1. Company Overview
Goodricke Group Limited is engaged in the manufacture and cultivation of tea. The Company operates within 18 tea estates spread across West Bengal and Assam and sells bulk tea both in domestic and international markets. The Company also produces Instant Tea at its plant located in Dooars, West Bengal primarily for the international market and has got a strong presence in Packet Tea domestic market through its various Brands. The Company is listed on the Bombay Stock Exchange (BSE).
2. Statement of Compliance
These financial statements, for the year ended 31st March 2019, have been prepared in accordance with Indian Accounting Standards (Ind ASs) notified under the Companies (Indian Accounting Standards) Rules, 2015 as amended by the Companies (Indian Accounting Standards) (Amendment) Rules 2016. The Company adopted Ind AS from 1st April, 2016.
3. Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimating uncertainty as at the balance sheet date that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
A. Useful lives of Property, Plant and Equipment
The Company has adopted the useful lives as specified in Schedule II of the Companies Act, 2013 for Property, Plant and Equipment other than for bearer plants. For bearer plants, it has determined the useful life to be 46 years. The Company reviews the estimated useful lives at the end of each reporting period. Such useful lives depend upon various factors such as usage, maintenance practices etc. and can involve estimation uncertainty. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised. The carrying amount of the Company’s Property, Plant and Equipment at the balance sheet date is disclosed in Note 5A to the financial statements.
B. Impairment of Property, Plant and Equipment
An impairment exists when the carrying value of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing the asset. The value in use calculation is based on a discounted cash flow model and requires the Company to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
C. Fair value measurements and valuation processes
Some of the Company’s assets are measured at fair value for financial reporting purposes. Significant estimates are used in fair valuation of agricultural produce(harvested green leaves)and biological assets (unharvested green leaves).
For harvested or unharvested green leaves, since there is no active market, the fair value is arrived at based on the observable market prices of made tea adjusted for manufacturing costs and plucking costs, as applicable.
D. Employee Defined Benefit Plans
The determination of Company’s liability towards defined benefit obligations to employees is made through independent actuarial valuation including determination of amounts to be recognised in the income statement and in the other comprehensive income. Such valuation depend upon assumptions determined after taking into account inflation, promotion and other relevant factors such as supply and demand factors in the employment market. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.
The cost of inventories recognised as an expense is Rs. 6461.72 Millions (during 2017-18: Rs. 6235.06 Millions) and includes Rs. 14.29 Millions (during 2017-2018: Rs 13.69 Millions) in respect of writedowns of inventory to net realisable value.
* Includes Rs 0.32 Millions acquired on account of business combination (Refer Note 30.8). These are lying in banks accounts in the name of Mcleod Russel India Limited, yet to be transferred in the name of the company.
AIncludes Rs 1.65 millions acquired on account of business combination. Refer Note 30.8
C) Rights, preferences and restrictions attached to the Equity Shares
The Company has only one class of shares referred to as Equity shares having a par value of Rs. 10 per share. Each Shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the Shareholders in the ensuing Annual General Meeting. In the event of liquidation, the Equity Shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.
(i) Represents term loans from Lebong Investments Private Limited (Fellow subsidiary company) -
(a) Rs 135.00 millions (31st March 2018 : Rs 171 millions), at interest rate of 8% p.a., repayable in 15 quarterly instalments of Rs. 0.90 millions from the Balance Sheet date(b) Rs 17.00 millions (31st March 2018 : Rs 20 Millions), at interest rate of 8% p.a., repayable in 17 quarterly instalments of Rs. 0.10 millions from the Balance Sheet date(c) Rs. 175.00 millions (31st March 2018 : Rs Nil), at interest rate of 9% p.a., repayable in 56 quarterly instalments of Rs 3.13 millions from June 2020
(ii) Represents term loan from Axis Bank taken during the year, secured by first charge on the entire property, plant and equipment of Harchurah Tea Estate both movables and immovables. This is payable in 32 equal quarterly installments of Rs 3.12 Millions each starting from June 2020 at interest rate linked to the bank’s base lending rate.
B. Amount Recognised in Other Comprehensive Income
The tax (charge) / credit arising on income and expenses recognised in other comprehensive income is as follows:
C. Reconciliation of effective tax rate
The income tax expense for the year can be reconciled to the accounting profit as follows:
The tax rate used above for the year 2018-19 and 2017-18 is the corporate tax rate payable on taxable profits under the Income Tax Act, 1961.
*The Company’s agricultural income is subject to lower tax rates @ 30% under the respective state tax laws.
4. Additional Notes to the Financial Statements
4.1 Contingent liabilities and commitments :
(a) Contingent liabilities
(i) Claims against the Company not acknowledged as debts:
Income-tax matters relates to amounts disputed by the Company in relation to issues of disallowances / additions in computing total income under Income-tax Act, 1961.
Central Excise, Sales Tax and Entry Tax matters 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
(ii) 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 for such transfer does not apply to the Company.The matter is subjudice at present. Pending resolution of the same and on the basis of the intimation received from Government of West Bengal, Land & Land Reforms and R.R. & R Department, during the year, the Company has agreed to deposit the salami amount in an agreed manner in order to allow the normal functioning of the estates without prejudice to the Company’s stand on applicability of such salami .The sum in dispute stands atRs. 121.21Millions (2018 - Rs. 121.21Millions) as on date.In the event Company’s position on Salami is upheld by the court, the sums agreed to be paid by way of deposit will be refunded to the company.
(b) Commitments
Estimated amount of contracts remaining to be executed on capital accounts and not provided for Rs.15.18 Millions (2018 - Rs.16.71 Millions).
4.3 Research and Development expenses for the year charged to revenue amounts to Rs.14.42 Millions (2018 - Rs. 15.24 Millions).
4.4 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.
(a) Gross amount required to be spent by the Company during the year is Rs. 6.72 Millions (2018 Rs.5.39 Millions)
(b) Amount spent during the year is Rs. 6.73 Millions (2018 Rs.5.44 Millions)
4.5 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 recognised funds maintained by the Company and for certain employees’ contributions are made to State Plans.
An amount of Rs. 178.18 Millions (2018 - Rs. 155.69 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 post-retirement 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-
(a) 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
(b) Salary inflation risk: Higher than expected increases in salary will increase the defined benefit obligation
(c) 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.
The current service cost and net interest expense for the year pertaining to Gratuity, Pension and Provident Fund have been recognised in “Contribution to Provident and other funds” and Medical in “Workmen & Staff welfare expenses” under Note 26. The re-measurements of the net defined benefit liability are included in Other Comprehensive Income in Statement of Profit and Loss.
The estimates of future salary increase considered in the actuarial valuation takes into account factors like inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.
IX. 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 recognised in the balance sheet. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
4.6 There are no Micro, Small and Medium Enterprises to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31st March, 2019. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company.
4.7 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.
30.8 Business Combination:
On 30 March 2019, the Company entered into an agreement with Mcleod Russell India Limited (‘acquiree’), a listed company based in Kolkata to acquire the estates & bearer plants and specified assets comprised in its Harchurah Tea Estate, in exchange for cash consideration. The acquisition is in line with the overall strategy adopted by the Company to scale up the operations in Assam. The
Company accepted control and started its operations in the said tea estate with effect from 1 February 2019 (‘the acquisition date’). The transfer of leasehold land is subject to approval of the Competent Authority of the Government of Assam.The aforesaid acquisition has been accounted for in the books of the Company under Indian Accounting Standard -103 “Business Combination”.
i. The Business Combination accounting resulted in the following fair values being allocated to the identifiable assets and liabilities of the Company at the acquisition date
ii. Acquisition-related costs amounting to Rs.0.79 millions have been excluded from the consideration transferred and have been recognised as an expense in Statement of Profit and Loss in the current year, within the ‘Other expenses’ line item in Note 28.
iii. Included in the profit for the year is loss of Rs. 7.55millions loss attributable to Harchurah estate acquired. Revenue for the year includes Rs. Nil in respect of same.
5. Segment Information
5.1 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.
5.2 The Company deals in only one product i.e., Tea. The products and their applications are homogenous in nature.
5.3 Geographical Information
* excludes financial assets, deferred tax assets, post-employment benefit assets.
5.4 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.
6. Related Party Disclosures 1. Parent information
Western Dooars Investment Limited and Assam Dooars Investment Limited together hold 74% of the Equity Share Capital of the Company. Camellia Plc is the ultimate holding company.
2 Key Managerial Personnel (KMP):
Atul Asthana - Managing Director and CEO*
Arun Narain Singh - Managing Director and CEOA Arjun Sengupta- Wholetime Director and CFO Subrata Banerjee- Company Secretary
*w.e.f. 01.04.2018. Whole time director and COO w.e.f 01.06.2017 till 31.03.2018 Atill 31.03.2018.
3 Other related parties with whom transactions have taken place during the year:
a) Fellow Subsidiary Companies:
Stewart Holl (India) Limited Amgoorie India Limited
Koomber Properties & Leasing Company Private Limited Goodricke Technical & Management Services Limited Koomber Tea Company Private Limited Lebong Investments Private Limited
b) 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
^Remuneration includes salary, performance bonus, allowances & other benefits / applicable perquisites except contribution to the Gratuity Funds which are actuarially determined on an overall Company basis. The term ‘remuneration’ has the meaning assigned to it under the Companies Act, 2013.
Refer Note 30.5 for transactions with post employment benefit plans
7. Financial Instruments and Related Disclosures
1. Capital Management
The Company aims at maintaining a strong capital base, maximising shareholders’ wealth, safeguarding business continuity and augments its internal generations with a judicious use of borrowing facilities to fund spikes in working capital that arise from time to time as well as requirements to finance business growth.The Company determines the capital management requirement based on annual operating plans and long term and other strategic investment plans. The funding requirement are met through equity, borrowings and operating cash flows.
The Company’s Debt to Equity ratio at 31st March 2019 was as follows:
2. Categories of Financial Instruments
3. 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.
a) 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.
i. 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 recognised 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 on account of outstanding foreign currency denominated assets and liabilities is insignificant.
ii. 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 minimise 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 which are taken and squared off during the year. 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
The table below shows the sensitivity of the Company’s profitability related to change in rate of borrowings by 100 basis points on loans outstanding as at 31st March, 2019.
The above impact is based on only on change in interest rate, keeping all other business factors constant
iii. 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, 2019 is Rs Nil (2018 - Rs. Nil).
Investments in the mutual fund schemes are measured at fair value. Accordingly, these do not pose any significant price risk.
b) 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.
c) Credit risk
Credit risk is the risk that counterparty 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 of credit or on advance basis. There is no significant financing component involved.
The movement of the expected loss provision made by the Company are as under:
4. 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 maximise 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 inputs 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 recognised in the financial statements approximate their fair value as on 31st March, 2019 and 31st March, 2018.
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.
8. Fair value measurements for biological assets other than bearer plants:
The following table gives the information about how the fair value of the biological assets are determined:
9. 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 modernisation are some of the measures taken by the management to mitigate the risks.
10. The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards)
(Amendment) Rules, 2019 on 30th March, 2019:
- notifying Ind AS 116, ‘Leases’ and
- amending Ind AS 12 ‘Income Taxes’ and Ind AS 19 ‘Employee Benefits’.
The same are applicable for financial statements pertaining to annual periods beginning on or after 1st April, 2019. The Company is in the process of assessing the detailed impact on the financial statements resulting from the implementation of these standards/amendments.
11. Effective 1st April, 2018 the Company adopted Ind AS 115 “Revenue from Contracts with Customers” using the cumulative catch-up transition method. The effect on adoption of the Standard was not material.
12. The financial statements were approved for issue by the Board of Directors on 24thMay, 2019.
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