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Directors Report of Karuturi Global Ltd.

Mar 31, 2014

The Members Karuturi Global Limited Bangalore

The Directors are pleased to present the Nineteenth Annual Report along with the audited accounts of the Company for the financial year ended 31st March, 2014.

FINANCIAL RESULTS:

On a consolidation basis, the financial results for the year under report of your Company stood as follows:

(Rs. in lakhs) Particulars 2013-14 2012-13

Total Income 51,749.93 56,780.19

Profit before depreciation & tax 7,773.35 14,578.08

Less: Depreciation 3,889.21 3,296.08

Less: Provision for tax (886.04) 4.74

Add: Deferred Tax - Credit 1,465.96 4,180.01

Net Profit after Tax 6,909.18 10,813.54

COMPANY PERFORMANCE:

All of you are aware of the unfortunate developments in Kenya last year. Due to continued non-cooperation of various stake holders, Company is unable to complete consolidation of financials beyond 31.12.2013 Company had experienced extremely hostile situation and despite great efforts, found resistance in debt raising. Now, the Company has found a sudden change of fortune with the Govt of Ethiopia offering debt and christening the Company''s project as National Project. Also, the Company has generated significant liquidity with sale of surplus assets.

With the lower Oil price the Company expects a huge sustained saving in its freight cost. This, it is hoped, will more than compensate for the weaker Euro.

Income;

Sales - The sales in financial year 2013-14 were Rs. 49,305.70 lakhs as against Rs. 56,069.62 lakhs in financial year 2012-13.

Expenditure;

Material Expenses: In financial year 2013-14 the raw material expenses / purchases amounted to Rs. 13,133.67 lakhs constituting 26.63 % of net sales while raw material expenses in 2012-13 were Rs. 12,655.49 lakhs, constituting 22.57 % of net sales.

Manufacturing, Administrative & Selling Expenses: The Manufacturing, Administrative and Other Manufacturing Expenses comes to Rs. 20,155.15 lakhs in financial year 2013-14 as compared to Rs. 21,081.45 lakhs in financial year 2012-13. As a percentage of net sales it is increased to 40.88% in financial year 2013-14 from 37.60% in financial year 2012-13.

Employee Expenses - The employee expenses decreased to Rs. 3,426.09 lakhs in financial year 2013-14 from Rs. 4,973.48 lakhs in financial year 2012-13. As a percentage of net sales it has decreased from being 8.87% of net sales in financial year 2012-13 to 6.95% of net sales in financial year 2013-14.

Financial Charges - Financial charges amounted to Rs. 7,261.68 in financial year 2013-14 as compared Rs. 3.491.66 lakhs in financial 2012-13. As a percentage of net sales, the financial charges expenses increased from 6.23% in

2012- 13 to 14.73% in 2013-14.

Depreciation - Depreciation amounted to Rs. 3,889.21 lakhs in financial year 2013- 14 as compared to Rs 3,296.08 lakhs in financial year 2012-13, representing an increase of 17.99%.

Earnings before Interest, Depreciation, Tax and Amortization (EBIDTA) - The Company recorded EBIDTA of Rs. 15,035.03 lakhs in financial year 2013- 14 as against an EBIDTA of Rs. 18,069.77 lakhs in financial year 2012-13, with EBIDTA margin decreasing to 30.49% in financial year 2013-14 from 32.23% in financial year 2012-13. Net Profit after tax and prior period adjustment - Our Net Profit for the financial year 2013-14 stood at Rs. 6,909.18 lakhs as against Rs.10,813.54 lakhs for financial year 2012-13.

DIVIDEND:

In view of the aggressive ongoing expansion programs and considering the requirement of funds, Directors have decided not to recommend payment of dividend for the financial year 2013-14.

MANAGEMENT DISCUSSION AND BUSINESS ANALYSIS:

BUSINESS REVIEW:

During the financial year 2013 -14, your Company was able to maintain its position in the Floriculture Industry during continued European Crisis which is its key market. The Company continued to make steady progress in its Agricultural foray developing Land in Ethiopia.

AGRICULTURE:

Company continued its efforts to develop the agriculture farm. Major crops expected are corn, pulses, sugarcane, oil seeds and paddy.

Company has been focusing on wet cultivation during the monsoons. Agriculture during the dry seasons will be driven by construction of canals and implementation of over 90 high performance pumps to draw water from the river Baro. Water supply will be further augmented by bore wells.

The Company works with expert farming companies from South America, USA, South Africa and India who have been contributing immensely to the farming operations in Gambella. Karuturi is synonymous with responsible and good business in Ethiopia.

FLORICULTURE:

The cut flower business had a stable beginning this year with the Euro remaining around 1.35 to a dollar. This has added stability towards margins of the company. The weather conditions also remained helpful to the flower business.

The Company continued its efforts for sustainable initiatives like cutting edge biological controls like Phytoselius (Predatory Mites). We have eliminated spraying for two spotted red spider mites by 95%. Moving to Hydroponics resulted in 10% improvement in production with 30% reduction in consumption of water & fertilizers. Keeping in mind its responsibility towards environment, the Company has stopped all cultivation on riparian land and is in complete compliance with all local regulations.

The Company has established an earth worm project on an area of 2000 square meters and is consulting organic scientists from the University of Nairobi for further refining the leachate. This project has reduced the fertilizer cost by 10-12%.

The above efforts have considerably reduced the operational costs and are making floriculture business sustainable for a longer period.

FOOD PROCESSING:

Karuturi Foods Private Limited (KFPL) continued its efforts to maintain its top line in food processing during the year. The weather conditions in the region have been a little unfavorable and hence the growth could not be achieved to the maximum. The Company continued its reach to Africa, Greece, South America and East European countries besides its main markets in Russia & Ukraine Regions. In the year under report, the Company has been trying to spread its market across various countries to reduce its dependency on Russia which is a very price sensitive and volatile market.

To strengthen the Agri Operations, the Company had gone to non- traditional Gherkin growing areas to improve the yield as well as to source higher volumes to avoid field competition.

The Company''s factory has been certified by BRC (British Retail Consortium) besides HACCP, FDA & KOSHER, as all customers expect these Certifications as a pre-requisite for placing the Orders with KFPL.

OUTLOOK:

Your Company has a strategic goal to bring a larger area under Agricultural Production and simultaneously continues to create new opportunities in its Floriculture and Food Processing businesses.

REPLY TO AUDITORS''S QUALIFICATIONS Dtd 14.02.2015

Point No. 1: Karuturi Limited and its associate companies have vigorously contested the receivership in the Kenyan Court and the Management is hopeful of a result in favor of the company.

Point No.2 & 3: The Company''s Sales and Purchase transactions are normally supported by valid documents such as P.O., D.C., G.R.N. etc. However, in view of some unique and unconventional trade practices including barter systems and not having / not using bank accounts which are peculiar to agricultural business, all the transactions are not as per the procedures suggested by the Auditors. The Company has substantially improved upon the documentation and continues to do so. It is also submitted that apart from certain intricacies related to the sectoral business there is no material misstatement.

Point No.4: The Company had initially transferred an amount of 98,012,261.90 US$ (INR 4,555,088,130.75) as Share Appplication Money / loan to Karuturi Overseas Ltd, Dubai. This amount has been outstanding and shown in books as "Share Application Money pending allotment" under "Other Non Current Assets" / as ''Loans'' under ''Loans and Advances''. Out of this, 12,500,000 US$ has been utilized to allot shares of Karuturi Overseas Limited and the corresponding exchange gain of INR 203779048 has been transferred from FCMTR Account to Profit & Loss Account as per AS-11 "The Effects of Changes in Foreign Exchange Rates.

Point No.5: The records and documents for the stock taking were provided for auditing. Since the subsidiary is in Agriculture domain, stock taking is an elaborate exercise which was getting done only once a year; however based on the recommendation of the auditors, the same has been started on quarterly basis, which further needs to be strengthened. It may, however, be noted that there is no variation from the accounting policies followed by the Company.

Point No.6: The increase is as per the calculations provided to the auditors and it is mainly due to very high fluctuation in the USD / INR parity.

PAID UP CAPITAL:

The total Paid-up Capital of the Company continued to remain at Rs. 80,97,26,648/- as on 31.03.2014.

GROUP COMPANIES:

The following persons constitute the group coming within the definition of Group as defined in the Monopolies and Restrictive Trade Practices Act, 1969, who exercise or are established to be in a position to exercise control, directly or indirectly over the Company [Section 2(ef)] as on 31.03.2014:

1. Mr. Sai Ramakrishna Karuturi

2. Ms. Anitha Karuturi

3. Karuturi Floritech Pvt Ltd. India

4. Florista India Pvt. Ltd. India

5. Karuturi Flower Express Pvt. Ltd. India

6. Karuturi Foods Pvt Ltd., India

7. Karuturi Overseas Ltd., Dubai

8. Flower Xpress FZE, Dubai

9. Yeshoda Investments Ltd, Kenya

10. Rhea Holdings Ltd, Kenya

11. Surya Holdings Ltd, Kenya

12. Karuturi Sports Ltd, Kenya.

13. Karuturi Ltd, Kenya

14. Karuturi Hospital Ltd, Kenya

15. Ethiopian Meadows Plc, Ethiopia

16. Karuturi Agro Products Plc., Ethiopia

17. Surya Blossoms Plc. Ethiopia

18. Shiv Pack PLC, Ethiopia

19. Karuturi Greens and Marketing Private Limited

20. Karuturi Vegproducts Private Limited

21. Karuturi Farm Fresh Products Private Limited

22. Karuturi Holdings Ltd, Dubai

DIRECTORS:

Mrs. Anitha Karuturi , Director, retires by rotation and being eligible, offers herself for re-appointment.

AUDIT COMMITTEE:

Audit Committee constituted by the Board of Directors with requisite composition to fall in line with the prevailing laws, continued to discharge its functions during the year under review.

PERSONNEL:

The Directors wish to place on record their sincere appreciation for the services rendered by the employees of the Company at all levels both placed in India and Overseas.

EMPLOYEE STOCK OPTION PLAN (ESOP):

The Company had commissioned its maiden Employees Stock Option Plan during the year 2006. Through this, the Company allotted 7,47,416 Equity Shares of Re. 1 each on exercise of Options granted to the eligible employees of the Company to convert into Equity Shares during the year 2012-2013. (For 2013-14: NIL)

DEPOSITS:

The Company has not accepted any deposits from the public falling under the purview of Section 58A of the Companies Act, 1956.

AUDITORS:

Messrs YCRJ & Associates, Chartered Accountants, Bangalore, the existing Auditors, are not being reappointed at the ensuing Annual General Meeting. Hence based on requisition from shareholders, your Directors recommend Messrs S. Bhat & Associates as the Statutory Auditors for the year 2014-15 in the ensuing Annual General Meeting.

FOREIGN EXCHANGE EARNINGS & OUTFLOW:

The Company earned Rs.431.97 Lakhs in Foreign Exchange for the year ended 31.03.2014 as compared to Rs.1,431.75 lakhs for the year ended 31.03.2013.

The out flow in foreign exchanges was Rs.0.35 lakhs during the year under report as compared to Rs.90.74 lakhs during the previous year.

CORPORATE GOVERNANCE:

Pursuant to Clause 49 of the Listing Agreements with the Stock Exchanges, CEO&CFO certification on the financials of the Company, Report on Corporate Governance, and Auditors'' Report on compliance with the Corporate Governance requirements have been included as Annexure to this Report.

DIRECTORS'' RESPONSIBILITY STATEMENT:

Directors state:

i) That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanations relating to material departure;

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 and the profit of the Company for the period;

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.

INSURANCE COVERAGE:

The Board reports that the Company has adequately insured all the assets of the Company.

ACKNOWLEDGEMENTS:

Your Directors acknowledge with gratitude the confidence reposed on the Company by the Shareholders, Bankers, Statutory Authorities, Customers, Vendors and all others who deal with the Company and also wish to thank all the employees, both India and Overseas, for extending their sincere and unstinted support, and expect the same for the years to come.

By the Order of the Board

Place: Bangalore Sai Ramakrishna Karuturi Date: 14th Feb 2015 Chairman and Managing Director


Mar 31, 2013

To The Members of Karuturi Global Limited

Bangalore

The Directors have pleasure in presenting the Eighteenth Annual Report along with the audited accounts of the Company for the financial year ended 31st March, 2013.

FINANCIAL RESULTS:

On a consolidation basis, the financial results for the year under report of your Company stood as follows: (Rs. in lacs)

Particulars 2012-13 2011-12

Total Income 56780.19 58925.88

Profit before depreciation & tax 14578.11 17674.85

Less: Depreciation 3296.08 3,867.98

Less: Provision for tax 4.74 139.62

Add: Deferred Tax – Credit 4180.01 17.08

Net Profit after Tax 10813.57 15632.35

COMPANY PERFORMANCE:

Income:

Sales – The sales in fiscal 2013 were Rs. 55,986.10 lakhs as against Rs. 56,314.26 lakhs in fiscal 2012.

Expenditure:

Material Expenses - In fiscal 2013 the raw material expenses / purchases amounted to Rs. 32,631.69 lakhs constituting 58.29 % of net sales while raw material expenses in 2012 were Rs. 30,858.30 lakhs, constituting 54.80 % of net sales.

Selling & Administrative Expenses - The administrative expenses decreased to Rs 1743.29 lakhs in fiscal 2013 as compared to Rs 2,326.11 lakhs in fiscal 2012. As a percentage of net sales it to 3.11 % in fiscal 2013 from 4.13 % in fiscal 2012.

Employee Expenses - The employee expenses decreased to Rs.1,240.31 lakhs in fiscal 2013 from Rs.3,993.83 lakhs in fiscal 2012. As a percentage of net sales it has decreased from being 7.09% of net sales in fiscal 2012 to 2.22% of net sales in fiscal 2013.

Financial Charges - Financial charges amounted to Rs. 3491.29 lakhs in fiscal 2013 as compared Rs.1,257.89 lakhs in fiscal 2012. As a percentage of net sales, the financial charges expenses increased from 2.23 % in 2012 to 6.24% in 2013.

Depreciation - Depreciation amounted to Rs 3296.08 lakhs in fiscal 2013 as compared to Rs.3867.98 lakhs in fiscal 2012, representing a decrease of 14.29%.

Earnings before Interest, Depreciation, Tax and Amortization (EBIDTA) – The Company recorded EBIDTA of Rs. 18,069.40 lakhs in fiscal 2013 as against an EBIDTA of Rs. 18,932.74 lakhs in fiscal 2012, with EBIDTA margin decreased from 33.62 % in fiscal 2012 to 32.27% in fiscal 2013. Net Profit after tax and prior period adjustment – Our Net Profit for the fiscal 2013 stood at Rs.10,813.57 lakhs as against Rs.15,632.35 lakhs for fiscal 2012.

DIVIDEND:

In view of the aggressive ongoing expansion programs and considering the requirement of funds, Directors have decided not to recommend payment of dividend for the financial year 2012-13.

MANAGEMENT DISCUSSION AND BUSINESS ANALYSIS :

BUSINESS REVIEW:

During 2012 -13, your Company was able to maintain its position in the Floriculture Industry in the midst of the European Crisis which is its key market. The Company continued to make steady progress in its Agricultural foray developing 35,000 Acres of Land in Ethiopia.

AGRICULTURE:

Karuturi has harvested its maiden 21,000 tonnes of Maize crop cultivating on 10,000 Acres in Ethiopia.

Karuturi is at the threshold of planting 12,500 Acres this April –May 2013. Apart from corn, other crops which will form a part of our agro portfolio will be sugarcane, oil seeds and paddy. While wet cultivation during the monsoons is being maximized, agriculture during the dry seasons will be driven by construction of canals and implementation of over 90 high performance pumps to draw water from the river Baro and further irrigate over 35,000 hectares. This is augmented by bore wells.

The Company now work with expert farming companies from South America, USA, South Africa and India who have been contributing immensely to the farming operations in Gambella. Karuturi is synonymous with responsible and good business in Ethiopia.

FLORICULTURE:

The cut flower business has had a strong and vibrant beginning this year with the Euro surging to 1.35 from 1.27 to a dollar last year. This has added significant margin to our already comfortable margin of 27% taking it to 32%.

The excellent weather this year has helped to have a very buoyant flower market. This was the best Valentine the Company had in 10 years with record price surges, the top seller Red variety from Ethiopia fetched Euro 0.81/stem (INR 58) and Kenya fetched 0.46 (INR 33).

The Company adopted sustainable initiatives like cutting edge biological controls like Phytoselius (Predatory Mites) we have eliminated spraying for two spotted red spider mites by 95%. Also moving to Hydroponics entailed 10% improvement in production with 30% reduction in consumption of water & fertilizers. Keeping our environmental responsibilities in mind the company has stopped all cultivation on riparian land and is in complete compliance with all regulations.

The Company has established a earth worm project on an area of 2000 square meters and we are consulting organic scientists from the University of Nairobi with view to further refining the leachate. This project has reduced our fertilizer cost by 8-10%.

The operational costs have considerably reduced by 28.57% adding an additional $ 5 million to the bottom-line for 2013.

FOOD PROCESSING:

This food Processing business at Karuturi Foods Private Limited (KFPL) has shown about 29 % growth in the top line during the year. The Company has expanded its reach to newer markets to Africa, Greece , South America and East European countries besides its main markets in Russia & Ukraine Regions. The Company has invested in some new machinery to increase the efficiency level of its processing to increase line speed. In the current year your Company plans to spread its market across various countries to reducing its dependency on Russia which is a very price sensitive & volatile market.

To strengthen the Agri Operations, Your company had gone to nontraditional Gherkin growing areas to improve the yields as well as to source higher volumes to avoid the field competition.

KFPL has participated in the Moscow Food Fair and ANUGA at Cologne, Germany and PLMA, Amsterdam.

KFPL Plans to increase its processing capacity again in the next year by installing another pasteurizer, boiler and material handling equipment.

The factory has been certified by BRC (British Retail Consortium) besides HACCP, FDA & KOSHER as all customers expect these Certifications as pre requisite for placing the Orders with KFPL.

OUTLOOK:

Your Company''s Strategic Goal this year would be to bring a larger area under Agricultural Production and continue to create new opportunities in its Floriculture & Food Processing.

INCREASE IN PAID UP CAPITAL:

The total Paid up Capital of the Company as on 31.03.2013 was Rs. 80,97,26,648/- as compared to Rs. 808,979,232/- as on 31.03.2012. This increase in Capital is pursuant to allotment of 7,47,416 Equity Shares of Re1/- each to the Employees as per ESOS.

Preferential Allotment of Fully Convertible Debentures

The statutory approvals are awaited and hence the allotment is pending.

The allotment of the aforesaid Fully Convertible Debentures shall be made within 15 days from the date of passing of the resolution subject however to the applicable statutory regulatory provisions and the Guidelines by the Securities Exchange Board of India.

The Fully Convertible Debentures will be compulsorily convertible into Equity Shares with face value of Re. 1/- each before expiry of 18 months from the date of such allotment.

The number of Equity Shares to be allotted shall be dependent on the pricing determined under SEBI Regulations and other factors shall be determined at the time of conversion to equity.

The pricing of the resultant Equity Shares shall be determined as per SEBI (ICDR) Regulations which at present is as follows:

Higher of the following:

The average of the weekly high and low of the closing prices of the related equity shares quoted on the recognised stock exchange during the six months preceding the relevant date; or n The average of the weekly high and low of the closing prices the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date. For the aforesaid purpose, ''''Relevant date'''' as per regulation 71(b) of SEBI (ICDR) regulations means the date in case of preferential issue of convertible securities, a date thirty days prior to the date on which the holders of convertible securities become entitled to apply for equity shares.

GROUP COMPANIES:

The following persons constitute the group coming within the definition of ''''Group'''' as defined in the Monopolies and Restrictive Trade Practices Act, 1969, who exercise or are established to be in a position to exercise control, directly or indirectly over the Company [Section 2(ef)]:

1 Mr. Sai Ramakrishna Karuturi

2 Ms. Anitha Karuturi

3 Karuturi Floritech Pvt Ltd. India

4 Karuturi Foods Pvt Ltd., India

5 Karuturi Overseas Ltd , Dubai

6 Flower Xpress FZE, Dubai

7 Yeshoda Investments Ltd, Kenya

8 Rhea Holdings Ltd, Kenya

9 Surya Holdings Ltd, Kenya

10 Karuturi Sports Ltd, Kenya.

11 Karuturi Ltd, Kenya

12 Karuturi Hospital Ltd, Kenya

13 Ethiopian Meadows Plc, Ethiopia

14 Karuturi Agro Products Plc., Ethiopia

15 Surya Blossoms Plc. Ethiopia

16 Karuturi Greens and Marketing Private Limited

17 Karuturi Vegproducts Private Limited

18 Karuturi Farm Fresh Products Private Limited

19 Shiv Pack PLC, Ethiopia

Karuturi Telecom Pvt Ltd., India (upto 19.04.2013)

DIRECTORS:

Mr. Raja Vara Prasad Bommidala and Mr. Mahendra Kumar Sunkara Directors, retire by rotation and being eligible, offer themselves for re-appointment.

AUDIT COMMITTEE:

Audit Committee constituted by the Board of Directors with requisite composition to fall in line with the prevailing laws, continued to discharge its functions during the year under review.

PERSONNEL:

The Directors wish to place on record their sincere appreciation for the services rendered by the employees of the Company at all levels both placed in India and Overseas.

EMPLOYEE STOCK OPTION PLAN (ESOP):

The Company has commissioned its maiden Employees Stock Option Plan during the year 2006. Through this, the Company allotted 7,47,416 Equity Shares of Re. 1 each were allotted on exercise of options granted to the eligible employees of the Company into Equity Shares during the year 2012-2013.

DEPOSITS:

The Company has not accepted any deposits from the public falling under the purview of Section 58A of the Companies Act, 1956.

AUDITORS:

Messrs Hari Bhakti & Co., Chartered Accountants, the existing Auditors have resigned. Hence based on requisition from shareholders, your Directors recommend Messrs YCRJ & Associates, Chartered Accountants, Bangalore as the statutory auditors for the year 2013-14 in the ensuing Annual General Meeting.

FOREIGN EXCHANGE EARNINGS & OUTFLOW:

The Company earned Rs. 1,431.75 Lakhs in Foreign Exchange for the year ended 31.03.2013 as compared to Rs. 2,102.11 lakhs for the year ended 31.03.2012.

The out flow in foreign exchanges was Rs 90.74 lakhs as compared to Rs. 4.75 lakhs during the previous year.

CORPORATE GOVERNANCE:

Pursuant to Clause 49 of the Listing Agreements with the Stock Exchanges, CEO&CFO certification on the financials of the Company, Report on Corporate Governance, and Auditors'' Report on compliance with the Corporate Governance requirements have been included as Annexures to this Report.

DIRECTORS'' RESPONSIBILITY STATEMENT:

Directors state:

I) that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanations relating to material departure;

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 and the profit of the Company for the period;

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.

INSURANCE COVERAGE:

The Board reports that the Company has adequately insured all the assets of the Company.

ACKNOWLEDGEMENTS:

Your Directors acknowledge with gratitude the confidence reposed on the Company by the Shareholders, Bankers, Statutory Authorities, Customers, Vendors and all others who deal with the Company and also wish to thank all the employees both India and Overseas for their sincere and unstinted support extended and expects the same for the years to come.

By the Order of the Board

Place : Bangalore Sai Ramakrishna Karuturi

Date : 12th August,2013 Chairman and Managing Director

 
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