Heritage Foods Ltd Directors Report.

To the members,

Your Directors have great pleasure in presenting the 27th Annual Report of the Company together with the Standalone & Consolidated Audited statement of accounts for the Financial Year ended March 31, 2019.

Financial Results

in Lakhs

Standalone

Particulars FY 2018-19 FY 2017-18
Net Sales 2,47,946.42 2,34,385.51
Other Operating Income 288.51 15.59
Total Revenue 2,48,234.93 2,34,401.10
Add: i) Other Income 1,109.60 716.95
ii) Fair Value gain on FVTPL Equity Shares - 39,537.07
iii) Gain due to changes in fair value of derivative Liability 13,109.85 -
Total Income 2,62,454.38 2,74,655.12
Less: i) Total Expenditure 2,30,036.03 2,21,699.95
ii) Loss due to change in Fair Valuation of derivative Transactions - 38,703.86
iii) Fair value loss on FVTPL equity securities 13,109.85 -
Profit before Finance cost, Depreciation, Amortisation and Tax 19,308.50 14,251.31
Less: i) Finance cost 2,068.64 1,745.45
ii) Depreciation and & Amortisation 4,371.04 3,698.54
Profit / (Loss) before tax 12,868.82 8,807.32
Less: i) Provision for current Tax (including Taxation of earlier years) 4,228.00 2,829.39
ii) Provision for deferred taxation 296.63 (60.23)
Profit / (Loss) after tax 8,344.19 6,038.16
Operating Profit 14,937.46 10,552.77

Performance of the Company

Your Company, during the year under review earned revenue from operations (Gross) of 2,48,235 Lakhs, achieved an increase of 5.90% over the previous year. The profit before Finance Cost, depreciation & amortization and tax was of 19,308 Lakhs (7.78% on total revenue) as against 14,251 Lakhs (6.08% on total revenue) in the previous year. The operating profit after depreciation was amounted to 14,937 Lakhs (6.01% to revenue) as against 10,553 Lakhs (4.50% to revenue) in the previous year.

Transfer to Reserves

Your Directors do not propose to transfer any amount to reserves for the financial year ended on March 31, 2019.

Dividend

Your Directors have pleasure in recommending a dividend of (40%) i.e. 2/- per equity share of face value of 5/- each for the financial year ended March 31, 2019, amounting to 928 lakhs. The dividend payout is subject to approval of members at the ensuing Annual General Meeting. The Register of Members and Share Transfer Books will remain closed from Friday, August 23, 2019 to Friday, August 30, 2019 (both days inclusive) for the purpose of payment of dividend for the financial year ended March 31, 2019. The Annual General Meeting is scheduled to be held on August 30, 2019 The dividend payout for the year under review has been finalized in accordance with the dividend distribution policy of the company shareholders aspirations and the Companys policy to pay sustainable dividend linked to long term growth objectives of the Company to be met by internal cash accruals.

Share Capital

The paid up Equity Share Capital as at March 31, 2019 stood at 23,19,90,000/- divided into 4,63,98,000 equity shares face value of 5/- each. During the year under review, the Company has not issued shares with differential voting rights nor has granted any stock options or issued sweat equity share to its employees or directors. As on March 31, 2019, none of the Directors or the Company holds instruments convertible into equity shares of the Company.

Deposits

Your Company has not accepted any deposits from the Directors/ Shareholders/Public and as such, no amount of principal or interest on public deposits was outstanding as at the Balance Sheet date.

Particulars of Loans, Guarantees or Investments

Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the notes to the financial statements provided in this Annual Report. However the Board has given corporate guarantee as at 31st March, 2019 of 2,675 Lakhs for the credit facilities availed by the wholly owned subsidiary Company viz. M/s. Heritage Nutrivet Limited.

Particulars of Contract or Arrangements Made With Related Parties

The particulars of contracts or arrangements with related parties as per the Section 188 of the Companies Act, 2013 entered by the Company during the financial year ended March 31, 2019 in prescribed Form AOC-2 is annexed to this Boards Report (Annexure-1). Further there are no materially significant related party transactions during the year under review with Promoters, Directors, Key Managerial Personnel and their relatives, which may have potential conflict with interest of the company at large The related party transactions were placed before the audit committee as also to the Board for approval. The details of the related party transactions during the year are part of the notes on Accounts forming part of the Annual Report.

Material changes and commitments affecting financial position between the end of the financial year and date of report

There are no material changes and commitments affecting financial position of the company between March 31, 2019 and the date of Boards Report.

Variation in market capitalization

As at March 31,

2019 2018 Increase / (decrease) in %
Market capitalization ( in Crore) 2527.07 3,199.14 (21.01)
Price earnings ratio 30.29 53.00 (42.85)

Note: Data based on share prices quoted on BSE

Managements Discussion and Analysis

In terms of the provisions of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 as amended from time to time, the Managements Discussion and Analysis is set out in this Annual Report.

Business Review

Your Company has Two Divisions in operation in different States in India as on March 31, 2019.

Dairy Business:

India has been the leading producer and consumer of dairy products worldwide since 1998 with a sustained growth in the availability of milk and milk products. Dairy activities form an essential part of the rural economy, serving as an important source of employment and income. India also has the largest bovine population in the world. However, the milk production per animal is significantly low in our country as compared to the other major dairy producers. Moreover, nearly all of the dairy produce in India is consumed domestically, with the majority of it being sold as fluid milk. On account of this, the Indian dairy industry holds tremendous potential for value-addition and overall development.

As of 2018-19, India is the leading milk producing country in the world, accounting for 21% of the global market share. The milk processing industry in India is expected to expand at a compound annual growth rate (CAGR) of 14.8% between FY 2018-19 and FY 2023-24.

State-wise segment insights: Uttar Pradesh, Rajasthan, Madhya Pradesh, Gujarat and Andhra Pradesh have been the major milk producing states in India. Uttar Pradesh is the largest dairy and milk-producing state because it is home to the highest buffalo population and the second-highest cattle population in the country. The majority of the rural population in this state is engaged in livestock rearing and dairying. Gujarat has numerous cooperative dairy milk unions, and primary milk cooperative societies, which play crucial roles in the production of milk in the state.

Value-added product wise insights: Apart from milk, the revenue of the Indian dairy and milk processing industry is generated from several value-added products such as butter, curd, paneer, ghee, flavoured milk, ultra-high temperature (UHT) milk, cheese, and yogurt. During the period FY 2016 to FY 2020, the market size of butter is expected to grow by 14.5%, curd by 14.4%, paneer by 14.1%, and ghee by 14.1%, among others.

Export-import: From India, the export of dairy products has increased to countries like Bhutan, Afghanistan, Canada, Egypt, and the United Arab Emirates.

Key growth drivers of the market: Indias livestock sector is regarded as one of the largest in the world with a bovine population of 299.90 Mn, which comprises of cows and buffalos. The growth of the Indian dairy and milk processing market is ensured by the steady supply of milk which is the primary raw material for this industry.

The major challenge faced by the Dairy Industry is the organization of the supply chain and logistics. The good part is that challenges are nothing but opportunities in disguise and in order to meet this challenge head-on, proactive steps need to be taken to educate farmers and provide a stronger supply chain for them to rely on. Even though India is the largest producer of milk in the world, the industry itself is largely unorganized, with only 28 percent of the total milk produced being channelized in an organized manner. The first step to countering this would be to shift the focus to smaller dairy farms, which sometimes lack veterinary facilities and basic nutritious fodder.

Increasing Demand for Milk and Value-Added Products

With an increase in the spending power of the population, the demand for milk and other value-added dairy products is only set to increase in the coming years. In order to meet the rising demand, there needs to be a marked shift from the unorganized to the organized sector. Moreover, consumers now-a-days are not only hold greater buying power but also health conscious regarding what they consume. There is thus a necessity to provide healthy dairy products which can be readily consumed. This creates an opportunity for boutique dairy farms to set up local operations providing fresh cow or buffalo milk to consumers. Over and above with people having less time these days, the demand for premium value-added products such as probiotic yoghurt, cheese, milk shakes etc. are on the rise. These products not only have a higher margin but also have a higher shelf life which makes the supply chain easier and cost effective.

The organised dairy sector is poised for healthy growth in coming quarters. Milk production CAGR of 5% over FY12-FY18 coupled with 5-6% inflation indicates 10% growth in revenue terms. Organised players account for just 28% of the overall milk market and expect their share to grow going forward. Also expect rising milk procurement prices to be passed on by B2C players, resulting in stable margins.

Your Company also a market leader in the curd segment and is now looking to expand its product basket by entering into the fastest growing product like Yoghurt.

The motto of your company is to empower farmers by doing the following activities

• Facilitating loans for the purchase of cattle through commercial banks. NBFCs

• Facilitating cattle insurance;

• Conducting veterinary camps for animals at frequent intervals;

• Supply of high quality cattle feed and fodder seeds;

• Helping to source good productive animals;

• Supply of milk analyzers for ensuring accurate measurement of milk quality.

• And ensuring timely payment to farmers.

In its bid to become a pan India player, your Company has expanded its collection and distribution of products to 15 states in India covering South, West and North India. It has almost 100% direct procurement network of 3 lakh dairy farmers across eight major milk producing States namely, Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, Maharashtra, Rajasthan, Haryana and Punjab. The direct route of milk procurement enables it to maintain quality. The company also operates 187 bulk coolers, chilling plants and procures 13.80 lakh liters of milk per day. It operates 17 own processing plants and 1 co-packing plant with installed milk processing capacity of 25.70 lakh LPD through own plants and 1 lakh LPD through co-packing plant.

Your company has launched several value added products since long time and has increased its contribution to dairy revenues from 10.4% in FY11 to 24.94% in FY19. As on FY19, curd contributes 20% of total revenue.

Your Company procures 13.80 lakh litres of milk daily from 3 lakh farmers across eight states. 91.40% of milk is directly procured from farmers which ensures greater consistency in milk quality and consistency in supply. The companys installed processing capacity is 26.70 lakh liters per day and chilling capacity is 21.20 lakh liters per day. After processing 11.10 lakh litres of milk is sold across 15 lakh households on a daily basis and the remaining is converted into value added products and products are available across 15 states viz. Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Maharashtra, Odisha, NCR Delhi, Haryana, Rajasthan, Madhya Pradesh, Punjab, Uttar Pradesh, Himachal Pradesh and Uttarakhand.

During the financial year 2018-19, Dairy Division has increased milk Chilling capacity by 1 lakh LPD by commissioning of 13 units which includes Bulk chilling units, Mini Chilling units and chilling centres by replacing 0.80 lakh LPD of third party chilling centres to own chilling centres to increase the milk procurement and to maintain the quality.

Renewable Energy Division:

Your Company strongly recognizes the responsibility towards protecting the environment. As a forward-looking enterprise, it is strongly committed to extending the Green footprint.

Your Company is taking a lot of initiatives to improve efficiencies of the company. Renewable energy is the major focus area in the last ten years. Now your Company has 10.39 MW of solar and wind power for captive consumption. Your Company is continuously investing in latest technologies and efficiencies to conserve energy. As a result, Company had generated 1,84,87,222 units during the year.

Renewable Energy Division of your Company had achieved the turnover of 1,137 Lakhs during the year under review.

Subsidiary / Associate / Joint Venture Companies

Your Company as on March 31, 2019 is having one wholly owned Subsidiary Company namely M/s. Heritage Nutrivet Limited (Formerly known as Heritage Foods Retail Limited) (CIN:U15400TG2008PLC062054), one Associate Company M/s. Skil Raigam Power (India) Limited (CIN:U40102TG2009PLC063671) and one Joint Venture Company i.e. M/s. Heritage Novandie Foods Private Limited (CIN:U74999TG2017PTC120860). The details are available in the AOC-1 which is forming part of the Annual Report. The gist of financial performance of the Subsidiary/Associate/Joint Venture companies is as follows.

Heritage Nutrivet Ltd (Wholly Owned Subsidiary) year ended on

Skil Raigam Power (India) Ltd (Associate) year ended on

Heritage Novandie Foods Pvt Ltd (Joint Venture) year ended on

Particulars 31/03/2019 31/03/2018 31/03/2019 31/03/2018 31/03/2019 31/03/2018
Total Income 7,403.82 6,758.52 - - 1.89 -
Total Expenses 7 ,367.04 6,794.05 2.09 2.95 78.58 16.32
Profit/ (Loss) before tax Tax expense 36.78 (35.53) (2.09) (2.95) (76.69) (16.32)
Reversal of taxes of earlier years - (34.95) - - - -
Current tax expense 31.26 5.20 - - - -
Deferred tax benefit (89.58) (17.02) - - - -
Profit/ (loss) for the year 95.10 11.24 (2.09) (2.95) (76.69) (16.32)

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements, including the consolidated financial statements and related information of the Company and audited accounts of each of its Subsidiary, Associate and Joint Venture are available on our website of the Company www.heritagefoods.in. These documents will also be available for inspection during the business hours at our registered office in Hyderabad, India.

Quality

Your Company continues the journey of delivering value to its consumers/customers through significant investments in quality programs. While sustaining existing external benchmarks and certifications, your Company added new certifications and further enhanced the programs and initiatives to renew the commitment to the culture of quality.

Your Company adheres to international quality standard certifications such as ISO 22000:2005(FSMS), ISO 9001:2015(QMS), OHSAS 18001:2007, ISO 14001:2015 (EMS), ISO 50001:2011(EnMS) and Halal Certification by JUHF Mumbai.

Your Company has also received renewal compliance to AgMark, BIS and EIA certificates.

The Quality department of your Company handles large change management initiatives to drive quality and productivity improvements across the Company, using various techniques and updated technologies.

Branding

During the year your Company had launched new range of health drinks- Lassi with goodness of ‘Ragi and ‘Sabja. The health consciousness drinks provide several benefits like cholesterol reduction, weight loss, easy digestion and also rich in calcium. Ragi Lassi will help in weight reduction, while Sabja lassi is rich in calcium content. We are working on new product developement which is line with the current consumer trend and our tag line of brinig health & happiness to every home. On the communication front company is focusing on social & digital media platforms as these have become an important source of seeking information leading to brand evaluation & adoption.

Awards & Recognitions

During the financial year 2018-19 your Company has received the following awards and recognitions.

• The Company has won the Award for "Best Use of CSR Practices" in the Organisation category through Heritage Farmers Welfare Trust (HFWT) by Asia Pacific HRM Congress on 04th September, 2018 in Bangalore.

• The Company has been awarded as "Technology Innovator" at India Food Safety Excellence Awards 2018 organized by Synnex Group.

Human Resources and Industrial Relations

Your Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. To ensure good human resources management, your Company focused on all aspects of the employee lifecycle. This provides a holistic experience for the employee as well. During their tenure at the Company, employees are motivated through various skill- development, engagement and volunteering programs. Your Company has a structured induction process at all locations and management development programs to upgrade skills of managers. Objective appraisal systems based on Key Result Areas are in place for all employees.

Your Company is committed to nurturing, enhancing and retaining talent through superior Learning & Organizational Development. This is a part of Corporate HR function and is a critical pillar to support the organizations growth and its sustainability in long run.

The total strength of your Company employees at the end of financial year 2018-19 was 3011.

Credit Rating

The details of the credit rating is follows:

(a) Credit rating obtained in respect of securities : Heritage Foods Limited

(b) Name of the credit rating agency : Credit Rating Information Services of India Limited (CRISIL)

i. Long term Rating : CRISIL A/Stable (Upgraded from CRISIL A- /Positive)

ii. Short term Rating : CRISIL A1 (Upgraded from CRISIL A2+)

(c) Date on which the credit rating was obtained : 08th February, 2019

(d) Revision in the credit rating : Yes (Upgraded)

(e) Reasons provided by the rating agency for a downward revision :

NA

Particulars of Employees

The table containing the names and other particulars of employees in accordance with the provisions of Section 197(12) of the Companies Act, 2013, read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in Annexure-2A to the Boards report.

A statement containing the names of every employee employed throughout the financial year and in receipt of remuneration of 102 lakh or more per annum or employed for part of the year and in receipt of 8.50 lakh or more in a month, under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended from time to time, is enclosed as Annexure-2B to the Boards report.

Corporate Governance

Corporate governance is an ethically driven business process that is committed to values aimed at enhancing an organizations brand and reputation. This is ensured by taking ethical business decisions and conducting business with a firm commitment to values, while meeting stakeholders expectations. It is imperative that your companys affairs are managed in a fair and transparent manner. This is vital to gain and retain the trust of the stakeholders.

In terms of Regulation 34 of the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter "Listing Regulations") as amended from time to time, a Report on Corporate Governance along with Compliance Certificate issued by Statutory Auditors of the Company forms integral part of this Annual Report.

Auditors certificate on Corporate Governance

As required by SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the auditors certificate on corporate governance is forming part of the Annual Report.

Board Diversity

Your Company recognizes and embraces the importance of a diverse board for its success. Your Company believe that a truly diverse board will leverage differences in thought, perspective, knowledge, skill and industry experience, cultural and geographical background, age and gender, which will help the Company retain its competitive advantage. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Policy is available in the Company website i.e. www.heritagefoods.in > Investor > Policies

Meetings of the Board

The Board met Six times during the financial year, the details of which are given in the Corporate Governance Report that forms part of this Annual Report. The intervening gap between any two meetings was within the period prescribed by the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Policy on Directors Appointment and Remuneration

The current policy is to have an appropriate mix of Executive and Non-executive & Independent and Women Directors to maintain the independence of the Board, and separate its functions of governance and management. As on March 31, 2019, the Board consists of 7 members, two of whom are Executive/Whole-time directors, One Non-Executive Director. One is Non-Executive Independent Woman Director and Three are Non-Executive Independent Directors. The Board periodically evaluates the need for change in its composition and size.

The policy of your Company on directors appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Subsection (3) of Section 178 of the Companies Act, 2013, and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 was adopted by the Board. It is affirmed that the remuneration paid to the directors is as per the terms laid out in the nomination and remuneration policy of the Company.

Declaration by Independent Directors

Your Company has received necessary declaration from each independent director under Section 149 of the Companies Act, 2013, confirming that he/she meets the criteria of independence laid down in Section 149 of the Companies Act, 2013 and Regulation 25 of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Board Evaluation

As per the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time the Nomination and Remuneration Committee laid down criteria for performance evaluation of individual director(s), the board and its committee(s). Accordingly, an annual evaluation was carried out for the Boards performance, its Committees and individual director(s).

The Board performance evaluation is carried out through a structured questionnaire which provides a clear and valuable feedback for improving Board effectiveness and highlighting areas for further development.

The following are some of the broad issues that are considered in performance evaluation questionnaire:

Criteria for evaluation of Board and its Committees:

• Ability to act on a fully informed basis, in good faith, with due diligence and in the best interest of the company and the stakeholders.

• Optimum combination of knowledge, skill, experience and diversity on the Board as well its Committees.

• Relationships and effective communication among the Board members.
• Effectiveness of individual non-executive and executive directors and Committees of Board.
• Quality of the discussions, general information provided on the company and its performance, papers and presentations to the Board.
• Risk management as well as processes for identifying and reviewing risks.
• Well-defined mandate and terms of reference of Committee.

Criteria for evaluation of Individual Director:

• Attendance at Board as well as Committee Meetings

• Procurement of Information, preparation for Board Meetings and value of contribution at meetings

• Relationships with fellow Board members, the company secretary and senior management and mutual trust and respect they stimulated within the Board.

• Keeping update with the latest developments in the areas of governance and financial reporting

• Willingness to devote time and effort to understand the company and its business

• Providing necessary guidance using their knowledge and experience in development of corporate strategy, major plans of action, risk policy, and setting performance objectives.

• Independence exercised in taking decisions, listening to views of others and maintaining their views with resolute attitude

• Ability in assisting the Company in implementing the best corporate governance practices.

• Capability in exercising independent judgement to tasks where there is potential conflict of interest

• Commitment in fulfilling the directors obligations fiduciary responsibilities.

The Board of Directors received all evaluations from each Director including Board as a whole and its committee based on the above criteria, discussed various points and all points are satisfactory, no further action is required. There were no actions pending from the previous year observations.

Training of Independent Directors

Every new independent director of the Board attends an orientation program. To familiarize the new inductees with the strategy, operations and functions of your Company, the executive directors / senior managerial personnel make presentations to the inductees about the Companys strategy, operations, product and service offerings, markets, organization structure, quality and risk management etc.

Appointment/Re-Appointment

Dr. V Nagaraja Naidu (DIN: 00003730) Non-Executive Director of the Company retire by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting as per the provisions of Section 152 of the Companies Act 2013 and rules made thereof and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Mr. N Sri Vishnu Raju (DIN:00025063) was appointed as an Non-Executive Independent Director of the Company by the members at the 22nd AGM of the Company held on 26th September, 2014 for a period of five consecutive years up to the conclusion of 27th Annual General Meeting of the Company to be held in the year 2019. Based on recommendation of Nomination and Remuneration Committee and in terms of the provisions of Sections 149, 150, 152 read with Schedule IV and any other applicable provisions of the Act and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Mr. N Sri Vishnu Raju (DIN:00025063) being eligible for re-appointment as an Non-Executive Independent Director and offering himself for re-appointment, in the opinion of the Board that he is a young and dynamic personality, made valuable contribution to the Company during his first tenure and have a knowledge about the dairy industry and investment in other sectors, the Board also discussed his performance based on the criteria of performance evaluation lead by Nomination and Remuneration Committee of the Board, accordingly it is proposed to re-appointed as an Non-Executive Independent Director for second term of five consecutive years from the conclusion of this Annual General Meeting till the conclusion of 32nd Annual General Meeting to be held in the year 2024.

The Board of Directors at their meeting held on 30th January, 2019 appointed Mrs. Aparna Surabhi (DIN:01641633) as an Additional Director in accordance with Section 161 read with Schedule IV and other applicable provisions of the Companies Act, 2013 and rules made thereof and in terms of the Articles of Association of the Company. The Shareholders of the Company vide a postal ballot concluded on March 12, 2019 reappointed Mrs. Aparna Surabhi (DIN:01641633) as Non-Executive Independent Women Director of the Company for a period of 5 (five) consecutive years w.e.f. 1st Apirl, 2019 in accordance with Section 149 & 152 read with Schedule IV and other applicable provisions of the Companies Act, 2013 rules made thereof.

During the year the Shareholders of the Company vide a postal ballot concluded on March 12, 2019 re-appointed Mr. D Seetharamaiah, (DIN:00005016) as Non-Executive Independent Director of the Company designated as Chairman for a second term of 5 (five) consecutive years w.e.f. 1st Apirl, 2019 in accordance with Section 149 & 152 read with Schedule IV and other applicable provisions of the Companies Act, 2013 rules made thereof.

During the year the Shareholders of the Company vide a postal ballot concluded on March 12, 2019 re-appointed Mrs. N. Bhuvaneshwari (DIN:00003741) as Whole-time Director designated as Vice-Chair person and Managing Director (VC&MD) of the Company for further term of 5 (five) years w.e.f. April 1, 2019 in accordance with Section 196, 197, 198, 203 read with Schedule V and other applicable provisions of the Companies Act, 2013 rules made thereof.

During the year the Shareholders of the Company vide a postal ballot concluded on March 12, 2019 re-appointed Mrs. N Brahmani

(DIN:02338940) as Whole-time Director designated as Executive Director of the Company for further term of 5 (five) years w.e.f. April 1, 2019 in accordance with Section 196, 197, 198, 203 read with Schedule V and other applicable provisions of the Companies Act, 2013 rules made thereof.

Retirement(s) and Resignation(s)

During the year none of the Directors resigned from the Board.

Key Managerial Personnel

During the year under review, the Company is having the following persons as Key Managerial Personnel.

Name of the Official DIN/M. No Designation
Mrs. N Bhuvaneswari 00003741 Vice Chairperson & Managing Director
Mrs. N Brahmani 02338940 Executive Director
Mr. A Prabhakara Naidu FCA 200974 Chief Financial Officer
Mr. Umakanta Barik FCS 6317 Company Secretary
Dr. M Sambasiva Rao President

Committee(s) of the Board

Currently, the Board has Six committees: the Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, Stakeholders Relationship Committee, Management Committee and Risk Management Committee.

A detailed note on the Board and its committees is provided under the Corporate Governance Report section in this Annual Report. The composition of the committees and compliances, as per the applicable provisions of the Act and Rules, are as follows:

Name of the Committee Composition of the Committee Highlights of duties, responsibilities and activities
Audit committee Mr. N Sri Vishnu Raju Chairperson Mr. D Seetharamaiah Dr V Nagaraja Naidu Mr. Rajesh Thakur Ahuja • All recommendations made by the audit committee during the year were accepted by the Board.
• Reviewing, with the management, the quarterly financial statements before submission to the Board for approval.
• Approval or any subsequent modification of transactions of the Company with related parties.
• Reviewing, with the management, the performance of statutory auditors and internal auditors, adequacy of internal control systems, etc.
Nomination and Remuneration Committee Mr. N Sri Vishnu Raju Chairperson • The committee oversees and administers executive compensation, operating under a written charter adopted by our Board of Directors.
Mr. D Seetharamaiah Mr. Rajesh Thakur Ahuja • The nomination and remuneration committee has framed the nomination and remuneration policy.
Corporate Social Responsibility Committee Mr. D Seetharamaiah Chairperson • To formulate and recommend to the Board, a Corporate Social Responsibility (CSR) Policy indicating activities to be undertaken by the Company in compliance with provisions of the Companies Act, 2013 and rules made there under.
Mr. N Sri Vishnu Raju Mrs. N Bhuvaneswari • To monitor the implementation of the CSR Policy of the Company from time to time
Stakeholders Dr V Nagaraja Naidu • The committee reviews and ensures redressal of investor grievances.
Relationship Committee Chairperson Mr. D Seetharamaiah Mr. N Sri Vishnu Raju Mrs. N Bhuvaneswari • The committee noted that all the grievances of the investors have been resolved during the year.
Risk Management Committee Mr. Rajesh Thakur Ahuja Chairperson Mr. D Seetharamaiah • The purpose of the committee is to assist the Board in fulfilling its corporate governance with regard to the identification, evaluation & mitigation of operational, strategic and environmental risks efficiently and effectively.
Mr. N Sri Vishnu Raju • The Company has developed and implemented a risk management framework that includes identification of elements of risk, if any, which in the opinion of the Board may threaten the existence of the Company.
Management Committee Mrs. N Bhuvaneswari Mr. D Seetharamaiah Chairperson • Setting the strategic direction to guide and direct the activities of the organization;
Mr. N Sri Vishnu Raju Mrs. N Bhuvaneswari • Ensuring the effective management of the organization and its activities; and
• Monitoring the activities of the organization to ensure they are in keeping with the founding principles, objects and values.

Policies

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandated the formulation of certain policies for all listed companies. All the corporate policies are available in the Company website (www.heritagefoods.in/Corportate/ policies). The policies are reviewed periodically by the Board and updated based on need and new compliance requirement.

In addition to its Code of Conduct and Ethics, key policies that have been adopted by the Company are as follows:

Name of the policy Brief description Web link
Whistleblower Policy (Policy on vigil mechanism) The Company has adopted the whistleblower mechanism for directors and employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of the Companys code of conduct and ethics. It also provides for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairperson of the Audit Committee. https://www.heritagefoods. in/uploads/investors/ pdf/15578994930whistle- blower-policy.pdf
Insider Trading Policy and Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information The Company has adopted a Code of Conduct to Regulate, Monitor & Report Trading by Insiders and Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information as per the SEBI (Prohibition of Insider Trading) Regulation 2015, with a view to regulate trading in securities by the Directors and designated employees of the Company. The Code requires pre- clearance for dealing in the Companys shares and prohibits the purchase or sale of Company shares by the Promoters, Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed and other certain situations. All Board of Directors and the designated employees have confirmed compliance with the Code. https://www.heritagefoods. in/uploads/investors/ pdf/15579007881hfl-insider- trading.pdf
Nomination and Remuneration Policy This policy formulates the criteria for determining qualifications, competencies, positive attributes and independence for the appointment of a director (executive / non-executive) and also the criteria for determining the remuneration of the directors, key managerial personnel and senior management of the Company. https://www.heritagefoods. in/uploads/investors/ pdf/15579001597board-diversi- ty-remuneration-policy.pdf
Corporate Social Responsibility Policy The policy outlines the Companys strategy to bring about a positive impact on Society through programs relating to hunger, poverty, education, healthcare, environment etc., as per the provisions of the Companies Act, 2013. https://www.heritagefoods. in/uploads/investors/ pdf/15578997634csr-policy.pdf
Policy for Determining Material Subsidiaries The policy is used to determine the material subsidiaries and material non-listed Indian subsidiaries of the Company and to provide the governance framework for them. https://www.heritagefoods. in/uploads/investors/ pdf/15589549991policy-on- determination-of-materiality- events.pdf
Related Party Transaction Policy The policy regulates all transactions between the Company and its related parties https://www.heritagefoods. in/uploads/investors/ pdf/15578998544rpt-policy.pdf
Policy on Preservation of Documents The policy deals with the preservation of corporate records of the Company. https://www.heritagefoods. in/uploads/investors/ pdf/15579003020policy-on- preservation-of-doc.pdf
Archival Policy The policy deals with the retention and archival of corporate records of the Company. https://www.heritagefoods. in/uploads/investors/ pdf/15589549355archival-policy. pdf
Business Responsibility Policy This Policy endorses the Companys commitment to follow principles and core elements, in conducting its business, as laid down in the National Voluntary Guidelines on Social, Environmental and Economic responsibilities of Business. https://www.heritagefoods. in/uploads/investors/ pdf/15579004658hfl-br-policy. pdf
Dividend Distribution Policy This Policy is to ensure the right balance between the quantum of Dividend paid and amount of profits retained in the business for various purposes. https://www.heritagefoods. in/uploads/investors/ pdf/15579009416hfl-dividend- distribution-policy.pdf
Policy on Determination of Materiality of Events The Policy is to determine materiality of events or information relating to the Company and to ensure timely and accurate disclosure on all material matters concerning the Company. https://www.heritagefoods. in/uploads/investors/ pdf/15589549991policy-on- determination-of-materiality- events.pdf

Auditor & Auditors Report

Statutory Auditors:

As per Section 139 of the Companies Act, 2013 (‘the Act), read with the Companies (Audit and Auditors) Rules, 2014, the Members of the Company at the 25th Annual General Meeting approved the appointment of M/s. Walker Chandiok & Co. LLP, Chartered Accountants (FRN 001076N/500013), as the Statutory Auditors of the Company for a term of 5 years i.e. from the conclusion of 25th Annual General Meeting till the conclusion of 30th Annual General Meeting of the Company to be held in the year 2022.

Pursuant to amendments in Section 139 of the Companies Act, 2013, the requirements to place the matter relating to such appointment for ratification by members at every annual general meeting has been omitted with effect from 7th May, 2018. The Board of Directors is empowered to fix the remuneration of the Statutory Auditor on yearly basis.

The Report given by M/s. Walker Chandiok & Co. LLP, Chartered Accountants, Statutory Auditor of the Company on the financial statement of the Company for the financial year 2018-19 is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report.

In terms of the Section 148 of the Companies Act, 2013 (‘the Act) read with Rule 8 of the Companies (Accounts) Rules, 2014, it is stated that the cost accounts and records are made and maintained by the Company as specified by the Central Government under sub-section (1) of Section 148 of the Companies Act, 2013. As your Company is dealing with Skimmed Milk Powder, which require to maintain the cost records. Your Company has maintained all the required records as specified by the Central Government under sub-section (1) of Section 148 of the Companies Act, 2013.

Secretarial Auditors and Secretarial Standards

The Secretarial Audit was carried out by Mrs. Savita Jyoti, Partner, M/s. Savita Jyoti Associates, Practicing Company Secretary (CP No:1796), Secunderabd - 500 094 for the financial year 2018-19. The Report given by the Secretarial Auditors is annexed as Annexure-3 and forms integral part of this Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report.

In terms of Section 204 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the Board of Directors appointed Mrs. Savita Jyoti, Partner, M/s. Savita Jyoti Associates, Practicing Company Secretary (CP No:1796), Secunderabd - 500 094 as the Secretarial Auditors of the Company in relation to the financial year 2019-20. Your Company had received the written consent that the appointment will be in accordance with the applicable provisions of the Act and rules framed thereunder.

In terms of the amended SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 the Company has obtained the Secretarial Compliance certificate from Mrs. Savita Jyoti, Partner, M/s. Savita Jyoti Associates, Practicing Company Secretary (CP No:1796), Secunderabd - 500 094 which is annexed as Annexure-3(i) and forms part of the Annual Report and the same was also intimated to the Stock Exchanges where the shares of the Company are listed.

Pursuant to Regulation 34(3) and Schedule V Para C clause (10)(i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 Company has obtained a certificate from Mrs. Savita Jyoti, Partner, M/s. Savita Jyoti Associates, Practicing Company Secretary (CP No:1796), Secunderabd - 500 094 which is annexed as Annexure-3(ii) and forms part of the Annual Report and the same was also intimated to the Stock Exchanges where the shares of the Company are listed.

During the year, the statutory auditors and secretarial auditor have not reported any instances of frauds committed by or against the Company by its Directors/Officers/ Employees to the Audit Committee or Board under section 143(12) of the Companies Act and rules made thereof.

The Directors have devised proper systems to ensure compliance with the provisions of all applicable Secretarial Standards issued by the Institute of Company Secretaries of India and that such systems are adequate and operating effectively.

Significant Material Orders Passed by the Regulators

There is no order passed by the regulators or Courts during the year under review.

Extracts of Annual Return

An Extract of Annual Return in Form MGT-9 as per the provisions of Section 92 of the Companies Act, 2013 and Rule 12 of Companies (Management and Administration) Rules, 2014, is provided in Annexure-4 to this report. It is also made available in the website of the Company i.e. www.heritagefoods.in.

Internal financial control and its adequacy

Your Company has in place adequate internal financial controls with reference to financial statements. It has adopted necessary policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

During the year no fraud by the Company or on the Company by its officers or employees has been notices and reported.

Internal Audit & Control Systems

Your Company has a well-defined and documented internal audit & control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements.

These are supplemented by internal audit of your Company carried out by reputed firms of Chartered Accountants across India. Your Company has an Audit Committee consisting of Four Non-Executive Independent Directors. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggests improvements if any for strengthening them. Your Company has a robust Management Information System which is an integral part of the control mechanism.

The Board of Directors on the recommendation of the Audit Committee has appointed Internal Auditors for the financial year 2019-20 as per the provision of Section 138 of the Companies Act, 2013 and Rules made thereof and as per the SEBI (LO&DR) Regulation, 2015.

Corporate Social Responsibility (CSR)

Your Company has been an early adopter of corporate social responsibility (CSR) initiatives. Along with sustained economic performance, environmental and social stewardship is a key factor for holistic business growth.

CSR activities, as per the provisions of the Companies Act, 2013 and rules made thereof, may be undertaken by the Company or through a registered trust or a registered society. The CSR Committee of the Board evaluated various options to implement the CSR activities and decided to contribute the mandated CSR amount to the NTR Memorial Trust, Hyderabad, to carry out the activities such as promoting education, enhancing the vocational skill & supply of clean drinking water etc., as part of the CSR activities of the Company. As the NTR Memorial Trust is operating since 1997 towards the improvement of health and health outcomes of the needy groups, meeting the educational needs of underprivileged students, advancing the concept of entrepreneurship and self-employment and offering support and relief during disasters and lot more other initiatives for the up-liftment of the backward and needy population in the society.

These projects are in accordance with Schedule VII of the Companies Act, 2013 and the Companys CSR Policy. During the last five years the Company has spent 6.64 Crores on CSR activities. The Report on CSR activities as required under Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out as Annexure-5 forming part of the Boards Report.

During the year your Company has donated 44,23,129/- worth of Skimmed Milk Powder from the CSR funds and employees one days salary to the needy people in Keralas tragic floods.

During the year your Company has donated 48.50 lakhs from the CSR funds and 17.67 lakhs from the Heritage Employee Welfare funds to SMART Andhra Pradesh Foundation for taking up housing project to the affected families due to the Titli cyclone in Srikakulam Distict of Andhra Pradesh.

Heritage Farmer Welfare Trust (HFWT)

Apart from the mandatory CSR activities under the Companies Act, 2013 your Company continues to voluntarily support the following social initiatives through Heritage Farmers Welfare Trust (HFWT).

• Veterinary care and cattle management practices through Heritage Mobile Veterinary Clinics, (equipped with necessary tools and trained human resources) for providing door-step veterinary services to the Milch Animals and empowering cattle owners with advanced technology and knowledge on best cattle management and feeding practices. The Mobile veterinary vans conduct free health camps in the needy villages.

• Extending Insurance coverage for accidental death of farmer members, Incentive for fodder development & reward for Meritorious Students from farmers families.

• The HFWT impact during the year for Mobile Veterinary clinic as follows:

No of Cattles Treated No of Cattle Health Camps Organized
1,69,329 2,674
No of Artificial Inseminations No of Video Films Shown
1,031 2,619

Business Responsibility Report (BRR)

Pursuant to regulation 34(2)(f ) of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 the Annual Report shall contain a Business Responsibility Report (BRR) describing the initiatives taken by the Company from an environmental, social and governance perspective. BRR has been designed as a tool to help companies understand the principles and core elements of responsible business practices and start implementing improvements which reflect their adoption in the manner the company undertakes its business. In compliance with the regulation, the Business Responsibility Report is annexed in Annexure-6 to the board report.

Energy Conservation, Technology Absorption & Foreign Exchange Earnings & Outgo

The particulars as prescribed under Sub-section (3)(m) of Section 134 of the Companies Act 2013, read with the Companies (Accounts) Rules, 2014 are provided in the Annexure-7 to the Board Report.

Transfer of Un-Claimed Dividends and Shares

Pursuant to Section 124(5) of the Companies Act, 2013 [Section 205C (2) of the Companies Act, 1956] read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time the unclaimed/unpaid dividend amount of 6,16,354/- (Rupees Six Lakhs Sixteen Thousand Three Hundred Fifty Four Only) for the year 2010-11 was transferred to the Investor Education and Protection Fund during the financial year 2018-19.

In compliance with the provisions of Section 124 of the Companies Act, 2013, the Company has transferred 36,820 equity shares belongs to 54 shareholders of the company to Investor Education and Protection fund Authority (IEPF) on November 27, 2018 of those shareholders who have not claimed the dividends for a continuous period of 7 years.

Pursuant to Section 124(5) of the Companies Act, 2013 [Section 205C (2) of the Companies Act, 1956] read with the Investor Education and Protection Fund (awareness and protection of Investors) Rules, 2001 as amended from time to time the unclaimed/unpaid dividend and the shares thereof pertaining for the financial year 2011-12 shall be transferred to the Investor Education and Protection Fund during the financial year 2019-20.

The information in respect of unclaimed/unpaid dividend & shares thereto and the last date for claiming the dividend are given below:

Unclaimed/Unpaid Dividend as on March 31, 2019

Financial year ended Date of Declaration of Dividend Last date for claiming unpaid Dividend Amount outstanding ( in Rupes) No of Shares
2011-12 29-09-2012 02-11-2019 12,38,714 619357
2012-13 17-07-2013 19-08-2020 9,23,869 307956
2013-14 26-09-2014 29-10-2021 16,36,839 545613
2014-15 24-09-2015 27-10-2022 23,18,742 772914
2015-16 19-08-2016 22-09-2023 21,64,953 721651
2016-17 23-08-2017 25-09-2024 34,99,984 874996
2017-18 30-08-2018 02-10-2025 16,02,346 801173

The voting rights on the shares outstanding shall remain frozen till the rightful owner of such shares claims the shares. The company sends reminders to the shareholders concerned to claim the unclaimed and unpaid dividends & shares thereto before they are transferred to the IEPF Authority as per the applicable provisions.

The shareholders whose shares got transferred to IEPF Authority shall claim the dividends and shares from IEPF Authority by submitting an online application in the prescribed Form No. IEPF-5 available on the website www.iepf.gov.in and the procedure prescribed thereon.

Mr. Umakanta Barik is the Nodal Officer who is appointed by the Company under the provisions of IEPF.

Risk Management

Your Company have constituted a Risk Management Committee pursuant to Section 134 (3) (n) of the Companies Act, 2013 & Regulation 21 of SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015, which has been entrusted with the responsibility to assist the Board in (a) Overseeing and approving the Companys enterprise vide risk management framework; and (b) Overseeing that all the risks that the organization faces such as strategic, financial, credit, market, liquidity, security, property, Information Technology, legal, regulatory, reputational and other risks have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks.

The Committee had formulated a Risk Management Policy for dealing with different kind of risks which it faces in day to day operations of the Company. Risk Management Policy of the Company outlines different kind of risks and risk mitigating measures to be adopted by the Board. The Risk Management Procedure will be reviewed by the Risk Management Committee and Board of Directors on a half- yearly basis at the time of review of Financial Results of the Company.

The policy is available in the Company website: www. heritagefoods. in>Investor>policies

Policy on Sexual Harassment

The Company has adopted policy and constituted the Internal Complaint Committee under Prevention of Sexual Harassment of Women at Workplace in accordance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

The Company has not received any complaints during the year. The Company regularly conducts awareness programmes for its employees.

The following are the summary of sexual harassment complaints received and disposed off during the year:

Sl No Particulars Status of the No. of complaints received and disposed off
1 Number of complaints on sexual harassment received Nil
2 Number of complaints disposed off during the year Nil
3 Number of cases pending for more than ninety days Not Applicable
4 Number of workshops or awareness programmes against sexual harassment carried out The Company regularly conducts necessary awareness programmes for its employees
5 Nature of action taken by the employer or district officer Not Applicable

Vigil Mechanism policy

The Board of Directors of the Company had adopted the Whistle Blower Policy. A mechanism has been established for employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of Code of Conduct and Ethics. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Audit Committee reviews periodically the functioning of whistle blower mechanism. There is no complaint received during the Financial Year ended March 31, 2019.

No personnel have been denied access to the Audit Committee. A copy of the Whistle Blower Policy is available in the companys website i.e. www.heritagefoods.In.

Dividend Distribution policy

Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, requires that the top 500 listed companies based on the market capitalization to formulate Dividend Distribution Policy. In compliance with the said requirement, the Company has formulated its Dividend Distribution Policy, the said policy is available on the Companys website at: www.heritagefoods.in.

Indian Accounting Standards (Ind AS)

The Company has adopted Indian Accounting Standards (Ind AS) with effect from April 1, 2017 pursuant to Ministry of Corporate Affairs notification of the Companies (Indian Accounting Standards) Rules, 2015. The financials for the financial year 2018-19 were presented as per the Ind As format.

Prevention of Insider Trading Code

As per SEBI (Prohibition of Insider Trading) Regulation, 2015, the Company has adopted a Code of Conduct for Prevention of Insider Trading. The Company has appointed Mr. Umakant Barik, Company Secretary of the Company as Compliance Officer, who is responsible for setting forth procedures and implementation of the code for trading in Companys securities. During the year under review, there has been due compliance with the said code.

Directors Responsibility Statement as required under Section 134 (3)(c) of the Companies Act, 2013,

The financial statements are prepared in accordance with the Generally Accepted Accounting Principles (GAAP) under the historical cost convention on accrual basis. GAAP comprises mandatory accounting standards as prescribed under Section 133 of the Companies Act, 2013 (‘the Act), read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act and guidelines issued by the Securities and Exchange Board of India (SEBI). There are no material departures from prescribed accounting standards in the adoption of these standards.

The Directors confirm that:

• In the preparation of the annual accounts (Standalone & Consolidated) for the financial year 2018-19, applicable accounting standards have been followed along with proper explanation relating to material departures.

• They have 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 2018-19 and of the profit and loss of the Company for that period.

• They 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,

• They have prepared the annual accounts of the company on a going concern basis.

• They have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

• They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgement

The Board takes this opportunity to thank all customers, consumers, farmers, vendors, investors, bankers and Statutory Authorities for their continued support during the year. The Board also wishes to place on record its sincere appreciation of the effort/ contribution made by its employees at all levels. The Companys consistent growth was made possible by their hard work, solidarity, cooperation and support and look forward to their continued support in the future.

For and on behalf of
HERITAGE FOODS LIMITED
D. SEETHARAMAIAH
Chairperson
(DIN: 00005016)
Registered Office:
6-3-541/C, Punjagutta, Hyderabad – 500 082
CIN: L15209TG1992PLC014332
Ph: +91-40-23391221/2
E-mail: hfl@heritagefoods.in
Place: Hyderabad
Date:May 22, 2019