Empee Distilleries Ltd Directors Report.

Your Directors have pleasure in presenting the Board s Report together with the audited Accounts for the year ended 31st March 2017.

FINANCIAL RESULTS (Rs.in lacs)
Particulars 2016-17 2015-16
(For the Year ended 31.03.2017) (For the period ended 31.03.2016)
Total Income 50160.47 61268.14
Operating Profit before Interest and Depreciation (1148.13) 4139.95
Less : Interest 3035.63 2504.36
Depreciation 1257.39 1298.42
Profit before exceptional item and tax (3378.88) -
Extra-ordinary items (loss on sale of Investments) (2062.27) -
Profit / Loss before Tax (5441.15) 337.17
Provision for Taxation (2906.40) 234.04
Provision for Deferred Tax (68.93)
Earlier Tax provision reversed - -
Exceptional Item - -
Profit /Loss After Tax (2534.75) 172.07
Profit brought forward (2534.75) -
Add : Prior period income Depreciation - -
Transfer of profit to General Reserve - -
Proposed Dividend - -
Dividend tax on proposed dividend - -
Profit carried forward (2534.75) 172.07

PERFORMANCE REVIEW :

Overall performance

During the year under review, your Company registered a total income of Rs.501.60 Crs and incurred a loss of Rs 54.41 Crs , after extra-ordinary item i.e. loss on sale of investments amounting to Rs 20.62 Crs and thus overall net operating loss stood at Rs. 33.79 Crs, as against the total income of Rs.612.68 crs and a profit of Rs.1.72 crs for the year ended 31st March 2016. The performance during the year under review was impacted due to (a) Demonetization of high value currencies in Dec. 2016, (b) Uncertain political environment in the wake of demise of Tamil Nadu s Chief Minister (c) Increase in price of basic raw materials like ENA, Maize etc, (d)Effect of desolate Cyclone Vardah , (e) Cash flow constraint for GBAP due to non sanction of working capital facilities by UBI, (f) Closure of more than 3000 Retail Vending shops in TN & Kerala due to Govt policies, (g) Non production of Power from Aranthangi unit due to restrictive measures taken by Tamil Nadu Govt.

IMFL Division :

IMFL units at Mevalurkuppam, Palghat and Kolar registered a net turnover of Rs. 476.12 crs and resulted in a net operating loss of Rs. 7.22 crs during FY 2016-17 as compared to a turnover of Rs. 544.04 crs and Rs. 8.60 crs. of profits in the last financial year (2015-16)

Power Division :

The revenue from the Power Division was Rs 376.30.lacs with a profit of Rs. 74.36 lacs during the financial year under review as against the revenue of Rs 14.85 crs and net profit of Rs 3.09 crs during the previous financial period 2015-16

Grain Based Alcohol Unit :

During the year 2016-17 the 60 KLPD Grain Based Alcohol unit at Chotkur, Andhra Pradesh earned a revenue of Rs 21.72. crs with a net operating loss of Rs 27.31 crs as against a revenue of Rs 53.79 crs and a net loss of Rs 9.97 crs in the previous financial year.

REVIEW OF OPERATIONS :

The Economy/regular brands of the Company maintained a reasonable turnover while thin margins resulted in overall loss during the year under review. The focus on the Premium brands such as Chevalier De Paris Brandy, Carte Royale Brandy, Elcanso Brandy and Blue Crystal Vodka added substantial value in terms of market penetration and the market share in Tamilnadu, Kerala, Karnataka is moving forward. The export market for premium brands are encouraging with exports Chevalier De Paris Brandy, Carte Royale Brandy, Elcanso Brandy and Blue Crystal Vodka to Singapore and Dubai.

The company s 10 MW power plant in the Aranthangi, Tamilnadu could not be operated during the year due to imposition of restrictive measures by the Tamilnadu State Electricity Board (TNEB).

The Grain based Distillery unit at Chotkur could not perform during the year due to non-availability of grains and the prices of grains.

The overall performance of the company was greatly affected due to many problems the Company encountered during the year under review as stated above, and hence the turnover was considerably low in 2016-17 resulting in a net operating loss of Rs.33.79 crs.

FUTURE OUTLOOK :

The outlook for 2017-18 is promising as the Company explored more avenues to export IMFL products to Singapore, Malaysia, Dubai, and other states in India from its manufacturing unit at Kolar and Palakkad. The power unit will be able to commence operations only after lifting of restrictive measures by TNEB and the Company is confident in this regard. The Company is devising plans to gear up production of GBA at Chotkur in the current Financial year (2017-18).

CHANGE IN THE NATURE OF BUSINESS, IF ANY :

There is no change in the nature of the business during the year.

DIVIDEND :

Due to losses for the FY 2016-17, the Board of Directors regret to recommend any dividend for the financial year ended 31.03.2017.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY BETWEEN THE END OF THE FINANCIAL YEAR AND THE DATE OF THE REPORT:

There are no material changes and commitments affecting the financial position of the company between the end of the financial year and the date of the report.

TRANSFER TO RESERVES :

Your Company does not propose to transfer amounts to the General Reserve due to losses incurred during the year under review.

FINANCE :

ISSUE OF 1166860 SHARE WARRANTS UNDER PRIVATE PLACEMENT :

The Company in order to improve the working capital liquidity issued 9,39,727 Equity Warrants to EW India Special Assets Fund Pte Ltd and 2,27,133 Equity Warrants of Rs 10/- each to Edelcap Securities Limited , at a premium of Rs 54.54 per share aggregating Rs.7.53 crs pursuant to EGM approval dated 28th November 2016, 19th January 2017 and 15TH March 2017. These warrants were converted into 1166860 equity shares of Rs.10 each on 21st March 2017 and the same were listed on BSE and NSE w.e.f 21st April , 2017 and 11th May, 2017 respectively.

SHARE CAPITAL :

Due to conversion of 1166860 share warrants into same number of equity shares, the paid-up share capital of the company as on the date of this report increased to 20175753 equity shares of Rs.10/- each. There is no change in the Authorised, share capital of the company during the year under review.

DEPOSITS :

Your Company has not invited or accepted any fixed deposits either from the public or from the shareholders of the Company, during the year under review.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186 :

The particulars of loans, guarantees and investments u/s 186 of the Companies Act, 2013 is annexed herewith as Annexure-A.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT :

The Management Discussion and Analysis Report is annexed herewith as Annexure B.

DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL WHO WERE APPOINTED OR HAVE RESIGNED DURING THE YEAR :

Due to sudden death of Mr.Shankar Menon on 22.01.2017 he ceased to be the Director w.e.f. 22 01 2017.

Mr. M.P. Purushothaman who retires by rotation at this AGM offers himself for re-appointment at this AGM.

Mr. Suresh Raj Madhok was appointed as Additional Director w.e.f. 26.12.2016 by the Board. As per the provisions of the Companies Act, 2013, Mr. Suresh Raj Madhok is proposed to be appointed as Independent Director for a term of five years from the date of his appointment, as set out in the AGM Notice for the approval of Director.

The Independent Directors of the Company have submitted a declaration u/s.149(7) of the Act that each of them meets the criteria of independence as provided in Section 149(6) of the Act and there has been no change in the circumstances which may affect their status as Independent Director during their directorship.

NUMBER OF BOARD MEETINGS HELD DURING THE YEAR 2016-17 :

The Company has duly complied with the provisions of the Companies Act, 2013 in holding Board meetings and the details of the meetings are furnished in the Corporate Governance Report.

DETAILS OF POLICIES :

(i) Nomination and Remuneration Policy

The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of Directors, Senior Management and their remuneration. The Company s Remuneration Policy is available on the Company s website www.empeegroup.co.in and the same is attached herewith as Annexure - C.

(ii) Corporate Social Responsibility Policy (CSR)

The Board has framed a CSR Policy and the same is available on the Company s website www.empeegroup.co.in. The said policy is attached herewith as Annexure-D.

Due to loss of Rs.25.35 crs for the year under review and lack of profits in the three immediate preceding financial years, the Company could not allocate funds for CSR activities.

Annual Report on CSR as required under Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is also attached herewith as Annexure-E.

(iii) Risk Management Policy

Business Risk Evaluation and Management is an ongoing process within the Organization. Pursuant to Section 134(3)(n) of the Companies Act, 2013, the Board has framed a Risk Management Policy for the Company. The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Major risks identified by the business and functions are systematically addressed through mitigating actions on a continuing basis.

At present the company has not identified any element of risk which may threaten the business of the Company.

(iv) Whistle Blower Policy Vigil Mechanism

Your Company has formulated a Vigil Mechanism Policy with a view to provide a mechanism for employees and directors of the Company to approach the Chairman of the Audit Committee to ensure adequate safeguards against victimisation. This policy would help to create an environment wherein individuals feel free and secure to raise an alarm, whenever any fraudulent activity takes place or is likely to take place. It will also ensure that complainant(s) are protected from retribution, whether within or outside the organization. The Board has elected Mr.R.Rangachari, who is the Chairman of the Audit Committee as the Ethics Counsellor under the vigil mechanism policy. The details of establishment of the Vigil Mechanism Policy as per Annexure F is displayed on the website of the Company www.empeegroup.co.in.

CORPORATE GOVERNANCE

As required by Regulation 27 of the SEBI s (LODR), 2015 of SEBI with the Stock Exchanges, the Corporate Governance Report and the Auditor s Certificate regarding compliance of conditions of Corporate Governance, forms part of the Annual Report.

BOARD COMMITTEES

Name of the Committee Composition Details of Meetings held during the year 2016-17
AUDIT COMMITTEE Mr. R.Rangachari
Mr. Shankar Menon upto 22.01.2017 30.5.2016, 11.8.2016, 12.11.2016, 13.2.2017
Mr. Suresh Raj Madhok
Ms.Nisha Purushothaman
Mr. Shankar Menon upto
NOMINATION & REMUNERATION COMMITTEE 22.01.2017 30.5.2016, 11.8.2016,
Mr Suresh Raj Madhok 12.11.2016, 13.2.2017
Mr. R.Rangachari
Mr. M.P. Purushothaman
Mr Suresh Raj Madhok
CSR COMMITTEE Mr. R.Rangachari 13.02.2017
Ms. Nisha Purushothaman
STAKEHOLDERS Mr. R.Rangachari 30.5.2016, 11.8.2016,
RELATIONSHIP Mr. Shankar Menon upto 22.01.2017 12.11.2016, 13.2.2017
COMMITTEE Mr Suresh Raj Madhok
Ms. Nisha Purushothaman

DETAILS OF RECOMMENDATIONS OF AUDIT COMMITTEE WHICH WERE NOT ACCEPTED BY THE BOARD ALONG WITH REASONS

The same is not applicable as the Audit Committee s recommendations were accepted and implemented by the Board.

NAMES OF COMPANIES WHICH HAVE BECOME OR CEASED TO BE ITS SUBSIDIARIES, JOINT VENTURES OR ASSOCIATE COMPANIES DURING THE YEAR

Pursuant to EGM resolution dated 15th March, 2017, the company has sold 9889285 Equity shares of Rs.10 each held in Empee Hotels Ltd (Associate Company -unlisted entity) in favour of Appollo Alchobev Ltd and hence the percentage of shareholding has decreased from 39.05 % to 19.26%. Consequent to this, the consolidation of accounts of Empee Hotels Ltd with the Company does not arise.

Subsidiaries

The Consolidated Accounts of the Company includes the audited accounts of subsidiaries namely EDL Properties Ltd and M/s.Appollo Distilleries and Breweries Pvt Ltd. The accounts of the subsidiaries can be made available to the members upon request. M/s.Empee Sugars and Chemicals Ltd (subsidiary company) has been referred to BIFR under the provisions of Sick Industrial Companies Act, 1985 in November 2014. Since BIFR was abolished in December 2016, Insolvency and Bankruptcy Code (IBC) has been introduced. As informed by the said subsidiary Company it has filed a petition as a Corporate Debtor with NCLT, Hyderabad under IBC. As such and in pursuance of AS-21 of Accounting Standard the consolidated accounts of Empee Sugars and Chemicals Ltd are not required to be given for the year under review and hence the same has been dispensed with.

A statement containing salient features of the subsidiaries in Form AOC-1 is annexed herewith marked as Annexure - G and forms part of this report.

AUDITORS

a. Statutory Auditors

M/s. Venkatesh & Co, Chartered Accountants, who was appointed as Statutory Auditors for five years in terms of Sec. 139, 141 of the Companies Act, 2013 shall hold office till the conclusion of the 34th AGM of the Company to be held in the year 2019, however subject to ratification of their appointment at every AGM.

The Company has received a letter from the Statutory Auditors of the Company, Venkatesh & Co, (ICAI Firm Registration Number: 0046365) Chartered Accountants, to the effect that their ratification of their appointment, if made, will be as per the requirements laid down under Section 139 and 141 of the Companies Act, 2013 read with Rule 4 of the Companies (Audit and Auditors) Rules, 2014. subject to ratification/approval of the Members..

Accordingly, a resolution is being placed before the Members for their ratification/approval as given in the AGM notice.

AUDITORS QUALIFICATIONS

a. Qualification : The company has made an investment of Rs.1.59 Crores as Equity Shares and further investment by way of share application money of Rs.140.36 Crores to its subsidiary Empee Sugars and Chemicals Limited and Rs.20.68 Crores as investment in Equity Shares of Empee Hotels Limited. The Companies Empee Sugars and Chemicals Limited & Empee Hotels Limited have been incurring losses. No Provision for diminution in the value of investment in respect of these companies have been considered in the accounts.

Reply : Since the subsidiary company namely Empee Sugars and Chemicals Limited has been registered with BIFR (now under IBC) by the order dated 24/11/2014 the company is unable to estimate the effect on the above qualification and the resultant is based on the order of the NCLT, Hyderabad, on revival scheme to be filed by Empee Sugars and Chemicals Limited.

Regarding share application money in Empee Sugars and Chemicals Ltd (ESCL) of Rs.140.36 Crs pending for allotment in favour of EDL, the holding Company, it is stated that due to non-receipt of certain statutory approvals the same is kept pending. However since these monies have been received prior to the Companies Act, 2013, the Company is said to be attracted to the provisions of the Companies Acceptance of Deposit Rules 2014 and Investors Education and Protections Fund. But the Company has reiterated that since the Company has been registered under BIFR much ahead of the said Deposit Rules, the same shall not apply. In this connection it is pertinent to report that BIFR has been abolished w.e.f. 1.12.2016 and in its place Insolvency and Bankruptcy Code (IBC) has been replaced. ESCL is in the process of making out an application as Corporate debtor to NCLT, Hyderabad. Further the Investors protection and Education Fund Rules do not apply in so far as EDL has claimed the refund of share application money. ESCL could not refund the share application money due to absence of the normal functioning of the Company and negative cash flows which are the matters to be considered by NCLT under IBC.

As regards diminution in the value of investments of shares in Empee Hotels Ltd, since another company in the group namely Appollo Alcobev Ltd is likely to merge with Empee Hotels Ltd, the functioning of Empee Hotels Ltd may improve in near future and as such the diminution in the value of shares are deferred to next financial year 2017-18.

b. Qualification Other Loans & Advances amounting to Rs. 40.35 Crores out of Rs.40.98 Crores under the head other Current Assets, Sundry Debtors to Rs. 65.08 Crores and Loan and advances to related parties Rs. 41.88 Crores, Other Long Term Liabilities Rs. 38.92 Crores and Trade Payable of Rs. 79.34 Crores are subject to confirmation and reconciliation. The impact on profitability is not ascertainable.

Reply :

The same has been since reconciled.

b. Secretarial Auditors

As per provisions of Sec. 204 of the Companies Act, read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, your Company appointed M/s. S Dhanapal & Associates, a firm of Practising Company Secretaries, Chennai as Secretarial Auditors of the Company for the Financial year ended 31.03.2017. The Secretarial Audit Report in Form No: MR 3 is attached as Annexure-H to this report.

c. Cost Auditors

Pursuant to Sec. 148(3) of the Act, the Board of Directors had appointed Mr.N. Thiagarajan (Reg. No:103955) as Cost Auditors of the Company for conducting the audit for the Financial year ended 31.03.2017

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE OUTGO

Information regarding conservation of Energy, Technology absorption and Foreign Exchange earnings and outgo is given as Annexure - I and forms part of this Report.

RELATED PARTY TRANSACTIONS

There were no materially significant transactions with Related Parties during the financial year under review, which were in conflict with the interest of the Company. The details of Related Party Transactions during the year ending 31.03.2017, being arm s length transactions have been reported in the Financial statements and forms part of this report as per Annexure - J.

MANAGERIAL REMUNERATION/ PARTICULARS OF EMPLOYEES

The details/ particulars of employees/managerial persons remuneration as required to be given u/s 197 of the Companies Act, 2013 read along with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial personnel) Rules 2014 as applicable is attached herewith as Annexure - K.

DETAILS OF PECUNIARY RELATIONSHIP OR TRANSACTIONS OF THE NON-EXECUTIVE INDEPENDENT DIRECTORS VIS--VIS THE COMPANY

There is no pecuniary relationship or transactions of the Non-Executive Independent Directors vis--vis the Company for the year ended 31.3.2017.

BOARD S EVALUATION

Pursuant to the provisions of the Companies Act, 2013 and Clause 27 of the SEBI s (LODR), 2015 of SEBI, the Board has carried out the annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its Audit, Nomination and Remuneration and Compliance Committees.

While independent directors in their separate meeting have carried out to assess the performance of Chairman, JMD and other Directors of the Board more particularly about their business acumen and contribution to the Company, the performance evaluation of the Independent Directors was carried out by the entire Board.

The Independent Directors expressed their satisfaction with the evaluation process, functioning such as adequacy of the composition of the Board and its Committees, Board culture, execution and performance of duties, obligations, responsibilities and governance.

ADEQUACY OF INTERNAL FINANCIAL CONTROLS

The Company has a proper and adequate internal control system to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and those transactions are authorised, recorded and reported correctly.

The Internal Audit/Control is exercised through an external auditor namely, M/s.Ramesh Subramaniam & Co., Chartered Accountants, Chennai. The audit observations and corrective action taken thereon are periodically reviewed by the audit committee to ensure effectiveness of the internal audit/control system.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANY S OPERATIONS IN FUTURE

There is no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company s operations in future

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith as Annexure - L.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy.

The Company has not received any complaint on sexual harassment during the financial year ended 31.03.2017.

INDUSTRIAL RELATIONS

The Industrial relations continued to remain congenial during the year.

DIRECTORS RESPONSIBILITY STATEMENT

In terms of Section 134 (5) of the Companies Act, 2013, the directors would like to state that :

a. In the preparation of the annual accounts, the applicable accounting standards have been followed.

b. The directors have selected such accounting policies and applied them consistently and made judgments and estimates that were 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 the year under review.

c. The directors 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 other irregularities.

d. The directors have prepared the annual accounts on a going concern basis.

e. The directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

f. The directors had devised proper system to ensure compliance with the provisions of all applicable laws and that such system were adequate and operating effectively.

ACKNOWLEDGEMENT

Your Directors wish to express their gratitude for the continuous assistance and support extended by the Banks, Financial Institutions, Customers and Government authorities and also to the shareholders for their confidence in the management. Further, your Directors also place on record their deep sense of appreciation for the contributions made by employees at all levels to the growth and success of the company.

For and on behalf of the Board of Directors
Place : Chennai M.P. Purushothaman
Date : 21.08.2017 Chairman