MH Mills & Industries Ltd Directors Report

MH MILLS AND INDUSTRIES LIMITED ANNUAL REPORT 2006-2008 DIRECTORS REPORT To The Members, Your Directors have pleasure in placing before you their Report on the affairs of the Company which are for the period comprising of Eighteen Months period from 1st October 2006 to 31st March, 2008 (18 months). The figures are not comparable for the previous period which were for 12 months. FINANCIAL RESULTS: For the period For the period 1st October 2006 1st April 2005 to to 31st March, 2008 30th September (18 months) 2006 (12 months) (Rs. In lacs) (Rs. In lacs) Sales Revenue 6985.80 6459.65 Gross Profit/(Loss) (Before interest, depreciation, Extra-ordinary items & Tax) (575.64) (589.16) Less: Interest (Net) 32.19 4.25 Depreciation & Amortization Expenses 494.00 693.53 Extra-ordinary items - - Net Profit/(Loss) After Extra Ordinary Items (1101.83) 6594.95 Add: Balance of Profit & Loss A/c. of Previous Year (7229.55) (14860.15) Add: Loss of Packaging Division - (416.15) Less: Loss of Packaging Division transferred - (1451.79) Amount available for appropriations - (7229.55) APPROPRIATIONS: Transfer to Debenture Redemption Reserve NIL NIL Transfer to General Reserve NIL NIL Proposed Dividend NIL NIL Tax on Distributed Profits NIL NIL Balance carried to Balance Sheet (8331.38) (7229.55) IMPLEMENTATION SCHEME OF ARRANGEMENT SANCTIONED BY HONBLE HIGH COURT OF GUJARAT: During the year, the Company undertook following major initiatives to implements the scheme of arrangement approved by the Hon. High Court of Gujarat. Demerger of Packaging Division: The Packaging division of the Company has been demerged and vested into a separate company formed for the purpose viz M.H. Packaging (India) Ltd and the assets and liabilities pertaining to the said division have been transferred to this separate company. Reduction and Reorganisation of share capital: The paid up share capital of the Company has been reduced by 50%, as on record date fixed by the Board of Directors in consultation with Bombay Stock Exchange Limited i.e. 19th September, 2006, be reducing number of shares from 121,33,669 to 60,66,835. (face value of Rs. 10/- each). The Reduced Capital is listed on Bombay Stock Exchange Limited w.e.f. 24th August, 2007. Equity Infusion by Promoters: The promoters have infused Rs. 2.01 Crs by 15th July, 2006 and Rs. 1.49 Crs by 31st March, 2007 as an additional equity A per the approved Scheme of Arrangement. The Company has allotted 20,10,000 Equity shares on 29/09/2006 and 14,90,000 equity shares on 19/06/2007 to the promoters as per Scheme of Arrangement. Conversion of secured debt into 0.01% Coupon Optionally Convertible Preference Shares (OCRPS): On 29th September, 2006, the Company has allotted 0.01% OCRPS of Rs. 100 each totaling to Rs. 5.27 Crs to Secured Lenders. Distribution of Fixed Deposit Amount: The company has distributed Rs. 4.77 crores, which was lying in fixed deposit amongst the lenders as per the Scheme. Sale of Polymer Division: As per the scheme of arrangement with the lenders approved by the Hon. High Court of Gujarat, Polymer Division is to be sold out by 31st December, 2006 in consultation with ARCIL/ lenders. Monitoring Committee in their meeting dated January 17, 2007 has approved sale of Polymer Division. The sale deed was executed on 22nd February, 2007. The Company has received consideration of Rs. 3.25 Crores. As per the Scheme Company has distributed Rs. 1.05 crores amongst the lenders. Efforts of Promoters/Promoters Group: The promoters /promoters group /such other investors has agreed to infuse further Rs. 5 crores by way of equity shares. The company has called extra ordinary general meeting of shareholders on 12th July, 2008 for preferential allotment of equity shares to promoters /promoters group /such other investors subject to approval of Arcil/ lenders and the Bombay Stock Exchange Limited. The Bank of Baroda has not given their consent in the matter. The approval from The Bombay Stock Exchange is also awaited. The promoters/Promoters Group has already infused Rs. 3.62 Crores. DIVIDEND: In view of losses suffered by the company during the period under review and due to carried forward losses of earlier years, the Board is unable to recommend any dividend on Equity Shares of the company. YEAR IN RETROSPECT: The Financial performance performance of the Company was adversely affected due to upward trend in cotton prices, rise in crude oil prices and stiff competition in the market. The price of dyes and chemicals also increased during the year under review. Due to working capital constraints own production activity was curtailed and more job work activity was done to recover maximum fixed costs Product-mix of own production was also improved with more value addition during the year. The company has invested Rs.25.89 lacs on account of capital investment during the year under review. The company has switch over to zero duty option for excise duty; the turnover during the current year is without excise duty. SICK UNIT UNDER BIFR: Your Company has been declared SICK UNIT under Section 3(1)(o) the Sick Industrial Companies (Special Provisions) Act, 1985. The Company is in process of Rehabilitation Scheme in consultation with operating Agency. SALES AND EXPORTS: Sales and operating income of the Company for the Period under the review i.e. 1st October 2006 to 31st March 2008 was 67.61 Crores. As against for the 12 months period 1st October 2005 to 30th September 2006 64.59 Crores. The Company is putting all its honest efforts vigorously to increase the sales by selling higher value addition fabrics. The figures in the report are not strictly comparable due to the previous period of 12 months. OUTLOOK FOR THE CURRENT YEAR: The current Budget had given concessions and relief in the Excise duty. Government of India had planned more than double allocation of fund for Technology Up-gradation Fund (TUF) scheme. However due to continuous increase in cost of cotton, dyes and chemicals and crude oil prices, the Composite Textile sector is facing tough time to compete with unorganized sector. To compete with unorganized sector had become most difficult task for the composite units in the textile industry. There has been differential treatment given to the unorganized sector to protect them from composite Mills. The Government has announced Packaged Incentives Scheme for the textiles and rationalizes the duty structure so that composite mills can compete with the unorganized sectors effectively. Though the scheme like TUF is announced by Ministry of Textile the overall situation for the Composite Textile sector has remained very tough and this privileged sector is in soup due to thin margin of profit. FIXED DEPOSITS: The Company has not accepted or renewed any Fixed Deposit during the period under review and there are no outstanding deposits. DIRECTORS: Shri Manoj K. Shah, the Director of the Company retire by rotation at the ensuring Annual General Meeting and being eligible offer themselves for re- appointment. Shri Indrakant Trikamlal, the Director of the Company and Shri Kirit C. Shah, the Director of the Company has resigned from the Board. The Board of Directors has taken note of valuable services rendered by Shri Indrakant Trikamlal and Shri Kirit C. Shah during the tenure of their directorship. Shri Kunal Y. Shah has joined the Board as an additional director of the company until the conclusion of the next Annual General Meeting. DIRECTORS RESPONSIBILITY STATEMENT: Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility statement, it is hereby confirmed that: 1) In the preparation of the accounts for the financial year ended 31st March 2008 the applicable accounting standards have been followed along with proper explanation relating to material departures. 2) 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. 3) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. 4) The Directors have prepared the accounts for the financial year ended 31st March, 2008 on a going concern basis. 120th YEAR FOR THE COMPANY: The Company has received the prestigious National Record Certificate from Limca Book of Records for the oldest continuously managed family business is that of MH Mills & Industries Limited at Ahmedabad which started operations in 1888 under founder Achratlal Harilal with a labour force of 400 and has completed 119 years on September 5, 2007. CORPORATE GOVERNANCE: The importance of corporate governance lies in its contribution both to business prosperity and to accountability. Directors support basic tenets of corporate governance as the prudent exercise of managements rights in the best interest of all stakeholders in a company in particular its shareholders, creditors, the state and its employees. The Company has implemented the requirements of clause 49 of the Listing Agreement. The separate report for the same is given here with. INSURANCE: The Company has taken Standard Fire and Special Perils Policy (Material Damage) for the entire Textile unit. The All the Assets of the Company are well covered under to roof of Insurance. ENVIRONMENT: Your Company has taken various steps to reduce water and Air pollution in and around Mills premises. The Companys officials conduct the Environmental Audit on Regular basis to keep the surrounding eco friendly. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNING AND OUTGO: Information as required under Section 217(1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the report of Board of directors) Rules, 1988 in set out in the Annexure forming part of this report. PARTICULARS OF EMPLOYEES: The Company had none of the employees falling under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. AUDITORS: The auditors of the company M/s. Talati & Talati, Chartered Accountants, Ahmedabad retire at the ensuing Annual General Meeting and are eligible for re-appointment. M/s. Talati & Talati has shown his willingness to work as the Statutory Auditor of the company for the financial year. In order to have better system of accounting and record Keeping your Company avails services of Professional Chartered Accountant Firm M/s. Jitendra Shah & Associates. COST AUDIT: Pursuant to Sec. 233(1B) of Companies Act 1956 your company has been covered to Mandatory Cost Audit. For which with the Approval of Central Government (Ministry Corporate Affairs) M/s. Kiran J. Mehta & Co. (Cost Accountants) has been appointed as cost auditors of the Company. QUALIFICATIONS IN THE AUDIT REPORT: The Auditors of the Company have qualified their Report on following grounds, and explanation of the Board, is provided in respect of each of such qualification. The Auditors have made certain observations in annexure to their Report at para No. (ix), (xi). In respect of dues of Gujarat Government Sales Tax, Water Cess and Municipal Tax and textile committee cess. The Company has approached concern Government agencies for relief and concessions as per applicable norms of textiles Sick Unit and the Company is confident that above dues will be settled in its favour. The Statutory Liabilities will be covered under Rehabilitation Scheme. APPRECIATION: Our relations with employees continued to remain cordial during the period under review Your Directors express their appreciation for devoted services of the employees at all level; and immense contribution made by them towards efficient operations of the Company. Your Directors also wishes to place on record sincere thanks to the Management of Asset Reconstruction company Limited (ARCIL), SASF of IDBI and Bank of Baroda for approving the scheme of compromise and debt Restructuring and other lenders and Textile Labour Association, Government Departments for their continued cooperation and assistance. REGISTERED OFFICE: ON BEHALF OF THE BOARD Saraspur, Ahmedabad. BIREN PARIKH DATED: 07/07/2008 CHAIRMAN ANNEXURE TO DIRECTORS REPORT Information as per Section 217 (1)(e) of the Companies Act, 1956 read with Companies (Disclosures of particulars in the report of Board of Directors) Rules, 1988 and forming part of the Directors report for the period 1/10/2006 to 31/03/2008. A. CONSERVATION OF ENERGY: Energy conservation measures taken: 1. Inverters for variable speed introduced and boiler fans & process machine fans under considerations. 2. Diffused aeration in ETP is under consideration to save power of blower. 3. Measures taken in past are continued and maintained to their efficiency. FORM-A Period 1-10-2006 to 31-03-2008 1-10-2005 to 30-09-2006 Particulars Textile Polymer Textile Polymer Unit Unit Unit Unit A. Power & Fuel Consumption: 1 (a) Electricity: (i) Purchase Unit (KWH) 28208540 22338720 228942 (ii) Total amount (Rs.) 121013535 96012937 1262869 (iii) Rate/Unit (Rs.) 4.29 4.29 5.52 (b) Own Generation: (i) Through D G Set (KWH) 0 0 65072 Unit per liter of Diesel Oil 0 0 3.19 (ii) Through Steam Turbine Generator Unit NA NA (iii) Own Generation through Captive Power Plant KWH 0 678400 Unit per liter of fuel 0 4.10 2. Coal/Lignite & Saw Dust (i) Quantity/(Tones) Saw Dust 20713 12978 (ii) Total Cost (Rs.) 30615981 18496614 (iii) Average Rate (Rs./Tones) 1478 1425 3. Diesel Oil (i) Quantity (Ltrs) 0 5743 20375 (ii) Total Cost (Rs.) 0 162857 715039 (iii) Average Rate (Rs.) 0 28.36 35.09 4. Furnace Oil: (i) Quantity in (Ltrs) 0 163890 (ii) Total Cost (Rs.) 0 2643813 (iii) Average Rate (Rs./Ltr) 0 16.13 5. Other internal generation: B. CONSUMPTION PER UNIT OF PRODUCTION: 1. Electricity (KWH) Cloth (Per Mtr) 1.10 1.08 Yarn (per kg.) 5.86 5.76 2 Furnace-OR (Litre) Cloth (per mtr) - Yam Yam per kg. 3. Coal Lignite Cloth (per Mtr.) 0.89 0.86 Yarn per kg. 0.78 0.76 4. Texturised Yarn 5. A Electricity unit (kg.) 228942 6. Polymer Sheets (kgs.) Electricity 172626 Unit/Kg. 1.33 7. Films (Kgs.) Electricity Unit/Kg 8. Other C. TECHNOLOGICAL ABSORPTION: RESEARCH & DEVELOPMENT (R & D): 1. To upgrade the quality of packing, we have installed new inspection cum packing machine for this checking heavy weight quality fabric. 2. Benefits derived: i) Centre to selvedge dye pick up variation are reduced to not by which the SST Packing is improved up to 84% with the introduction of CPD machines. ii) Folding materials handling and labour cost is reduced with the introduction of new inspection cum packing machines. TECHNOLOGY ABSORPTION, ADOPTION & INNOVATION: During the year no new technology was developed or adopted by the Company. 1. Foreign exchange earning and outgo activities in relation to export etc. (i) Efforts of the Company are being made to increase exports. (ii) Total Foreign Exchange used Rs. 15.88 lacs. (iii) Total Foreign Exchange earned Rs. 0 lacs. MANAGEMENT DISCUSSION AND ANALYSIS: DISCLAIMER: Readers are cautioned that this discussion and analysis contains forward- looking statements that involve risks and uncertainties. When used in this discussion, the words anticipate, believe, estimate,intend,will, and expected and other similar expressions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligation to publicity update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results, performances or achievements and risks and opportunities could differ materially from those expressed or implied in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their date. The following discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto. OVERVIEW: The Companys principal businesses consist of manufacturing and marketing of Ready Garments fabric, bottom weights fabric, Twills and Polyester cotton and Cotton yarn. The yarn manufactured is partly sold and partly required for captive consumption by the Company, In the high inflation scenario, the company has made serious efforts to curtail various costs. FINANCIAL PERFORMANCE AND REVIEW: Financial Performance: The total Sales and other Income for the period ended 31st March, 2008 (18 Months) were Rs. 6985.80 lacs as compared to Rs. 6459.65 lacs for previous year ended 30th September, 2006 and are not comparable. The company sells Yarn partly in the domestic market and partly for the captive consumption The depreciation for the period under review is Rs. 493.07 lacs 18 months period on 31st March, 2008 as compared to Rs. 495.43 lacs for the previous year ended on 30th September, 2006. During the current financial period which is for 18 months period ending 31st March, 2008 (18 Months) the Company has reported Net Loss of Rs.10.30 Cores as compared to Net Loss of Rs.12.87 Cores in the previous, financial year ended 30th September, 2006 (12 Months). Raw Material, Dyes and Chemicals: The Companys main raw material Cotton have continued shown its uptrend trend during the year under review. The price of Dyes and chemicals has also increased substantially which has also affected the profit margins of the company. INDUSTRY: Textile division The Textile division of the Company is engaged in manufacturing high quality Cotton and blended fabrics and polyester and cotton yarn for the domestic market. Other prominent products include Cotton and Blended shirting, Trousering material, Long Cloth, Sarees, dress material and a wide range of Lawns, structured fabric etc. The Company enjoys a unique position in the Rubia segment. The Companys chief strength is its amazingly rich and fancy colour palette. In a business where shades reign supreme, the Voiles Division boasts of its incredibly large shade collection offering perfect blends for diverse tastes, each bearing the same stamp of quality and excellence. The ability to supply a huge range of colours in a variety of high quality products with rigid adherence to delivery deadline has been the key to Companys sustained growth and performance over past few years. In addition, the Company has an countrywide distribution network resulting into an unprecedented reach and deeper penetration into hitherto unexpiored markets. Constant product innovation and upgradation has always been the Companys top priorities, which has resulted into a huge product basket. Among the latest ones are Anti-microbial fabrics, Aroma finish and structured voiles etc. With the capacity expansion in the processing department, the Company has made headway into the Dress material segment, Cotton and Blended Shirting and Bottomweight Fabrics to reap in higher turnovers and market presence in the coming years. Product Group: The Company is having all required capabilities and infrastructure for manufacturing wide range of fabrics. The Company has focused on product developments, which has helped it in enhancing its product/ customer mix and achieve better realizations. The Company has a dedicated R & D team comprising of textile professionals Including international consultants working on ongoing product development. Recent development includes products with count ranges from 16s to 2/100s, fibres containing cotton, polyesters blends etc., twill fabric. With significant efforts, company could come out with unique and differentiated products such as PU coated, slubbly, sulphur, dyed, yarn dyed, blotch printing and combinations weaves. The Company has launched innovative and latest finishes in all the fabrics ranges. INTERNAL CONTROL SYSTEMS: The company has well defined and institutionalized business processes with effective control systems to ensure that assets and interests of the Company are safeguard. The Company has a appointed Core Management Team which is responsible for preparation of the Performance Plan which are reviewed on monthly basis and compared with the actual, performance achieved so as to take immediate corrective actions, wherever necessary and are discussed to take corrective measures and achieve the projections. Considering the size and nature of operations of the company, the overall control systems are adequate to meet the need and the purpose. The company has internal audit carried out by a firm of Chartered Accountant who monitors the system in various areas of the internal control system and compliance. The Company has an External audit firm which monitors business processes and risks associated with them. DEVELOPMENTS ON HUMAN RESOURCES AND INDUSTRIAL RELATIONS: The period under review has continued to reduce labour force through payment of VRS and gratuity as per the Scheme. The Company values its human resources and believes in unlimited potential of each employee. Industrial relations were cordial in all the divisions of the Company without any disruptions of manufacturing activities.