DIRECTOR’S REPORT AND MANAGEMENT DISCUSSION & ANALYSIS Your Directors have pleasure in presenting you the Twenty Second Annual Report together with Audited Accounts for the year ended 31st March, 2015. COMPANY’S PERFORMANCE AND OPERATIONS: The Aqua Farm situated at Isakapalli was given on lease during July, 2013 for seven years. Operating in volatile and uncertain environment at that time, the company had given the farm on long term lease, netted a gross income of Rs.27.13 lakhs and incurred a marginal loss of Rs.0.47 lakhs. DIVIDEND AND RESERVES In view of considerable accumulated losses, no dividend is declared and not transferred any amount to reserves. FUTURE PROSPECTS: Sea food exports fell just short of the targeted $6 Billion for the year 2014-15, but have still peaked to a new high crossing 1 Million tonnes in volumes for the first time. Frozen shrimps continued to be the flagship product, accounting for a share of 34% in quantity and 67% in US $ value of the total exports. Vannamei, grown in aquaculture farms was the main item under shrimps. This is achieved despite the problems in the world market like depreciation of Euro, weak economic conditions in China and devaluation of Yuan. The company in order to reduce the losses, the company had given the farm at Iskapally for a long term lease so that it could be put to better use and the company will not have any burden of maintenance. As there is a considerable improvement in the economy revival, the promoters are exploring opportunities in various fields to revive the fortunes of the company. The lessee had considerably improved the infrastructure in farm and operating, with no or negligible maintenance costs to the Company in immediate future, thereby reducing the financial costs to the Company except the statutory compliance costs. PARTICULARS REGARDING ENERGY CONSERVATION etc.: The information relating to conservation of energy, technology absorption and foreign exchange earnings and outgo pursuant to Section 134(3) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is given in Annexure V to this Report. SUBSIDIARY: The company does not have any subsidiary. DIRECTORS AND KEY MANAGERIAL PERSONNEL: In accordance with the provisions of Section 152 of the Companies Act, 2013 read with the Articles of Association of the Company, Smt. Bommidala Anitha (DIN: 00112766), Non-executive Woman Director retires by rotation at the forthcoming Annual General Meeting and being eligible, offers herself for re-appointment. As required under clause 49 of the Listing Agreement a brief resume, expertise and details of other directorships of Smt. Bommidala Anitha (DIN:00112766) annexed to the Notice convening the 22nd Annual General Meeting of the Company. All the Independent Directors viz., Sri Tunuguntla Rama Krishna (DIN:02324865) and Sri Nellore Dolendra Prasad (DIN:01816366) have submitted declarations confirming that they continued to meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement with the Stock Exchanges. The Board met 7 times during the financial year 2014-15, the details of which are given in the Corporate Governance Report. In accordance with the provisions of Section 134 of the Act and Clause 49 of the Listing Agreement, the Board had carried out an evaluation of its own performance, the performance of Committees of the Board, namely, Audit Committee, Risk Management Committee, Stakeholders Relationship Committee and Nomination and Remuneration Committee and also the directors individually. The manner in which the evaluation was carried out and the process adopted had been mentioned in the Corporate Governance Report. The Board, on the recommendation of the Nomination & Remuneration Committee, has framed a policy for selection and appointment of Directors, Senior Management and their remuneration and also framed the criteria for determining experience, qualifications, positive attributes and independence of directors. Sri Bommidala Rama Krishna (DIN: 00105030), Managing Director and Mr. Arisetty Sai Prasad, Chief Financial Officer (who had been appointed during the year) are the Key Managerial Personnel of the Company as per Section 203 of the Companies Act, 2013. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS: During the financial year 2014-15, the Company has not given any guarantees/loan or made any investments. However during the year, the company has repaid an amount of Rs. 10.90 Lakhs due as on 31* March, 2014, but received Rs.4.35 Lakhs (after the repayment of Rs.3.25 lakhs) interest free loan from Mr. Bommidala Rama Krishna, Managing Director. PARTICULARS OF EMPLOYEES: The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in Annexure VII to the Board of Directors report. AUDITORS AND AUDITORS’ REPORT Statutory Auditors: The Shareholders at the 21st Annual General Meeting held on 13th September, 2014, had appointed M/s Garlapati & Co., Chartered Accountants (Firm Regn.No:000892S) as Statutory Auditors of the Company to hold office until the conclusion of 22nd Annual General Meeting. M/s Garlapati & Co., being eligible has expressed their willingness to continue as Statutory auditors of the Company and accordingly, the company has received a letter from them to the effect that appointment, if made would be within the prescribed limits under section 141 (3)(g) of the Companies Act, 2013 that they are not disqualified for re-appointment and their appointment is recommended to the Shareholders. EXPLANATION FOR AUDITORS EMPHASIS OF MATTER: (a) Regarding Non- Agriculture Tax, there was no demand from the concerned department. However, the company had shown the amount as contingent liability under other notes on account. (b) Regarding the preparation of accounts ongoing concern basis the notes in Independent audit report is self explanatory and the company had given the farm on long term lease and got steady income and been able to meet its operational expenses. Internal Auditors: The Board, as required under Sec 138 of Companies Act, 2013, in consultation with Audit Committee had appointed M/s. Jonnalagadda & Associates, Chartered Accountants (Firm Regn. No:01358S) as internal auditors for the year 2014-15. Secretarial Auditor: Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s K. Srinivasa Rao & Co, Company Secretaries in practice as the Secretarial Auditor to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit is given in Annexure-III to this Report. There were no qualifications, reservations or adverse remarks given by Secretarial Auditor except noncompliance of section 203 of the Companies, 2013 in respect of appointment the Company Secretary as Key Managerial Person. The Board has made utmost effort for appointment of the Company Secretary as KMP but has not been able to appoint a Company Secretary due to lack of suitability of the Candidate to the profile of the Company in terms of work location, job profile and remuneration. RISK MANAGEMENT: As required under Clause 49 of the Listing Agreement, the Company has constituted a Risk Management Committee. The details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of the Board’s Report. The Company has put in place a mechanism to identify, assess, monitor and mitigate various risks to its key business objectives. Major risks identified by the business and functions are systematically addressed through mitigating actions on a continuing basis. The Company has formulated a Risk Management Policy which is also available on the Company’s website at www.bkvindustries.com INTERNAL FINANCIAL CONTROLS: The Company has adequate Internal Financial Controls with proper checks to ensure that transactions are properly authorised, recorded and reported apart from safeguarding its assets. These systems are reviewed and improved on a regular basis. It has a comprehensive budgetary control system to monitor revenue and expenditure against approved budget on an ongoing basis. The internal auditors of the Company review the controls across the key processes and submit reports periodically to the Management and significant observations are also presented to the Audit Committee for review. Follow up mechanism is in place to monitor the implementation of the various recommendations. CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES: Section 135 of the Companies Act, 2013 provides the threshold limit for applicability of the CSR to a Company i.e. (a) net worth of the Company to be Rs. 500 crore or more; or (b) turnover of the company to be Rs. 1,000 crore or more; or (c) net profit of the company to be Rs. 5 crore or more. As the Company does not fall under any of the threshold limits given above, the provisions of Section 135 are not applicable to the Company. RELATED PARTY TRANSACTIONS All contracts/arrangements/transactions entered into during the financial year with the related parties were on arm’s length basis and were in the ordinary course of business. Section 188(1) of the Companies Act, 2013 exempts related party transactions that are in the ordinary course of business and are on arm’s length basis. However, under clause 49 of the Listing Agreement, all material Related Party Transactions require approval of the shareholders through special resolution. However, during the year, there are no material related party transactions, other than the ordinary transactions. The Board of Directors and the Audit Committee have also approved the said related party transactions. There are no materially significant related party transactions with the promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large. The policy on dealing with Related Party Transactions as approved by the Board is available at the investors section of the Company’s website at www.bkvindustries.com The particulars of contracts/arrangements entered into by the Company with related parties as required to be disclosed are given in Annexure IV to this Report. CORPORATE GOVERNANCE: The Managing Director and the Chief Financial Officer have submitted a certificate to the Board regarding the financial statements and other matters as required under the Listing Agreement. Statutory Auditor’s certificate on Corporate Governance compliance is attached to Corporate Governance report. MANAGEMENT DISCUSSION AND ANALYSIS: The Management Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement, form part of this Annual Report. TRANSFER TO THE INVESTOR EDUCATION AND PROTECTION FUND: The company has not declared any dividend till date from inception and hence not applicable. DISCLOSURES: Committees of the Board During the year, in accordance with the Companies Act, 2013 the Board reconstituted/re-named some of its Committees and presently the Company has the following Committees: • Audit Committee • Nomination & Remuneration Committee • Stakeholders Relationship Committee • Share Transfer Committee • Risk Management Committee The details of all the Committees along with their composition, terms of reference and meetings held during the year are provided with in the "Report on Corporate Governance" forming part of this Annual Report. Vigil Mechanism & Whistle Blower Policy The Company has a vigil mechanism and a whistle blower policy. The same has been posted on the Company’s website and the details of the same are given in the Corporate Governance Report. EXTRACT OF THE ANNUAL RETURN The details of the extract of the Annual Return in Form MGT-9 are given in Annexure- VI to this Report. LISTING AGREEMENT WITH STOCK EXCHANGES: As per the requirement of Listing Agreement, the Company declares that its securities are listed on the Stock Exchanges of Bombay, Delhi, Kolkata, Chennai and Hyderabad. The company confirms that it has paid annual listing fees to the Stock Exchanges of Bombay, Madras, Delhi and Kolkata for the year 2014-2015. The Hyderabad Stock Exchange Ltd, Madras Stock Exchange Limited & Delhi Stock Exchange Association Limited had since informed that SEBI de-recognized these Stock Exchanges. During the year Kolkata Stock Exchange is yet to send their bill for Listing fees, hence the fees for 2015-16 have not been paid. DIRECTOR’S RESPONSIBILITY STATEMENT: Pursuant to the provisions contained in Section 134(3) of the Companies Act, 2013, your Directors to the best of their knowledge and belief and according to information and explanations obtained from the management, confirm that: -in the preparation of the annual accounts for the financial year ended March 31, 2015, the applicable accounting standards have been followed and there are no material departures from the same; -the Directors have selected such accounting policies and applied them consistently except the depreciation accounting policy as per statute change 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 at March 31, 2015 and of the cash flows and loss of the Company for the year ended on that date; -the Directors 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; -The Directors have prepared the Annual Accounts on a going concern basis. -The Directors have laid down proper internal financial controls to be followed by the Company and such controls are adequate and operating effectively. -the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively GENERAL: Your Directors state that no disclosure is required in respect of the following items as there were no transactions on these items during the year under review: 1. Details relating to deposits covered under Chapter V of the Companies Act, 2013. 2. Issue of equity shares with differential rights as to dividend, voting or otherwise. 3. Issue of shares (including sweat equity shares) to employees of the Company under any scheme. 4. No orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and the Company’s operations in future. MANAGEMENT DISCUSSION & ANALYSIS A. INDUSTRY, STRUCTURE, DEVELOPMENT AND OUTLOOK Indian Sea food exports fell short of the targeted $ 6 Billion for the year 2014-15, but have still peaked to a new high-crossing 1 Million Tonnes in volume for the first time. The total export of the marine products was 10,51,243 Tonnes valued at Rs.33,441.61 Cr ( Billion US $ 5.51 ) during the year. This represents a raise of 7% in quantity and 11% in value. The Growth in $ terms was 10%. In 2013-14, the marine products exports from India stood at 9,83,756 Tonnes valued at Rs.30,213.26 Cr ( US$ 5.09 Billion ). Frozen shrimps continued to be the flagship product, accounting for a share of 34% in quantity and 67% in US $ value of the total exports. Vannamei, grown in aquaculture farms, was the main item under shrimps. Of the overall sea food exports, shrimps comprised 3,57,505 Tonnes valued around US$ 3.7 Billion. This is achieved despite the problems in the world market like depreciation of Euro, weak economic conditions in China and devaluation of Yuan. B. OPPORTUNITIES, THREATS, RISKS AND CONCERNS Asia-Pacific is the leading region on the global fish market, expanding thanks to economic growth, higher income levels and better spending power in developing regions like India and China. Fresh, frozen and chilled fish comprise the main market segment, with shellfish continuing to exhibit the most rapid growth. The overall market forecast for the global aquaculture and fisheries market is favorable, with a degree of recovery in trade and therefore production, across several major markets. The opportunities of seafood industry globally include in earning foreign exchange, providing employment in marine sector and achieving economies of scale by producing more output with lower cost. The risks involved in the industry being, lack of proper infrastructural facilities with respect to storage, imposing of heavy terminal handling charges, stringent policies regarding Food safety imposed by importing countries and depletion of resources by over catching of fish. Anti-dumping duties levied by the USA, based on the administrative review (AR) are another blow to the industry, thereby increasing of vulnerability of India’s small scale fishing communities, harvesters and processors. It has become a difficulty for the Indian exporters to comply with the strict regulations undeniably, as the USA is the second largest importer of fishing exports from India. RISKS AND CONCERNS: Pursuant to Clause 49 of the Listing Agreement, the Company has constituted a Risk Management Committee. The details of the Committee, its terms of reference are given in the corporate governance report. The methodology for risk management primarily involves mapping of risks with strategy, assessing the risks on its importance, identifying de-risking measures and assigning it to risk owners and continuously monitoring the status of the risks. The risks were categorized into Strategy & Planning, operations and compliance and the risks associated with each risk category was further classified and identified as "critical", “major” and "moderate” The company does not foresee any critical / major risk as it had already given its farm on long term lease and the lessee is meeting their commitments as per the lease agreement. The maintenance and compliance expenses of the company are taken care through the lease payments, hence, the company does not foresee any major risk for its operations in the short and medium term. The management periodically reviews the risk management framework to identify the major business risks as applicable to the Company and works out their mitigation strategy. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY: The Company has well-established processes and defined the roles and responsibilities for people at various levels. The control mechanism also involves well documented policies, authorization guidelines commensurate with the level of responsibility specific to the respective businesses. Adherence to these processes is ensured through frequent internal audits The internal audits conducted are reviewed by the Audit Committee and requisite guidelines and procedures augment the internal controls. The internal control system is designed to ensure that financial and other records are reliable for preparing financial statements and other information which ensures that all transactions are properly reported and classified in the financial records. Further the Company had given its farm on long term lease and did not carry any other business operations during the year. D. FINANCIAL PERFORMANCE The financial statements are prepared in compliance with the requirements of the Companies Act, 2013 and Generally Accepted Accounting Principles in India. The management accepts the responsibility of integrity and objectivity of the financial statements and the basis for various estimates and the judgments used in preparing the financial statements. During March, 2013, the company entered into a lease agreement of its Farm for a period of 84 months with effect from July, 2013, as the promoters have decided to meet with Lease Income the fixed expenses/ costs. The company has to seize the opportunities as and when the economy provide the profitable business opportunities and to control further losses in operations and to maintain the farm assets with negligible costs to the company. With these steps, the company could perform reasonably and ended up with a marginal cash profit. E. DEVELOPMENTS IN HUMAN RESOURCES: In a challenging and competitive environment, the Company believes that people are the key to success and continues to focus on people capabilities by leveraging technology and creating a learning environment. During the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. F. CAUTIONARY STATEMENT: The management discussion and analysis report containing your Company’s objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied in the statement. As the company had given its farm assets on long term lease and that being the only source of income for the company, changes in the government regulations, compliance frame work, tax laws and other factors, may affect the future earnings of the company. The Company cannot guarantee the accuracy of the assumptions and perceived performance of the Company in future. DELISTING OF SHARES: Company’s Ordinary Equity shares are originally listed in the Stock Exchanges of Mumbai (BSE) and four other Stock Exchanges at New Delhi, Kolkata, Chennai and Hyderabad. The shares of the company are compulsorily traded in dematerialized form. The Board considered that continued listing on all stock exchanges was not necessary and therefore decided to de-list from Delhi and Calcutta stock exchanges in pursuance of special resolution passed in the 14th Annual General Meeting held on 28"1 September, 2007. However, the company was informed by Madras Stock Exchange Limited, Hyderabad Stock Exchange Limited, The Delhi Stock Exchange Association Limited, that SEBI had de-recognized the above Stock Exchanges. Company is yet to hear from Kolkata Stock Exchange and not received any bill for Listing Fees from them for the year 2015-16. PERSONAL RELATIONS AND APPRECIATION: The Directors gratefully acknowledge all stakeholders of the Company viz., lessee, members, employees and banks for their support during the year. Your directors hereby place on record their appreciation for the services rendered by the staff of the Company for their hard work, dedication and commitment. By order of the Board of Directors BOMMIDALA RAMA KRISHNA Managing Director DIN:00105030 Place: Guntur Date: 23rd July, 2015 |