companies Act, 2013. The Notes on the Financial Statements referred to in the Auditors' Report are self-explanatory and do not call for any further comments. Secretarial Audit: Mr Mahadev Tirunagari, Practicing Company Secretary was appointed to conduct secretarial audit for the financial year 2014-15. Pursuant to Section 204 of the Companies Act, 2013 and Rules thereunder, the Secretarial Audit Report for the financial year ended 31 March 2015 in form MR-3, is annexed to this Annual Report as Annexure 6. There are no qualifications in the Secretarial Audit Report. Internal Auditors: M/s Venkatadri & Co., Chartered Accountants have been appointed as Internal Auditors of the Company to conduct the Internal Audit on quarterly basis. The Audit Committee of the Board is apprised on the internal audit report and the action taken by the management. The Audit Committee also reviews the adequacy of internal control systems, reporting structure coverage and frequency of internal audit. AUDIT COMMITTEE For the year 2014-15, Audit Committee has been constituted as per the requirements of Section 177 of the Companies Act, 2013. The details of the composition of the Audit Committee as required under the provisions of Section 177(8) of the Companies Act, 2013, is given in the Corporate Governance Report furnished as part of the Annual Report. During the year under review, the Board has accepted all the recommendations of the Audit Committee. CORPORATE GOVERNANCE The Report on Corporate Governance along with a certificate from the Statutory Auditor of the Company with regard to the compliance of Corporate Governance as per Clause 49 of the Listing Agreement forms part of this Annual Report. PARTICULARS OF EMPLOYEES The table containing the names and other particulars of employees in accordance with the provisions of Section 197(12) of the Companies Act, 2013, read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is appended as Annexure 7 to the Board's report. ACKNOWLEDGEMENTS The Board of Directors thank the company's customers, suppliers, dealers, banks, financial institutions, Government and Regulatory authorities and consultants for their continued support. The Directors express their sincere gratitude to the shareholders and also wish to place on record their appreciation for the committed services rendered by all the employees of the Company. For and on behalf of the Board Ashok Atluri Chairman and Managing Director DIN: 00056050 Place: Hyderabad Date: 14 August 2015 |