DIRECTORS REPORT Your Directors present their 20th Annual Report and the audited statement of accounts for the year ended 31st March 2015. The financial statements have been presented in the new format in accordance with the changes brought about by the Revised Schedule III to the Companies Act, 2013. 2. PERFORMANCE: During the financial year under review your Company recorded a Turnover of Rs. 515.52 crores (Prev. Year: Rs. 443.30 cr.) including Excise Duty of Rs. 12.96 crores (Prev. Year: Rs.10.86 cr.) and Inter-divisional transfers of Rs. 108.00 crores (Prev. year: Rs.93.04 cr.). The loss before finance cost and depreciation is Rs. 13.02 crores. Loss before tax is Rs. 27.54 crores and after adjustments relating to payment of Income Tax pertaining to earlier years and Deferred Tax, the Loss after tax is Rs. 16.17 crores. The decrease in profit is due to lesser realisation besides increase cost of production. 3. DIVIDEND: The Board of Directors recommends a dividend of Re.0.10 per equity share of face value of Re.1/- each on the Paid-up Equity Capital for the year ended 31.03.2015 as against Re.0.85 per equity share, approved for the previous year ended 31.03.2014. The dividend recommended by your Directors, if approved at the ensuing Annual General Meeting by the Shareholders would be paid within the stipulated time. 4. SHARE CAPITAL AND RESERVES: As the Company sustain loss in the financial year under review, no amount was transferred to General Reserve, and the same stood reduced to Rs.112.09 crores on account of transitional effect arising out of re-computation of depreciation on various Assets in terms of Part 'C' of Schedule II of the Companies Act, 2013. The total Reserves and Surplus was reduced to Rs.204.20 crores as on 31.03.2015 (as against Rs. 224.28 crores as on 31.03.2014) on account of loss (Rs.16.17 cr) and transitional effect of depreciation (Rs.3.91 cr.). 5. MANAGEMENT DISCUSSION AND ANALYSIS: a. Sugar Industry - Opportunities, Threats and Future Outlook: Opportunities: The long term outlook for sugar remains positive and promising on account of: • Enhancement of Import Duty on raw sugar from 25% to 40%, will help in reduction of import of raw sugar and thereby pave way for reduction in sugar stock. • Mandatory blending of Ethanol with petrol will boost the revenue of sugar mills and profitability. • Growing energy consumption in India allowing the sugar industry to play a vital role. • Environmental friendly power generated by Cogeneration Units equipped with high-pressure boilers and turbines that intelligently use the fuel to get optimum energy output. • Expected flow of funds from Trading of Renewable Energy Certificate (REC). • More emphasize on Bio-composting process and consequent efforts to convert organic and inorganic matter into bio-manure to ensure zero discharge from the distillery combining with press mud. • Growing demand for bio manure, which works as the perfect soil conditioner? Bio manure made from distillery and organic matter does not allow leaching of chemicals and hence can offer a solution to the problem of depletion of soil productivity. Threats: Sugar industry is at present confronted by the following threats: • Mismatch between supply and demand of sugar. Supply far exceeding the demand on account of glut in sugar production. • Continuous fall in sugar price as opposed to increased cost of production, resulting in loss.. • Dearth in availability of farm labour for harvesting, transportation, loading and unloading of sugar cane and sugar. • The spurt in cane procurement prices is expected to remain volatile for a couple of years. • Cyclical nature of industry and local climatic conditions over the crop affecting both the quantity and quality of cane available. • Sugar weightage in WPI. • Short crushing season. • Shrinkage of sugarcane area under cultivation due to growing urbanisation and availability of many alternate cash crops. Future Outlook: The future outlook of sugar would depend on the following: • Development of high breed varieties of sugarcane suitable for Indian climatic conditions and to achieve vertical growth in sugarcane productivity. • Development of suitable sugarcane harvesting machine for Indian soil conditions and operable in fragmented land holdings. • Swift adaptation of new cultivation method for mechanised harvesting. • Agro-climatic conditions in major sugar-producing states. • Permitting Green Energy producers to market directly to third parties. b. REVIEW OF OPERATIONS: i. SUGAR UNITS AT VUYYURU AND LAKSHMIPURAM: The summary of cane crushed, sugar bagged, etc. of both the Sugar Units for the last two seasons and financial year wise are presented herein below: ii. INDUSTRIAL CHEMICALS / COGENERATION / OTHER UNITS: Vuyyuru Distillery Unit produced 106.24 lakh litres during the year ended 31.03.2015 as against 78.08 lakh litres during the previous financial year. As against this, the said Unit sold 108.56 lakh litres valued at Rs. 34.91 crores during the year under review as against 79.96 lakh litres valued at Rs. 25.65 crores during the previous year. The Bio-fertilizer unit at Vuyyuru sold about 1.33 lakh Qtls valued at Rs. 5.88 crores as against 1.63 lakh qtls valued at Rs. 6.17 crores during the previous year. Cogeneration Unit at Vuyyuru produced 35,518 MW of power during the financial year under review as against 31,373 MW in the previous year, and the Lakshmipuram Unit produced 7,028 MW of power as against 7,189 MW in the previous year. In all, total export of electrical energy was 14,546 MW resulting in a turnover of Rs. 5.63 crores as against 12,422 MW at a turnover of Rs. 4.48 crores (excluding the differential tariff realised for the earlier years amounting to Rs.2.67 crores) during the previous year. The Calcium Lactate plant contributed Rs. 1.97 crores towards its turnover of the Company as against a turnover of Rs. 2.09 crores during the previous year. c. INTERNAL CONTROL SYSTEMS: The Company has a well-established internal control system in place to ensure smooth functioning of operations. The control mechanism involves well-documented policies, authorisation guidelines commensurate with the level of responsibility and standard operating procedures. The Internal Auditor periodically reviews and makes continuous assessments of the adequacy and effectiveness of the internal control and systems. The Board, Audit Committee and the Management review the findings and recommendations of the Internal Auditor and take corrective action wherever necessary. The Company is committed in its endeavour to ensure an effective internal control environment that provides assurance on the effectiveness of operations, statutory compliance, and reliability of financial reporting and security of assets. d. HUMAN RESOURCES: The Company had 886 employees, including non-seasonal employees at the sugar units, as on 31.03.2015. The Company ensures high standards of safety for its employees and periodically conducts meetings to minimize operational hazards. The Company believes that people are the key to success and hence the human resources function pro-actively develops innovative and business focussed methods to attract, motivate, develop and retain talented, competitive manpower sources. e. AWARDS: During the year under review, your Company had received following Awards in respect of outstanding performance in Industrial Safety and Industrial Relations: ? WINNER - NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India -Under Scheme I - Based on Lowest Average frequency Rate in Industry (Sugar Factory) - Vuyyuru Unit ? WINNER - NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India -Under Scheme II - Based on accident-free year (Sugar Factory) - Vuyyuru Unit ? WINNER - NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India - Under Scheme III - Based on Lowest Average frequency Rate in Industry (Sugar Factory) - Lakshmipuram Unit ? WINNER - NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India -Under Scheme IV - Based on accident-free year (Sugar Factory) - Lakshmipuram Unit ? WINNER - NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India - Under Scheme VII - Based on Lowest Average frequency Rate in Industry (Distillery) - Vuyyuru UnitWINNER -NATIONAL SAFETY AWARD for Year 2012 by Ministry of Labour, Government of India - Under Scheme VIII - Based on accident-free year (Distillery) - Vuyyuru Unit ? NATIONAL ENERGY CONSERVATION CERTIFICATE OF MERIT - by Ministry of Power, Government of India. ? SURAKSHA PURASKAR - NSCI SAFETY AWARD 2013 (Mfg. Sector) Bronze Trophy and Certificate - by National Safety Council of India, Mumbai (in recognition for developing & implementing very effective Management Systems & Procedures and achieving very good performance in OSH for the assessment period of three years 2010 - 2012). f. OTHERS: The Company has valid Pollution Control clearances in respect of both Air and Water for sugar units at Vuyyuru and Lakshmipuram and also for Distillery unit at Vuyyuru. The Company has taken necessary steps for renewal orders from APPCB in respect of Calcium Lactate and Bio-fertilizer and Mycorrhiza and Bio-Compost Plants. The Company also takes adequate steps to safeguard the environment. g. CAUTIONARY NOTE: It is explicitly stated that some of the statements in this Management Discussion and Analysis report may be "forward looking" within the meaning of applicable laws and regulations. It may so happen that the actual events or results may be different from what the Board of Directors / Management perceives in terms of the future performance and outlook due to factors having a bearing on them and which are unforeseeable. 6. FUTURE PLANS: > To identify new technologies wherever it is possible and makes use of the same for improved results. > Complete mechanisation of sugarcane cultivation and harvesting in order to reduce the excessive dependence on manpower and reduce cost. > In-depth study is in progress in Distillery division to adopt new technologies for improving the yield and reduce the discharge of spent wash. > Identifying value-added products from the by-products and to promote renewable energy from industrial waste. 7. PERSONNEL AND INDUSTRIAL RELATIONS: The Employee relations scenario continued to be harmonious and congenial. Acknowledging this, your Company has been awarded for outstanding efforts in maintaining cordial Industrial Relations and Labour Welfare by Government of Andhra Pradesh. 8. DIRECTORS: Shri. Vinod R. Sethi, Director, retires by rotation at this AGM and is eligible for reappointment. He is proposed to be reappointed as a Director at this AGM. The Board recommends his reappointment and accordingly, resolution seeking approval of members for his reappointment has been included in the Notice for the forthcoming Annual General Meeting along with his brief profile. 9. PARTICULARS OF EMPLOYEES: Statement required under Section 197 of the Companies Act, 2013 read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is not attached to this Report as none of the employees was in receipt of remuneration as prescribed under this Section and Rules. 10. DIRECTOR'S RESPONSIBILITY STATEMENT: As required by Section 134 of the Companies Act, 2013, your Directors certify as follows: i. that in the preparation of the annual accounts, the applicable Accounting Standards have been followed and that there were no material departures there-from; ii. that 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 ended 31st March 2014 and of the Profit of the Company for that year; 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, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. that the Directors had prepared the annual accounts on a going concern basis. v. That the directors had laid down internal financial controls to be followed by the Company and that such financial controls are adequate and are operating effectively. vi. That 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. 11. CREDIT RATING: Credit Analysis & Research Ltd (CARE) has upgraded the Credit Rating on your Company as 'CARE 'A' (Single A) for long term bank facilities and 'CARE A1' (A One) for short term bank facilities assigned to your Company for the current year. Measured through industry yardstick these ratings are considered to be having adequate degree of safety and very strong degree of safety respectively, for a sugar mill. 12. ISO CERTIFICATION: Your Company has been certified consecutively for the past seven years under BS EN ISO 14001:2004, BS EN ISO 9001:2000, and OHSAS 18001:2007 for Manufacture of sugar, associated products and site activities, and Occupational Health and Safety Management system by Lloyd's Registry Quality Assurance Limited. 13. RISK MANAGEMENT: The Company has an effective risk management under which all probable risks are periodically identified, assessed and acted upon to minimize and mitigate their impact. These processes are subject to periodical review by the Management. Some of the risks identified are enumerated below: i. Raw Material Risk: Sugarcane being the main raw material for sugar, any disturbance in its timely availability will have a substantial impact on the operational cost. This in turn has a significant adverse effect since the market value does not factor the variable cost determined by the climatic conditions and the cane economics. Mitigation Measure: The Company always maintains healthy relationship with its farmers. It is one among very few companies in sugar industry paying its farmers within the stipulated time. The risk of raw material short supply is mitigated to a large extent by the goodwill and reputation for ethical dealings earned by the Company since inception. The experiments in farm mechanisation, drip irrigation, improved cane varieties,carefully monitored scheduling of cane planting and harvesting boost the confidence of the Company in mitigation of the risk. ii. Policy Risk: Central and State governments regulate the cane policies and they have a larger control on this industry by determining the raw material price and also influence the sugar selling price. The controls exercised by the Union and State governments over command area demarcation from time to time. Molasses movement control. Mitigation Measure: The Company is a member of South Indian Sugar Mills Association (SISMA) and works closely with it towards developing appropriate policy recommendations to represent the industry needs to the government. Formulation of policy on Ethanol doping, review of cogeneration policy, and review of sugar weightage in WPI are some of the issues addressed in close liaison with SISMA. iii. Cyclicality / Commodity Risk: The sugar price is determined by the cyclicality of the sugar business and hence it affects the profitability. Sugar being a commodity traded across the world, its price is influenced by the various factors including the normal supply and demand. Mitigation Measure: The Company takes the following measures, which enable the Company to insulate itself against price risk. >~ More focus on value-added downstream products >~ Integration of sugar with cogeneration power and alcohol. 14. CORPORATE GOVERNANCE REPORT, MANAGEMENT DISCUSSION AND ANALYSIS AND OTHER INFORMATION REQUIRED UNDER COMPANIES ACT, 2013 AND LISTING AGREEMENT: As per Clause 49 of the Listing Agreement with the Stock Exchanges Corporate Governance Report with Auditor's Certificate thereon and Management Discussion and Analaysis Report are attached and form a part of this Report. Various information to be disclosed under the Companies Act and the Listing Agreement are set out in Annexure I and forms a part of this Report. 15. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: The particulars as prescribed under Section 134 of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are set out in Annexure II of this Report. 16. CORPORATE SOCIAL RESPONSIBILITY (CSR): The CSR policy of the Company and the details about the measures taken by the Company on CSR activities during the financial year as required under Companies (Corporate Social Responsibility Policy) Rules, 2014, have been disclosed in Annexure III. 17. BOARD EVALUATION: During the financial year, the Board of Directors adopted a formal mechanism for evaluation of its performance as well as that of its Committees and individual Directors including Chairman of the Board. Through a structured evaluation process covering various aspects of the Board's functioning such as governance issues, performance of specific duties and obligations, experience and competencies. Separate exercise was carried out to evaluate the performance of individual Directors including the Chairman of the Board based on the parameters such as attendance at Board / Committee Meetings, contribution at Board / Committee Meetings and guidance given to Management and also based on questionnaire and feedback from all the Directors as a whole, Committee and self-evaluation. A separate meeting of Independent Directors was convened on 13.11.2014 which reviewed the performance of the Board as a whole, the Non-Independent Directors and the Chairman of the Board. After the conclusion of the Independent Directors Meeting, the feedback of Independent Directors were discussed by the Chairman of Nomination and Remuneration Committee with the Chairman of the Board, covering the performance of the Board as a whole, performance of Non-Independent Directors and the performance of Chairman of the Board. The performance evaluation of the Board was carried out based on the following: >~ Board's structure and composition >~ Establishment and Delineation of responsibilities to Committees >~ Efficacy of communication with external stakeholders >~ Effectiveness of Board process, information and functioning. 18. INDUCTION AND TRAINING OF BOARD MEMBERS: On induction to the Board, the concerned director is issued a letter of appointment which spells out in detail, the terms of appointment, duties, responsibilities and other commitments. Each newly appointed director is taken through a formal induction programme which includes interactive sessions with Executive Committee members, functional heads and visit to the manufacturing site. The Managing Director and the Chairman of the Board apprise the appointee regarding the subtle aspects of Company's manufacturing, marketing, finance and other activities. The CFO and the Company Secretary brief the appointee regarding financial, legal and compliance related responsibilities. 19. FIXED DEPOSITS: As on 31.03.2015 your Company had held deposits of Rs. 33.04 crores as against Rs. 35.59 crores as on 31.03.2014. As at 31.03.2015, there were matured and unclaimed deposits amounting to Rs. 0.44 crores in respect of 67 deposits. As on the date of this report, amount of unclaimed deposits is Rs.0.37 crores. In compliance with the provisions of Investors Education and Protection Fund constituted under Section 124 of the Companies Act, 2013, the Company has transferred two deposits amounting to Rs.55,000/-which remained unclaimed beyond the period of seven years from the date of maturity to the Investor Education and Protection Fund. 20. SUBSIDIARY COMPANIES: Your Company has two wholly-owned Subsidiaries, viz, The Eimco-K.C.P.Limited and KCP Sugars Agricultural Research Farms Limited. There are no Associated Companies within the meaning of section 2(6) of the Companies Act, 2013 and there has been no material change in the nature of business of the subsidiaries. The income from the sale of products, services and other income of your wholly owned subsidiary The Eimco-K.C.PLtd was at Rs. 35.83 crores (PY Rs. 52.01 crores) with a reduced profit of Rs. 2.06 crores (PY Rs. 5.44 crores) for the year ended 31.03.2015. The other wholly owned subsidiary, KCP Sugars Agricultural Research Farms Ltd, has reported an Income from the sale of products, services and other income of Rs. 0.28 crores for the financial year ended 31.03.2015 as against Rs. 0.10 crores for the previous year ended 31.03.2014. The Company earned a profit of Rs. 0.18 crores as against the loss of Rs. 0.001 crores in the previous financial year. In terms of proviso to section 139(3) of the Companies Act, 2013, the salient features of the financial statement of the subsidiaries is set out in the prescribed form (AOC-1) under Rule 5 of the Companies (Accounts) Rules, 2014 (refer Annex. V). 21. AUDITORS: Pursuant to the provisions of section 139 of the Companies Act, 2013 and the Rules framed under Companies (Audit & Auditors) Rules, 2014, M/s.B.Purushottam & Co., Chartered Accountants, were appointed Statutory Auditors of the Company from the conclusion of 19th Annual General Meeting (AGM) held on 11th September 2014, till the conclusion of the 22nd AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. A written consent for appointment as Auditors and also a Certificate confirming that the appointment, if made, shall in accordance with the conditions as prescribed and in conformity with the criteria prescribed under section 141(3) of the Companies Act, 2013, have been received from them. The matter relating to the appointment of B. Purushottam & Co. Chartered Accountants as statutory auditors of the Company is placed before the members at this 20th Annual General Meeting for ratification in pursuance of First Proviso to Section 139 (1) of the Companies Act, 2013. 22. COST AUDIT: Mr. V. Srinivasan had been appointed by the Board of Directors of the Company as Cost Auditor to conduct the Cost Audit in respect of Sugar, Industrial Alcohol, Electricity, Fertilizer and Calcium Lactate for the financial year 2014-15, and his remuneration was ratified by the members at the 19th Annual General Meeting held on 11.09.2014. The Cost Audit Reports for 2014-15 are due for submission on or before 27.09.2015. The Cost Audit reports for 2013-14 were e-filed with the Ministry of Corporate Affairs, New Delhi, vide, SRN S-31518954 dt. 02.10.2014. In pursuance of Section 148 of the Companies Act, 2013, your Directors, on the recommendation of the Audit Committee, subject to ratification of his remuneration by the shareholders at this AGM, have appointed Shri. V. Srinivasan, Cost Accountant, Chennai, as the Cost Auditor to conduct the Cost Audit of Sugar, Industrial Alcohol, Electricity, Fertilizer, Calcium Lactate and CO2, for the financial year ending 31st March 2016. Mr.V.Srinivasan has confirmed that his appointment is within the limits of section 148 of the Companies Act, 2013 and has also certified that he is free from any disqualifications specified under section 148 of the Companies Act, 2013. The Audit Committee has also received a certificate from the said Cost Auditor certifying his independence and arms length relationship with the Company. 23. SECRETARIAL AUDIT In pursuance of Section 204 of the Companies Act, 2013, M/s. V. Mahesh & Associates, Company Secretaries in practice have been appointed as Secretarial Auditors for the financial year 2014-15 and their report is annexed with the Board's Report (Ref. Annexure VI). 24. DOCUMENTS PLACED ON COMPANY'S WEBSITE: www.kcpsugar.com (as per Companies Act, 2013 & Listing Agreement with Stock Exchanges) • Details of unpaid dividend as per section 124. • Corporate Social Responsibility Policy as per section 135(4)(a) • Stand-alone and Consolidated Financial statements of the Company along with relevant documents as per the 3rd proviso to section 136(1). • Separate audited accounts in respect of subsidiaries as per the 4th proviso to section 136(1). • Details of Vigil Mechanism for Directors and Employees to report genuine concerns as per section 177(10). • The Terms and Conditions of appointment of Independent Directors in pursuance of Schedule IV {(IV) (6)} of the Companies Act, 2013. • Disclosures under SEBI (Prohibition of Insider Trading) Regulations, 2015, and Code of Fair Disclosure and Conduct. 24. ACKNOWLEDGEMENT: Your Directors would like to take this opportunity to express their deep sense of gratitude to the Cane growers, the Shareholders, Banks, Institutions, Central and State governments, Depositors, Sugar Dealers, Business Associates, as also other regulatory authorities for their continued support and cooperation. Your Directors would also to place on record their sincere appreciation for the total commitment, dedication and hard work put in by all the employees, which contributed to the Company's progress during the year under review. For and on behalf of the Board of Directors VINOD R. SETHI Executive Chairman Date : 29.05.2015 Place : Chennai |