Overview
The following operating and financial review is intended to convey the
Managements perspective on the financial and operating performance of the Company at the
end of the Financial Year 2022-23. This Report should be read in conjunction with the
Companys financial statements, the schedules and notes thereto and other information
included elsewhere in the Annual Report. The Companys financial statements have been
prepared in accordance with the Indian Accounting Standards (Ind AS) complying with the
requirements of the Companies Act, 2013, as amended, and regulations issued by the
Securities and Exchange Board of India (SEBI) from time to time.
This report is an integral part of the Boards Report. Aspects on
industry structure and developments, outlook, risks, internal control systems and their
adequacy, material developments in human resources and industrial relations have been
covered in the Boards Report and is incorporated herein by reference and forms an
integral part of this report. Your attention is also drawn to sections on Strategy, Risk
and Opportunities forming part of the Annual Report. This section gives significant
details on the performance of the Company.
Business Profile:
AVT Natural Products operates in the business segment of Food &
Feed Ingredients from Natural Raw materials. There are five primary business categories:
• Marigold Extracts for Eye Care, Food Coloring & Poultry
Pigmentation
• Spice oleoresins and Oils for Food Colouring and Flavouring
• Value added Teas - Decaffeinated Teas and Instant Teas
• Animal Health & Nutrition Products
• Rosemary extract
The Company has three wholly owned subsidiaries, namely AVT Natural
Europe Ltd, AVT Natural S.A. De C.v., Mexico and AVT Natural FZCO. AVT Natural Europe Ltd
has 1 subsidiary, AVT Natural North America Inc.
The wholly owned subsidiaries are responsible for the sales and
marketing activities of value-added teas, animal nutrition products and other natural
extracts.
Financial Performance & Operational review:
For the year ended on 31st March, 2023, the Company
generated revenue of $ 582.25 crores as compared to
$ 541.89 crores in 2021-22, clocking a growth of 7.45 %. The Company
recorded profit after tax of $ 75.04 crores in 2022-23 against $ 70.67 crores in the
preceding year. In-spite of the challenging business environment and the lowest marigold
prices recording in recent years, the improvement in bottom line was achieved through a
combination of improved operational efficiencies, better marigold price realizations
during first half & increased sales of value-added new product segments.
Climatic vagaries during the crop cycle also had a negative impact on
the Marigold crop and yield, with heavy rains during the nursery, flowering and harvesting
phase. However, favorable market prices in the first half of the year helped mitigate some
of the financial impact of the poor crop season.
Organic Marigold feed & growth in Zeaxanthin helped with the
overall performance of the Marigold segment.
Global demand for value added tea products continued to remain strong
through post pandemic times. While the customer wise split and market share witnessed
significant changes and disruption; the overall market remained strong with increase in
demand from premium segments and customers. The company continued to work closely with key
accounts and capitalize on market demand, ensuring a robust & reliable supply chain.
Continued R&D and product development also allowed the company to make inroads with
new customers. While raw material prices witnessed an increase, the Company continued to
focus on efficiencies ensured a strong top and bottom line.
Spice Oleoresins and extracts continued to be an important division for
the company. Strong demand post pandemic ensured a good performance during the first half,
but slow market conditions resulted in reduced demand during the second half. The
companys strong control over the supply chain and focus on higher margin ingredients
helped ensure stable and healthy margins despite slowing market conditions.
The Company continued to make inroads in the Animal Nutrition division
despite several hurdles. The products continue to be well received by existing customers,
with many new customers completing trials and beginning to initiate commercial
discussions. The spread of influenza and swine flew in several key markets slowed the
growth of the division but the strong product offering with a positive ROI proposition
enabled us to continue servicing our customers.
Rosemary extract continued to add value for our food antioxidant
category with stable growth during the year.
Concerns & Risks
Changing climate patterns and high value competing crops continues to
be a risk for our Marigold division. Control and new regulation over pesticides also poses
a significant challenge for growing and compliance. With continued growth in nutraceutical
demand, greater farming compliance and new acreages will become an important strategic
initiative.
This year also continues to witness unprecedented increases in
employee, input, and raw material costs. The war in Ukraine still poses significant cost
and supply chain challenges and the availability of agricultural inputs continues to pose
a threat.
Newly introduced regulatory norms in the spice segment with regards to
toxins and pesticides also pose a significant challenge with compliance, with standards
set at very low levels.
In addition to the operational challenges, currency fluctuations also
pose a continuous challenge which will need to be monitored on an ongoing basis.
The Company will continue to invest in new growing technologies as well
expand its growing area to ensure a sustainable growing program for marigold. A greater
emphasis and focus will be placed on compliance and farming practices to adhere to new
international regulatory norms. The new seeds being introduced from our hybrid program
will ensure higher yields and higher Xanthophyll, which will help combat the rising
growing costs. Continuous improvement in farming practices, upskilling of growers,
adaptation of best & new practices with modern techniques will help optimize inputs
with 20% more yields & recoveries.
The Company also has a focus on strengthening its supply chain and
improving its raw material procurement. Strategic buying and diversification of suppliers
plays a key role in maintaining the companys cost competitiveness across different
product segments.
To address the concerns on increasing employee costs, the Company has
embarked on various internal programs to improve employee productivity and increase
operational efficiencies. Costs are diligently monitored & cost reduction measures are
taken wherever possible. Process improvements & new technologies help offset potential
cost increases. Automation also continues to be an area for investment.
Currency risk is mitigated through careful forex hedging. The company
follows an appropriate hedging policy commensurate with the business needs.
Future Outlook
The Company maintains a very positive outlook of the future with its
foray into new segments and the strengthening of the existing businesses.
Marigold will remain a key business segment, contributing to both the
top and bottom line. Sustaining growth with a focus on efficiency is key with low marigold
prices & renewed market competition from China. The Company will continue to
strengthen its agricultural growing base while focusing on process and cost improvements.
The Company will invest continuously to increase capacity to cater to growth in this
segment while also improving its compliance practices. New hybrids will be rolled out in a
phased manner to ensure sustainable growth in flower volumes. The adaptation of new
agricultural and growing practices for marigold will also result in improved yields across
our growing areas.
In Spice oleoresins and extracts, the company continues to focus on
expanding its customer base and geographical regions with increased focus on growing its
market for value added specialty products. Here too a greater emphasis will be placed on
compliance to meet new global norms.
The value-added tea segment continues to be major growth area for the
company. We continue to work closely with large key accounts and expand into new regions.
The company is investing in new capacity, to service our growing list of customers, with
the aim of doubling the business in the next two to three years. Our growth will
consolidate our position as a key player in the value-added tea market.
The rosemary business will continue to grow as part of our 5-year
strategic agreement with Kemin Industries. The global demand for clean and natural
antioxidants remains strong and the Company will continue to invest in both capacity and
process innovations, ensuring a more sustainable supply.
Despite some market challenges, the Companys foray into the Global
animal nutrition market is bearing fruit. The products are making inroads in key markets,
and we expect sustained growth over the next few years. The companys new strategic
relationship with Nutreco, a leading global feed additive company, will continue to grow
with commercial operations and co-development starting in first quarter of the new
financial year. The company also continues to expand its own presence in LATAM and will
continue to invest in new products to round of the portfolio.
The Company will, as always, continue to invest in R&D and new
product development. We will leverage our knowledge and technology in botanicals to
establish two new divisions for the company - Derma cosmetic ingredients and
Nutraceuticals. Our focus will be on bringing science-based solutions with clinical data
to these new markets. With initial clinical trials completed for Derma applications, the
company will begin its commercial activities in the new financial year.
Internal Controls
The Company has effective and adequate internal audit and control
systems, commensurate with the increasing business size to safeguard its assets and
protect against loss from any un-authorized use or disposition. Regular internal &
statutory audit visits are undertaken to ensure that highest standards of internal
controls are maintained at all levels of the organization. The Companys internal controls
are supplemented by an extensive program of internal audits which are periodically
reviewed by the management. All policies, guidelines and procedures are well documented.
The summary of the Internal Audit findings and status of implementation
of action plans for risk mitigation are submitted to the Audit Committee for review, and
concerns if any, are reported to the Board. This process ensures robustness of internal
control systems and compliance with applicable laws and regulations and ensures optimal
resource utilization and system efficacy.
The company has implemented new SAP system across the organization
streamlining much faster access to data and reports available in full compliance to SEBI
while also building robust internal controls & systems in the coming years.
All Investment decisions are subjected to formal systematic detailed
evaluation and approved by the relevant authority as defined in the
delegation-of-authority mechanism. The Audit Committee reviews the plan for internal
audit. It also reviews all significant internal audit observations and overall functioning
of the Company on a periodic basis.
Revenue and capital expenditure are strictly governed by approved
budgets and the expenditure approval levels are defined by a delegation-of-authority
mechanism. Review of capital expenditure is undertaken based on the expected benefits for
the Company.
Human Resources
The Company strongly believes that Human Resource is its most critical
asset. We strive to offer our employees a dynamic and rewarding environment based on
strong organizational values and the individuals ability. While the overall emphasis is
on driving the organizations business goals, we encourage individuals entrepreneurial
spirit coupled with a strong sense of accountability to achieve the objective contributing
to every individuals growth together with building a strong business.
The Company continues to leverage its human capital by attracting the
right talent as well as nurturing & developing its internal talent. The company has a
carefully designed appraisal and performance rewarding system which fosters a growth
mindset in its employees. We emphasize nurturing and rewarding our internal talent. In
this endeavor, our employees undergo carefully designed training program which prepares
them for the challenges ahead. The company follows a structured and well-defined system of
internal promotions which ensures high levels of employee satisfaction.
The Company has been successful in building an internal talent pool at
every level to cater growth. Employees are provided cross-functional exposures, on-job
training as well as carefully chosen external training programs to prepare them for their
growth into higher roles. HR team works closely with the Superiors to assess the training
needs of their subordinates. The Superiors are accountable for the continuous development
and growth of their subordinates.
As we aggressively pursue new business opportunities, we have tapped
into external talent pool as and when necessary. We are happy to note that the Company is
an attractive destination to talented individuals. The company follows a carefully
designed recruitment and staffing process to ensure that all employee addition is
immediately value accretive. The process followed has helped the company to reduce the
learning curve sharply while pursuing new businesses.
The Company has signed 4 year, Long term settlement agreement with the
Union upholding the strong relationship fostered over decades.
We continuously improve and update our HR systems to meet the demands
of the changing business environment to ensure that the Company will remain an attractive
destination for both its internal and external talent.
The Company has enjoyed a very cordial and peaceful work environment
with a committed, strong, supportive & cooperative work force on the Shop floor.
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