DIRECTORS' REPORT TO, THE MEMBERS SPECIALITY RESTAURANTS LIMITED. Your Directors are pleased to present the Sixteenth Annual Report together with the audited Financial Statements of the Company for the financial year ended March 31, 2015. Financial Performance and the state of Company's affairs The Indian economy grew at the rate of 7.5% year-on-year in the last quarter of the financial year 2014-15 and at 7.3% for the entire financial year 2014-15 (provisionally), as per the Central Statistical Organisation. However, the broader growth indicators continue to be slow-moving. The 'Mid-Year Economic Analysis 2014-15' also expects the retail inflation measured in terms of Consumer Price Index (CPI) to be in the range of 5.1% -5.8 % in the next five quarters, which is encouraging. For the year under review, the retail inflation in March dropped to a three month low of 5.17% as compared to 8.25% in the corresponding period of the previous year. The Fine Dining Industry continues to face the twin challenges of higher costs and lower discretionary spends. The Fine Dining Market, part of the organized Chain Market Segment is still at a nascent stage in India. However, this market is likely to grow at a CAGR of around 15% over the next five years and is estimated to reach a size of Rs. 1,010 crore by 2018. The market segments of the food service industry that are right on top are the Quick Service Restaurants ("QSR") with 43% market share followed by casual dine-in at 31% while cafe chains, frozen desserts and ice-creams form 6% of the share followed by fine dining at 4%. The rest of the market is shared by pubs, bars, clubs and lounges. QSR and casual dine-in are popular with the working professionals while fine dining is family and occasion oriented. During the year under review, your Company commenced 14 restaurants out of which 10 are Company Owned Company Operated (COCO) while 4 are Franchise Owned Company Operated (FOCO). Out of the 4 FOCO restaurants, 2 represent international destinations in Dar es Salaam, Tanzania. At the end of the financial year 2014-15, your Company has 97 Restaurants and 18 Confectionaries. The total Income of your Company increased to Rs. 3070.9 million from Rs. 2736.8 million in the previous year recording a growth of 12.20%. The Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) amounted to Rs. 368.3 million (12% of the revenue) as against Rs. 438.0 million (16% of the revenue) in the previous year. The Net Profit after Tax was Rs. 94.5 million as against Rs. 188.9 million in the previous year. Amidst the challenging economic conditions, your Company cautiously proceeded with its expansion plan charted out for the year. Your Company has initiated measures to efficiently utilize its physical and human assets, to rationalize and re-engineer costs and to tactically increase margins while retaining the footfalls through reverse innovative measures. 3. Dividend on Equity Shares Your Directors are pleased to recommend a dividend of Rs. 1.00 per share (Previous Year Rs. 1.00 per share) for the financial year ended March 31, 2015. 4. Investment During the year under review, the Company had entered into a Share Purchase and Shareholders' Agreement with Love Sugar and Dough Private Limited (LSDPL), Mr. Nauzad Kersi Munshi and Ms. Tarannum Imtiaz Merchant, the Promoters of LSDPL for acquisition of 51% stake in LSDPL and accordingly acquired 51% stake in LSDPL by purchase of 5,100 equity shares of LSDPL for a consideration of Rs. 7.5 million and thus LSDPL became the Subsidiary of the Company with effect from December 30, 2014. The Board of Directors of the Company at their Meeting held on April 28, 2015 have approved the proposal for the sale of entire stake of 51% (5,100 equity shares) held in LSDPL for a consideration of Rs. 5.7 million back to its Promoters. The Company proposes to enter into a Share Sale Agreement with LSDPL and the Promoters of LSDPL for the proposed sale. In view of this, LSDPL would cease to be the Subsidiary of the Company upon completion of the sale transaction. 5. Employee Stock Option Scheme (ESOS) During the year under review, the Company has not granted any fresh stock option to its employees. Details of the shares granted under Employee Stock Option Scheme (ESOS), as also the disclosures in compliance with Section 62 of Companies Act, 2013, Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 and Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (the "SEBI Guidelines") are annexed as Annexure A which forms part of this report. Your Company's Auditors M/s. Deloitte Haskins and Sells LLP, Chartered Accountants, have certified that the ESOS has been implemented in accordance with the SEBI Guidelines and the resolutions passed by the Members of the Company in this regard. 6. Awards and Recognition Your Company's brand initiatives has been recognized and appreciated across forums. During the year under review your Company has won the following awards: 7. Directors and Key Managerial Personnel I. Directors Your Company has Seven (7) Directors of which Four (4) are Independent Directors and Three (3) are Executive Directors as on March 31, 2015. II. Cessation Mr. Vishal Sood (DIN 01780814) resigned from the Board w.e.f. March 20, 2015. The Board placed on record its appreciation for the valuable services rendered and contribution made by Mr. Vishal Sood during his tenure as Director of the Company. III. Independent Directors In terms of the definition of 'Independent Director' as prescribed under Clause 49 of the Listing Agreement entered into with the Stock Exchanges and Section 149 (6) of the Companies Act, 2013, the Company has received necessary declaration from each Independent Director under Section 149 (7) of the Companies Act, 2013, to the effect that he meet the criteria of independence laid down in Section 149 (6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The following Non-Executive Directors are Independent Directors of the Company: 1. Mr. Susim Mukul Datta 2. Mr. Jyotin Mehta 3. Mr. Tara Sankar Bhattacharya 4. Mr. Dushyant Mehta IV. Woman Director Mrs. Suchhanda Chatterjee is a Director since incorporation of the Company. Accordingly, the requirements of the provisions of Section 149 of the Companies Act, 2013 and Clause 49 of the Listing Agreement have been complied with by the Company. V. Managing Director and Whole-time Directors Mr. Anjan Chatterjee has been serving as the Managing Director of the Company since December 2007. Mrs. Suchhanda Chatterjee and Mr. Indranil Chatterjee have been serving as Whole-time Directors of the Company since July, 2010. VI. Appointment/Resignations of Key Managerial Personnel Mr. Anjan Chatterjee, Managing Director; Mrs. Suchhanda Chatterjee, Whole-time Director; Mr. Indranil Chatterjee, Whole-time Director; Mr. Rajesh Kumar Mohta, Executive Director-Finance and CFO and Mr. V.S. Satyamoorthy, Company Secretary are the Key Managerial Personnel of the Company as per the provisions of the Companies Act, 2013 and were already in office before the commencement of the Companies Act, 2013. None of the Key Managerial Personnel has resigned or appointed during the year under review. VII. Re-appointment of Whole-time Directors Mrs. Suchhanda Chatterjee (DIN 00226893) The Board of Directors of the Company at their meeting held on May 27, 2015, subject to the approval of the Members in the ensuing Annual General Meeting of the Company, approved the re-appointment of Mrs. Suchhanda Chatterjee, as Whole-time Director of the Company designated as Director-Interior and Design for a period of three years with effect from July 1, 2015. Mr. Indranil Chatterjee (DIN 00200577) The Board of Directors of the Company at their meeting held on May 27, 2015, subject to the approval of the Members in the ensuing Annual General Meeting of the Company, approved the re-appointment of Mr. Indranil Chatterjee, as Whole-time Director of the Company designated as Director-Commercial Operations for a period of three years with effect from July 1, 2015. Further details about the above Whole-time Directors seeking re-appointment in the ensuing Annual General Meeting are annexed to the Notice which is being sent to the Members alongwith the Annual Report. VIII. Evaluation of Board's Performance The Nomination and Remuneration Committee and the Board of Directors at their meetings held on March 24, 2015 had laid down the criteria for the performance evaluation of Directors (Executive and Non-Executive Independent Directors including Chairman), Committees of the Board and the Board as a whole and the evaluation process for the same in compliance with the requirements under the Companies Act, 2013 and Clause 49 of the Listing Agreement. The manner in which the formal annual evaluation of the Directors, Committees of the Board and the Board as a whole is to done is given in the report on Corporate Governance which forms part of the Annual Report. The performance of the Members of the Board, the Committees of the Board and the Board as a whole was evaluated at the Meeting of Independent Directors and the Board of Directors held on March 24, 2015. IX. Policy on Directors' remuneration and other details The Company's policy relating to remuneration of Directors, Key Managerial Personnel and other Employees as stipulated under Section 178 (4) of the Companies Act, 2013, has been disclosed in the Corporate Governance report, which forms part of the Directors' report. X. Number of Board Meetings The Board of Directors met Seven (7) times during the financial year 2014-15. Detailed information on the Meetings of the Board is included in the report on Corporate Governance which forms part of this Annual Report. A separate Meeting of Independent Directors was also held during the financial year 2014-15. Besides the above, several Committee Meetings of the Board were held during the financial year 2014-15, the detailed information of which is included in the report on Corporate Governance. XI. Change in Share Capital The Paid-up Equity Share Capital of the Company as on March 31, 2015 was Rs. 46,95,76,570/-. During the year under review, there was no change in the issued, subscribed and paid-up share capital of the Company. XII. Related Party Transactions All the related party transactions during the year were entered in the ordinary course of business and on arm's length basis. There were no materially significant related party transactions entered during the year by your Company. Accordingly, no transactions are being reported in Form No.AOC-2 in terms of Section 134 of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014. All Related Party Transactions are presented to the Audit Committee and the Board for approval. Omnibus approval is obtained for the transactions which are foreseen and repetitive in nature. The Policy on Materiality of Related Party Transactions and also on Dealing with Related Party Transactions as approved by the Board is uploaded on the Company's website at the following web link:- <http://www.speciality>. co.in/pdf/policies/POLICY ON MATERIALITY OF RELATED PARTY TRANSACTIONS AND ALSO ON DEALING WITH RELATED PARTY TRANSACTIONS.pdf The details of the transactions with Related Parties are provided on page no.97 under Financial Statements. 8. Report on Corporate Governance The report on Corporate Governance as stipulated under Clause 49 of the Listing Agrement/s forms part of the Annual Report. The requisite Certificate from the Practising Company Secretaries confirming compliance with the conditions of Corporate Governance as stipulated under the aforesaid Clause 49 is attached to this report. 9. Management Discussion and Analysis Report As stipulated under Clause 49 of the Listing Agreement/s with the Stock Exchanges, Management Discussion and Analysis Report for the financial year under review is provided in a separate section forming part of the Annual Report. 10. Composition of Audit Committee The details relating to the composition of the Audit Committee are provided in the Report on Corporate Governance which forms part of this report. 11. Corporate Social Responsibility In terms of Section 135 of the Companies Act, 2013, the Board of Directors of your Company has constituted a Corporate Social Responsibility Committee ("CSR Committee") under the Chairmanship of an Independent Director of the Company. The CSR Committee of the Board has formulated a CSR Policy which has been uploaded on the Company's website at the following web link: www.speciality.co.in The Annual Report on CSR activities as prescribed under Section 135 of the Companies Act, 2013 is annexed as Annexure B which forms part of this report. 12. Vigil Mechanism In pursuance of the provisions of Sections 177(9) and 177(10) of the Companies Act, 2013, a Vigil Mechanism for Directors and Employees to report genuine concerns has been established. The Vigil Mechanism Policy has been uploaded on the Company's website at the following web link: www.speciality.co.in 13. Risk Management Your Company has constituted a Risk Management Committee in November, 2014 for complying with the requirements of the Companies Act, 2013 and Clause 49 of the Listing Agreement with the Stock Exchanges to implement the risk management plan and policy of the Company. The Committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The Audit Committee has additional oversight in the areas of internal financial and risk management systems. 14. Particulars of loans, guarantees or investments Disclosure on particulars of loans, guarantees or investments made during the financial year 2014-15 under Section 186 of the Companies Act, 2013 is provided on page no. 98 under Financial Statements. 15. Consolidated Financial Statements Subsequent to the year end, the Company has proposed to enter into a Share Sale Agreement for the proposed sale of its entire stake of 5,100 equity shares of Love Sugar and Dough Private Limited ("LSDPL") aggregating to 51% of the issued and paid-up equity share capital of LSDPL held by the Company for an aggregate consideration of Rs. 5.7 million. As the control was intended to be temporary, no consolidated financial statements have been prepared by the Company. 16. Internal Financial Control Systems and their adequacy Your Company has laid down adequate internal financial controls, through requisite policies and procedures. Such controls are operating effectively to ensure accuracy and completeness of the accounting records, the timely preparation of reliable financial information alongwith the orderly and efficient conduct of business 17. Auditors and Audit Reports I. Statutory Auditors and their report M/s. Deloitte Haskins and Sells LLP were appointed as Statutory Auditors of the Company at the Fifteenth Annual General Meeting held on September 15, 2014 to hold office until the conclusion of the Annual General Meeting to be held in the year 2019. As per the provisions of Section 139 of the Companies Act, 2013 the appointment of Auditors is required to be ratified by the Members at every Annual General Meeting. A resolution for ratification is included in the Notice which is being sent to the Members along with the Annual Report. II. Secretarial Auditor and Secretarial Audit Report Pursuant to the provisions of Section 204 of the Companies Act, 2013, your Company had appointed M/s. GMJ & Associates, Company Secretaries as Secretarial Auditor to conduct the Secretarial Audit for the financial year 2014-15. The Report of the Secretarial Auditor for the financial year 2014-15 is annexed as Annexure C which forms part of this report. There were no audit qualifications in the Statutory Auditors' Report as well as the Secretarial Audit Report for the financial year 2014-15 as annexed to this Annual Report. 18. Particulars of Employees The ratio of remuneration of each director to the median employee's remuneration and other details in terms of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed as Annexure D which forms part of this report. A Statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure E which forms part of this report. 19. I. Statutory Disclosures i. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The activities of the Company are not covered under the disclosures required as per the provisions of Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8 (3) (A & B) of the Companies (Accounts) Rules, 2014 regarding conservation of energy and technology absorption. ii. Foreign Exchange Earnings and Outgo The disclosures required as per the provisions of Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8 (3) (C) of the Companies (Accounts) Rules, 2014 regarding foreign exchange earned in terms of actual inflows and Foreign Exchange outgo during the year under review in terms of actual outflows are given below: iii. No written complaints have been received by the Company pursuant to Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. iv. No stock options were granted to the Directors of your Company during the year under review. II. 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: i. Details relating to deposits covered under Chapter V of the Companies Act, 2013. ii. Issue of equity shares with differential rights as to dividend, voting or otherwise. iii. Issue of shares including sweat equity shares to employees of the Company under any scheme save and except Employee Stock Option Scheme referred to in this Report. iv. Neither the Managing Director nor the Whole-time Directors of the Company receive any remuneration or commission from the subsidiary company. v. 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. 20. Extracts of Annual Return Pursuant to Sections 134 (3) (a) and 92 (3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the extracts of Annual Return as at March 31, 2015 is annexed as Annexure F which forms part of this report. 21. Directors' Responsibility Statement The Directors confirm that:- i. in the preparation of the annual accounts for the year ended March 31, 2015, the applicable accounting standards have been followed and no material departures have been made from the same; 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 the affairs of the Company at the end of the financial year 2014-15 and of the profit of the Company for that period; iii. they have 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. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls for the Company and such internal financial controls are adequate and operating effectively; and vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. 22. Utilisation of net proceeds from the Initial Public Offering ("Issue") In terms of the schedule of deployment of net proceeds from the Issue, disclosed in the Prospectus dated May 22, 2012 (the "Prospectus"), the Company had proposed to utilise Rs. 1,316.0 million towards development of new restaurants, Rs. 151.0 million towards development of a food plaza, Rs. 94.2 million towards repayment of portion of term loan facilities and Rs. 10.5 million towards general corporate purpose in the financial years 2012-13 to 2014-15. The details of utilization of the IPO Proceeds as of March 31, 2015 and the balance outstanding as on March 31, 2015 are provided in the Report on Corporate Governance. In view of the economic slow-down and decrease in the discretionary spend of the customers the Company has been unable to utilize Rs. 578.5 million. Accordingly, your Company will be seeking approval of the Members to vary the Objects of the Issue as disclosed in the Prospectus dated May 22, 2012 for the amount unutilized as of March 31, 2015. 23. Acknowledgement Your Directors would like to express their appreciation for the assistance and co-operation received from the Banks, Government Authorities, Customers, Vendors and Members during the year under review. Your Directors also wish to place on record their appreciation for the committed services by the Executives, Staff and Employees of the Company. For and on behalf of the Board Speciality Restaurants Limited Susim Mukul Datta Chairman Date: May 27, 2015 Place: Mumbai. |