DIRECTORS' REPORT Your directors have pleasure in submitting their 40th Annual Report together with the audited accounts for the year ended March 31, 2016 (the year Dividend In view of the loss incurred during the year, no dividend is recommended by your Board of Directors for the financial year 2015-16. Reserves and Surplus The current year loss of Rs. 1133.76 lakhs has been added to the deficit at the beginning of the year of Rs.124.86 lakhs. As such, deficit at the end of the year aggregates to Rs.1258.62 lakhs. Financial Performance with respect to Operational Performance: During the year under review, your Company's turnover was reduced to Rs. 14473 lakhs as against Rs. 18936 lakhs of previous year. Your Company incurred a loss of Rs. 1134 lakhs as against profit of Rs. 227 lakhs in the previous year mainly due to uneconomical yarn prices in the export market where the Company had a higher proportion and prior commitments. Your Company's performance was also adversely affected mainly due to steep fall in the yarn selling prices in the domestic market. During the year, though the cotton price remained at the same level, the poor off take of yarn due to recession in yarn market resulted in losses. Hence the Company forced to slow down the yarn production by nearly 15% compared to previous year. In order to meet the financial needs, your company had borrowed additional funds from Banks resulting in higher interest cost. Adding to the owes, the backing-out imposed by TANGEDCO on Company's windmill generated power caused a reduction of generation of power by nearly 30 lakh units MANAGEMENT DISCUSSION AND ANALYSIS The core business of the company is manufacture and sale of cotton yarn. The management discussion and analysis given below discusses the key issues of the cotton yarn spinning sector. (a) Industry structure and developments: The FY 2015-16 has been a year of exceptional slow down for yarn markets globally. Surplus production, uneconomical exports and reduced demand for quality yarn in the domestic market are some of the reasons for the lower performance of the industry. These circumstances have created challenges of shifting towards new value added products, selling at higher price or premium price for the better quality of yarn, better productivity and enhancing marketing strategies for evolution of new markets. Decision to reduce exports at the present juncture due to the uneconomical prices also aggravated situation due to competition from other developing countries like Indonesia, Vietnam, Bangladesh, Philippines etc.,. (b) Outlook The industry expects an improvement during the current year as cotton prices are stabilizing and yarn prices have started improving from the first quarter of the financial year 2016-17. Further, there is an increasing demand for value added yarns and also other cellulosic fibre yarns like Viscose, Modal and Linen fibre both in the domestic and international markets. In view of these factors, Company's performance is expected to improve during the year 2016-17. (c) Strategies and Future plans While product innovation is being resorted to on a continuing basis to improve market share and better yields, the company has started identifying areas of cost reduction both in power consumption and other overheads. With the successful commissioning of dedicated feeders in all the three units of the Company and purchase of private power under group captive scheme, dependence on GENSET power has been totally reduced and uninterrupted power supply is available to our company resulting in substantial decrease in power costs. The Company is also actively examining the possibility of reducing costs at all levels. Company is also exploring and planning to start fabric production initially by job-work in the coming years. (d) Risks and Concerns Your Company has devised risk management policy which involves identification of the business risks as well as the financial risks, its evaluation, monitoring, reporting and mitigation measures. The Audit Committee and Board of Directors of the Company periodically review the risk management policy of the Company so that management controls the risk through properly defined network. Head of Departments are responsible for implementation of the risk management system as may be applicable to their respective areas of functioning and report to the Board and the Audit Committee. The details of risk management mechanism and key risks faced by the Company are enumerated in the risk management policy. Risk management policy is uploaded in the company's website www.kandagirimills.com (e) Internal control systems The Company has in place, a well established internal control procedures covering various areas such as procurement of raw materials, production planning, quality control, maintenance planning, marketing, cost management and debt servicing. Necessary checks and balances have been instituted for timely correction with an effective internal audit system. Your company is certified ISO 9001: 2008 for Quality Management System Standards (Manufacture and supply of yarn) and ISO 14001: 2004 for Environmental Management System Standards (the systems). Further, your company's laboratory is also certified by NABL. (f) Human resources management Employees are your company's most valuable resource. Your Company continues to create a favourable environment at work place. The company also recognises the importance of training and consequently deputes its work force to various work related courses/seminars including important areas like Total Quality Management (TQM), Technical skills etc. The fact that the relationship with the employees continued to be cordial is testimony to the company's ability to retain high quality workforce. (g) Environmental Protection, Health and Safety (EHS) EHS continues to receive the highest priority in all operational and functional areas at all locations of your Company. Systematic process safety analysis, audits, periodic safety inspections are carried out by expert agencies and suitable control measures adopted for ensuring safe operations at the site. Various processes as required for Pollution Control and Environmental Protection are strictly adhered to. (h) Corporate Social Responsibility Board of Directors of the Company has constituted Corporate Social Responsibility (CSR) Committee and devised a CSR policy to carry out CSR initiatives in line with the requirements specified under the Companies Act, 2013. Details of CSR expenditure has been given in the annexure to this report. Since the Company has incurred loss of Rs. 1134 lakhs during the FY 2015-16, Company was not able to discharge the total CSR obligation of Rs. 11.94 lakhs and has spent Rs. 1.65 lakhs towards CSR. The CSR policy has been hosted on the website of the Company www.kandagirimills.com Extract of Annual Return The extract of annual return in Form MGT - 9 has been annexed with this report and forms part of this report. Number of Board Meetings The details pertaining to meetings of the Board has been explained under Corporate Governance Report annexed to the director's report and forms part of this report. Establishment of Vigil Mechanism The Company has established a vigil mechanism for Directors and employees to report their genuine concerns. The policy has been uploaded on the Company's website under the web-link: <http://www.kandagirimills.com/investors/ksml2014-wbp.pdf> Declaration by Independent Directors Independent directors of the Company have submitted a declaration that each of them meets the criteria of independence as provided in Sub-Section (6) of Section 149 of the Act. Further, there has been no change in the circumstances which may affect their status as Independent director during the year. Secretarial Auditors' Report Company appointed M/s B. K. Sundaram & Associates, Practising Company Secretaries as Secretarial Auditors, to conduct Secretarial Audit of the Company for the financial year 2015-16. The report of the Secretarial Audit for the financial year 2015-16 in FORM MR-3 is annexed to this report and forms part of this report. There are no disqualifications, reservations or adverse remarks or disclaimers in Secretarial Auditors Report Independent Auditors' Report There is no qualification in the Independent Auditors' Report except Independent Auditor has pointed out the delay in repayment of bank term loan principal and interest dues to the bankers. Your directors wish to state that due to cash flow constraints there was delay in repayment of bank term loan principal and interest dues which has been subsequently paid off. With respect to the term loan principal and interest dues outstanding as on the board report date, your directors wish to state that the same will be paid in due course. Audit Committee Details of Composition of Audit Committee are covered under Corporate Governance Report annexed with this report and forms part of this report. Further, during this year all the recommendations of the Audit Committee have been accepted by the Board. Policy of Directors Appointment and Remuneration Company's 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 Act are covered under Nomination and Remuneration Policy hosted on the Company's website www.kandagirimills.com Further, information about elements of remuneration package of individual directors is provided in the extract of Annual Return as provided under Section 92(3) of the Act, in prescribed form MGT-9 annexed with this report and forms part of this Report. Particulars of Employees None of the employees or directors of the Company has drawn remuneration exceeding Rs.5 lakhs per month or Rs.60 lakhs per annum during the year. Managerial Remuneration Statistical Disclosures pursuant to Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed with this report and forms part of this report. Related Party Transactions Transactions entered with related parties have been explained in Form AOC -2 annexed with this report and forms part of this report. Further, Policy on dealing with Related Party Transactions has been uploaded on the Company's website, under the web link: <http://www.kandagirimills.com/investors/ksml2014->rptp.pdf Board Evaluation The board of directors had carried out an annual evaluation of its own performance, Board committees and individual directors pursuant to the provisions of the Companies Act, 2013 and SEBI Regulations. In the separate meeting of the Independent directors, performance of non-independent directors, performance of the board as a whole and performance of the Chairman was evaluated taking into account the views of executive directors and non-executive directors. The same was discussed at the next Board Meeting and the Independent Directors were evaluated without the presence of the director getting evaluated and also the performance of the Board, its Committees and individual directors were also discussed by the Board. The individual directors and the board as a whole in accordance with the performance Evaluation Policy guidelines were evaluated mainly on the basis of the criteria such as attendance, participation, contribution and the benefits derived by the Company. The Chairman was evaluated on the key aspects of his role. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The Performance Evaluation policy is uploaded in the Company's website. None of the Independent directors are due for reappointment Familiarisation Programme of the Independent Directors Periodic presentations are made by Senior Management, Statutory and Internal Auditors at the Board/Committee meetings on business and performance updates of the Company, global business environment, business risks and its mitigation strategy, impact of regulatory changes on strategy etc. Updates on relevant statutory changes encompassing important laws are regularly intimated to the Independent directors. Deposits The following are the details of deposits covered under Chapter V of the Act i. Deposits Accepted from shareholders during the year (2015 - 16) : Rs. 63.49 lakhs ii. Remained unpaid or unclaimed as at the end of the year : NIL iii. Any default in repayment of deposits or payment of interest thereon during the year: NIL Company has duly complied with the provisions of section 73 of the Companies Act, 2013 read with relevant rules with respect to fixed deposits. Cost Audit Report Cost Audit was not applicable for the Company for the year 2014-15. In view of the Company maintaining the Cost Records continuously and in order to provide the comparable audited figures for the year 2014-15 in the cost audit report for the year 2015-16, Cost Audit for the year 2014-15 was carried out on a voluntary basis. In accordance with the amendments effected in the Cost Audit rules, Cost Audit is applicable for the year 2015-16. M/s. S. MAHADEVAN &CO., Cost Accountants were reappointed as Cost Auditors of the Company for the FY 2015-16 and the Cost Audit report for the year 2015-16 in XBRL format will be filed with MCA well within the due date. On the recommendation of the Audit Committee M/s. S. MAHADEVAN &CO., Cost Accountants were reappointed as Cost Auditors of the Company for the FY 2016-17 and Board places before the members the resolution for ratification of remuneration payable to Cost Auditors. Directors All the Independent directors of the Company viz., Dr. V. Gopalan, Sri P.S. Ananthanarayanan, Sri N. Asoka, Sri S. Gnanasekharan and Sri Kameshwar M. Bhat were appointed at the 38th AGM of the Company held on 28.09.2014 for a term of five consecutive years from the date of 38th AGM till the conclusion of the 43rd AGM of the Company. Non- Executive directors Sri M. Rajamani and Dr. A. Sarayu were also appointed at the 38thAGM of the Company held on 28.09.2014 and they are liable to retire by rotation. Sri S. Devarajan retires by rotation this year and being eligible offers himself for reappointment and the resolution is placed before the members for approval. Chairman and Managing Director Sri R. Selvarajan reappointed for a term of three years at the last AGM held on 27.09.2015. Company's Code of Conduct applicable to the board has been adopted by the board and all directors of the company have confirmed compliance with the Code of Conduct Key Managerial Personnel Members at the last AGM held on 27.09.2015 approved the revision in the remuneration package of Chairman and Managing Director Sri R. Selvarajan and Chief Financial Officer and Non - Executive director Sri S. Vijay Shankar. Sri S. Vijay Shankar receives remuneration only in his capacity as Chief Financial Officer and do not receive sitting fees etc., in his capacity as non-executive director. In view of the unsatisfactory financial performance of the Company, CMD and CFO had forgone their increase in salary as a gesture. Auditors The auditors, M/S M.S. Krishnaswami & Rajan, Chartered Accountants, retire at the ensuing annual general meeting and have confirmed their eligibility and willingness to accept office, if appointed. On the recommendation of the Audit Committee your Company's board is placing the resolution u/s 139(2) of the Company's Act, 2013 for reappointment of the statutory Auditors of the Company for the current financial year. Particulars of Loans, Guarantees or Investments under Section 186 of the Companies Act, 2013 Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the Note 3.19 of the notes to the financial statements. Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has zero tolerance for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed there under. The Company has set up a Committee for addressing issues related to women and during the financial year 2015-16, there were no complaints received on sexual harassment. Performance of Associate Company Your Company has an associate M/s SPMM Healthcare Services Private Limited within the meaning specified under Section 2 (6) of Companies Act, 2013. M/s SPMM Healthcare services private Limited has recorded a total revenue of Rs. 3,18,59,942 during the year 2015-16 as against Rs. 3,92,43,57/- in the previous year and profit after tax of Rs.47,29,843 during the year 2015-16 as against Rs.43,63,920/- in the previous year. A separate statement containing the salient features of the financial statement of the associate in FORM AOC -1 has also been annexed with this report as per the requirements of provisions of section 129 of the Companies Act, 2013 and forms part of this report. Significant And Material Orders Passed By The Courts Or Tribunals Impacting The Company : NIL Material Changes and Commitments during the year, if any There were no material changes and commitments between the end of the period under review and the date of this report which could have an impact on the Company's operation in the future or its status as a "going concern". Annexures to this Report The following are the annexures to this report 1. Director's Responsibility Statement in Annexure 1 2. Conservation of energy, technology absorption, Research and development and foreign exchange earnings and outgo in Annexure 2 3. Statement containing salient features of the financial statement of associate company (Form AOC - 1) in Annexure 3 4. Form AOC - 2 in Annexure 4 5. Extract of Annual Report (Form MGT-9) in Annexure 5 6. Secretarial Audit Report (Form MR-3) in Annexure 6 7. Details of CSR Expenditure in Annexure 7 8. Particulars of Remuneration in Annexure 8 9. CEO / CFO Certification in Annexure 9 10. Corporate Governance Report in Annexure 10 Cautionary Note Statements in the Directors' report and the management discussion and analysis describing the Company's objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results might differ materially from those either expressed or implied in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other related factors such as litigation and industrial relations. Acknowledgement Directors of your Company record their sincere appreciation of the dedication and commitment of all employees in achieving and sustaining excellence in all areas of the business. Your directors thank the Shareholders, Customers, Suppliers, Bankers and other stakeholders for their continued support during the year. Your Company's consistent growth has been made possible by the hard work, solidarity, cooperation and support of the management team. The directors of your company thank State Bank of India, Karnataka Bank Limited and Axis Bank Limited, Central/State Governments and other government agencies for their support, and look forward to their continued support in future. For and on behalf of the Board R. Selvarajan Chairman and Managing Director Place : Salem Date : May 21, 2016 |