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Goodricke Group

BSE: 500166|NSE: GOODRICKE|ISIN: INE300A01016|SECTOR: Plantations - Tea & Coffee
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Mar 16
Notes to Accounts Year End : Mar '17

1. Additional Notes to the Financial Statements

2. Contingent liabilities and commitments :

3. Contingent liabilities

Claims against the Company not acknowledged as debts:

Income Tax matters relate to amounts disputed by the Company in relation to issues of disallowances/additions in computing total income under the Income Tax Act, 1961.

Central Excise and Sales Tax matter relates to amounts disputed by the Company in relation to issues of applicability, classification and determination, as applicable.

Disputed claims relates to third party claims arising from disputes relating to contracts.

Future cash flows if any, in respect of above cannot be determined at this stage

4. Commitments

Estimated amount of contracts remaining to be executed on capital accounts and not provided for Rs. 16.18 Millions (2016 -Rs. 0.74 Millions; 2015 -Rs. 15.91 Millions).

5. Research and Development expenses for the year charged to revenue amounts to Rs13.50 Million (2016 -Rs. 16.05 Millions).

6. Corporate Social Responsibility (CSR) - As per Section 135 of the Companies Act, 2013 the Company needs to spend at least 2% of the average net profit earned during the immediately preceding 3 years on CSR activities. The areas for CSR activities identified by the Company are special education for differently abled children, solar project, vocational training for livelihood and environment sustainability.

7. Gross amount required to be spent by the Company is Rs. 5.43 Millions (2016 Rs 7.04 Millions)

8. Amount spent during the year/period is Rs 5.50 Millions (2016 Rs 7.57 Millions)

9. Employee Benefit Plans:

Defined Contribution Plans

The Company operates defined contribution schemes like provident fund and pension schemes for all qualifying employees. For these schemes, contributions are made by the Company, based on current salaries, to recognized funds maintained by the Company and for certain employees’ contributions are made to State Plans.

An amount of Rs. 157.54 Millions (2016 - Rs. 155.44 Millions) has been charged to the Statement of Profit and Loss on account of defined contribution schemes.

Defined Benefit Plans

The Company also operates defined benefit schemes in respect of gratuity, pension, provident fund and postretirement medical benefit towards its employees. These schemes offer specified benefits to the employees on retirement. The pension benefits and medical benefits are restricted to certain categories of employees. The liabilities arising in the Defined Benefit Schemes are determined in accordance with the advice of independent, professionally qualified actuaries, using the projected unit credit method as at year end. The Company makes regular contributions to these Employee Benefit Plans. Additional contributions are made to these plans as and when required based on actuarial valuation.

Provident Fund, Pension and Gratuity Benefits are funded and Post-Retirement Medical Benefits are unfunded in nature. The funds are administered through approved Trusts, which operate in accordance with the Trust Deeds, Rules and applicable Statutes. The concerned Trusts are managed by Trustees who provide strategic guidance with regard to the management of their investments and liabilities and also periodically review their performance.

Risk Management

The above benefit plans expose the company to actuarial risks such as follows-

10. Interest rate risk: The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase

11. Salary inflation risk: Higher than expected increases in salary will increase the defined benefit obligation

12. Demographic risk: This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria. It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to a long service employee.

These Plans have a relatively balanced mix of investments in order to manage the above risks. The investment strategy is designed based on the interest rate scenario, liquidity needs of the Plans and pattern of investment as prescribed under various statutes. The Trustees regularly monitor the funding and investments of these Plans. Robust risk mitigation systems are in place to ensure that the health of the portfolio is regularly reviewed and investments do not pose any significant risk of impairment. Pension obligation of the employees is secured by purchasing annuities thereby de-risking the Plans from future payment obligation.

13. Sensitivity Analysis

Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

14. The Company’s significant leasing arrangements are in respect of operating leases for premises and tea estates. These leasing arrangements are not non-cancellable range between 11 months and 30 years generally, or longer, and are usually renewable by statute or mutual consent on mutually agreeable terms as applicable. The aggregate lease rentals payable are charged as ‘Rent’ under Note 28.

The Company’s tea estates are located in remote areas of Assam and West Bengal with very limited access to banking. Further, tea is a very labour intensive activity. Workers have no means to banking and hence are totally dependent on the gardens for their financial needs. Therefore, the estates had no choice but to transact in SBN’s for a limited period.

15. Consequent upon the vesting of the Indian undertakings on 1st January 1978 of the eight Sterling Company’s under the scheme of amalgamation, the title in respect of certain tea estates acquired under such scheme, are to be transferred in the name of the Company. The Company has been legally advised that the notification issued by the Government of West Bengal in 1994 for payment of salami does not apply to the Company.

16. Segment Information

17. Consequent to the adoption of Ind AS, the Company has identified one operating segment viz, Tea which is consistent with the internal reporting provided to the chief executive officer, who is the chief operating decision maker.

18. The Company deals in only one product i.e., Tea. The products and their applications are homogenous in nature.

19. The Company is not reliant on revenues from transactions with any single external customer and does not receive 10% or more of its revenues from transactions with any single external customer.

20. Related Party Disclosures 1. Parent information

Western Dooars Investment Ltd. and Assam Dooars Investment Ltd. together hold 74% of the Equity Share Capital of the Company. Camellia Plc is the ultimate holding company.

21. Key Managerial Personnel (KMP):

Arun Narain Singh - Managing Director and CEO

Arjun Sengupta - Vice President and CFO

Subrata Banerjee - Sr. General Manager & Company Secretary

22. Other related parties with whom transactions have taken place during the year/period:

23. Fellow Subsidiary Companies:

Stewart Holl (India) Limited Amgoorie India Limited

Koomber Properties & Leasing Company Private Limited

Goodricke Technical & Management Services Limited

Borbam Investments Limited

Koomber Tea Company Private Limited

Lebong Investments Private Limited

Elgin Investments & Trading Company Limited

24. Post employment benefit plan:

Goodricke Group Limited Gratuity Fund Goodricke Group Limited Executive Staff Pension Fund Goodricke Group Limited Executive Staff Provident Fund Goodricke Group Limited Employees Provident Fund

25. Financial risk management objectives

The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company continues to focus on a system-based approach to business risk management. The Company’s financial risk management process seeks to enable the early identification, evaluation and effective management of key risks facing the business. Backed by strong internal control systems, the current Risk Management System rests on policies and procedures issued by appropriate authorities; process of regular reviews / audits to set appropriate risk limits and controls; monitoring of such risks and compliance confirmation for the same.

26. Market risk

The Company’s business primarily agricultural in nature, exposes it to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of adverse weather conditions and lack of future markets. The Company closely monitors the changes in market conditions and select the sales strategies to mitigate its exposure to risk.

27. Foreign currency risk

The Company undertakes transactions denominated in foreign currency which results in exchange rate fluctuations. Such exchange rate risk primarily arises from transactions made in foreign exchange and reinstatement risks arising from recognized assets and liabilities, which are not in the Company’s functional currency (Indian Rupees). A significant portion of these transactions are in US Dollar,euro, etc.

The carrying amounts of the Company’s foreign currency denominated financial assets and financial liabilities, at the end of the reporting period are as follows:

Foreign currency sensitivity

The impact of sensitivity analysis arising on account of outstanding foreign currency denominated assets and liabilities is insignificant.

28. Interest rate risk

Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The objectives of the Company’s interest rate risk management processes are to lessen the impact of adverse interest rate movements on its earnings and cash flows and to minimize counter party risks.

The Company is exposed to interest rate volatilities primarily with respect to its short terms borrowings from banks as well as Financial Institutions. Such volatilities primarily arise due to changes in money supply within the economy and/or liquidity in banking system due to asset/liability mismatch, poor quality assets etc. of banks. The Company manages such risk by operating with banks having superior credit rating in the market as well as Financial Institutions.

Interest rate sensitivity

Since the borrowings are all short term in nature, the possible volatility in the interest rate is minimal.

29. Price risk

The Company invests its surplus funds primarily in debt mutual funds measured at fair value through profit or loss. Aggregate value of such investments as at 31st March, 2017 is Rs.142.85 Millions (2016 -Rs. Nil; 2015 - Rs. Nil).

Investments in the mutual fund schemes are measured at fair value. Accordingly, these do not pose any significant price risk.

30. Liquidity risk

Liquidity risk is the risk that the Company may encounter difficulty including seasonality in meeting its obligations.

The Company mitigates its liquidity risks by ensuring timely collections of its trade receivables, close monitoring of its credit cycle and ensuring optimal movements of its inventories.

The table below provides details regarding the remaining contractual maturities of significant financial liabilities at the reporting date.

31. Credit risk

Credit risk is the risk that counter party will not meet its obligations leading to a financial loss.

The Company has its policies to limit its exposure to credit risk arising from outstanding receivables. Management regularly assess the credit quality of its customer’s basis which, the terms of payment are decided. Credit limits are set for each customer which are reviewed on periodic intervals. The credit risk of the Company is low as the Company largely sells its teas through the auction system which is on cash and carry basis and through exports which are mostly backed by letter or credit or on advance basis.

32. Fair value measurements Fair value hierarchy

Fair value of the financial instruments is classified in various fair value hierarchies based on the following three levels:

Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities

Level 2: Inputs other than quoted price including within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)

If one or more of the significant inputs is not based on observable market data, the fair value is determined using generally accepted pricing models based on a discounted cash flow analysis, with the most significant input being the discount rate that reflects the credit risk of counterparty. This is the case with listed instruments where market is not liquid and for unlisted instruments.

The management consider that the carrying amounts of financial assets (other than those measured at fair values) and liabilities recognized in the financial statements approximate their fair value as on March 31, 2017, March 31, 2016 and January 1, 2015.

There has been no change in the valuation methodology for Level 3 inputs during the year. The Company has not classified any material financial instruments under Level 3 of the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the year.

Notes to the reconciliations

39. For PPE other than bearer plants, the company has considered carrying cost on the date of transition as the deemed cost. The difference in depreciation under Previous GAAP and Ind AS is adjusted.

40. Under Ind AS, tea bushes representing bearer plants have been recognized as depreciable items of PPE, fair valued on the date of transition in accordance with exemptions available in Ind AS 101 and recognized as deemed cost. These are depreciated over the remaining useful life of the bearer plants. The consequent impact on depreciation is reflected in Statement of Profit and Loss.

41. Stock of tea is valued at lower of cost and net realizable value. Cost, computed under Ind AS, comprises of fair value of green leaf plucked from the Company’s estates less costs to sell at the point of harvest and cost of production for the full year. However, under previous GAAP, cost comprised of the cost of production (including costs for plucked green leaf) for the full year.

43. The actuarial gains and losses, under Ind AS form part of re-measurement of the net defined benefit liability and is recognized in OCI, as against recognition in profit or loss under previous GAAP. Consequently, the tax effect of the same has also been recognized in OCI instead of profit or loss.

44. In view of recognition of bearer plants, expenditure on uprooting and replanting of tea bushes, under Ind AS, qualifies for capitalization and has therefore been recognized as PPE / CWIP, as the case may be and depreciated, as applicable, over the remaining useful life. Under previous GAAP, such expenditure incurred were treated as revenue expenses.

45. Under previous GAAP, biological assets were not required to be recognized. Under Ind AS, these have been recognized at fair value less costs to sell and change in fair value has been recognized in profit or loss.

46. Under previous GAAP, dividend payable on equity shares (including the tax thereon) was recognized as a liability in the period to which it relates. Under Ind AS, dividends (including the tax thereon) to shareholders are recognized when declared by the members in a general meeting.

47. Under previous GAAP, replanting subsidy received from the Tea Board was recognized as revenue in the Statement of Profit and Loss as and when accrued. Under Ind AS, the same is recognized as deferred revenue in the Balance Sheet and transferred to profit or loss on a systematic and rational basis over the useful lives of the bearer plants.

48. The financial risk associated to agriculture would include climate change, price fluctuation, currency fluctuation and input cost increases. Being dependent on rainfall, any shortfall would directly impact the production. The sale of tea being largely through the auction system, any price fluctuation would impact profitability. Increased wages also has a direct impact on the cost of production because of labour intensive nature of the business operations.

Management is continuously monitoring all the above factors. Investment in irrigation, a planned replanting programme to ensure higher yields and improving efficiency of labour and modernization are some of the measures taken by the management to mitigate the risks.

49. Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) (Amendment) Rules, 2017 on 17th March, 2017 notifying the amendments to Ind AS 7, ‘Statement of cash flows’ and Ind AS 102, ‘Share-based payment’. These amendments are applicable for annual periods beginning on or after 1st April, 2017. The Company expects that there will be no material impact on the financial statements resulting from the implementation of these standards.

50. The financial statements were approved for issue by the Board of Directors on 23rd May, 2017.

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