M T R FOODS LTD
7TH DIRECTORS' REPORT FOR THE YEAR ENDED 31ST MARCH, 2003.
FINANCIAL RESULTS :
(Rs.in lakhs)
Particulars 2002-03 2001-02
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Sales and other income 10334 8859
Profit before interest, depreciation
taxation & amortization 828 992
Less: Interest 345 437
Depreciation 264 197
Amortisation 91 147
Profit before taxation 128 211
Provision for taxation - Current 10 17
- Deferred Tax Liab. 33 -
Profit after taxation 85 194
Less: Dividend/ interim dividend & tax on dividend (79) (72)
Previous year's Profit/ (Loss) brought fwd 17 (105)
Opening Deferred tax Liability (55) -
Profit (+)/Loss(-) tfd. to Balance Sheet (32) 17
BUSINESS PERFORMANCE :
The year 2002-03 has been a very tough year for the country and more
particularly the FMCG sector. Three consecutively bad agricultural
years-especially in the Company's dominant Southern Indian markets-had
adversely impacted demand and price realizations in both urban and
semi-urban markets. Overall consumer spending declined resulting in a
considerable slowdown across the various F M C G sectors.
Against this backdrop, your Company recorded a Gross Income of Rs. 10334 L
as against Rs. 8859 L in the previous year registering a growth of over
16%. Sales growth was largely achieved through increased market coverage in
both existing and new markets as well as direct retail initiatives. Gross
margin is marginally higher than the previous year due to better buying
practices. Your Company also revamped the brand to give it a more
contemporary image and launched various market development
initiatives/programs at an expenditure of Rs. 463 L during the year as
against Rs. 280 Lin the previous year. While the brand has emerged stronger
due to these initiatives, the higher support expenditure impacted PBIDT
adversely and declined to Rs. 828 L from Rs. 992 L in the previous year.
While PBT for the year was Rs. 128 L (Rs. 211 L), Net Profit for the year
was Rs. 85 L, as against Rs. 194 L for the previous year. PBT and Net
Profit for the year under review was also adversely impacted by retirement
benefit provisions of Rs. 59 L becoming mandatory during the year.
Your Company has during the year, sharply focussed on reducing interest
costs and has brought it down to Rs. 345 L from Rs. 437 L in the previous
year. This was achieved through a credit rating exercise done by Investment
Information and Credit Rating Agency Limited (ICRA) whereby the Commercial
Paper issued by the Company was accorded a A-1 rating signifying "Highest
Safety". This enabled the Company to substitute high cost bearing term
loans to market determined levels of around 7%. In addition , certain other
high cost term loans from Karnataka Bank Ltd and State Bank of India; were
substituted by Foreign Currency Denominated Demand Loans from the
respective banks thereby bringing down the overall cost of borrowings to
less than 7%. Since the above was achieved during the period October
2002-March 2003, further interest cost savings will flow through in the
year 2003-04.
During the year, your Company has reinvented its brand identity to leverage
its long standing reputation and excellent product range. This would enable
the Company to fully leverage the brand strength and accelerate top-line
growth in the coming years. Your Company also launched several small unit
packs during the year to increase market penetration of such products and
also promote single use consumption cutting across various income/consumer
groups.
Your Company has also successfully test marketed various frozen food
products which have been identified as a high growth product segment both
in domestic and export markets. To realize this potential fully, your
Company is setting up a state-of-art frozen food plant at the Bommasandra
factory complex which will be largely automated to ensure that products of
the highest quality are manufactured and distributed to the consumers. In
addition, your Company is sharply focussing on the development of key
institutional customers in the export markets for whom MTR will develop and
supply customized products either as intermediates or as finished products.
Accounting Standard on Deferred Taxes
Accounting Standard-22, issued by the Institute of Chartered Accountants of
India (ICAI) has come into effect in respect of the accounting periods
commencing on or after 1-4-2001, for listed companies. For other companies
it has become mandatory w.e.f. 1-4-2002. Your Company being a unlisted
company has to therefore adopt this Standard for the year under review.
This Standard basically arises from the requirement that taxes on income
are accrued in the same period as the revenue and expenses to which they
relate to. However, due to the divergence between taxable income and
accounting income (largely as a result of different depreciation bases and
different methods of accounting certain income and expenditure items), tax
expense for a particular period, does not fully represent the operations in
that period. Therefore, this Accounting Standard has been introduced to
ensure that tax expense for the period, comprising Current tax and Deferred
tax, is properly recognized before determination of the net profit or loss
for the period.
In addition, since this Standard also requires companies to recognized the
tax effect of the divergence between taxable and accounting income relating
to previous years as well, the companies are expected to recognized such
deferred tax asset/liability with a corresponding credit/charge to the
revenue reserves. The detailed computations of the above are contained as a
separate schedule elsewhere in this Annual Report, but in brief the
implications of this Standard on your Company are as follows :
Recognition of Opening Deferred Tax Liability pertaining to prior years :
Since your Company does not have revenue reserves and only has a P & L
Appropriation Account balance as Revenue Reserves, the creation of this
Deferred Tax Liability (largely due to divergence between book and tax
depreciation) is being routed through the P & L Appropriation Account for
Rs.55 L (including the tax effect of the unabsorbed business loss in tax
books).
Accounting for the Deferred Tax Liability/Asset for the year ended
31-03-2003
For the year ended 31-3-2003, since the book depreciation is lower than tax
depreciation, the tax effect of this difference, as per the Standard,
should be provided as a Deferred Tax liability by a charge to the Profit
and Loss account for the said period. Similarly, consequent to unabsorbed
depreciation in tax books, for the year ended 31-3-2003, there will emerge
a Deferred Tax Asset. The net impact of the above two elements for the year
ended 31-03-2003 amounting to Rs. 33 L is being charged to the current
year's P&L Account as per the requirements of the Standard.
DIVIDEND :
PBT for the year under review would have been adequate to maintain the last
year's dividend rate of 8%. However due to mandatory provisions pertaining
to Deferred tax etc. explained earlier the PAT for the year is Rs. 85 L.
However, keeping in mind the interest of the minority shareholders the
Board of Directors has recommended a dividend of 6.5% from out of the
current year's net profit and the unabsorbed opening Deferred Tax Liability
has been carried forward to the Balance Sheet for absorption in the
subsequent years. Your Board is of the view that recommendation for
declaration of dividend for the year under review is fair and reasonable,
especially considering the minority shareholders' interest.
QUALITY AND PRODUCT DEVELOPMENT :
Your Company continues to strengthen its Quality control initiatives and is
working towards obtaining the coveted British Retailers' Consortium Quality
certifications which together with the existing ISO-9002 and HACCP
certifications will enable your Company to achieve accelerated growth in
export markets.
New products continue to be researched and developed such as Rice Meals,
Ready to eat Parathas etc., which have immense business potential in both
domestic and export markets. These products are also being developed in a
manner which provides reasonable technological barriers and are also being
priced attractively to ensure quick realization of business potential
especially in institutional and catering segments.
INFORMATION TECHNOLOGY :
Your Company has embarked on an ambitious Information Technology initiative
to network the entire supply chain from sales forecasting to financial
reporting by taking up implementation of the world famous SAP package
throughout the Company. This ERP package will integrate all buying,
manufacturing, sales and distribution and financial accounting functions
through a sophisticated connectivity infrastructure and will link up the
Bommasandra factory with the Corporate office and all branch offices/CFAs.
This is expected to enable seamless integration of sales, manufacturing and
distribution planning and at the same time enable the Company to focus on
weeding out inefficient costs and processes to improve profitability.
DIRECTORS :
Your Board of Directors, in their meetings held on 29th November, 2002 and
3rd September, 2003 appointed Mr. Anil Ahuja and Mr. Jalaj A. Dani
respectively as additional Directors of your Company pursuant to the
provisions of the Companies Act, 1956 and Articles of Association of your
Company. They hold office up to the date of the ensuing Annual General
Meeting and are eligible for appointment. The Company has received notices
in writing from member/s under Section 257 of the Companies Act, 1956,
signifying their intention to propose the appointment of Mr. Anil Ahuja and
Mr. Jalaj A. Dani as Directors of the Company in the forthcoming Annual
General Meeting.
In pursuance of the provisions of the Companies Act, 1956, Mr. R.
Gopalanathan and M r. S. N. Subramanya retire by rotation at the ensuing
Annual General Meeting and being eligible, offer themselves for
re-election.
DIRECTORS RESPONSIBILITY STATEMENT :
The Directors confirm :-
i. that in the preparation of the annual accounts, the applicable
accounting standards have been followed Along with proper explanation
relating to material departures;
ii. that they have selected such accounting policies and applied them
consistently and made judgements and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period;
iii. that they have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of this Act
for safeguarding the assets of the Company and for preventing and detecting
fraud and irregularities;
iv. that they have prepared the annual accounts on a going concern basis.
AUDIT COMMITTEE
The Audit Committee met two times during the year under report on 5th
September, 2002 and on 29th November, 2002, respectively before the yearly
accounts for the last year ended 31st March, 2002 and half yearly accounts
for the year under review were finalized.
FIXED DEPOSITS
Fixed Deposits from the public and the share holders as on 31st March, 2003
amounted to Rs. 110.17 lakhs. As at end of the year under review, there
were no fixed deposits which were overdue.
DISCLOSURE OF PARTICULARS
The particulars pursuant to section 217 (1)(e), 217 ( 2A) of the Companies
Act, 1956, and the Companies (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, are furnished in Annexures forming part of
this Report.
AUDITORS
M/s Deloitte Haskins and Sells, Chartered Accountants and Statutory
Auditors of the Company retire at the ensuing Annual General Meeting and
are eligible for re-appointment.
ACKNOWLEDGEMENTS
Your Directors sincerely appreciate the support and cooperation extended to
the Company by its bankers, customers, suppliers, Government Departments,
auditors and others. The Directors also place on record their gratitude to
the members for their continued support and appreciation and to employees
at all levels for their hard work, commitment and performance during the
year.
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