1. General information
DIC India Limited (‘DIC’ or ‘the Company’) [CIN: L24223WB1947PLC015202] is a public limited company incorporated on April 02, 1947. The Company is a subsidiary of DIC Asia Pacific Pte Limited, Singapore and the ultimate holding Company is DIC Corporation, Japan. The Company is listed on Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange(CSE). The Company is engaged in the business of manufacturing of printing inks, which covers newsprint ink, offset ink and liquid ink used in newspapers, other publications and packaging industries. The Company also provides lamination adhesive, synthetic resins, press room chemicals, and rubber blankets. The Company has four manufacturing plants one each at Kolkata (West Bengal), Noida (Uttar Pradesh), Ahmedabad (Gujarat) and Bangalore (Karnataka) and its registered office is situated at Kolkata, West Bengal, India.
The accompanying Indian Accounting Standards (Ind AS) (as amended) financial statements reflect the results ofthe activities undertaken by the Company during the year ended 31 December 2018.
2. Application of new and amended Ind AS
On 16 February 2015, the Ministry of Corporate Affairs (“MCA”) notified the Companies (Indian Accounting Standards) Rules, 2015. The rules specify the Indian Accounting Standards (Ind AS) applicable to certain class of companies and set out dates of applicability. The Company is required to apply the standards as specified in Companies (Indian Accounting Standards) Rules 2015 and accordingly, the Company has adopted Ind AS (as amended time to time) from annual period beginning from January 1,2018 with transition date as January 1,2017.
As at the date of authorisation ofthe financial statements, the Company has not applied the following Ind AS (as amended from time to time) that have been issued by MCA but are not yet effective:
(i) Ministry of Corporate affairs has notified Ind AS 115 - Revenue from Contract with Customers: On 28 March 2018, Ministry of Corporate Affairs has notified the Ind AS 115. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further, the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty ofrevenue and cash flows arising from the entity’s contracts with customers. The standard permits two possible methods oftransition:
- Retrospective approach- Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors.
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)
The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1,2018. The Company is evaluating the requirements of the amendment and its impact on the financial statements.
(ii) Appendix B to Ind AS 21, Foreign Currency Transactions and Advance Consideration:
On 28 March 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment is effective from 1 April 2018. These amendments are not expected to have material effect on Company’s financial statements.
(iii) Amendments to IndAS 12 - Recognition ofDeferredTaxAssets for Unrealised Losses.
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity ofthe earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. The Company is evaluating the requirements ofthe amendment and its impact on the financial statements.
(iv) Amendments to IndAS 40 - Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.
Entities should apply the amendments prospectively to changes in use that occur on or after the beginning ofthe annual reporting period in which the entity first applies the amendments.
An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IndAS 8 is only permitted if it is possible without the use of hindsight.
The amendments are effective for annual periods beginning on or after 1 April 2018. The Company do not have any investment property, therefore this amendment is not applicable to the Company.
(v) Amendments to Ind 112 Disclosure of Interests in Other Entities:
Clarification ofthe scope of disclosure requirements in IndAS 112
The amendments clarify that the disclosure requirements in IndAS 112, other than those in paragraphs B10B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. These amendments are not applicable to the Company.
(vi) IndAS 28 Investments in Associates and Joint Ventures Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice.
The amendments clarify that:
- An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment by- investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss.
- If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later ofthe date on which:
(a) the investment entity associate or joint venture is initially recognised;
(b) the associate or joint venture becomes an investment entity; and
(c) the investment entity associate or joint venture firstbecomes aparent.
The amendments should be applied retrospectively and are effective from 1 April 2018. The Company do not have any investment in associates and joint ventures, therefore this amendment is not applicable to the Company.
3. Critical accounting estimates and assumptions
In the application of the Company’s accounting policies, which are described in note 2, the management of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period ofthe revision and future periods if the revision affects both current and future periods.
3.1 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
a) Defined benefit plans
The cost ofthe defined benefit plan and the present value are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate, the management considers the interest rates of government bonds in the currencies of the postemployment benefit obligation.
The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
b) Useful life of Property, plant and equipment
Property, plant and equipment (asset) represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.
c) Impairment of Property, plant and equipment and Capital work in progress (CWIP)
The management of the Company reviewed the potential generation of economic benefit from property, plant and equipment & capital work in progress as per IndAS 36- Impairment of assets for its printing ink business. In view ofthe management, the net recoverable value (higher of discounted cash flow and net realisable value) of its ink business is more than it’s the carrying value and no impairment is required to be recognised under IndAS 36. Refer note 5.2 and 5.3 to the financials statements for details.
d) Taxes
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the losses can be utilised. In assessing the probability, the Company considers whether the entity has sufficient taxable temporary differences, which will result in taxable amounts against which the unused tax losses or unused tax credits can be utilised before they expire. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
In view of continuing losses, the Company is of view that it is no longer probable that sufficient taxable income will be available and hence brought forward deferred tax assets amounting to Rs 464.09 Lakhs as at December 31, 2017 has been charged off in books of account, as required under IND- AS 12 ‘Income Taxes’. Refer Note 8 for further details.
3.2 First-time Ind-AS adoption reconciliation
3.2.1 First-time adoption of Ind-AS
The Company has prepared the opening balance sheet as per Ind AS as on January 1,2017 (the transition date) by recognising all assets and liabilities whose recognition is required as per Ind AS and not recognising items of assets or liabilities which are not permitted as per Ind AS. Further, items from previous GAAP have been reclassified as per Ind AS and applying Ind AS in measurement of the recognised assets and liabilities. However, this principle is subject to the certain exception and certain optional exemptions availed by the Company as on the transition date.
3.2.2 Exceptions and Exemptions applied
Ind AS 101 allows first-time adopters certain exceptions and exemptions from the retrospective application of certain requirements under Ind AS.
For transition to Ind AS, the Company has applied the following exceptions:
(i) Impairment of financial assets
The Company has applied the impairment requirements of Ind AS 109 retrospectively. However, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised in order to compare it with the credit risk at the transition date. Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind ASs, whether there have been significant increases in credit risk since initial recognition, as permitted by Ind AS 101.
(ii) Derecognition of financial assets and financial liabilities
The Company has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after January 1,2017 (transition date).
(iii) Business combination
In accordance with Ind AS transitional provision, the Company opted not to restate business combination which occurred prior to the transition date.
(iv) Estimates
Estimates made under Ind AS at January 1, 2017 are consistent with the estimates as under previous GAAP.
(v) Classification and measurement of Financial Assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.
For transition to Ind AS, the Company has applied the following exemptions:
(i) Deemed cost for property, plant and equipment and intangible assets
The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as on January 1, 2017 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as on the transition date.
(ii) Arrangements containing a lease
Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has used Ind AS 101 exemption and assessed all arrangements based on conditions in place as at the date of transition.
3.2.7 Note on key reconciliation IndAS adjustments
1. Under previous GAAP, actuarial gain and losses were recognised in statement of profit and loss. Under Ind AS 19, the actuarial gains and losses from part of re-measurement of the net defined benefit obligation which are recognised in other Comprehensive Income. The change does not effect other equity. However, there is a decrease in employee benefit expenses for the year ended December 31,2017. The deferred tax on above has also been recognised to other comprehensive income.
2. As per exemption available under IndAS 101, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognised as on January 01, 2017 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as on the transition date. Also as per the previous GAAP, lease hold land was classified under fixed assets. Under Ind AS 17, as the ownership of the leasehold land at the end of the lease period does not pass on to the lessee or the upfront payment made at the time of obtaining lease does not equal to fair value of the leasehold land obtained, the upfront payments for the leasehold land is classified as prepayment instead of being classified under Property and Plant & Equipment. Consequently, lease hold prepayment net of accumulated depreciation as on December 31,2017 has been reversed and the corresponding amount has been taken under other non-current assets and other current assets. Also, depreciation for the year ended 31 December 2017 for leasehold land has been transferred to rent expenses.
3. Under previous GAAP, long term investment in cooperative society were measured at cost. The investment were made to purchase the flats. On the date of transition to IndAS, the value of investment has been added to the cost of building because the investment denotes the Company’s right to the flats and the Company has availed deemed cost exemption as stated in point 2 above. This change does not affect loss after tax for the year ended December 31, 2017 because the investment has been reclassified to Property plant and equipment.
4. Under Previous GAAP, the interest free lease security deposits are recognised at their transaction value. Under Ind AS 109, these deposits are initially recognised at fair value and subsequently measured at amortized cost at the end of each reporting date. Accordingly, the difference between the transaction and fair value of these security deposits is recognized as Deferred lease expense and is amortized over the period of the lease term (along with current and non- current classification). Further, interest is accreted on the present value ofthese security deposits.
5. Under previous GAAP, there was no concept of other comprehensive income. Under Ind AS, specified items of income, expense, gains, or losses are required to be presented in other comprehensive income.
6. Under the previous GAAP, excise duty on sale of goods was reduced from sales to present the revenue from operations. Whereas, under IndAS, this excise duty is included in the revenue from operations and the corresponding expense is included as apart of total expenses. The change does not affect total equity as at January 01,2017 and December 31, 2017, loss before tax or total loss for the year ended December 31,2017.
7. Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements was considered as an adjusting event. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend included under provisions has been reversed with corresponding adjustment to retained earnings.
8. Other equity as at transition date and as at 31 December 2017 has been adjusted consequent to the above IndAS adjustments.
9. Previous GAAP figures have been regrouped and reclassed based on the disclosure requirement under IndAS.
Note:
4.1 As per Ind-AS 101, the Company has elected to continue with the carrying value of all of its property, plant and equipment including CWIP recognised as of 1 January 2017 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as on the transition date. In consequence to adoption of deemed cost exemption as on transition date, the gross block ofthe fixed assets (excluding leasehold land) amounting to Rs. 18,934.42 Lakhs has been netted off with accumulated depreciation Rs.12,199.76 Lakhs.
4.2 During the previous year, consequent to losses incurred in adhesive division and after evaluation of the expected future performance of the division, the management had performed an impairment testing of property, plant and equipment and capital work-in-progress of the adhesive division and impaired the value of its property, plant and equipment and capital work-in-progress (Refer Note 5 for asset class-wise breakup) to the extent of Rs. 1161.66 Lakhs and capital work-in-progress to the extent of Rs.44.26 Lakhs. The same has been disclosed as an ‘Exceptional Item’ in the Statement of Profit and Loss. While recognising the impairment loss, the Company had considered its adhesive business division as a cash generating unit, in keeping with the accounting policy on Impairment set out in Note 3.12, and the value in use as the recoverable amount. The Company had used a discount rate of 12% for discounting future cash flows while estimating the value in use.
During the current year, the management has carried out an assessment of impaired adhesive division as per Ind AS 36-Impairment of assets. In view of the management, there is no change in the impairment indicators and accordingly management has continued with the impairment charge recorded in the previous year in respect of Adhesive division.
4.3 During the current year, the management has carried out an assessment as per IndAS 36- Impairment of assets for its printing ink business. In view of the management, the net recoverable value (higher of discounted cash flow and net realisable value) of its ink business is more than its the carrying value and no impairment is required to be recognised under IndAS 36.
Note
5.1 As per Ind-AS 101, the Company has elected to continue with the carrying value of all of its Intangible Assets recognised as of 1 January 2017 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date. In consequence to adoption of deemed cost exemption as on transition date, the gross block of the intangible assets amounting to Rs. 565.11 Lakhs has beennetted off with accumulated depreciation Rs. 516.59Lakhs.
Note:
In view of continuing losses, the Company is of view that it is no longer probable that sufficient taxable income will be available and hence brought forward deferred tax assets amounting to Rs 464.09 Lakhs as at December 31, 2017 has been charged off in books of account, as required under IND- AS 12 ‘Income Taxes’.
6.1 The cost of inventories recognised as an expense during the year in respect of operations was Rs.68,550.98 Lakhs (for the year ended December 31,2017: Rs. 57,576.06 Lakhs).
6.2 The cost of inventories recognised as an expense/ (income) includes Rs. 23.10 Lakhs in respect of write-downs of inventory to net realisable value and write back in December 2017 amounting to Rs. 5.57 Lakhs. The closing provision as atyearendis Rs. 64.56 Lakhs (December 2017: Rs. 41.46 Lakhs). Previous write-downs have been reversed as a result of increased sales prices in certain markets.
11.3 The mode of valuation of inventories has been stated in note 3.13.
7.1 The average credit period on sales of goods is 30 to 120 days. No interest is charged on the trade receivables for the amount overdue above the credit period. There are no customers who represent more than 5% of the total balance oftrade receivables.
7.2 The Company assesses the potential customer’s credit quality and defines credit limits customer wise.
7.3 The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due. For computation of expected credit loss allowance, the Company excludes intercompany balances and trade receivables which are secured by dealer deposits. Based on internal assessment which is driven by the historical experience and current facts available in relation to default and delays in collection thereof, the credit risk for these trade receivables is considered low. The provision matrix at the end ofthe reporting period is as follows:
(i) The Company entered into a Memorandum of understanding (MOU) cum agreement including a related addendum thereto, to sell its freehold land at Mumbai which was previously used for Company’s ink operations. As at 31 December, 2018, the Company has received as per MOU, an advance of Rs 5,740.00 lakhs from the buyer (Refer note 23) and paid Rs 2,025.08 lakhs on behalf of buyer (Refer note 14). Pending completion ofthe transaction relating to sale of Land at Mumbai, the Company is entitled to claim interest amounting to Rs 704.65 lakhs on delayed payments from the buyer. The same has been disclosed as part of other income. (Refer note 14 and note 25)
No impairment loss was recognised on reclassification of the land held for sale as at 31 December 2018 as the Company expected fair value less costs to sell is higher than the carrying amount.
(i) Rights, preferences and restrictions attached to Equity Shares:
The Company has one class of Equity shares having a par value of Rs.10 per Equity 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, except in case of interim dividend. 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.
(iv) There were no shares issued pursuant to contracts without payment being received in cash, by way of bonus issue and no shares were bought back in the period of five years immediately preceding the date as at which the Balance Sheet is prepared.
Note:
(i) The weighted average rate of interest on above borrowing sis 7.63% (31 December 2017:7.40%)
(ii) The Company’s borrowings from the Consortium of Banks (bank overdraft) are secured by first pari pasu charge on inventory, trade receivables, and entire current assets of the Company, both present and future.
8(i) Consequent to introduction of Goods and Service tax (GST) w.e.f 1 July 2017, Central excise, Value added tax etc. have been subsumed into GST. In accordance with Indian Accounting Standard-18 on Revenue and Schedule III ofthe Companies Act, 2013 unlike excise duty, GST is not part of revenue. Accordingly revenue for the Year ended 31 December 2018 and 31 December 2017 are strictly not comparable. The following additional information is being provided to facilitate such understanding:-
Note: Audit fees for year ended 31 December 2017 has been paid to the previous auditors.
(ii) Expenditure on corporate social responsibility
Section 135(5) ofthe Companies Act, 2013 as amended viaNotificationNo.1/2018 read with the Companies (Corporate social responsibility policy) Rules, 2014, requires that the board of directors of every eligible Company, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The company has loss during the immediately preceding financial year. Accordingly, the Company is not required to contribute to the CSR activities during the year. The details of corporate social responsibility expenditure made in previous year is as follows:
(ii) The Company has other commitments, for purchase orders which are issued after considering requirements per operating cycle for purchase of services, employee’s benefits. The Company does not have any other long term commitments or material non-cancellable contractual commitments /contracts, including derivative contracts for which there were any material foreseeable losses.
(c) There has been no delays in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
9. Transfer Pricing
The company has established a comprehensive system on maintenance of information and documents as required by the transfer pricing legislation under 92-92F of the Income Tax Act, 1961 and has documented Transfer Pricing Benchmarking study for the financial year 2016-17. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the International transactions entered into with the holding Company and other associated enterprises during the year and expects such records to be in existence latest by the due date s required under law. The management is ofthe opinion that its international transactions are at arms-length and the aforesaid legislation will not have any impact on the financial statements.
10. Disclosures under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006
In terms of notification dated September 4, 2015 issued by the Central Government of India, the disclosure related trade payables as at December 31,2018 are as follows:
# The above disclosure is based on information available with the Company regarding status of the suppliers as defined under Section 2 of the Micro, Small and Medium Enterprises Development Act, 2006. This has been relied upon by the auditors.
11 Employee benefit plan
11.1 Defined contribution plans
During the year the Company has recognised an amount of Rs. 196.50 Lakhs (31 December 2017 Rs. 202.24 Lakhs) as expenditure towards defined contribution plans ofthe Company.
11.2 Defined benefit plans
The Company offers the employee benefit schemes of Pension (funded), Gratuity (funded) and Retirement benefit (unfunded) to its employees. Benefits payable to eligible employees of the Company with respect to these schemes, defined benefit plans are accounted for on the basis of an actuarial valuation as at the balance sheet date.
The present value of defined benefit obligation and the related current service cost were measured using the Projected Unit Credit Method with actuarial valuations being carried out at each balance sheet date.
(vii) Sensitivity Analysis
Significant actuarial assumptions for the determination ofthe defined benefit obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the 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 maybe 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 ofthe 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.
11.3 Defined benefit plans- Provident Fund
In terms of Guidance on implementing Ind AS 19 on Employee Benefits issued by the Accounting Standard Board of the Institute of Chartered Accountants of India (ICAI), a provident fund set up by the Company is treated as a defined benefit plan in view of the Company’s obligation to meet shortfall, if any, on account of interest.
The Actuary has carried out actuarial valuation of plan’s liabilities and interest rate guarantee obligations as at the balance sheet date using Projected Unit Credit Method and Deterministic Approach as outlined in the Guidance Note 29 issued by the Institute of Actuaries of India. Based on such valuation, there is no future anticipated shortfall with regard to interest rate obligation of the Company as at the Balance Sheet date. Further during the year, the Company’s contribution of Rs. 187.78 Lakhs (2017 - Rs. 206.59 Lakhs) to the Provident Fund Trust has been expensed under the ‘Contribution to Provident and Other Funds’ in Note 28. Disclosures given hereunder are restricted to the information available as per the Actuary’s Report.
12. Financial Instruments
(i) Capital management
The Company manages it’s capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimization of the debt and equity balance. The Company is not subject to any externally imposed capital requirements. The Company’s Board of Directors reviews the capital structure of the Company on a periodic basis. As part of this review, the Board of directors considers the cost of capital and the risks associated with capital. The Company’s gearing ratio at the end of the reporting period was as follows:
Method/ assumption used to estimate the fair value:
(a) The carrying value of trade receivables, Cash and Cash equivalents, bank deposits, trade payables, other current financial assets and other current financial liabilities measured at amortised cost approximate their fair value due to the short-term maturities ofthese instruments.
(b) The fair values of the derivative financial instruments has been determined using valuation techniques with market observable inputs. The models incorporate various inputs including the credit quality of counter-parties and foreign exchange forward rates.
(c) There were no transfers between Level 1, Level 2 and Level 3 of financial assets and liabilities.
(iii) Financial risk management objectives
The Company’s management monitors and manages key financial risks relating to the operations of the Company by analysing exposures by degree and magnitude of risks. These risks include market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
The Company seeks to minimise the effects of currency risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
(iv) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include foreign currency receivables, deposits and borrowings.
The Company enters into a derivative financial instruments to manage its exposure to foreign currency risk, including forward foreign exchange contracts to hedge the exchange rate risk arising on the imports.
(v) Foreign Currency risk management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The Company uses a foreign exchange forward contracts to hedge its exposure in foreign currency risk. The Company generally enters into forward exchange contracts to cover specific foreign currency payments to reduce foreign exchange fluctuation risk.
The carrying amounts of the company’s foreign currency denominated monetary assets (trade receivables) and monetary liabilities (trade payables) at the end ofthe reporting period are as follows:
The Company has hedged it’s trade payable for Import of raw material. Accordingly, the year end foreign currency exposure that have not been hedged by a derivative instrument or otherwise are given:
(v) (a) Foreign Currency sensitivity analysis
The Company is mainly exposed to the fluctuation in the value of USD and JPY. The following table details the company sensitivity to a 10% increase and decrease in INR against the relevant foreign currency. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment ofthe reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjust there translation at the period end for a 10% change in foreign currency rate. A positive number below indicates an increase in profit or equity where the Rs. strengthens 10% against the relevant currency. For a 10% weakening of the Rs. against the relevant currency, there would be a comparable impact on the profit or equity.
The foreign exchange rate sensitivity is calculated for each currency by aggregation of the net foreign exchange rate exposure of a currency and a simultaneous parallel foreign exchange rates shift in the foreign exchange rates of each currency by 10%.
(vi) Interest rate risk management
The Company is subject to variable interest rate on its interest bearing liabilities. The Company’s interest rate exposure is mainly related to debt obligations. The Company’s exposure to interest rates on financial liabilities are detailed in the liquidity risk management.
(vi) (a) Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates at the end of the reporting period. For floating rate borrowings, the analysis is prepared assuming the amount of the borrowings outstanding at the end of the reporting period was outstanding for the whole year. A50 basis point increase or decrease is used for disclosing the sensitivity analysis.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s loss for the year ended December 31,2018 would increase/decrease by Rs 19.34 Lakhs (for the year ended December 31, 2017: increase/decrease by Rs 12.95 Lakhs). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.
(vii) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.
Trade Receivable and other financial assets
The company has adopted a policy of dealing with creditworthy counterparties and obtaining deposits, where appropriate, as a means of mitigating the risk of financial loss from defaults. Before accepting any new customer, the Company assess the potential customers credit quality and defines credit limit by customers. Limits attributed to customer are reviewed annually. Ongoing credit evaluation is performed on the financial condition of accounts receivable. Concentration of credit risk to any counterparty did not exceed 10% of total monetary assets at any time during the year.
Cash and Cash equivalents and bank deposits
The Company maintains its cash and cash equivalents and bank deposits with reputed banks. The credit risk on these instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
(viii) Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the company’s short-term, medium-term and long-term funding and liquidity management requirements. The company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The table below provides details regarding the contractual maturities of financial liabilities based on contractual undiscounted payments.
13 Operating Lease arrangements
(a) The Company’s significant leasing arrangements are in respect of operating leases for premises (like residential property, office premises, godowns, etc). These leasing arrangements, which are cancellable, range between 1 year to 6 years generally, or longer, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals in this regard amounting to Rs. 509.20 Lakhs (2017-Rs.433.41 Lakhs) are charged as rent under Note 31.
(b) The Company acquired certain assets under Operating lease, which are non-cancellable for a period of 4 years with an option to renew the same for a further period at a minimum rent. Details of Lease payments outstanding as at 31st December 2018 are given below:
14 Segment Information
Information reported to the Chief operating decision maker (CODM) for the purposes of resource allocation and assessment of segment performance focuses on two segments i) Printing Inks and ii) Adhesives. The segment wise revenue, assets and liabilities, in accordance with the Indian Accounting Standard on Segment Reporting (AS-108) is asunder:
Notes:
1 The Company has considered business segment as the primary segment for disclosure on the basis that the risks and returns of the Company is primarily determined by the nature of products. The reporting segments are Printing Inks (including allied products) andAdhesives.
2 The Segment wise revenue, results, assets and liabilities relate to the respective amounts identifiable to each of the segments. Unallocable income/ expenses refer to income/ expenses which relate to the Company as a whole and are not allocable to segments on a reasonable basis. This is the measure reported to the chief operating decision maker for the purpuses of resource allocation and assessment of segment performance.
3 The Company operates predominantly within the geographical limits of India and accordingly this segments have not been considered.
4 Administrative and corporate expenses, interest expense, unallocated other income and provision for tax have not been allocated to reportable segments. Consequently, segment wise net profit has not been disclosed.
5 Unallocated other income has not been measured and reported segment wise as these components are not realistically allocable and identifiable.
6 Unallocated corporate expenses include expenses such as depreciation, employee remuneration and benefits, administrative and other expenses which are not directly related to the specific segments.
7 Unallocated assets includes Property, plant and equipment, Capital work in progress, Intangible assets, cash & bank balances, deferred tax assets and other assets which are not directly related to the specific segments.
8 Unallocated liabilities include provision for staff benefits and other current liabilities.
9 No single customers contributes 10%ormoretotheCompany’srevenue.
15 Reconciliation of liabilities arising from financing activities.
The table below details change in the Company’s liabilities arising from financing activities, including both cash and non cash changes. Liabilities arising from financing activities are those for which cash flows where, or future cash flows will be, classified in the Company’s statement of cashflows as cashflows from financing activities.
The cash flows arising from bank loans make up the net amount of proceeds from borrowings and repayments of borrowings in the statement of cash flows.
16 The Company does not have any long-term contracts including derivative contracts for which there are any material foreseeable losses.
17 Events after the reporting period
There are no events which have occurred after the reporting period.
18 Approval of financial statements
The financial statements for the year ended 31 December 2018 were approved and authorised for issue by the board of directors on 30 January 2019.
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