VENKEY'S (INDIA) LIMITED ANNUAL REPORT 2008-2009 DIRECTOR'S REPORT The Shareholders, Your Directors have pleasure in presenting the Thirty Third Annual Report and Audited Accounts for the year ended 31st March, 2009. FINANCIAL RESULTS: (Rs. In crores) Description 2008-09 2007-08 Profit Before Tax 31.04 41.82 Provision for taxation - Current (10.40) (14.00) - Deferred 0.50 (0.66) - Fringe Benefit Tax (0.58) (0.55) Profit After Tax 20.56 26.61 Add: Excess/(short) provision for tax in previous periods _ 0.16 Balance of Profit & Loss Account brought forward 54.89 34.64 Profit available for Appropriation 75.45 61.41 Appropriations : Transfer to General Reserve 2.06 2.68 Dividend 3.29 3.29 Corporate Dividend Tax 0.56 0.56 Balance profit carried forward 69.54 54.88 75.45 61.41 OPERATIONS: The Company's sales turnover registered a growth of 9% for the year at Rs.570.26 crores as compared to Rs.524.89 crores In the previous year. Profit before tax declined by 30% at Rs.31.04 crores as compared to Rs.41.82 crores. The profitability of the Company was affected due to steep increase in price of soya and maize (the key ingredients of poultry feed) and the Company could not pass on the increase to its customers especially during the period July, 2008 to September, 2008. DIVIDEND: Your Directors recommend a dividend of Rs.3.50 per equity share (35%). The dividend, If approved at the ensuing annual general meeting, will absorb Rs. 3.29 crores (previous year Rs.3.29 crores). SEGMENT-WISE PERFORMANCE: Operational performance of each business segment has been comprehensively covered in the Management Discussion and Analysis Report given in Annexure- A which forms part of this Report. CORPORATE GOVERNANCE: As per the requirements of Clause 49 of the Listing Agreement a separate report on Corporate Governance along with the certificate issued by Company Secretary in Whole-Time Practice thereupon is given in Annexure-B which forms part of this Report. DIRECTORS: Mr. V.N. Dubey has resigned as Director of the Company w.e.f. 4th May, 2009 for personal reasons. The Board wishes to place on record its gratitude and appreciation for the co-operation and guidance rendered by him during his tenure as Director of the Company. As per the provisions of Articles of Association of the Company, Mr. C. Jagapati Rao and Mr. B. G. Deshmukh are due for retirement by rotation at the ensuing Annual General Meeting and, being eligible, they offer themselves for reappointment. DIRECTORS' RESPONSIBILITY STATEMENT: The Directors declare that: 1. the Accounts for the year ended 31st March, 2009 have been prepared by following applicable accounting standards; 2. the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2009 and of the profit of the Company for that year; 3. proper care has been taken for the maintenance of adequate records for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; and 4. the Accounts for the year ended 31st March, 2009 have been prepared on a going concern basis. FIXED DEPOSITS: The Company has discontinued the fixed deposit schemes. However, deposits amounting to Rs.50,000/- from 4 depositors which were due for repayment have remained unclaimed as on 31st March, 2009. ACCOUNTS The accounts read with the notes thereon are self-explanatory and hence do not call for any further comments. INSURANCE The assets of the Company which include buildings, sheds, machinery, stocks etc. are adequately insured. PERSONNEL AND HUMAN RESOURCES Employee relations continued to be cordial throughout the year. The Company did not have any employee during the year under review whose remuneration is required to be disclosed in terms of the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, as amended. AUDITORS: M/s. Sudit K. Parekh & Co., Chartered Accountants hold office of auditors upto the conclusion of the ensuing Annual General Meeting ar:dare eligible for reappointment. INFORMATION UNDER SECTION 217(1)(e): A. Conservation of Energy: The operations of the Company are not power intensive. Nevertheless, the Company continues its efforts to conserve energy wherever practicable, by economising on the use of power at the farms, hatchery and offices. The Company has installed state-of-the-art hatchers and setters at its hatcheries and a solar heating system at the Central Hatchery. B. Technology Absorption: 1. Research and Development (R & D): a) Specific areas : R & D activities of the Company are concentrated in the areas of developing wider application of Specific Pathogen Free (SPF) eggs and application of various breeder management techniques to improve productivity and Increase feed efficiency b) Benefits derived : Wider acceptance of SPF eggs in the manufacture of human and livestock vaccines in India and higher production and increased feed efficiency of breeders. c} Plan of action : Further promotion of SPF eggs applications in the biological industry. d) Expenditure on R & D : The expenditure incurred by the Company during the year on Research and Development was Rs.0.23 crores. 2. Technology Absorption, Adaptation and Innovation a) Efforts made : The Company maintains continuous interaction with its collaborators, SPAFAS Inc., U.S.A. for absorption of technology. b) Benefits: i. Development of new application ii. Savings in foreign exchange through import substitution. c) Technology Imported : SPF technology was imported in 1983. The benefit of the ongoing research by the Coltaborators in SPF technology is being derived by the Company on a continuous basis. C. Foreign Exchange Earnings and Outgo: 1. Efforts have been made to increase exports of hatching eggs and SPF eggs. 2. Earnings and outgo: a. Foreign exchange earnings (FOB) Rs.1.28 crores b. Foreign exchange outgo Rs. 1.47 crores ACKNOWLEDGEMENT: The Directors place on record their appreciation for the excellent services of the employees at all the levels. The Company also expresses its thanks to its shareholders, bankers, Central and State Governments and district level authorities, dealers and customers of the Company for their valued support. For and on behalf of the Board of Directors Place: Pune ANURADHA J. DESAI Date : May 8,2009 CHAIRPERSON ANNEXURE-A MANAGEMENT DISCUSSION AND ANALYSIS REPORT 1. Industry Structure and Development : The global economic slowdown witnessed from the first quarter of 2008 had adversely impacted all the major economies of the world including that of India. However, Indian economy has not been as badly affected by global economic slowdown as other countries. The Indian Government's revised projection of the GDP growth ai 7% for 2009-10 vis-a-vis the earlier projected growth of 9% is a fair indicator that India is not insulated against the global economic meltdown. During the financial year 2008-09, industrial production growth came down as compared to the previous year. While most of the industries showed a decline, the poultry industry has managed to withstand the impact of global meltdown as the industry in India is primarily domestic demand driven. Forward trading in soya and maize have reached record high level as also export of these commodities significantly. Representations have been made to the Government Authorities for ban on forward trading of these commodities and for regulating the exports through organized and designated channels and it is hoped that same will be considered favorably by the Government of India. The Indian poultry Industry is a Rs.45,000 crore industry as on date, providing direct and indirect employment to over 3 million persons. 20 million agricultural farmers are also dependent for their livelihood on poultry industry, especially the maize and soya growers. 75% to 80% of the cost of production in the poultry industry consists of feed ingredients, like maize and soya. With an annual production of over 53,000 million eggs, India ranks second in the world in egg production. The broiler production is estimated at 3.1 million tons of chicken meat and India ranks 3rd in the world. On the export front also, there was a significant growth in export of egg powder. However, there is a temporary suspension of export of hatching eggs and table eggs due to ban on imports from India by some of the importing countries, following the Incidence of bird flu in north-east region in January & March, 2008 and export) of the same is expected to be resumed once India is declared free of bird flu. Most of The countries like U.S.A., China, Malaysia, Zambia have a system by which zones affected by any flu or disease are isolated so that other zones free from bird flu etc. are eligible to export or cater to the domestic market. In India such a system is not in place so that if a zone is declared affected by any disease such as bird flu, the entire country is banned from Exports. Your Company, alongwith the NECC has taken up the issue with the Government of india and it Is hoped that it will receive the attention that it deserves. Farm gate prices of eggs and: broilers are generally stable. However, the industry is facing deep crisis because of the steep increase in the prices of maize and soya meal after the Introduction of forward trading in these commodities. The poultry industry has the inherent strength and resilience to absorb such shocks. VH Group has a strong production infrastructure, world class technologies, one of the best disease monitoring and surveillance systems and the farming community is well informed about good management practices and bio-security measures. It has made great advancements in the world of poultry and this a universally accepted fact. The Poultry Diagiostic Research Centre of VH Group has a network of 100 satellite laboratories, 4 regional laboratories and 300 veterinarians working under its umbrella and over the years, this network has supported the poultry farmers by constantly giving them technical service in all aspects of poultry. Thanks to Late Dr. B.V. Rao's vision and foresighted planning, our industry has a strong production infrastructure base and a world class health care system. Based on these strengths, VH Group Is confident of a steady and continuous growth of the industry. 2. Opportunities, Threats, Risks and Concerns : The vast gap between our present per capita consumption (52 eggs and 3.1 kg of poultry meat) and National Institute of Nutrition (NIN) recommended level (180 eggs and 11 kg of poultry meat) offers a tremendous opportunity for the growth of poultry industry for several years to come. The allocation for Mid-Day Meal program has been stepped up significantly by Central and State Governments. The Tamil Nadu Government has increased it from 2 eggs to 3 eggs per week. NECC and your company are constantly following up with various State Governments for Inclusion of eggs in the Mid-Day Meal Programme. The over all environment is favourable for continued growth of the Industry at 10% in egg production and 18% to 20% In broiler production. Only 2% of poultry production is being processed in India due to lack of cold chain and retail infrastructure and this continues to be a major challenge and also a potential growth area. 3. Segmentwise Performance : a. Poultry and Poultry Products The Company's major business segment Is poultry and poultry products which consists of production and sale of day old broiler and layer chicks, specific pathogen free eggs, processed chicken products and poultry feed. In 2008-09 this segment's turnover was Rs.380.05 crores as compared to Rs.320.82 crores in the last year. The profit before tax and interest of this segment was Rs. 19.04 crores as compared to Rs.23.22 crores in the previous year. b. Animal Health Products The Company has its animal health products manufacturing facility at Pune. This segment's sales turnover was Rs.55.12 crores as compared to Rs.68.01 crores. Profit before tax and interest was Rs.9.88 crores as against Rs.12.60 crores. In the last year. c. Oilseed: This segment registered a sales turnover of Rs.202.35 crores as compared to Rs. 186.29 crores last year. Profit before tax and interest was Rs.19.37 crores as against Rs.21.97 crores in the previous year. 4. Outlook : The steep increase In feed prices witnessed in the year 2008-09 has been a major challenge for poultry Industry. This is the main reason why the industry is suffering unprecedented losses and going through very difficult time. This is the main reason though the turnover Is going up but the profits are coming down and many farmers are out of the business. It Is expected that the feed price will hover around the present high level in the forthcoming year also. Though the demand for poultry products is expected to grow further, the industry is facing the threat of a further Increase in maize and soya - the key ingredients of poultry feed. The poultry industry has pleaded with the Government to ban forward trading in maize and soya and channelise the export of maize and soya meal through a designated government agency and to put a celling on the volume of export and ban on export by private parties and the industry is hopeful of getting a favourable response from the Government. Barring unforeseen circumstances, the company expects to post Improved performance In the year 2009-10. 5. Internal Control Systems and their adequacy : The internal control system Is designed to ensure that all the financial and other records are reliable for preparing financial statements and for maintaining accountability of the assets. The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that transactions are authorised, recorded and reported correctly. Commensurate with the site of operation, your Company has Internal Audit Department which continuously reviews the internal control system by an exclusive programme of Internal Audit. The significant findings are then discussed by the Audit Committee of Directors and corrective measures initiated. The Audit Committee also monitors the implementation of recommendations made by it. 6. Discussion on Financial Performance with respect to Operational Performance: The turnover of the Company registered growth of 9% over the last year from Rs.524.89 crores to Rs.570.26 crores. The profit before tax from operations declined by 30% from Rs.41.82 crores to Rs.31.04 crores. The borrowings of the Company during the year were decreased by about 15% from Rs.110.35 crores to Rs.93.89 crores. Interest cost of the Company has fallen by 9.63% from Rs.8.72 crores to Rs.7.88 crores. 7. Material Development In Human Resources / Industrial Relations front, Including number of people employed : In line with VH Group's corporate philosophy, the Human Resource is considered as the most valuable resource In the Company. The focus is on developing a performance culture with high standards of efficiency and innovation. Employee relations at ail levels continue to remain cordial. The Company had 3,335 employees as on 31st March, 2009.