AFFLUENCE

DIRECTORS REPORT

DEAR  MEMBERS,

As you are aware that, your Company has successfully completed the fortythree operating years since from inception of the Company. The Directors of your company have an immense pleasure in presenting before you the 43rd Annual Report and the Audited Accounts for the year ended 31st March, 2014.

We, as the Directors of your Company, are very eager to share the ups and downs in Companys affairs during the operating year 2013-14.  We are presenting before you, the significant information as per the requirements of Section 217 of the Companies Act, 1956.

1.    STATE OF COMPANYS AFFAIRS:

 As per the requirements of section 217 (1)(a) of the Companys Act, information relating to the  state of Companys affairs have been furnished.

a. Financial Results

       ( Rs. In Lakhs)

 b. Crushing Operations and Sugar Produced:

The Crushing operations were started on 17TH October, 2013 and closed on 28th February, 2014. Your Company crushed 4,54,550 MTs of sugarcane during the Financial Year 2013-14. 

The Company is anticipating to crush about 7,00,000 MTs of Sugarcane for the ensuing season 2014-15

c. Area covered under sugarcane cultivation:

The management is making continuous and sincere efforts of bringing more and more land under sugarcane cultivation.  The following are the figures of areas of actual sugar cane cultivation in the last four years and the estimation for the ensuing year.

The Management is making sincere efforts to ensure the adequate supply of sugarcane to the Company.

 d. Sugar Export:

Due to various regulatory constraints and domestic demand for cane sugar, Company did not have any export earnings during the year under review.

 e. Co-gen and Power Export:

During the year the Company has exported 12,77,25,600 units of power to KPTCL compared to the previous years export of 11,15,47,200 units and import of 2,77,200 units of power from KPTCL against import of 1,23,600 units during the previous year. The Co-gen unit has worked for 294 days during the year against 343 days during previous year.

2. Reserves and Surplus:

The entire profit for the Financial Year has been shown under the General Reserve under a separate head, the statement as per the requirement of Section 217 (1)  (a ) of the Companies Act, 1956.

3. Material Changes and Commitments:

No material changes and commitments, affecting the financial position of the Company have been occurred between the end of the financial year to the date of report in terms of section 217 (1) (d) of the Companies Act, 1956.

4. Conservation of energy, technology absorption & Foreign exchange:

4.a  Conservation of energy:

Conservation of energy is the continuous efforts of the management. The management is aimed at achieving maximum reduction in in-house energy consumption and of energy used in sugar production. Similarly the management is making continuous efforts to conserve the energy by reducing the consumption per unit of sugar produced. No additional investment is envisaged by the management. The management is making efforts to conserve the energy by improvement of efficiency in energy production and sugar production.  The information as required by Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is furnished in FORM A annexed to this report.

4.b  Technology absorption:

The management is adopting the latest technologies in sugar production process stage by stage.

The information as required by Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is furnished in FORM B annexed to this report.

4.c Foreign Exchange Earnings and Outgo:

Earnings:

As stated earlier the Company did not have any export earnings during the year.

Out goings:

1)      The Company has imported 44,000 MTs of Steaming Coal for its Co-generation Unit and used USD 34,55,320 (Equivalent to INR 1934.97 lakhs)

5. NO CHANGE IN THE NATURE OF BUSINESS:

In terms of section 217(2) of the Companys Act, 1956, there is no material for the appreciation of the state of affairs of the Company which in the opinion of the Board is harmful to the business of the Company due to change in the nature of companys business.

6. EMPLOYEES REMUNERATION:

In terms of section 217(2A) of the Companys Act, 1956, there is no employee receiving the remuneration exceeding the limit as specified in the clauses of this section.

7. DIRECTORS RESPONSIBILITY STATEMENT:

i)                    In the Preparation of the annual accounts, the applicable accounting standards have been followed.

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 on 31st March, 2014 and of the Profits of the Company for the year under review.

iii)                 The Directors have 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)                The Directors have prepared the accounts for the financial year ended 31st March, 2014 on a going concern basis.

8. There is no matter to be reported with reference to Section 217(2B) of the Companies Act, 1956 as such matters does not exist during the financial year.

9. There is no matter to be reported with reference to Section 217(3) of the Companies Act, 1956 as such matters does not arise.  

10   SUGAR INDUSTRY OVERVIEW

The Sugar Industry scenario for the ensuing Season 2014-15 is not so encouraging.  During the previous year 2013-14 there was a drastic decrease in the sugar prices and the Company has incurred losses in the sugar segment.  The policy of the Government has also not encouraging for the Sugar Industry.  The International market for sugar is also weak and there is no scope for export of Sugar from India since the global production of Sugar is surplus.  Any drastic steps on the part of the Government to encourage the sugar factories during the ensuing season 2014-15 may help the industry to recover from the past losses.

11. GOVERNMENT MEASURES:

 The Government has decontrolled the Sugar Industry relaxing from Levy quota and monthly release mechanism in view of huge piling up of sugar stock, which was almost amounting to Rs. 12700 crore during the current season.  All the State Governments have been authorized to buy the Sugar from the open market for Public Distribution System.

 12.  SUGAR POLICY:

The Central Governments dual policy of Sugar distribution has been done away during the season 2013-14.  Now the open market policy is prevailing.

13. GOVERNMENT POLICY ON POWER SECTOR

The Government of Karnataka does not have a stable energy procurement policy. Consequently the Independent Power Producers are in state of dilemma or confusion. The energy sector needs a firm and remunerative policy by the State Government of Karnataka to sustain the stable and remunerative operation of Independent power producers including Co-gen power plants.

14.  EFFLUENT TREATMENT PLANT:

Companys Effluent has been brought down to the standards prescribed by the Karnataka State Pollution Control Board and the same has been informed to the said Board. The Company has renewed the licenses under both the Water and Air pollution control Act, from the Pollution Control Board.

15. UPGRADATION OF TECHNOLOGY:

The Management believes in the principle that the change is inevitable, and the Company should be equipped to face the challenges on account of the inevitable changes. As has been done in the past, the Company is looking for upgrading its plant for increasing the efficiency in production and to produce quality sugar.

16.MANAGEMENT OUT LOOK FOR 2014-15

The production of sugar for the ensuing season 2014-15 will be in surplus due to good rain.  The quantum of cane availability is more.  The Management is not expecting any sharp increase in the domestic sugar prices for the next year because of surplus production of sugar in India.  Even though the Central Government has increased import duty of Raw Sugar, the domestic prices are not picking up.

17.  MANAGEMENT POLICY:

The Management believes its policy of continuous effort to produce the high quality of white sugar through adoption of modern & advanced technology from time to time.  It believes in team effort of all people who are directly and indirectly working with the Company as one family.  It strongly believes in give and take policy that is more production & more efficiency means more rewards. 

18. CORPORATE GOVERNANCE:

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis Report and a report on the Corporate Governance are given as Annexure A & B respectively to this report.

19.  LISTING FEES

 The Equity shares of the company continue to be listed with Bangalore Stock Exchange. The listing fee for the year 2013-14 has been paid.

20. AUDITORS:

M/s Santhappa & Company, Chartered Accountants, Davangere, were appointed as statutory auditors of the Company at the last Annual General Meeting and will be holding the office till the conclusion of this Annual General Meeting.  They are eligible for reappointment on a remuneration to be fixed by the Members.

21. BOARD OF DIRECTORS:

Smt. Rekha Ganesh and Sri. Abhijit G. Shamanur,  directors retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment pursuant to Section 256 of the Companies Act, 1956.  Mr. S. Shivashankarappa resigned from directorship w.e.f., 15.05.2013 and further no changes in the Board.

22. INDUSTRIAL RELATIONS:

 The Industrial relation with the labour continued to be cordial and satisfactory.  Your Directors wish to record their appreciation for the co-operation of the employees during the year.

23. ACKNOWLEDGEMENTS:

Your Board of Directors expresses their grateful appreciation and thanks to Sugarcane Growers for their co-operation to the Company, Government of India, Government of Karnataka, Bankers, Financial Institutions and Shareholders for their continuous support and unstinted help and guidance extended to the Company.

CORPORATE GOVERNANCE

A.    MANDATORY REQUIREMENTS

1.  Corporate Governance Report

The principles of Corporate Governance introduced by SEBI through Clause 49 of the Listing Agreement with Stock Exchanges and amended from time to time is complied in all respects by the Company. The policies, procedures and processes of the Company are at all times directed in furtherance of following the best practices and institutionalizing the code of corporate governance. 

Company's philosophy on Corporate Governance

The Davangere Sugar Company Ltd.,(a Public limited Company), which is professionally managed, is deeply committed to the core values of Corporate Governance concepts. It strives to maintain the highest ethical standards in its conduct of business towards shareholders, employees, customers, suppliers and other stakeholders. Its objective is to transcend beyond bare compliance of the statutory requirement of the code and be a responsive and responsible entity through transparency, integrity of information and timely disclosures. The Company constantly endeavours to improve on these on an ongoing basis.

2    Board of Directors

(a)  Composition

As at the end of the year 31st March, 2014 the Board of Directors had Seven members comprising of one Managing Director and one Executive Director and five  Non-Executive Directors.  The Non-Executive Directors included two Directors who are Independent Directors and three promoter directors. 

(b)  Attendance of each Director at the Board Meetings during the Financial Year 2013-14. Nine (9) Board Meetings were held.  The attendance of each of the Directors at the said Board Meetings is given below:

N E D Non Executive Director            E D  - EXECUTIVE DIRECTOR      M D   Managing Director

(c) Number of other Companies or Committees in which is a Director/Chairman

(d) Number of Board Meetings held and the dates of the Board Meeting

Nine (9)Board meetings were held during the financial year ended 31.03.2014. The dates on which the said meetings were held are given below:

3      Audit Committee:

(a)  Terms of Reference

                                                               i.      To investigate any activity within the company;

                                                             ii.      To seek information from any employee of the company;

                                                            iii.      To obtain outside legal or other professional advice;

                                                           iv.      To secure attendance of outsiders with relevant expertise, if it is  

    considered necessary.

It is clarified that the role of the Audit Committee includes matters specified under clause 49 II (D) of the Listing Agreement entered into between the Company and The Stock Exchange, Bangalore, on which the Companys shares are listed.

(b)  Composition, names of members and Chairperson

As on 31st March, 2014, the Audit Committee comprised of one Executive Director namely    Sri. S.S. Ganesh and two Non-Executive Directors namely Sri. A.C. Jayanna and Sri. K.V. Somashekar. The Statutory Auditors M/s Santhappa and Co., the Internal Auditor M/s G.Gangadhar & Co., being permanent invitees and two members of the Committee are Independent Directors.  In that Sri. A.C. Jayanna is the Chairman of the Audit Committee.

(c )  Meetings and Attendance during the year

Four meetings were held during the financial year ended 31st March, 2014. The First meeting on 13th May, 2013, the second meeting on 15th August, 2013, the third meeting on 15th November, 2013 and the fourth meeting on 12th February, 2014. The attendance of each member of the committee is given below:

     4. Cost Audit Committee:

The Cost Audit Committee is constituted  consisting of M/s. GNV & Associates, Bangalore, who have been appointed as our Company Cost Auditors under section 218 of the Companies Act,1956.  The committee consists of Sri A.C. Jayanna and Sri K.V. Somashekhar who are the independent directors, as the members of the committee.

(a)  Terms of Reference

(i)                  to facilitate carryout of  the cost audit of accounting records of our company, in terms of the Companies Act, 1956

(ii)                to identify the costs to the extent possible cost centre wise.

(iii)               to guide the management on significant variations in the costs of a cost centre year on year basis.

The cost audit of our Company for the Financial Year 2013-14 is under progress.

5.   Remuneration Committee

(a)  Terms of Reference

The Remuneration Committee recommends on remuneration package including pension rights and any compensation payment of the Managing Director to the Board for approval.

(b)  Composition, names of members and Chairperson

As on 31st March, 2014, the Remuneration Committee comprised of three Non-Executive Directors namely, Sri. S.S. Ganesh, Sri. A.C. Jayanna and Sri. K.V. Somashekar, and two members of the Committee are Independent Directors.

       (c )  Remuneration Policy

The remuneration is being paid to the Managing Director and Executive Director, no sitting fees is paid to any Director.  The Managing Director and Executive Director are paid remuneration as approved by the members in their General Body Meeting from time to time.

       (d)  Details of Remuneration to all directors, as per format in main report : The Managing Director is being paid a remuneration of Rs. 3.00 lakhs per month (consolidated and all inclusive) w.e.f.,  24th  September, 2011  and to the Executive Director Rs. 1.62 lakhs per month w.e.f., 8th November, 2012 as approved in the General Body Meeting.

6 Transfer & Shareholders / Investors Grievance Committee(Shareholders Committee)

As on 31st March, 2014, Transfer & Shareholders / Investors Grievance Committee comprised of one Executive Director Namely Sri S.S. Ganesh and two Non-Executive Directors namely Sri. A.C. Jayanna and Sri. K.V. Somashekar.  Both the Non Executive Director members of the Committee are Independent Directors.

a) Name of the Executive Director heading the Committee                -    SRI S S GANESH

                                                                                                            MANAGING DIRECTOR           

b) Name & Designation of the Compliance Officer                 -   SRI. G.H. SHIVAKUMAR

                                                                                                     Incharge Share Department

c) Number of Shareholders complaints received during the financial year         -        Nil

d) Number of complaints not solved to the satisfaction of shareholders     -        Not applicable

e) Number of pending share transfers                                                              -        Nil

7      General Body Meetings

(a)  Location and time where last three AGMs were held

(b) Whether Special Resolutions were put through Postal Ballot last year         -     No

(c ) Persons who conducted the Postal Ballot exercise                                 -     Not applicable

(d) Are Polls proposed to be conducted through Postal Ballot this year

      No resolutions requiring postal ballot for matters as required under Clause 4 of the           

      Companies (Passing of Resolutions by Postal Ballot) Rules, 2001 have been placed     

      for Shareholders approval at the Meeting.

(e) Procedure for Postal Ballot                                                                       -     Not applicable

      8. Disclosure

   (a)     Disclosures on materially significant related partly transactions

        i.e., transactions of the Company of material nature, with its promoters,               NONE

       the directors or the management, their subsidiaries or relatives, etc., that

       may have potential conflict with the  interests of Company at large

(b)   Details of non-compliances by the company, Penalties, Strictures

    imposed on the Company by such Exchange or SEBI carry statutory                    NONE

    authority, or any matter related to capital products, during last

    three years.                                                                       

9.Means of Communication

         (a) Half yearly report sent to each household of shareholders -

Half years report is not sent to houselds of Shareholders,  as the results of the Company are published in local newspaper published in the entire district of Davangere, Shivamogga and Chitradurga.

    (b)Quarterly results Newspapers                  

        in which results are normally                      :       

        published                                                               :        

            any website, where displayed                                    :              None

            Whether it also displays official news release            :               Not applicable

             The presentations made to Institutional investors

             or to the analysts                                                     :               None

        (c ) Whether Management Discussion & Analysis

   Report will be a part of Annual Report or not       :      Yes, Part of the directors

                                                                                               Reports as Annexure B

10    General Shareholder Information

     (a)   AGM DATE AND TIME                                               :  20th September, 2014 10.45 a.m.

VENUE                                                                                   :  Bapuji Auditorium

                                                                                    M.C.Colony B Block.

                                                                                    DAVANGERE   

b) Financial calendar                                :   i) April, 2014 to March, 2015

 Announcement of Quarterly

& Annual Results                                              ii) First Quarter 2014-15 financial results

                                                                                        2nd week of August, 2014

                                                                                   iii) Second quarter 2014-15 financial results

                                                                                        2nd Week of November, 2014

                                                                                   iv) Third quarter 2014-15 financial results

                                                                                        2nd  Week of February, 2015

                                                                                   v)  Results for the year ended 31st March, 2015

                                                                                        2nd Week of May, 2015.                            

     (c ) Date of Book closure                            :   20th September, 2014

     (d) Dividend payment date(s)                   N.A.

     (e) Listing on                                               Bangalore Stock Exchange

                                                    The Company has paid the Listing Fees for the year 2013-14

     (f)  (i)    Stock code Physical                               Nil

          (ii)    Demat ISIN Number for NSDL & CDSL          INE179G01011

     (g) Market price data: High/Low                              Not traded through Stock Exchange.          

          during each month in last Financial year              Privately traded at Rs. 10/- each during   

                                                                                              the entire year.

(h) Stock performance in comparison

          to broad based indices such                             Not applicable

          as BSE Senses, BSE 2000, Nifty.

     (i) Registrar and Transfer Agents                 M/s. Integrated Enterprises(India) Ltd.,

                                                                        30, Ramana residency, 4th Cross, Sampige Road

                                                                        Malleswaram, BANGALORE 560 003

    (j) Share Transfer System                                          M/s Integrated Enterprises (India) Ltd., has been authorized to approve the transfer of shares which is done within the time limit stipulated by the listing agreement.  The said transfers are then reported to the subsequent Board Meeting.

     (K) DISTRIBUTION OF SHAREHOLDING AS ON 31.03.2014

(l) De-materialization of shares and liquidity

Shareholders may dematerialize their shareholding by anyone of the Depositories namely NSDL and CDSL.

 (m) Outstanding GDRs/ADRs/Warrants or any convertible instruments.

The company has not issued any GDRs/ADRs/Warrants or any convertible instruments.

    (n) Plant Locations:                                         Sugar Unit & Co-generation Unit                                         

                                                                                Kukkuwada Village.

                                                                            Davangere taluk & District,

                                                                            Karnataka State 577 525

    (o) Address for Correspondence:                      Secretary (I/c)

                                                                            Davangere Sugar Co.Ltd.,

    Kukkuwada Village.

                                                                            Davangere taluk & District,

                                                                            Karnataka State- 577 525   

 (B) NON MANDATORY REQUIREMENTS

    Board

The tenure of Independent Directors exceeded 9 years from the date when the new Clause 49 become effective.

Shareholders right

The half yearly declaration of financial performance including summary of the significant events in last six months should be sent to each household of shareholders:

As the companys quarterly results are published in local newspaper having circulation in the   entire districts of Davangere, Shimoga and Chitradurga, the same are not sent to the shareholders individually. Normally there would be no second half yearly results as the audited results are taken on record by the Board and then communicated to the shareholders through Annual Report.

Additional Disclosures

The Company has no unclaimed shares that require to be credited to a suspense account. Accordingly disclosures under Clause 5A of the Listing Agreement are not applicable.

No loan or advance in the nature of loan was made during or outstanding at the close of the year to Associates or Firms/ Companies in which a director of the company is interested. Accordingly no disclosure in terms of Clause 32 on this score is applicable.

Postal Ballot

No resolutions requiring postal ballot as contained for matters under Clause 4 of the Companies (passing of the resolution by Postal Ballot) Rules, 2001 have been placed for shareholders approval at the meeting.

ANNEXURE B

MANAGEMENT DISCUSSION & ANALYSIS REPORT

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion & Analysis Report covering performance and outlook as a part of annual report is given below:

(a) Industry Structure and Developments

Indian Sugar

The Indian Sugar Industry is characterised by the coexistence of private, cooperative and public sector.   There are 453 sugar mills in India.  Co-operative Sector has 252 millsl and private sector has 134 mills.  Public sector of around 67 mills.  Sugar Industry is supporting over 65 million farmers and their families directly or indirectly.  It is rural centric and hence a key drive for economic up-liftment of sugarcane growing farmers and wealth creation at village level.  It has tremendous transformational opportunities to meet food, fuel and power needs.

India has surplus production of sugar in the past three years commencing from 2011-12 to 2013-14.  There is carried forward stock of 7 million MTs of sugar from the previous years to the sugar season 2014-15 commencing from Sept-Oct 2014.  The expected production of sugar during sugar season 2014-15 is at 24.50 million MTs.  But the domestic consumption level is expected to be 23 million MTs.  The expected level of surplus of sugar for the sugar season 2014-15 is expected to be around 8 to 9 million MTs.

Sugar Prices

Since from April, 2013 the sugar price is moving in downwad direction, due to the lifting of levy sugar obligation and monthly release mechanism.  But it may take time to stabilize the sugar prices in the long run.  Raw Sugar is being continuously imported during the FY 2013-14 leading sugar refinery units in India.  The industry expects that the Central Government should take steps to curb the import of raw sugar and cane sugar by increasing the levy of import duty and should encourage the export of sugar by announcing some incentives to stabilise the domestic sugar prices in way to benefit both industry and farmers.

a) Government Policies

 The Central Government has announced significant sugar policies to rationalise the sugar industry.

01.    The levy obligation has been removed

02.    The monthly release control mechanism has been lifted.

03.    Government has increased the import duty on raw sugar and white sugar from 15% to 25%

04.    State Governments have been delegated authority to take decision on sugarcane pricing.

05.    Blending of 10% Ethanol with petrol by OMCs is made mandatory.

06.    Central Government has fixed FRP at 2100/- per MT of Sugarcane.

b. Opportunities and Threats

Sugar business is subject to cyclical variations.  The domestic sugar prices are subject to influence of so many factors like cane availability in the country, Government policies on sugarcane price fixation, sugar export and import policies, surplus or deficit of sugar in the international market, etc.  Since the past three years sugar is not the major contributor to the bottom line of the sugar industries.  But Co-generation and Ethanol bring much desired value addition to by-products and help to soften the adverse impact of the sugar cycles.

Opportunities and threat to the Sugar industry is the outcome of the changing Government Policies.  Central Government should take appropriate steps to create an environment which is both beneficial to the farmers and industries.

The Central Government should rationalise the sugarcane price fixing.  The political biased and unilateral decisions taken by the State Governments in sugarcane price fixing without having rational base, have heavily lead to huge financial losses of the sugar industries.  Suitable long term import and export policies are solicited to encourage the sugar industry to earn more profit and in turn to give remunerative prices to the farmers.

The Government should encourage production of Ethanol by increasing the blending up to 10% by OMCs, which is going to give a big boost to the sugar industries.  Similarly suitable long term policies have to be formulated by the State Governments on Co-generation of power by the sugar industries by rewarding more prices per unit of power export as special measure to encourage the non-conventional energy sources.

c)  Outlook

The future outlook for the sugar industry is depending on the rational Government Policies.  In this direction the Government has taken steps by announcing some significant policies recently.  But some more policies are expected from the Central Government and State Governments to create a favourable environment for the growth of sugar industries.

 (d ) Risks & Concerns

Sugar industry being agro based and vulnerable to commodity cycles, the company is exposed to diverse business risks and the company is trying to mitigate these through good strategies.  Sugar industry is expecting some rational policies from the Central Government which is going to mitigate the risks attached to the industry to the maximum extent.

(e) Internal Control Systems and their adequacy

An independent Internal audit function is an important element of the Companys internal control system.  The company maintains an adequate and effective internal control system commensurate with its size and complexity.  This internal control system provide, among other things, a reasonable assurance that transactions are executed with management authorisation and that they are recorded in all material respects to permit, preparation of financial statements in conformity with established accounting principles and the assets of the company are adequately safeguarded against significant misuse or loss.  The internal control systems are supplemented through an extensive internal audit program and periodic review by management.

(f) Discussions on Financial Performance with respect to Operation Performance

During the year 2013-14 the Company could crush only 4,54,550 MTs of sugarcane as against 4,77,813 MTs during the  previous year.  A profit margin for the FY 2013-14 has come down heavily to selling of sugar below the cost of production.