(ii) Terms/Rights Attached to Equity Shares
The Company has only one class of Equity Shares having a par value of Rs. 2/- each at the Balance Sheet Date. Each holder is entitled to one vote per share in case of voting by show of hands and one vote per share held in case of voting by poll/ballot. Each holder of Equity Share is also entitled to normal dividend (including interim dividend, if any) as may declared by the Company. The Company declares and pays dividends in Indian Rupees. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the Annual General Meeting.
In the event of liquidation of Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distributions will be in proportion to the number of equity shares held by shareholder.
Nature and Purpose of Reserves:
a) Securities Premium Reserve
Securities Premium Reserve is created when shares are issued at premium. The Company may issue fully paid-up bonus shares to its members out of the security premium reserve account, and Company can use this reserve for buy-back of shares.
1. Financial Risk Management
The Company's financial risk management is an integral part of how to plan and execute its business strategies. The Company's financial risk management policy is set by the managing board.
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including loans and borrowings, foreign currency receivables and payables.
The Company manages market risk through treasury department, which evaluates and exercises independent control over the entire process of market risk management. The treasury department recommends risk management objectives and policies, which are approved by Senior Management and the Audit Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures and borrowing strategies.
i Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. In order to optimize the interest cost, treasury performs a comprehensive corporate interest rate risk management by balancing the borrowings from commercial paper, short term loan, working capital loan and non fund facilities from banks.
The Company is not exposed to significant interest rate risk as at the respective reporting dates.
ii Foreign Currency Risk
The Company is exposed to exchange fluctuation risk for its purchase from overseas suppliers in various foreign currencies.
The Company follows established risk management policies including the use of derivatives like foreign exchange forward contracts to hedge exposures to foreign currency risk.
The following table analyzes foreign currency risk from financial instruments as of:
iii Credit Risk
Credit risk refers to the risk of default on its obligation by the counter party resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs. 316.46 crore and Rs. 238.35 crore as of March 31, 2019 and March 31, 2018 respectively. Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has always been managed by The Company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors and the Company's historical experience for customers.
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
iv Liquidity Risk
The Company's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses and servicing of financial obligations.
(v) Financial Instruments Valuation
All financial instruments are initially recognized and subsequently re-measured at fair value as described below:
a) The fair value of quoted investment is measured at quoted price or NAV.
b) The fair value of the remaining financial instruments is determined using discounted cash flow analysis.
c) All foreign currency denominated assets and liabilities are translated using exchange rate at reporting date.
Fair value measurement hierarchy:
The financial instruments are categorized into two levels based on the inputs used to arrive at fair value measurements as described below:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; and
Level 2: Inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
2. Capital Management
For the purpose of the Company's capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company's capital management is to maximize the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents.
In order to achieve this overall objective, the Company's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current period.
No changes were made in the objectives, policies or processes for managing capital during the year ended March 31, 2019 and March 31, 2018.
3. Segment Reporting
The Company is primarily engaged in the business of "Retail", which in terms of Ind AS 108 on "Segment Reporting" constitutes a single reporting segment.
4. Related Party Disclosures
Disclosure as required by Ind AS 24 and Companies Act, 2013 "Related Party Disclosures" are given below:
1. List of Related Parties A Subsidiary Companies
(i) Travel News Services (India) Private Limited (from May 11, 2018)
(ii) TNSI Retail Private Limited (from May 11, 2018)
(iii) Welcome Retail Private Limited (from May 11, 2018)
(iv) SHME Food Brands Private Limited (from Feb 28, 2019)
B Joint Venture Company
(i) Future Retail LLC ( JV Company Registered on May 1, 2018 in Sultanate of Oman)
C Enterprises over which Key Managerial Personnel(s) are able to exercise significant influence
(i) Apollo Design Apparel Parks Limited
(ii) Bansi Mall Management Company Private Limited
(iii) Clarks Future Footwear Private Limited
(iv) FLFL Travel Retail Bhubaneswar Private Limited
(v) FLFL Travel Retail Guwahati Private Limited
(vi) FLFL Travel Retail Lucknow Private Limited
(vii) FLFL Travel Retail West Private Limited
(viii) Future E-commerce Infrastructure Limited
(ix) Future Enterprises Limited
(x) Future Generali India Insurance Company Limited
(xi) Future Generali India Life Insurance Company Limited
(xii) Future Human Development Limited
(xiii) Future Ideas Company Limited
(xiv) Future Lifestyle Fashions Limited
(xv) Future Media (India) Limited
(xvi) Future Sharp Skills Limited
(xvii) Future Speciality Retail Limited
(xviii) Future Supply Chain Solutions Limited
(xix) Goldmohur Design & Apparel Park Limited
(xx) Retail Light Techniques India Limited
(xxi) Work Store Limited (formerly known as Staples Future Office Products Limited)
D Entity able to Exercise Significant Influence
(i) Future Corporate Resources Private Limited (formerly known as Suhani Trading and Investment Consultants Private Limited)
E Key Managerial Personnel(s)
(i) Mr. Kishore Biyani
(ii) Mr. Rakesh Biyani
(iii) Mr. C. P. Toshniwal
(iv) Mr. Virendra Samani
F Relatives of Key Managerial Personnel(s)
(i) Mrs. Bhavika Samani
5. Significant Related Party Transactions
A Sale of Goods and Services includesTravel News Services (India) Private Limited 0.70 crore, TNSI Retail Private Limited 1.02 crore, Future Retail LLC 4.42 crore, Future Lifestyle Fashions Limited Rs.378.42 Future Corporate Resources Private Limited (formerly known as Suhani Trading and Investments Private Limited (2018:Rs. 0.71 crore),
B Purchases of Goods and Services includes Future Enterprises Limited Rs.3838.14 crore (2018: Rs.3076.99 crore), Future Supply Chain Solutions Limited Rs.557.88 crore.
C Investment includes Travel New Services India (Private) Limited 34.00 crore and Future Retail LLC 4.57 crore.
D Managerial Remuneration includes Mr. Kishore Biyani Rs. 5.89 crore (2018 : Rs. 5.39 crore), Mr. Rakesh Biyani Rs. 5.37 crore (2018 : Rs. 4.62 crore). Key Managerial Personnel Remuneration includes Mr. C. P. Toshniwal Rs. 3.29 crore (2018 : Rs. 3.02 crore), Mr. Virendra Samani Rs. 0.85 crore (2018 : Rs. 0.41 crore)
6. Employee Stock Option Scheme
The Company had received approval of the Board and Shareholders for issuance of 90,00,000 Equity Shares of Rs.2 each for offering to eligible employees of the Company under Employee Stock Option Scheme (FRL ESOP 2016). During the year the Company has granted in aggregate 14,47,298 (2018-Nil) options out of which (i) 52,298 options exercisable at Rs.10 each, (ii) 12,70,000 option exercisable at Rs. 392 each, (iii) 1,25,000 options exercisable at Rs. 300 each, plus all applicable taxes as may be levied in this regard. Out of the options granted 92,450 (2018 - 8,392) options were cancelled during the year. The options to be granted, would vest over a maximum period of 3 years or such other period as may be decided by the Nomination and Remuneration Committee or Human Resources Department from the date of grant based on specified criteria.
7. Contingent Liabilities
Claims Against the Company Not Acknowledged as Debts, In respect of Value Added Tax Rs. 18.86 crore (2018: Rs. 11.91 crore), Letter of Credit Rs. 445.3 crore (2018 : Rs. 458.65 crore), Others Rs. 45.46 crore (2018: Rs. 88.43 crore) and Other money for which the Company is Contingently Liable, Bank Guarantee Given Rs. 90.88 crore and Corporate Guarantees Given Rs. 3602.63 crore (2018 : Rs. 4467.48 crore)
There are various labour, legal metrology, food adulteration and cases under other miscellaneous acts pending against the Company, the liability of which cannot be ascertained. However, management does not expect significant or material liabilities devolving on the Company.
8. Pursuant to the levy of service tax on renting of immovable properties given for commercial use, retrospectively with effect from June 1, 2007 by the Finance Act, 2010, the Company based on legal advice, challenged the levy through Retailers Association of India and its retrospective application. The Hon'ble Supreme Court had passed an interim order dated October 14, 2011. In compliance of this order Company has made an aggregate deposit of Rs. 39.71 crore in respect of the liability for such service tax for the period from June 1, 2007 up to September 30, 2011. From October 1, 2011, the Company is accounting and paying for such service tax regularly as per directives of the Supreme Court. Accordingly the Company has not made provision of Rs. 79.42 crore for the period June 1, 2007 to September 30, 2011 which would be appropriately recognised on final determination.
9. The Hon'ble Supreme Court of India ("SC") by their order dated February 28, 2019, in the case of M/s. Surya Roshani Limited & others v/s EPFO, set out the principles based on which allowances paid to the employees should be identified for inclusion in basic wages for the purposes of computation of Provident Fund contribution. There are interpretative issues related to the judgement which require clarification. Further Surya Roshni has filed a review petition with Hon'ble Supreme Court which is pending for disposal Pending decision on the subject review petition and clarificatory directions from the EPFO, the impact, if any, is not ascertainable and consequently no effect has been given in the accounts.
10. Capital and Other commitments
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs. 42.74 crore (2018 : Rs. Nil)
11. Expenditure on Corporate Social Responsibilities
As per section 135 of the Companies Act, 2013 read with relevant rules thereon, the Company was required to spend Rs. 6.76 crore on Corporate Social Responsibility (CSR) activities during FY 2018-19. Against it, the Company has during the year under review allocated and transferred an amount of Rs. 6.76 crore towards CSR activities to SKC Foundation. SKC Foundation has already spent Rs. 5.74 crore in the year under review and also identified programs for the balance amount to be spend in the current financial year.
12. Security clause in respect to Secured Borrowings A Long Term Borrowings
i Rs. 223.33 crore (2018: Rs. 285 crore) are secured by First Pari-Passu charge on moveable Fixed Assets of the Company.
ii Rs. 150 crore (2018: Rs. Nil) are secured by First Pari-Passu charge on all present and future tangible moveable Fixed Assets of the Company.
iii Rs. 107.05 crore (2018: Rs. Nil) are secured by First Pari-Passu charge on tangible moveable Fixed Assets both present and future of the Company and post dated cheques for installments due under term loan.
iv Weighted average rate of interest on Term Loan is 9.38% (2018: 9.31%)
A. Short Term Borrowings includes Working Capital Loans and others are secured by (a) First Pari-Passu Charge on Current Assets of the Company (b) Second Pari-Passu Charge on Card Receivables (c) Secured by Corporate Guarantee of Future Enterprises Limited. Average Interest Rate 9.98 % (2018: 11.14%).
13. Pursuant to the Composite Scheme of Arrangement between the Future Retail Limited [now known as Future Enterprises Limited (FEL)] and Bharti Retail Limited [now known as Future Retail Limited (the Company/FRL)] and their respective Shareholders and Creditors under Sections 391 to 394 read with Sections 100 to 104 of the Companies Act, 2013 (the Scheme), the Shareholders and OCD holders of Bharti Group have agreed to share with the respective companies (i.e. the Company and FEL) an upside on the realization out of the shares of the two companies, subject to certain broad terms and conditions. Further, the said transaction has been partially completed and amount received under this arrangement is shown a part of other Current liabilities.
14. Leases
Operating Lease
The Company has entered into operating lease arrangements for fixed assets and premises. The future minimum lease rental obligation under non-cancellable operating leases payable not later than one year is Rs. 1,071.53 crore (2018: Rs. 949.28 crore), payable later than one year but not later than five year is Rs. 2,551.64 crore (2018: Rs. 3,365.07 crore) and payable later than five years is Rs. 1,406.65 crore (2018: Rs. 1,309.32 crore).
15. Business Combination
The Company has entered into Shareholder agreement with Khimji Ramdas LLC, company incorporated under the law of Sultanate of Oman to establish the Company "Future Retail LLC" to run retail fashion store under the "fbb" Brand name in the territory of oman on May 1, 2018. The Company has subscribed to 50% Equity of Future Retail LLC.
The Company has executed necessary agreement(s) and on May 11, 2018 acquired the entire equity share capital of TNSI from its existing shareholders for cash consideration. Consequent to this, TNSI has become a wholly owned subsidiary of the Company.
The Company has completed acquisition of Retail Business undertaking operated under the brand name "Foodworld" (Foodworld Business) from Foodworld Supermarkets Private Limited in terms of business transfer agreement on May 21, 2018. Under this arrangement company has acquired Assets Rs. 31.43 crore, Other Assets Rs. 20.01 crore and Liabilities Rs. 12.26 crore by paying total Purchase Consideration Rs. 39.18 crore.
During the year under review, the Company has acquired the entire equity share capital of SHME Food Brands Private Limited for cash consideration from its existing shareholders on February 28, 2019.
16. Particulars of Loans, Guarantee and Investment under Section 186(4) of the Companies Act, 2013
17. Details of Miscellaneous Expenses
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