Midfield Industries Ltd Directors Report

MIDFIELD INDUSTRIES LIMITED ANNUAL REPORT 2011-2012 DIRECTORS REPORT To, The Members, MIDFIELD INDUSTRIES LIMITED Your Directors have pleasure in presenting the Twenty Second Annual Report of your Company together with the Audited Accounts for the financial year ended 31st March, 2012 and the report of the Auditors thereon. FINANCIAL RESULTS (in Rs.) PARTICULARS: 2011-2012 2010-2011 Total Income 1,684,629,729 1,294,745,351 Expenditure 1,337,267,083 1,028,628,079 Profit before Tax, Interest and Depreciation 347,362,646 266,117,272 Less: Depreciation 38,553,879 16,557,611 Less: Interest 80,689,896 61,651,300 Profit before tax 228,118,891 187,908,361 Provision for Income Tax 86,936,746 55,600,000 Provision for Deferred Tax Liability (1,888,233) 6,740,481 Net Profit after Tax 143,070,378 125,567,880 Profit Brought forward 289,435,444 229,769,286 Balance available for appropriation 432,505,822 355,337,166 Transferred to General Reserve 45,000,000 36,000,000 Provision for Dividend 32,053,127 25,642,502 Provision for Tax on Dividend 5,199,017 4,259,220 Profit carried to Balance Sheet 350,253,678 289,435,444 OPERATIONS Your Directors are pleased to inform you that the Company has made a turnover of Rs.168 crores compared to the turnover of the previous year which stood at Rs.132 crores and achieved a growth of 30%. The Company has achieved Net Profit after Tax of Rs.14.30 crores compared to the Net Profit after tax of Rs.12.55 crores achieved during the previous year and recorded a growth of 14% NEW MANUFACTURING FACILITIES Your Company is in the process of setting up: a. Manufacturing facility near Rourkela, Odisha to cater to the requirements of the customers located in the Eastern region. The plant is under implementation and expected to commence commercial production during the last quarter of Financial year 2012-13. b. Plant at Dubai to cater to Middle East and African Countries. CORPORATE GOVERNANCE The Corporate Governance Report regarding compliance of the conditions of corporate governance by your Company as stipulated in clause 49 of the Listing Agreement entered into with The Bombay Stock Exchange Limited is annexed to this Report. MATERIAL CHANGES There are no material changes affecting the business of the Company after the date of the Balance Sheet. DEPOSITS During the year under review the Company has not accepted any deposits from public as defined under the provisions of Section 58 A of the Companies Act, 1956. DIVIDEND Your directors are pleased to recommend a dividend of Rs.2.50/- per Equity Share of Rs.10/- for the financial year 2011-12. The dividend, if approved at the ensuing Annual General Meeting will be paid to those shareholders whose names appear on the Register of Members of the Company as on 27th September, 2012. The total outflow on account payment of dividend for the year 2011-12 will be Rs. 320.53 lakhs (excluding dividend tax) TRANSFER TO RESERVES Your Directors have proposed to transfer an amount of Rs.450 lakhs to the General Reserve in view of the recommendation of 25% final dividend to the Equity shareholders. DIRECTORS Sri K. Raja Raju, Director retire by rotation and being eligible offer himself for re appointment. The Board recommends his re appointment. Sri M. Ashok Sagar resigned as Whole Time Director as well as Director of the Company due to his pre occupations. The Board places on record its appreciation for the services rendered by Sri M. Ashok Sagar during his tenure as Director of the Company. Sri V.G. Krishna Rao resigned as Director of the Company due to his pre occupations. The Board places on record its appreciation for the services rendered by Sri V.G. Krishna Rao during his tenure as Director of the Company. Sri Uriti Srikanth and Sri K. L. Sreedhar Reddy were appointed as Additional Directors of the Company in the Board Meeting held on 19th March, 2012 and hold office till the date of the ensuing Annual General Meeting. The Company has received notices along with the required deposit for appointment of the aforesaid Directors as Directors liable to retire by rotation. The Board recommends their appointment. Sri Uriti Srikanth was subsequently appointed as the Executive Director of the Company Sri Hamza K. Mehdi was appointed as an Additional Director of the Company in the Board Meeting held on 14th August, 2012 and holds office till the date of the ensuing Annual General Meeting. The Company has received a notice along with the required deposit for appointment of Sri Hamza K Mehdi as the Director of the Company liable to retire by rotation. The Board recommends his appointment. COMPANY SECRETARY Mr. Vivek Surana was resigned as the Whole Time Company Secretary with effect from 1st August, 2012. The Board is in the process of identifying and appointing a Whole Time Company Secretary in compliance of the provisions of the Companies Act, 1956 and the Listing Agreement. AUDITORS M/s Sampath & Ramesh, Chartered Accountants, the Statutory Auditors of the Company retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. The Company has received a notice stating that they would be within the limits as prescribed under the provisions of Section 224 (1B) of the Companies Act, 1956. The Board recommends their re- appointment. PERSONNEL During the year under review, there were no employees drawing remuneration in excess of the limits laid down in Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. DIRECTORS RESPONSIBILITY STATEMENT Pursuant to provisions of Section 217 (2AA) of the Companies Act, 1956 we, the Board of Directors of the Company hereby state: (i) that in the preparation of the annual accounts for the year ended 31st March, 2012, the applicable accounting standards had been followed along with proper explanation relating to material departures; (ii) that we had 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 and of the profit of the Company for that period; (iii) that we had 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; (iv) that we had prepared the annual accounts for the year ended 31st March, 2012 on a going concern basis. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: The disclosures required under Section 217(1) (e) of the Companies Act, 1956 read with Companies (Disclosure of particulars in the Report of the Board of Directors) Rules, 1988, for the year ended March 31, 2012 are as follows: A. CONSERVATION OF ENERGY a. Adequate measures have been taken to conserve energy wherever possible. b. Additional investments and proposals, if any, being implemented for reduction of consumption of energy: NIL c. Impact of measures for reduction of energy consumption/energy conservation: NIL B. RESEARCH AND DEVELOPMENT: 1. Specific areas in which research & development is carried out: NIL 2. Benefits derived: NIL 3. Future plan of Action: NIL 4. Expenditure on R & D: NIL C. TECHNOLOGY ABSORPTION: a. Efforts in brief made towards Technology absorption, adoption and innovation: NIL b. Benefits derived as result of the above efforts e.g., product improvement, cost reduction, production development, import substitution etc.: NIL D. In case of imported technology, imported during the last 5 years reckoned from the beginning of the financial year, following information may be furnished: a. Technology Imported : N.A. b. Year of Import : N.A. c. Has technology fully absorbed areas where this has not been taken place, reasons thereof and plan of action : N.A. E. Foreign Exchange Earnings And Outgo: 1. Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services, and export plans: The new manufacturing facility set up at Mumbai would cater to the export market and the directors are confident of achieved good turnover in exports. 2. Total Foreign Exchange used and earned: (in Rs.) PARTICULARS 2011-2012 2010-2011 Total Foreign Exchange earnings 2,34,22,604 2,95,47,406 Foreign Exchange outgo a. on account of import of Equipment - 2,48,49,365 b. on account of Travel 4,50,734 5,89,430 Total Foreign Exchange outgo 4,50,734 2,54,38,795 ACKNOWLEDGEMENTS The Board places a record of appreciation to the Bankers, Government and Non Government authorities, Members and Employees of the Company for their continued support and confidence in the Company. By order of the Board For MIDFIELD INDUSTRIES LIMITED Sd/- M. MADHU MOHAN REDDY Chairman & Managing Director Place: Hyderabad Date : 22nd August 2012 MANAGEMENT DISCUSSION AND ANALYSIS GLOBAL SCENARIO Global packaging industry is worth US$ 424 billion and out of this Europe has US$127 billion, Asia has US$114 billion, North America has US$ 118 billion, Latin America has US$ 30 billion, and other countries have $US 30 billion. In terms of global market percentage, Europe is 30%, North America is 28%, Latin America is 7%, Asia is 27% and other is 8% of global packaging industry. According to the materials used in packaging industry throughout the globe, paper shares the most, 36%, metal is 17%, plastic takes 34%, glass takes 10% and other occupies 3%. According to the type of packaged products, Beverages take 18%, food take 38%, pharmaceutical products take 5%, cosmetic products take 3% and other products take 36% of overall packaging industry. Global market value on food packaging is 161 US$ billion, beverage packaging is 76 US$ billion, Pharmaceutical packaging is 21 US$ billion, cosmetic packaging is 13.3 US$ billion and other is 153 US$ billion. The global packaging industry will swell to almost US$820 bln by 2016 predicts Pira International. Driven mainly by increasing demand for packaging in emerging and transitional economies, a 3% pa growth rate will focus on board products and rigid plastics, with US$40 bln and US$33 bln in cumulative predicted growth respectively to 2016. This growth is being driven by a number of broad trends such as growing urbanisation, investment in housing and construction, a burgeoning healthcare sector and the rapid development still evident in the emerging economies, including China, India, Brazil and some eastern European countries. An increase in personal disposable income in the developing regions fuels consumption across a broad range of products, with consequential growth in demand for the packaging of these goods. For instance, increased demand for white goods, like washing machines and dishwashers, driven also by growing time pressure on consumer lifestyles, leads not just to a growing demand for packaging for the machines themselves, but also for associated products such as the household care products needed to operate these machines, thus stimulating demand across a range of packaging media. INDIAN PACKAGING INDUSTRY: The Indian packaging industry is growing at the rate of more than 15% pa and expected to touch US$14 billion (Rs. 11.2 billion) in the present financial year (2011-2012). Further, the growth is expected to double in the coming two years, one of the reasons being the thriving retail sector in India. The growth of the packaging industry in India can be seen mostly in the second-tier cities where packaging plays an important role in the launch of new products. Big giants like Hindustan Unilever Ltd, Nestle India Ltd, ITC Ltd, Procter & Gamble India Ltd, PepsiCo India Ltd, Coca-Cola India Ltd and Dabur India Ltd have also become quiet aggressive in this form of advertisement. Also the growth in the packaging industry in India is attributed to the increase in the number of joint ventures and partnerships with foreign companies. The total demand of F&B packaging segment stands at around $16.2 billion and accounts for around 85% market shares followed by pharmaceuticals and other market segments. At present, flexible, rigid and metallic food packaging materials account for around 55% of the total food packaging material market, while printed cartons and rigid packaging segments together represent 28% market shares in value terms. Flexible materials such as food packaging laminates, flexible packaging foils, cookies packaging etc. constitute close to 24% of the overall packaging material market, followed by rigid food packaging material segment. The packaging industry in India has been registering a constant growth rate of 15%. The Corrugated packaging industry is however finding itself at the crossroads. Increasing prices of kraft paper, non availability of international standard papers at affordable prices, resistance of corrugated box user industry to offer sustainable prices, increasing competition, non viability ofautomatic plants are proving to be hurdles in the growth path. Despite these adverse circumstances, the industry is all set to take on the challenges and look at the future opportunities. As global companies set up their manufacturing bases in India to meet the growing demand for consumer and white goods - the need for high quality boxes is appearing evident. Progressive Corrugators are setting up automatic board/box making plants to increase production and enhance performance of boxes. In house printing on corrugated is becoming imperative. Emerging and transitional economies, a 3% pa growth rate will focus on board products and rigid plastics, with US$40 bln and US$33 bln in cumulative predicted growth respectively to 2016. This growth is being driven by a number of broad trends such as growing urbanisation, investment in housing and construction, a burgeoning healthcare sector and the rapid development still evident in the emerging economies, including China, India, Brazil and some eastern European countries. An increase in personal disposable income in the developing regions fuels consumption across a broad range of products, with consequential growth in demand for the packaging of these goods. For instance, increased demand for white goods, like washing machines and dishwashers, driven also by growing time pressure on consumer lifestyles, leads not just to a growing demand for packaging for the machines themselves, but also for associated products such as the household care products needed to operate these machines, thus stimulating demand across a range of packaging media. SWOT Analysis of Midfield Industries Strengths: Weakness: Niche segment of Capacity constraints industrial packaging Lack of infrastructure Established brands development Operational contracts: one stop solution Diverse clients Adherence to stringent quality parameters Incessant focus on Opportunities: Threats: Surge in packaging Peer competition demand Fluctuating prices of Untapped international raw materials and export markets Interest rates and Global Economy Risk Management Risk management is essential for sustainable stakeholder value creation. Effective risk governance will result in achievement of business objectives, protection of people, assets and reputation. We run or business by identifying, assessing and managing risks. Risk: Health and safety Management: One of the most important pre-requisites for the smooth functioning of our business operations and well being of workers we have a comprehensive and well audited safety practice standards. This tremendously in reduction of accidents at the factories. Risk: Raw material price fluctuations Management: In line with the strategic priority Midfield Industries manages its inventory very well. Maximization of available resources and all the goods are manufactured in house. Backward integration is helping the Company to overcome raw material price fluctuations. Risk: Changes in consumer behavior Management: We incessantly monitor the market and carefully observe the consumer trends. The political developments and varying needs are mapped by our market research team and this helps us in serving the diverse sectors with customized packaging solutions. Risk: Cost management Management: Midfield has a sound economic objective and a good corporate practice. The funding requirements are negotiated in a timely manner so that there is enough room to mitigate the risk related to foreign currency, interest rate and commodity prices rates. Financial performance Midfields growing list of clientele and attractive book order has enabled it to report attractive numbers. Particular 2011-2012 2010-2011 Groeth (%) Revenue 1681.76 1291.63 30.20 EBIDTA 347.36 266.12 30.53 PAT 143.07 125.57 13.94 Human Resources (HR) The company recognizes the importance of the Human Resources team to achieve its goals. Midfield Industries Limited has an experienced and a dynamic HR team that ensures the implementation of significant HR policies for the companys growth and credibility. The recruitment cell focuses on hiring new talent and implements the retainment policy for the existing employees. There is a lot of emphasis on training and development so that there are emerging leaders and creation of extensive talent pool. Health and safety measures We have a policy in place to for the health and safety for our workmen which have the following salient features: 1. Compliance with relevant safety and statutory regulations and rules both in letter and in spirit. 2. Maintenance of safe, healthy and congenial working atmosphere by constant monitoring of work place environment. 3. Ensuring cleanliness and proper lighting system at the work place 4. Providing helmets, gloves, appropriate tools, and other safety precautions to the workers. 5. Conducting workshops on safety, first-aid, firefighting, safety audit and risk analysis studies. We comply with applicable health and safety legislations to ensure that the workers enjoy a safe and a healthy work environment. Outlook Indian packaging industry with a growth of more than 15% p.a. is expected to continue recording high growth for a prolonged period in the wake of low current percapita consumption. Packaging today has grown in importance and the large growing middle class, liberalisation and organised retail sector are the catalysts to growth in packaging. Internal Control system Midfield Industries Limited has a comprehensive and consolidated internal control system to ensure authorized business transactions. Internal audit function is an independent, which is carried out by internal auditors through intensive audits. Regular internal audits determine the operational and financial efficiencies of the Company. The Audit Committee of the Board of Directors conduct periodic reviews of pan-organizational effectiveness and recommends improvement whenever required. The internal control system also formulates well documented policies, guidelines, authorizations and approval procedures and ensures compliance with applicable policies and statues.