Millennium Beer Industries Ltd merged Share Price directors Report
MILLENNIUM BEER INDUSTRIES LIMITED
ANNUAL REPORT 2009-2010
DIRECTORS REPORT
To
The Members,
MILLENNIUM BEER INDUSTRIES LIMITED
Your Directors have pleasure in presenting their Annual Report together
with the audited accounts of your Company for the financial year ended on
March 31, 2010.
FINANCIAL RESULT Rupees in Millions
Sr. Particulars Current Year Previous Year
No. 2009-2010 2008-2009
1. Sales & other Income 2,911 2,386
2. Expenditure 2,984 2,518
3. Profit/(Loss) After depreciation (73) (132)
4. Less: Adjustment for taxes / Deferred Taxation - (1)
5. Balance carried to Balance Sheet (73) (133)
6. Accumulated Losses (2,140) (2,067)
7. Net Worth (235) (162)
CAPITAL:
There has been no change in the share capital of the Company during the
year ended March 31, 2010. The authorized share capital of your Company
stands at Rs.196 crore comprising of 1.9 crore Preference Shares of Rs.100
each and 6 crore Equity Shares of Re.1/- each. The issued, subscribed and
paid-up share capital as on March 31, 2010 stood at Rs.190.48 crore
comprising of 1.85 crore Cumulative Redeemable Preference Shares (CRPS) of
Rs.100 each and 5.48 crore equity shares of Re.1 each.
DIVIDEND:
In view of loss incurred during the year, your Directors express their
inability to recommend any Dividend for the year 2009-2010.
MANAGEMENT DISCUSSION AND ANALYSIS
INDUSTRY OVERVIEW:
The per capita consumption of beer in India continues to be very low as
compared to other countries. There has been a steady growth in the Indian
Beer Industry of about 15% per year over the last five years, with Industry
volumes crossing 200 million cases in financial year 2009-2010 from about
100 million cases in financial year 2003-2004. Considering the Indian
demographics, with around 70% of the population below the age of 30 years,
growing income and increasing international influence, the industry is
expected to maintain if not exceed, its growth at present rate.
The Indian market infrastructure is a barrier to higher growth. In India,
alcohol is available in around 65,000 outlets including shops, bars and
restaurants which translates to roughly one outlet for every 18,000
residents, whereas the global average for the same is one outlet per 250
residents and the corresponding figure for China is one outlet for every
300 residents. For instance, in urban conglomeration like Greater Mumbai,
there are around 2,500 outlets while in Shanghai, which has similar
population base, the number of outlets selling alcohol is 18,000. An
encouraging development is that in some cities, like Mumbai, the government
has started to issue licenses for outlets to sell beer and wine only,
delinking it from the sale of Spirits.
Taxation is another major factor which adversely affects the India brewing
industry. In India, all the alcoholic beverages are taxed uniformly
irrespective of their alcohol content. Consequently, same rate of taxation
is applied for spirits, lager beer, strong beer and other alcoholic
beverages, resulting in higher price for beer relative to high alcohol
beverages. Across the globe, levies on beer are typically at half the rate
applicable to spirits, providing an incentive for consumers towards lower
alcohol beverages.
Due to the prevalent excise taxation structure, the majority of Indians who
consume alcohol prefer to purchase spirits over beer as it contains higher
alcohol at a similar price. Therefore in India, unlike most other
countries, consumption of spirits is higher than beer. Some states have
recently started to delink beer taxation from spirits, thereby promoting a
logical growth in the future.
Taxation & Regulation of alcohol being a State subject under the
Constitution of India, each State has separate set of regulations,
restrictions and taxation structure for the alcoholic beverages. Some
States also impose high export duties and restrictions on the export of
beer outside the State. Even the sales & distribution structure varies from
State to State as some markets are open while in most States primary sale
is canalized through State controlled corporations.
Over last 5 years, a plethora of foreign brands have entered the Country as
100% Foreign Direct Investment is permitted thereby increasing the choice
of brands and competition. All major global brewers are now present in
India.
OUTLOOK:
While multinational companies are expected to increase competition in the
premium beer segment, established domestic brands have the advantage of
having an established brand equity. Several international brewers have
currently built brand associations and are marketing their brands
aggressively through various point-of-sale promotions throughout their
distribution networks. Your Company has the benefit of a strong route to
market combined with Indias leading brands.
A double digit growth rate is expected for the coming years, resulting from
the increase in disposable income and the growth of consumers entering the
legal drinking age.
On-trade sales are expected to grow considerably with growing affluence
among young consumers together with the culture of frequenting pubs and
clubs that is now spreading to second-tier cities. Off-trade sales are
meanwhile expected to be boosted by the gradual deregulation of beer
retail, through supermarkets/hypermarkets and beer & wine licenses.
OPERATIONS SALES:
During the year under report your Company sold 1,022,910 HL of beer as
against 823,596 HL in the previous year representing a growth of 24.2%. The
industry, grew by 10% during the same period. Net sales for the year 2009-
2010 stood at Rs. 2,855 million as compared to Rs. 2,342 million in the
previous financial year reflecting an increase of 22%. The growth was
driven mainly by improved product mix and higher realization.
MANUFACTURING AND OTHER OPERATING EXPENSES:
Manufacturing expenses for the year under review stood at Rs.2,027 million
constituting 71% of total expenses as compared to Rs.1,679 million in the
previous year constituting 66.8% of the total expenses. Your Company has
undertaken market focused initiatives and internal measures to contain
costs and improve margins.
A significant increase in price of the second hand bottles on account of
hoarding by bottle traders has adversely affected manufacturing costs. The
units of have installed solid fuel boilers which has resulted in a
reduction of fuel cost. The units are continuously improving efficiencies
in the brewing process as well as packing thereby reducing the
manufacturing costs.
PERSONNEL EXPENSES:
Personnel expenses during the year under report was Rs.81 million as
compared to Rs. 68 million previous year. Personnel expenses during the
year under review represented 2.8% of net sales.
SELLING AND BRAND PROMOTION EXPENSES:
During the period under review, your Company has spent 26.5% of net
realizations from sales on selling and brand promotion exercise as compared
to 23.2% of net sales spent in the previous year.
Your Company has been carrying out various promotional activities in major
cities across the country in order to enhance visibility of its brands
Sandpiper & Zingaro. A new campaign reflecting the rich culture, history
and heritage of Rajasthan has been launched for the brand Bullet.
PROFIT BEFORE INTEREST, DEPRECIATION AND TAXATION:
The Profit before Interest, Depreciation and Taxation (PBIDT) for the year
under review stood at Rs.114.3 million as against Rs. 56.9 million previous
year reflecting an impressive increase of more than double over the
previous year. This increase in PBIDT is resulting from strong revenue
growth and sustained investment behind your Companys brands.
INTEREST AND DEPRECIATION:
Your Company paid Rs.38.3 million as interest during the year in comparison
to Rs. 52 million paid during the previous year. Depreciation for the year
was Rs.151.0 million as against Rs.136.6 million in the previous year.
POSITION OF PROFITABILITY:
The net loss before tax of your Company has been reduced to Rs.72.6 million
as compared to a loss of Rs.132.0 million in the previous year reflecting a
decrease in loss of 45%. The overall net worth of your Company is still
negative and is expected to improve gradually over a period of time.
SCHEME OF REHABILITATION:
The Scheme of Rehabilitation of your Company sanctioned by the Board for
Industrial and Financial Reconstruction (BIFR) is under implementation.
OPPORTUNITIES & THREATS:
With growing demand, the domestic production of beer is on the rise.
International brewers have established breweries across India in order to
extend their brand presence to more States. With these international brands
starting domestic production in India, indigenous brands such as your
companys face competition. International premium lager is growing steadily
(though on a smaller base) as the companies have expanded their
distribution across India, and have launched several new brands during the
year under review.
India is predominantly a spirits market and beer is a minority preference
for those who consume beverage alcohol. The low penetration in beer
consumption in comparison to international levels offers the expectation of
substantial and sustainable growth in demand for beer in years to come,
particularly given the youthful age of Indias populace. It is expected
that gradually there will be a deregulation in the Indian beer industry
too, giving it a boost.
Foreign brewers have been eyeing the Indian market for some years now as
India is widely acknowledged to be the last untapped big growth market.
RISKS AND CONCERNS:
The Indian beer industry is plagued with a myriad of taxes & levies that
vary from State to State. These along with price regulation, inadequate
market infrastructure and restrictions in interstate movement of beer, pose
a great challenge for the industry.
Unlike most developed countries where beer is less regulated and available
freely, high level of regulation and higher end consumer price hampers beer
sales in India.
Uniform tax regime for beer in all States will be a boon for the industry.
If implemented, it will help the beer industry by rationalizing end
consumer prices in all States, as is in the case of other consumer goods.
Globally, the policy of uniform taxation has been a success because of
inherent positive implications on Government revenue. In addition to
economic contribution, a uniform tax structure will also create increased
agro linkages that are beneficial to a country like India.
It is important to realize that the beer sector can contribute immensely to
the agricultural sector, as beer is an agro-based product. Barley farmers
particularly stand to benefit from the growth of the beer sector.
Additionally, the continuing control on pricing as exercised by a number of
State Governments has resulted in our inability to raise prices on most of
our sales. This has had a direct bearing upon the Companys profitability.
As this challenge continues in the current financial year, it has resulted
in a number of key markets becoming unattractive from a financial
perspective.
Excessive regulation and further extensions of Government intervention, in
the areas of distribution and pricing, is affecting the growth and
profitability of the industry as well as restricting Government revenues.
In addition, restrictions on advertising and licensing of retail outlets
continue to present challenges to the Industry.
Inclusion of alcoholic beverages into Goods and Service Tax (GST) is
uncertain. Non-inclusion of alcoholic beverages in purview of GST would be
against the fundamental concept of GST and could have a material negative
impact. However, even if it is included there may be material negative
impact on input cost.
INTERNAL CONTROL SYSTEM:
Your Company has established a robust system of internal controls to ensure
that assets are safeguarded and transactions are appropriately authorized,
recorded and reported. Internal Audit evaluates the functioning and quality
of internal controls and provides assurance of its adequacy and
effectiveness through periodic reporting. Your Companys internal control
systems are adequate and are routinely tested and certified by statutory
and internal auditors. The process adopted provides reasonable assurance
regarding the effectiveness and efficiency of operations, reliability of
financial reporting and compliance with applicable laws and regulations.
In order to continuously upgrade the internal control system, to be in line
with International best practice and to ensure total corporate governance,
your Company has implemented risk assessment, control self assessment and
legal compliance management systems. These have been updated during the
year under review.
The internal control system evaluates adequacy of segregation of duties and
reliability of management information systems, including controls in the
area of authorization procedures and steps for safeguarding assets. Planned
periodic reviews are carried out for identification of control deficiencies
and opportunities for bridging gaps with best practices along with
formalization of action plans to minimize risks.
Your Company believes that the overall internal control system is dynamic,
and reflects the current requirements at all times, hence ensuring that
appropriate procedures and controls, in operating and monitoring practices
are in place.
Internal Audit reports to the Audit Committee and recommends control
measures from time to time.
CORPORATE SOCIAL RESPONSIBILITY:
Corporate Social Responsibility has become an integral part of the
organizational philosophy in the company. Primary Health, Primary Education
and Water continue to be the areas of focus. In Dharuhera, your Company had
adopted the Government Primary School and its long term engagement
continues with them. During the year, your Company supported the school by
not only providing educational aids and supplementing mid day meals but
also enhanced the quality of education imparted by deploying more teachers.
It is because of your Companys initiatives that the enrolment figures have
increaed from 33 in 2007 to 73 in 2010. The Aurangabad unit of your Company
has planted about 150 trees around the boundary wall to develop a green
belt around the plant. Also, the unit is in the process of setting up a
Primary Health Centre and drinking water facility for the nearby village.
HUMAN RESOURCES:
People continue to be the focal point of the organizations development.
The Human Resource agenda for the year was to strengthen its people
capability and thus enhancing its people productivity. During the year,
your Company invested significant time and effort in evaluating the job
requirements and identifying individual developmental needs based on the
same. the organization also completed the succession planning exercise that
has enabled us to fill critical positions internally.
Your Company continued to significantly improve the performance in the
areas of productivity and safety by means of focused inititatives. Your
Company maintained harmonious employee relations during the year.
As on March 31, 2010, the total employee strength of your Company stands at
212. Your Directors place on record their sincere appreciation to all
employees for their contribution towards the continuous success of the
organization.
DIRECTORS:
Mr. P Subramani and Mr. S R Gupte retire by rotation at the ensuing Annual
General Meeting and being eligible, have offered themselves for
reappointment.
Brief resume of Mr. Subramani and Mr. Gupte form part of the Corporate
Governance Report annexed herewith in terms of Clause 49 of the Listing
Agreement with the Stock Exchanges.
SUBSIDIARY:
Millennium Alcobev Private Limited [MAPL] holds 88.95% of the Equity Share
Capital and hence your Company is a subsidiary of MAPL.
Your Company does not have any subsidiary.
PARTICULARS OF EMPLOYEES:
None of the employees of your Company draw remuneration exceeding the
limited prescribed under Sub-section (2A) of Section 217 of the Companies
Act, 1956.
LISTING REQUIREMENTS:
The Equity Shares of your Company are listed on Stock Exchanges at Mumbai
and Delhi. The listing fees have been paid to all the Stock Exchanges for
the year 2010-2011. Your Company has made an application with the Delhi
Stock Exchange Limited for voluntary delisting of its equity shares which
is pending approval.
CORPORATE GOVERNANCE:
In terms of Clause 49 of the Listing Agreement, a separate section on
Corporate Governance is attached to this report and forms part thereof. A
certificate from the Company Secretary in Practice as to the compliance of
the provisions of the said Clause 49 is attached to the Corporate
Governance Report.
CASH FLOW STATEMENT:
A Cash Flow Statement for the year ended March 31, 2010 is appended.
FIXED DEPOSIT:
Your Company has not taken, solicited/received any deposit from public.
AUDITORS:
M/s Price Waterhouse, Statutory Auditors hold office until the conclusion
of the ensuing Annual General Meeting and are eligible for re-appointment.
AUDITORS REPORT:
The Auditors have not made any qualification in their report for the period
under review.
PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN
EXCHANGE EARNINGS AND OUTGO:
Particulars with respect to Conservation of Energy, Technology Absorption,
Foreign Exchange Earnings and Outgo as required under Section 217(1)(e) of
the Companies Act, 1956 read with Companies (Disclosure of Particulars in
the Report of Board of Directors) Rules, 1988 are furnished as Annexure to
this Report and forms part of it.
DIRECTORS RESPONSIBILITY STATEMENT:
Pursuant to Section 217(AA) of the Companies Act, 1956, your Board of
Directors report that:
1. in the preparation of the Annual Accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures, if any;
2. accounting policies have been selected and applied consistently and that
the judgments and estimates made are reasonable and prudent so as to give a
true and fair view of the state of affairs of your Company at the end of
the financial year and of the loss of your Company for that period;
3. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis.
ACKNOWLEDGEMENTS:
Your Directors wish to place on record their appreciation for the continued
support received from shareholders, banks and financial institutions. Your
Directors are also grateful to the Companys business partners and
customers for their continued support and patronage. Finally, your
Directors wish to acknowledge the support and contribution on the part of
all employees who constitute our most valuable asset.
By order of the Board,
Place: Bangalore P. Subramani Anup Kumar Das
Date : July 20, 2010 Director Whole-time Director
Annexure to the Directors Report
Particulars pursuant to Section 217(1)(e) of the Companies Act, 1956 read
with the Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988 and forming part of the Directors Report.
A. CONSERVATION OF ENERGY:
* By synchronizing operation of brewing and bottling considerable amount of
energy has been saved.
* Monitoring of work in progress during off season has saved considerable
amount of energy.
* On account of removal of bottleneck in the brew house, the average number
of brews per day has increased from 7.75 to 8, this has also helped in
energy conservation.
* The line efficiency of bottling line has been increased by 3%,
consequently, improving energy conservation.
* Variable Frequency Drive for Boiler fans installed reducing electric
energy.
Water and Effluent Discharge:
* Due to removal of bottleneck and monitoring of section wise water
consumption, the consumption of water has reduced, consequently reducing
the quantity of effluent discharge.
* The Effluent Treatment Plant has been upgraded to take the additional
loads to comply with the statutory requirements.
* Alternate Fuel Boilers installed at both the units leading to reduction
in energy cost.
* Coil cooler has replaced the conventional radiators on the diesel
generator set at Dharuhera unit for better efficiency.
* Soft starters installed on Refrigeration compressors to prevent starting
surge and reduce maximum demand of electricity in Aurangabad unit.
B. TECHNOLOGY ABSORPTION:
* Your Company continues to use latest Quality control equipments in
process thereby ensuring improvement in Quality.
* Periodic guidance is being sought from the centralized R & D Department
of United Breweries Limited to understand and implement the latest
technological advances in brewing.
* New Automated Mash Kettle with improved agitor design installed at
Aurangabad unit.
Health, Safety and Environment:
* Waste Minimization program has been initiated.
* Medical check up of all employees done.
C. FOREIGN EXCHANGE EARNINGS & OUTGO:
Foreign Exchange earned : Nil
Foreign Exchange used : Nil
By order of the Board,
Place: Bangalore P. Subramani Anup Kumar Das
Date : July 20, 2010 Director Whole-time Director