Extracts of Annual Report

For Information
Contents
1. About annual report
 What is an annual report?
 Why an annual report is required?
 Disclosure Requirements
2. Content & inferences in annual report
 Company & business overview
 Statutory Reports
 Key performance indicators
 Management discussion & analysis (MD&A)
 Financial Statements
3. Users of annual report and it’s utility
 Target audience

August, 2017 2
What is an annual report?

Annual
Publication

Ownership

August, 2017
 Why annual report is required?

Public
Annual Report MUST AGM Relations Mandate
Opportunity by regulators

Management
Discussion & Financial
Why ? Statements
Future Outlook

Corporate Disclosure/
ENRON(B)
governance Transparency

August, 2017 4 4
Disclosure requirements

Chairman‘s message Company‘s Information (incl shareholders)

Vision & mission statement Sustainability/CSR report

Business highlights, product portfolio Corporate Governance report

Financial Statements Business Responsibility report

Management discussion & analysis Subsidiary and Holding‘s financials

Auditor‘s report Director‘s responsibility & remunerations

August, 2017 5
Contents
1. About annual report
 What is an annual report?
 Why an annual report is required?
 Disclosure Requirements
2. Content & inferences in annual report
 Company & business overview
 Statutory Reports
 Key performance indicators
 Management discussion & analysis (MD&A)
 Financial Statements
3. Users of annual report
 Target audience

August, 2017 6
1 2 2 3 4 5

August, 2017 7
1
Company Introduction

Company’s History and Business

overview

Global foot print

Basic information of product range

Key operations & details of

Subsidiaries

Vision & Business blueprint

August, 2017 8
1
Product portfolio
• Presents product line and areas of operations.
• Helps understand the area of operations and associated risks.
• Helps understand profitability & expected growth in the industry
company operates in.

August, 2017
1

Research & Innovations

Innovations & Research on Product Development

Helps in understanding the future potentials in-tandem

with the investments in technology and Expenditures in
Research and development Expediting the future
Preparedness growth and innovations.

August, 2017 10
1
Risks & Opportunities
Risk Opportunities

Study on Key risks such as economic, industry & Mapping the future opportunities by
Technological Changes and their impacts on Capitals, Foreseeing the growth avenues and developing
business growth and financials, ways adopted to strategies for the expansion across the product
mitigate these risks. & business segments.

August, 2017 11
 Highlights for the financial year
1

• Glance on annual performance

on key financial & Non financial
metrics during the financial year.

• Earnings out of revenue from the

products.

• Products launched during the

year.

August, 2017 12
2

Notice of AGM

• To be sent 21 days before

the date of AGM

• Agenda of the meeting to be

provided.

• Agenda is provided as
ordinary / special business

• Ordinary business:

 Placement of audited
financial statements.
 Appointment of director
by rotation
 Appointment of statutory
auditor.

• Special business:

 Appointment of
directors
 Remuneration of
directors
 Further public offer.
 Invite for subscription to
Non- convertible
debentures
 Etc…

August, 2017 13
2
Auditor’s Report
• Addressed to members of
company

• Management’s
responsibility to prepare
financial statements that
give true & fair view.

• Auditor’s responsibility on
compliance with accounting
& auditing standards and to
obtain adequate audit
evidence for expressing an
opinion.

• Auditors express an opinion

on financial statements
based on audit.

• Auditors express an opinion

on compliance with
applicable legal & regulatory
requirements.

• Report on adequacy &

operating effectiveness
internal financial controls
over financial reporting

August, 2017 14
 Corporate Governance Report
2

• Includes disclosures from all

the directors for directorship &
committee positions held by
them.

• Information on shareholdings
and Committees to ensure the
proper functioning within the
company.

• Report of audit committee

with their responsibilities and
remunerations policies.

• Remuneration of Directors

• Code of conduct (SEBI

guidelines).

• Listing Details with type and

exchange.

• Plant Locations and respective

products manufactured.

August, 2017 15
2
Corporate Governance- Committees

August, 2017 16
2
Corporate information & governance

• Information on company
Chairman with Board of
Directors, Company
secretary and Auditors.

• Information on size of
board of directors &
independent directors
on board ensures
corporate governance.

• An experienced &
independent board
ensures investor
confidence.

August, 2017 17
2
Corporate Social Responsibility (CSR)
• Section 135 of Companies Act 2013 requires companies for expenditure in CSR activities.
• As a requirement it is mandatory to publish CSR activities undertaken during the year.
• An annual report on CSR activities is to be submitted by Board to the members.

August, 2017 18
 Board’s Report
2

• Presents financial performance

summary.
• Proposes the amount dividend
• Material Changes / litigations
affecting the financial position
of company.
• Risk Management, adequacy &
effectiveness of Internal
Financial Controls.
• Appointment , re-appointment
& cessation of directors with
details of key managerial
personnel.
• Contracts, arrangements with
related parties / loans &
guarantees by company.
• Director’s Responsibility
Statement
• Remuneration policy with
remuneration of Directors &
Key managerial personnel.
• Promotor Shareholding & any
change thereon
• Initiatives on CSR.
August, 2017 19
2
Business Responsibility Report
• General information about
company:
 Corporate identification
No.
 Registered Address:
 Website:
 Email id:
 Sectors that company
engaged in
 Key products
 Number of locations
where business activity
is undertaken.

• Financial details:
 Paid up capital
 Turnover
 Profit after tax
 CSR spending

• Principle wise performance:

 Ethics, transparency &
accountability
 Employee wellbeing
 Stakeholder
engagement
 Customer value
August, 2017 20
 Management Discussion & Analysis
2

• Economic overview of domestic &

Management discussion & analysis international factors.
• Risk factors associated with company’s
business & industry (intensifying competition,
changing customer demands).
Business Strategy
• Political & regulatory risks (compliance with
new or changing laws & disclosure
Economic Political & requirements)
overview Business & regulatory • Company’s strategy (new product
industry risk risks
development, high quality product &
customer satisfaction, expanding business,
Company’s Current reduction of cost)
strategy sales &
expansio • Opportunities & financial performance on a
Opportu n standalone & consolidated basis.
nities &
financial • Current sales and expected increase or
Internal performa expansion of market share (Competitors &
control nce Human seasonality).
systems resources
• Internal control system and it’s adequacy.
• Human resources (training & development)

August, 2017
 Financial Statements- Income Statement
3

• Portrays Financial performance.

• Shows comparative data for 2 financial

years.

• Details of incomes from operations &

Extraordinary items.

• Includes Direct and indirect expenses.

Provisions and non cash items.

• Profitability - EBITDA, PBT, PAT, EPS.

• Operating leverage = Contribution

EBITDA

• Financial Leverage = EBITDA

EBT

EBITDA: Earnings before interest

depreciation & amortization

EBIT: Earnings before interest & tax

• Shows Earning per share (EPS)

August, 2017 22
Key Performance Indicators (KPI’s) - Example
Financial KPI’s Strategic KPI’s
Depicting the operating profitability, net-profitability, Region & Segment wise Sales and respective
Debts and Cash Earnings expenditures

August, 2017 23
Performance Indicators
Income Statement/Balance Sheet/
Performance Indicators
Cash Flow Statement

EbIT
Contribution Margin Sales Revenue
-Variable Costs
÷Sales - (WACC before
÷Net Assets
-Research & Development (R&D) Costs Revenue Tax * Net Assets)
-Overhead Costs
-Depreciation =Return on = Value Added = Return on Net
Sales (RoS) (VA) before Tax Assets (RoNA)
Fixed Costs
-Current Expenses - Tax on EbIT

-Fixed Costs (Warranty + Goodwill) = Value Added

(VA) after Tax
=EbIT ÷(1+WACC a. Tax)

Discounted Value Added

- Δ Fixed Assets (DCVA) After Tax

Δ Net Assets - Δ Working Capital (Residual)

CFbIT

+Δ Provisions/Liabilities
- Tax on EbIT
Others unless +Non-Cash Expenses (e.g.
Cash Flow after
already Depreciation)
- Non-Cash Income (Equity Result) Tax
included above
÷(1+WACC a. Tax)
= Free Cash Flow
Net Present Value
(NPV) after Tax

August, 2017 24
4
Balance Sheet - Assets
• Summary of financial
health

• Non Current assets

Including all the long
term assets such as land
& building , Tangible
assets, investments

• Used for generation of

revenue.

• Current assets for

Working capital
estimations, including
receivables, inventories,
bank & cash balances.

August, 2017 25
4
Balance Sheet - Liabilities
• Summary of Shareholder’s
fund – Equity sh. Cap. ,
Res.& Surplus .

• Non Current liabilities

Including debts, long-term
borrowings & provisions.

• Current liabilities - trade

payables short-term
provisions, acceptances.

• Major solvency ratios:

 Debt to equity
 Debt to assets
 Interest coverage
ratio
• Return on Equity:
• Net Profit/
Shareholder’s
equity

August, 2017 26
5
Notes to Financial Statements
Non Financial Information

• Background and operations

• Accounting policies:
 Basis of preparation of
Financial Statements
 Use of estimates &
judgement
 Revenue & Cost
Recognition
• Employee Benefits & Recent
accounting announcements

Financial Information

• Notes include details of

Assets, liabilities, expenses &
income appearing in
Financial Statements
• Reconciliation between
previous GAAP and Ind AS.
• Schedule of depreciation

August, 2017 27
6
Cash Flow Statement – Operating Activities

• Shows cash inflows and

outflow from operations.

• Cash flow computed out

of non cash adjustments
made in Net profit.

• To check the liquidity &

Changes in working
capital.

• Cash operating Earnings.

• KPI’s, performance of the

receivables.

August, 2017 28
6
Cash Flow Statement – Investing Activities
• Changes in long term
assets .

• Cash flows from

purchases and sales
of assets.

• Cash flows from

interest & dividend
received.

August, 2017 29
6
Cash Flow Statement – Financing Activities

• To check the liquidity &

Changes in working
capital.

• Cash Earnings.

• Cash flows from

operating, investing,
financing activities.

• Helps in financing
decisions.

• KPI’s, performance of the

receivables.

August, 2017 30
Financial Statements- Statement of changes in Equity
• Details the change in owners' equity over an
accounting period.

• Change in shareholders' equity :

 Net profit or loss during the accounting
period attributable to shareholders
 Increase or decrease in share capital
reserves
 Dividend payments to shareholders
 Gains and losses recognized directly in
equity
 Effect of changes in accounting policies

August, 2017 31
Cash Conversion Cycle
[No. of days]

102 89
88 86 Cash Conversion Cycle
CCC • number of days it takes a
company to
generate revenues with assets.
=
45 Inventory Days
32 30 32 • number of days it takes to
DIO
sell an entire inventory

+
73 72 73 81
Receivables Days
DSO • number of days needed to
collect on sales, or accounts
receivable
- 23
16 16 17
DPO Payable Days
• company's payment of its
own bills, or accounts
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar payable for material
purchased.
DIO = Inventory Days, DSO = Receivable Days, DPO = Payable Days
Numbers are representational only

August, 2017 32
Contents

1.About annual report

 What is an annual report?
 Why an annual report is required?
 Disclosure Requirements
2. Contents & inferences from annual report
 Company & business overview
 Statutory Reports
 Key performance indicators
 Management discussion & analysis (MD&A)
 Financial Statements
3. Users of annual report and it’s utility
 Target audience

August, 2017 33
Target Audience

Customer
Financial
Shareholders Analyst

Community Peers
Target
Audience

Clients Employees

Suppliers &
Creditors
Regulatory
Bodies

August, 2017 34
 THANK YOU

August, 2017 35
Backup

August, 2017 36
Business model

August, 2017 37