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Cheviot Company

BSE: 526817|ISIN: INE974B01016|SECTOR: Miscellaneous
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Cheviot Company is not listed on NSE
Mar 18
Notes to Accounts Year End : Mar '19

1. CORPORATE AND GENERAL INFORMATION

Cheviot Company Limited (the “Company”) is a listed Public Limited Company incorporated in India. The Company has its registered office at 24, Park Street, Magma House, 9th Floor, Kolkata-700016.

The Company manufactures jute products with flexibility to cater to both domestic and international market. The Company is renowned for manufacturing superior quality Hessian fabrics and jute shopping bags for export market at the Export Oriented Unit situated at Falta Special Economic Zone in the state of West Bengal, India.

2. BASIS OF ACCOUNTING

2.1. Statement of Compliance

These financial statements have been prepared in accordance with the Indian Accounting Standards (“Ind AS”) as prescribed by Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act, 2013 (“the Act”), read with the Companies (Indian Accounting Standards) Rules, 2015 (as amended), other relevant provisions of the Act and other accounting principles generally accepted in India.

The financial statements of the Company for the year ended 31st March, 2019 have been approved and authorised for issue by the Board of Directors in their meeting held on 27th May, 2019.

2.2. Basis of Measurement

The financial statements have been prepared on historical cost convention, except for following:

- Financial assets and liabilities (including derivative instruments) that are measured at fair value/ amortised cost;

- Freehold land on revaluation model;

- Non-current assets held for sale are measured at the lower of the carrying amounts and fair value less cost to sell;

- Defined benefit plans are measured at fair value.

2.3. Functional and Presentation Currency

The financial statements have been presented in Indian Rupees (‘), which is also the Company’s functional currency. All financial information presented in (?) has been rounded off to the nearest lakhs as per the requirements of Schedule III, unless otherwise stated.

2.4. Use of Estimates and Judgements

The preparation of financial statements require judgements, estimates and assumptions to be made that affect the reported amount of assets and liabilities including contingent liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Difference between actual results and estimates are recognised in the period prospectively in which the results are known/ materialised.

2.5. Current Vs Non-Current classification

The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.

An asset is classified as current when it is:

- Expected to be realised or intended to be sold or consumed in normal operating cycle;

- Held primarily for the purpose of trading;

- Expected to be realised within twelve months after the reporting period; or

- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All the other assets are classified as non-current.

A liability is classified as current when:

- It is expected to be settled in normal operating cycle;

- It is held primarily for the purpose of trading;

- It is due to be settled within twelve months after the reporting period; or

- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and non-current liabilities respectively.

2.6. Adoption of new accounting standards

The Company has applied the following accounting standards and its amendments for the first time for annual reporting period commencing 1st April, 2018:

- Ind AS 115 - Revenue from Contracts with Customers

- Amendment to Ind AS 12 - Income Taxes

- Amendment to Ind AS 21 - The Effects of Changes in Foreign Exchange Rates

- Amendment to Ind AS 28 - Investment in Associates and Joint Ventures

- Amendment to Ind AS 112 - Disclosure of Interests in Other Entities

- Amendment to Ind AS 40 - Investment property

- Amendment to Ind AS 20 - Accounting for Government Grant and Disclosure of Government assistance

The company had to change its accounting policies following the adoption of Ind AS - 115. Most of the above amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current and future periods.

3. Significant Judgements and Key sources of Estimation in applying Accounting Policies

Information about significant judgements and key sources of estimation made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:

a) Recognition of Deferred Tax Assets: The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Company’s future taxable income against which the deferred tax assets can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits.

b) Useful lives of depreciable/ amortisable assets (property, plant and equipment and intangible assets): Management reviews its estimate of the useful lives of depreciable/ amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to actual normal wear and tear that may change the utility of plant and equipment.

c) Classification of Leases: The Company enters into leasing arrangements for various assets. The classification of the leasing arrangement as a finance lease or operating lease is based on an assessment of several factors, including, but not limited to, transfer of ownership of leased asset at end of lease term, lessee’s option to purchase and estimated certainty of exercise of such option, proportion of lease term to the asset’s economic life, proportion of present value of minimum lease payments to fair value of leased asset and extent of specialized nature of the leased asset.

d) Defined Benefit Obligation (DBO): Employee benefit obligations are measured on the basis of actuarial assumptions which include mortality and withdrawal rates as well as assumptions concerning future developments in discount rates, medical cost trends, anticipation of future salary increases and the inflation rate. The Company considers that the assumptions used to measure its obligations are appropriate. However, any changes in these assumptions may have a material impact on the resulting calculations.

e) Provisions and Contingencies: The assessments undertaken in recognising provisions and contingencies have been made in accordance with Indian Accounting Standards (Ind AS) 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The evaluation of the likelihood of the contingent events is applied best judgement by management regarding the probability of exposure to potential loss.

f) Impairment of Financial Assets: The Company reviews its carrying value of investments carried at amortised cost annually, or more frequently when there is indication of impairment. If recoverable amount is less than its carrying amount, the impairment loss is accounted for.

g) Allowances for Doubtful Debts: The Company makes allowances for doubtful debts through appropriate estimations of irrecoverable amount. The identification of doubtful debts requires use of judgment and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debts expenses in the period in which such estimate has been changed.

h) Fair value measurement of financial Instruments: When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model. The input to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility.

Notes :

1) Refer Note - 22 & 27 for information on property, plant and equipment pledged as security by the Company.

2) Refer Note - 43.2 for disclosure on contractual commitment for acquisition of property, plant and equipment.

3) Refer Note - 50.2 for disclosure of future minimum lease payments and their present value in respect of property, plant and equipment taken under finance lease.

4) Based on the valuation report by a Chartered Engineer, an external valuer, freehold land having original cost of Rs. 3.11 was revalued in the years ended 31st March, 1997, 31st March, 2003, 31st March, 2008, 31st March, 2016 and the resultant increase was Rs. 1,548.11, ‘1,630.64, Rs. 3,075.24 and Rs. 3,390.16 respectively. Freehold land has further been revalued at Rs. 16,990.92 on 31st March, 2019, resulting in increase in the net book value of the said asset by Rs. 7,343.66 with a corresponding credit to the revaluation surplus.

The above fair value has been arrived on the basis of valuation performed by an external independent valuer having appropriate professional qualification and recent experience in the valuation of properties in relevant location.

(iv) Estimation of fair value

The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Company considers information from a variety of sources including current prices in an active market for properties of different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences.

1) There are no amount receivable from directors and officers of the Company either severally or jointly with any other person. Further, no amount is receivable from firms or private companies respectively in which any director is a partner or a director or a member.

2) Refer Note - 22 & 27 for information on hypothecation of trade receivables.

3) Refer Note - 54.3(a)(i) for disclosure on credit risk.

* Under lien Rs. 771.64 (31st March, 2018 Rs. 17.94) towards margin money and/or security against borrowings.

Fixed deposit accounts with maturity of more than 12 months amounting to Rs. 266.66 (31st March, 2018 Rs. 200.29) being non-current has been shown under the head other financial assets (non-current ) (Refer Note 10).

*Amount paid “Under Protest” pursuant to the final order dated 16th March, 2010 of the Tribunal against which an appeal is pending before the Hon’ble Supreme Court.

There are no outstanding debts from directors or other officers of the Company either severally or jointly with any other person. Further, no amount is receivable from firms or private companies respectively in which any director is a partner or a director or a member.

b) Terms/ rights attached to ordinary shares :

The Company has only one class of ordinary shares having a par value of Rs. 10/- per share. Each holder of ordinary shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupee. The dividend proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of ordinary shares will be entitled to receive remaining assets of the Company. The distribution will be in proportion to the number of ordinary shares held by the shareholders.

As per records of the Company, including its register of shareholders / members as on 31st March, 2019, the above shareholding represents legal ownership of shares.

e) The Company has issued and allotted 21,55,625 bonus ordinary shares in the ratio of 1 (one) fully paid-up bonus ordinary share of the face value of Rs. 10/- each for every existing 2 (two) fully paid-up ordinary shares of the face value of Rs. 10/- each held by the members as on 30th August, 2018, the Record Date by capitalization of a sum of Rs. 215.56 from and out of General Reserve of the Company as approved by the members at the annual general meeting held on 10th August, 2018.

f) The Company has bought back 2,00,000 ordinary shares during the financial year 2017-18.

g) No ordinary shares have been reserved for issue under options and contracts/ commitments for the sale of shares/ disinvestment as at the Balance Sheet date.

h) No securities convertible into equity/ preference shares have been issued by the Company during the year.

i) No calls are unpaid by any director or officer of the Company during the year.

Nature and purpose of other reserves Capital reserve

Capital reserve represents capital profits appropriated as per erstwhile Companies Act, 1956 arising on sale of fixed assets during the year ended 30th November, 1985 and 31st March, 1992. This reserve can be utilized in accordance with the provisions of the Companies Act, 2013.

Securities premium

Securities premium represents the premium received on issue of shares. This reserve had been utilised in accordance with the provisions of the Companies Act, 2013 in the previous year.

General reserve

General Reserve represents the reserve created through annual transfer of net profit at a specified percentage in accordance with the provisions of the erstwhile Companies Act, 1956. Consequent to the introduction of the Companies Act, 2013, the requirement to mandatory transfer a specified percentage of net profit to general reserve has been withdrawn, though the Company may voluntarily transfer such percentage of its profits for the financial year, as it may consider appropriate. This reserve can be utilized in accordance with the provisions of the Companies Act, 2013.

Capital redemption reserve

Capital redemption reserve represents the reserve created during the year ended 30th November, 1981 as a result of redemption of cumulative preference share capital of the Company. Further, the Company has recognised capital redemption reserve on buyback of ordinary shares from the General reserve during financial year ended 31st March, 2018 with the nominal amount of the ordinary shares bought back as per the applicable provisions of the Companies Act, 2013. This reserve can be utilized in accordance with the provisions of the Companies Act, 2013.

Special economic zone re-investment reserve account

Special economic zone re-investment reserve account has been created out of the profit of SEZ unit in terms of the provisions of Section 10AA of the Income Tax Act, 1961. This reserve can be utilised by the Company as per the provisions of Section 10AA of the Income Tax Act, 1961.

Retained earnings

This reserve represents the cumulative profits of the Company after appropriation. This reserve can be utilized in accordance with the provisions of the Companies Act, 2013.

Other comprehensive income reserve

Equity instrument through other comprehensive income

This represents the cumulative gains and losses arising on the fair valuation of equity instruments measured at fair value through other comprehensive income net of tax and amounts reclassified to retained earnings.

Debt instrument through other comprehensive income

This represents the cumulative gains and losses arising on the fair valuation of debt instruments measured at fair value through other comprehensive income net of tax and amounts reclassified to statement of profit and loss.

Revaluation surplus

Revaluation surplus represents the revaluation gain, net of deferred tax, on upward valuation of freehold land. Remeasurement of defined benefit plans

Remeasurement of defined benefit plans comprises actuarial gains and losses and return on plan asset (excluding interest income) which are recognised in other comprehensive income and then immediately transferred to retained earnings.

a) Loan from Export Import Bank of India is secured by hypothecation of all movable fixed assets on first charge basis and all current assets on second charge basis and by mortgage of specific immovable properties both present and future by deposit of title deeds on first charge basis.

b) Outstanding amount including current maturities of loan taken from Export Import Bank of India is repayable in 17 equal quarterly installments of Rs. 3.70 each by April, 2023. Rate of interest is LTMLR plus 1% p.a, effective rate @ 10.30% p.a. (31st March, 2018 : 10.00% p.a.)

c) Loan from State Bank of India is against lien on fixed deposit.

d) Outstanding amount including current maturities of loan taken from State Bank of India is repayable in 18 equal monthly installments of Rs. 1.25 each by September, 2020. Rate of interest is 10.25% p.a. (31st March, 2018 : 10.25% p.a.)

e) No loans have been guaranteed by the directors of the Company.

f) There is no default as on the balance sheet date in the repayment of borrowings and interest thereon.

* Excludes Rs. 46.75 (F.Y. 2017-18 Rs. 66.27) being income tax on defined benefit obligation considered as current tax.

Deferred tax assets and deferred tax liabilities have been offset wherever the Company has a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred tax assets and deferred tax liabilities relate to income tax levied by the same taxation authority.

Terms & conditions :

a) Cash credit are secured by hypothecation of stocks, book debts and certain other assets on first charge basis and all movable fixed assets on second charge basis and by mortgage of specific immovable properties both present and future by deposit of title deeds, subject to prior charge created in favour of Export Import Bank of India.

b) Cash credit are repayable on demand and carries interest @ MCLR plus 1.25% p.a., effective rate @ 9.40 % p.a. on the date of liquidation (31st March, 2018: 9.40 % p.a.)

c) No loans have been guaranteed by the directors and others.

d) There is no default as on the balance sheet date in the repayment of borrowings and interest thereon.

e) As on the balance sheet date, i.e. 31st March, 2019, the cash credit account carries favourable balance and is included under cash and cash equivalents (Refer Note - 16). The Company has requested for closure of cash credit facility by repayment of outstanding balance and necessary formalities for satisfaction of charge, etc. are in process as at the balance sheet date.

* No amounts are due and outstanding to be credited to Investor Education and Protection Fund.

# Includes outstanding dues of directors and officers of the Company of Rs. 551.50 (31st March, 2018 Rs. 587.80). @ Includes outstanding dues of officer of the Company of Rs. 1.62 (31st March, 2018 ‘ Nil).

Provision for contingency represents estimates made mainly for probable claim arising out of dispute in respect of indirect tax pending before the Hon’ble Supreme Court. The probability and timing of the outflow with regard to interest depends on the ultimate settlement / conclusion.

*includes jute manufacturing cess recovered ‘ Nil (F.Y. 2017-18 Rs. 53.07 till 30th June, 2017) since consequent to the introduction of Goods and Service Tax (GST) effective from 1st July, 2017, sales are recorded net of GST whereas earlier sales were recorded gross of jute manufacturing cess which formed part of other expenses. Hence, related figures for the year ended 31st March, 2019 are not comparable with corresponding figures of the previous year.

4. CONTINGENT LIABILITIES & COMMITMENTS (TO THE EXTENT NOT PROVIDED FOR)

4.1 Contingent Liabilities :

a) Claims against the Company not acknowledged as debts :

b) Customs, Excise & Service Tax Appellate Tribunal (“The Tribunal”) vide its order dated 11th January, 2019 has issued the order in favour of the Company and hence the demand (including penalty) in relation to excise duty stands vacated. Further, the department vide its order dated 23rd April, 2019 has issued a refund order of Rs. 185.62 towards refund of amount pre-deposited against such demand along with interest amounting to Rs. 36.31.

5. DETAILS OF DUES TO MICRO ENTERPRISES AND SMALL ENTERPRISES AS DEFINED UNDER THE MSMED ACT, 2006 INCLUDED IN TRADE PAYABLES

Disclosure as required under the Micro, Small and Medium Enterprises Development Act, 2006, to the extent ascertained and as per notification number GSR 679 (E) dated 4th September, 2015

This information has been determined to the extent such parties have been identified on the basis of information available with the Company.

A amount below Rs. 500

6. DIVIDEND

The Board of Directors at its meeting held on 27th May, 2019 have recommended a payment of dividend of Rs. 1/- per ordinary share of face value of Rs. 10/- each for the financial year ended 31st March, 2019 (31st March 2018 Rs. 1/- per ordinary share). The same amounts to Rs. 77.96 including dividend distribution tax of Rs. 13.29 (31st March 2018 Rs. 51.97 including dividend distribution tax of Rs. 8.86).

The above is subject to approval at the ensuing Annual General Meeting of the Company and hence is not recognized as a liability.

7. DISCLOSURE PURSUANT TO INDIAN ACCOUNTING STANDARD - 19 ‘EMPLOYEE BENEFITS’ AS NOTIFIED U/S 133 OF THE COMPANIES ACT, 2013

7.1 Defined Contribution Plans:

The Company has during the year recognised an expense of Rs. 583.26 (F.Y. 2017-18 Rs. 588.96) towards defined contribution plans.

Out of the total contribution, made for employees’ provident fund, a sum of Rs. 88.43 (F.Y. 2017-18 Rs. 87.76) has been made to Cheviot Company Limited Employees’ Provident Fund while the remaining contribution has been made to the provident fund plan operated by the Regional Provident Fund Commissioner. Further, considering the past track and fair value of the plan assets of the Trust, the Company does not envisage any shortfall in liability towards the interest payable by the Trust at the notified interest rate.

7.2 Defined Benefit Plans:

Gratuity Plan

This is a funded defined benefit plan for qualifying employees. The Company makes contributions to the Cheviot Company Limited Employees’ Gratuity Trust Fund. Gratuity is payable to all eligible employees of the Company on superannuation, death, permanent disablement and on resignation/termination of employment in terms of the provisions of the Payment of Gratuity Act or as per the Company’s rule, whichever is more beneficial to the employee.

a) Risk Exposure

Defined benefit plans expose the Company to actuarial risks such as: Interest rate risk, Salary risk and

Demographic risk.

i) Interest rate risk: The defined benefit obligation calculated uses a discount rate based on government bonds. If the bond yield falls, the defined benefit obligation will tend to increase.

ii) Salary risk: Higher than expected increase in salary will increase the defined benefit obligation.

iii) Demographic risk: This is the risk of variability of results due to unsystematic nature of decrements that includes mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefits obligations is not straight forward and depends on 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 the short service employee typically costs less per year as compared to a long service employee.

i) The estimates of future salary increase considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

j) At 31st March 2019, the weighted average duration of the defined benefit obligation was 5.19 years (31st March, 2018 6.18 years). The distribution of the timing of benefits payment i.e., the maturity analysis of the benefit payments is as follows:

k) The Company expects to contribute ‘ Nil to its gratuity fund in F.Y. 2019-20.

l) Sensitivity analysis

The sensitivity analysis below have been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation to the amounts shown below:

8. SEGMENT REPORTING

8.1 Segment Information

Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision maker (CODM). The Chief Executive Officer of the Company being the CODM, assesses the financial performance and position of the Company and makes strategic decisions. The CODM primarily uses earnings before interest, tax, depreciation and amortisation (EBITDA) as performance measure to assess the performance of the operating segments. However, the CODM also receives information about the segment revenues, segment assets and segment liabilities on regular basis.

8.2 Description of Segment

The Company is engaged in a single business segment i.e. manufacturing and sale of jute goods. Hence, disclosure requirements as required by Ind AS -108 are not applicable in respect of business segment.

8.3 The geographical segments considered for disclosure are as under :

*Non-current assets other than financial instruments include property, plant and equipment, capital work-in-progress, investment property, other intangible assets, non-current tax assets (net) and other non-current assets.

8.4 Extent of reliance on major customer

Revenue from government agencies amounting to Rs. 21,465.00 (56.03% of total revenue); F.Y. 2017-18 Rs. 18,676.14 (50.96% of total revenue) has arisen on sale of jute bags within India.

9. DISCLOSURES PURSUANT TO IND AS - 115

9.1 Nature of goods and services : The Company is engaged in the manufacturing and sale of jute products and the same is only reportable segment of the Company.

9.2 Disaggregation of revenue : In the following table, revenue is disaggregated by primary geographical market, major products lines and timing of revenue recognition, etc :

C. The company recognises revenue at a point in time. The contract with customers are of short term duration and all sales are direct to customers.

9.3 Contract balances : The following table provides information about receivables, contract assets and contract liabilities from contract with customers :

9.4 The Company has consistently applied the accounting policies to all periods presented in these financial statements. The Company has adopted Ind AS 115, “Revenue from Contracts with Customers’’ with a date of initial application of 1st April, 2018. As a result, the Company has changed its accounting policy for revenue recognition. The Company has adopted modified retrospective approach and had applied Ind AS 115 only retrospectively to the current period by recognizing the cumulative effect of initially applying Ind AS-115 as an adjustment to the opening balance of retained earnings at the date of initial application i.e. 1st April, 2018. Under the modified retrospective method, the comparative information in the financial statement is not restated and would be presented based on the requirements of the previous standards (e.g. Ind AS-18 / Ind AS-11). However there is no impact on financial statements with respect to change in accounting policy.

10. LEASES

10.1 Operating lease commitments - Company as lessee

The Company has entered into operating lease for factory land at Falta. The said lease is under renewal process as it has expired in July, 2017. Thus, the required disclosures under operating lease for lease rentals payable within one year, one year to five years and five years and above could not been made.

The Company has paid Rs. 38.21 during the year (F.Y. 2017-18 Rs. 33.88) towards minimum lease payments.

10.2 Finance lease obligation

The Company has entered into finance lease arrangements in respect of land for terms ranging up to 99 years. The legal title to such lands vests with the respective lessors. There are no restrictions imposed by lease arrangements.

The Company has finance lease contracts and the obligation under finance lease are secured by the lessor’s title to the leased assets.

Future minimum lease payments (MLP) under finance lease contracts together with the present value of the net minimum lease payments in respect of Residential Land at Falta are as under:

11. RELATED PARTY DISCLOSURES PURSUANT TO IND AS - 24

11.1 List of relationships:

a) Holding Company

Harsh Investments Private Limited (HIPL)

b) Key Management Personnel

Mr. Harsh Vardhan Kanoria, Chairman & Managing Director, Chief Executive Officer Mr. Utkarsh Kanoria, Wholetime Director (w.e.f. 24th May, 2017)

Mr. Nawal Kishore Kejriwal, Wholetime Director

Mrs. Malati Kanoria , Non-executive Director

Mr. Navin Nayar, Independent Director

Mr. Padam Kumar Khaitan, Independent Director

Mr. Parag Keshar Bhattacharjee, Independent Director

Mr. Sushil Kumar Dhandhania, Independent Director

c) Relatives of Key Management Personnel

Mr. Utkarsh Kanoria ( Son of Mr. Harsh Vardhan Kanoria)

Mrs. Bimla Kejriwal ( Wife of Mr. Nawal Kishore Kejriwal )

d) Entities over which Key Management Personnel and relatives of Key Management Personnel have significant influence

Cheviot International Limited (CIL)

Cheviot Agro Industries Private Limited (CAIPL)

Abhyadoot Finance and Investments Private Limited (AFIPL)

Bright & Shine Micro Products Private Limited (BSMPPL)

Jan Priya Trust

Shashvat Foundation

Cheviot Foundation

e) Post-employment benefit plan entities

Cheviot Company Limited Employees’ Provident Fund Cheviot Company Limited Employees’ Gratuity Trust Fund

12. CAPITAL MANAGEMENT

The Company’s objective is to maintain a strong capital base to ensure sustained growth in business. The capital management focuses to maintain an optimal structure that balances growth and maximizes shareholder value.

The Company is predominantly equity financed. Further, the Company has sufficient cash, cash equivalents, current investments and financial assets which are liquid to meet the debts.

13. DISCLOSURE ON FINANCIAL INSTRUMENT

This section gives an overview of the significance of financial instruments for the Company and provides additional information on balance sheet items that contain financial instruments.

The details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 3.11 to the financial statements.

The management has assessed that the fair values of cash and cash equivalents, trade receivables, trade payables, short term borrowings, and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The management has assessed that the fair value of floating rate instruments approximate their carrying value.

13.1 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. The mutual fund / alternative investment fund are valued using the closing net asset value.

Level 2: Inputs other than quoted price included 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 market approach and 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. The fair value of all bonds which are not actively traded in the stock exchanges is valued using the closing price or dealer quotations as at the reporting date. Derivatives are valued using valuation techniques with market observable inputs such as foreign exchange spot rates and forward rates at the end of the reporting period.

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 inputs being the discount rate that reflects the credit risk of counterparty. The fair value of short-term financial assets and liabilities is considered to be approximately equal to its carrying value due to their short term nature. Costs of unquoted equity instruments has been considered as an appropriate estimate of fair value where most recent information to measure fair value is insufficient or if there is a wide range of possible fair value measurements.

There were no transfers between Level 1 and Level 2 during the year.

* investment in preference shares is net of impairment.

13.2 Financial Risk Management

The Company has a risk management policy which covers risk associated with the financial assets and liabilities. The risk management policy is approved by the Directors. The different types of risk impacting the fair value of financial instruments are as below:

a) Credit risk

The credit risk is the risk of financial loss arising from counterparty failing to discharge an obligation. The credit risk is controlled by analysing credit limits and credit worthiness of customers on continuous basis to whom the credit has been granted, after obtaining necessary approvals for credit.

i) Trade receivable

Customer credit risk is managed by the Company subject to Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored and major customers are generally from government agencies and in respect of export debtors, terms of shipment is either cash against document or 100% advance against proof of shipments or backed by letter of credit / ECGC coverage. Thus, based on past trends, the company does not foresee any losses in expected credit loss (ECL). The maximum exposure to credit risk at the reporting date is the carrying value of trade receivable disclosed in Note - 15.

ii) Financial instrument and cash deposit

Credit risk is limited as the Company generally invest in deposits with banks and in bonds of companies having high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investments in debentures, bonds, preference shares and mutual fund units. Counterparty credit limits are reviewed by the Company periodically and the limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.

b) Liquidity risk

Liquidity risk is the risk that the Company may not be able to meet its financial obligations as they become due.

The Company monitors its risk by determining its liquidity requirement in the short, medium and long term. This is done by drawing up cash forecast for short term and long term needs. The Company manages its liquidity risk in a manner so as to meet its normal financial obligations without any significant delay or stress. Such risk is managed through ensuring operational cash flow while at the same time maintaining adequate cash and cash equivalent position. The management has arranged for diversified funding sources and adopted a policy of managing assets with liquidity monitoring future cash flow and liquidity on a regular basis. Surplus funds not immediately required are invested in certain mutual funds and fixed deposit which provide flexibility to liquidate. Besides, it generally has certain undrawn credit facilities which can be used as and when required; such credit facilities are reviewed at regular basis.

i) Maturity analysis for financial liabilities

The following are the remaining contractual maturities of financial liabilities at the reporting date -

c) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of following risk: interest rate risk, foreign currency risk, other price risk . Financial instruments affected by market risk include borrowings, trade receivable and trade payable.

i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market interest rates.

The Company is exposed to risk due to interest rate fluctuation on its non-current and current borrowings with floating interest rate. Interest rate risk is determined by current market interest rates, projected debt servicing capability and view on future interest rate. Such interest rate risk is actively evaluated and is managed through portfolio diversification and exercise of prepayment/ refinancing options, where considered necessary.

Interest rate sensitivity has been calculated assuming the borrowings outstanding at the reporting date have been outstanding for the entire reporting period and all other variables remain constant.

ii) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company has significant foreign currency exposure. To mitigate this risk, foreign exchange exposure against exports are partly hedged by entering into forward contract.

a) Exposure to foreign currency risk

The Company’s exposure to foreign currency risk at the end of the reporting period are as follows:

b) Sensitivity analysis

The analysis is based on assumption that the increase/decrease in foreign currency by 5% with all other variables held constant, on the unhedged foreign currency exposure would have following impact on profit before tax and other equity -

iii) Other price risk

The Company’s exposure to securities price risk arises from investments held by the Company and classified in the balance sheet either at fair value through OCI or at fair value through profit and loss. Having regard to the nature of securities, intrinsic worth, intent and long term nature of securities held by the Company, fluctuation in their prices are considered acceptable and do not warrant any management.

b) Sensitivity analysis

The analysis is based on assumption that the increase/decrease by 5% with all other variables held constant would have following impact on profit before tax, other comprehensive income and other equity -

14. Previous year’s figures have been reclassified/regrouped to conform the current year’s presentation.

Source : Dion Global Solutions Limited
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