Notes to Financial Statements for the Period ended 31st March 2015 1. CORPORATE INFORMATION HeidelbergCement India Limited (hereinafter referred to as "HCIL" or "the Company") is a Company domiciled in India. Its shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing of Portland cement at its three locations viz. Ammasandra (Karnataka), Damoh (Madhya Pradesh) and Jhansi (Uttar Pradesh). 2. BASIS OF brPARATION The financial statements of the company have been brpared in accordance with generally accepted accounting principles in India. The Company has brpared these financial statements to comply in all material respects with the accounting standard notified under Companies Accounting Standards Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been brpared under the historical cost convention on an accrual basis except in case of assets for which provision for impairment is made /revaluation is carried out and derivative financial instruments which have been measured at fair value. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. 2.1 Summary of significant accounting policies a) Use of estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods. b) Tangible fixed assets Fixed assets are stated at cost or revalued amounts, as the case may be, net of accumulated debrciation and impairment losses, if any. Cost comprises the purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. In case of revaluation of fixed assets, any revaluation surplus is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset brviously recognized in the statement of profit and loss, in which case the increase is recognized in the statement of profit and loss. A revaluation deficit is recognized in the statement of profit and loss, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. c) Debrciation on tangible fixed assets (i) Debrciation on fixed assets is provided on straight line basis using the rates arrived at based on the useful lives of the assets as estimated by management or those brscribed under the schedule XIV to the Companies Act, 1956 whichever is higher. The debrciation on the following assets is provided at higher rates based on following useful life, as compared to schedule XIV rates: Tangible Assets Estimated Useful Lives (Years) Ropeways 2 to 8 Motor Cars 5 Roads 25 (ii) Assets costing less than Rs. 5,000 are fully debrciated in the year of purchase. (iii) In respect of the revalued assets, the difference between the debrciation calculated on the revalued amount and that calculated on the original cost is recouped from the revaluation reserve account. (iv) Leasehold Land is amortized over the period of initial lease term ranging from 5 to 20 years. (v) Cost of mineral reserve embedded in the cost of freehold mining land is debrciated in proportion of actual quantity of minerals extracted to the estimated quantity of extractable mineral reserves. d) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The amortization period and the amortization method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from brvious estimates, the amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. Costs incurred on acquisition of intangible assets are capitalized and amortized on a straight-line basis over their technically assessed useful lives, as mentioned below: Intangible Assets Estimated Useful Lives (Years) Software 5 e) Impairment The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/ external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value at the weighted average cost of capital. For the purpose of accounting of impairment, due consideration is given to revaluation reserve, if any. After impairment, debrciation is provided on the revised carrying amount of the assets over its remaining useful life. f) Inventories Inventories are valued as follows: Raw materials, stores and spares and packing materials Lower of cost and net realisable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost is determined on a weighted average basis and includes cost incurred in bringing the material to its brsent location and condition. Work-in-progress and finished goods Lower of cost and net realisable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Cost is determined on a weighted average basis. Scrap :Net realizable value. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. g) Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized; (i) Sale of goods Revenue from sale of goods is recognised when all the significant risks and rewards of ownership of the goods have been passed to the buyer. The Company collects sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the company. Hence, they are excluded from revenue. Excise duty deducted from revenue (gross) is the amount that is included in the amount of revenue (gross) and not the entire amount of liability arise during the year. Sales are reported net of sales tax, incentives and rebates. (ii) Interest Interest income is recognised on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head "other income" in the statement of profit and loss. h) Government grants and subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset. Government grants of the nature of promoters' contribution are credited to capital reserve and treated as a part of the shareholders' funds. i) Borrowing costs Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. j) Leases Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit & loss on a straight line basis over the lease term. k) Foreign currency translations Foreign currency transactions and balances (i) Initial Recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. (ii) Conversion Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. Non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are translated using the exchange rates that existed when the values were determined. (iii) Exchange Differences Exchange differences arising on settlement of monetary items or on reporting Company's monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognised as income or as expenses in the period in which they arise. l) Derivative financial instruments and hedge accounting The Company uses derivative financial instrument such as cross currency interest rate swaps to hedge its foreign currency risks and interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit and loss, except for the effective portion of cash flow hedge, which is recognised in Hedging Reserve Account included in the Reserves and Surplus while any ineffective portion is recognised immediately in the statement of profit and loss. For the purpose of hedge accounting, hedges are classified as: 1 Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability 2 Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedge accounting is discontinued from the last testing date when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Cumulative gain or loss on such hedging instrument recognised in shareholder's funds is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders' funds is transferred to statement of profit and loss for the period. m) Retirement and other employee benefits (i) Superannuation Fund (being administered by Trusts) and Employees' State Insurance Corporation (ESIC) are defined contribution schemes and the contributions are charged to the statement of profit and loss for the period when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the respective funds. (ii) Retirement benefits in the form of provident fund contributed to statutory provident fund is a defined contribution scheme and the payments are charged to the statement of profit and loss for the period when the payments to the respective funds are due. There are no obligations other than contribution payable to provident fund authorities. (iii) Retirement benefits in the form of provident fund contributed to trust set up by the employer is a defined benefit scheme and the amounts are charged to the statement of profit and loss for the period when the payments to the trust are due. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. (iv) Gratuity liability (being administered by a Trust) is a defined benefit obligation and is provided for on the basis of an actuarial valuation done using projected unit credit method at the end of each financial year. Actuarial gains and losses for defined benefit plans are recognized in full in the period in which they occur in the statement of profit and loss. (v) Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company brsents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date. n) Income taxes Tax expense comprises current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India and tax laws brvailing in the respective tax jurisdictions where the company operates. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. At each reporting date, the company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax asset to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets are reviewed at each reporting date. The company writes-down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority. Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in which the company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as "MAT Credit Entitlement." The company reviews the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent the company does not have convincing evidence that it will pay normal tax during the specified period. o) Segment reporting The Company is primarily engaged in the manufacturing of cement and hence entire operation rebrsents a single primary segment. The company operates within India only and hence geographical segment is not applicable to the company. p) Provisions A provision is recognised when an enterprise has a brsent obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its brsent value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and are adjusted to reflect the current best estimates. q) Contingent liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation at the reporting date. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements. r) Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders after deducting brference dividends and attributable taxes by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares, if any. s) Mine reclamation expenses The Company provides for the estimated expenses to reclaim the quarries used for mining. The total estimate of reclamation expenses is apportioned over the estimate of mineral reserves and a provision is made based on the minerals extracted during the year. Mines reclamation expenses are incurred on an ongoing basis and until the closure of the mine. The actual expenses may vary based on the nature of reclamation and the estimate of reclamation expenses. t) Cash and cash equivalents Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. u) Measurement of EBITDA As permitted by the Guidance Note on the Revised Schedule VI to the Companies Act, 1956, the Company has elected to brsent earnings before interest, tax, debrciation and amortization (EBITDA) as a separate line item on the face of the statement of profit and loss. The Company measures EBITDA on the basis of profit/ (loss) from continuing operations. In its measurement, the Company does not include debrciation and amortization expense, finance costs and tax expense. 28. CAPITAL COMMITMENTS Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs. 623.7 million (Previous year: Rs. 138.4 million). 30. CROSS CURRENCY INTEREST RATE SWAP The Company has a cross currency interest rate swap agreement with a bank for ECB Loan of USD 125,000,000 (Previous year USD 125,000,000) whereby the Company pays a fixed rate of interest for various tranches of loan and receives a variable rate linked to LIBOR. The swap is being used to hedge the ECB loan taken on floating interest rate linked to LIBOR. The loss on restatement of bank borrowings up to year end amounting to Rs. 1,814.1 million (up to brvious year Rs. 1,753.9 million) has been charged off to Statement of profit and loss and offset with a similar gain on increase in fair value of Derivative Assets. The Company has closing derivative assets of Rs. 1,896.6 million (Previous year Rs.1,994.3 million) which is brsented under other current assets in Note 13.2. Effective portion of cash flow hedge and differential accrued interest amounting to Rs. 144.3 million (brvious year Rs. 347.3 million) has been taken to "Hedging Reserve Account" under Reserves & Surplus under Note 4. 32. Excise duty on sales amounting to Rs. 3,271.0 million (Previous year Rs. 2,195.1 million which includes Rs. 24.9 million from sales out of production during trial runs) has been reduced from sales in statement of profit and loss. Excise duty income on increase in stocks amounting to Rs. 8.1 million (Previous year excise duty expenses of Rs. 27.6 million) has been considered in Note 21 of the financial statement. 36. SALES & ENTRY TAX BENEFIT The Company is entitled to benefits under the Madhya Pradesh State Industrial Promotion Policy, 2004 and 2010 for the increased cement production facility at Damoh, Madhya Pradesh w.e.f. February 18, 2013.Under the said policy, the Company has been exempted from payment of Entry Tax on purchase of input materials for a period of 7 years and also claim refund upto 75% of VAT/CST paid on sales for a period of 10 years within the state of Madhya Pradesh in respect of the increased production facility. 37. Capital advances include an amount of Rs. 150.6 million paid during the brvious year to a supplier against a bank guarantee for setting up a Waste Heat Recovery based Power Generation Plant at the Company's clinkerisation unit at Narsingarh in Madhya Pradesh. A dispute arose with the supplier as they failed to adhere to the agreed timelines and insisted for enhancement of the contract price in view of debrciation of Rupee against US dollars, despite the contract being for a fixed price. The supplier in brvious year had also offered the Company to renegotiate and agree with its subcontractors for settlement of the aforesaid advance. The Company invoked the advance bank guarantee to recover the advances paid to the said supplier. The Hon'ble High Court of Delhi had in brvious year granted an ad interim ex-parte injunction against the invocation of aforesaid Bank Guarantee, against which the Company had filed an application for vacation of stay, which is currently pending. During the period, the Division bench of the Delhi high court has given direction to the single judge to decide the matter expeditiously. Basis legal assessment and brcedents of Subrme Court judgements, the management is confident of recovering the amounts and no adjustments are considered necessary in the financial statements in this regard. 40. Previous Year Figures During the period, the Company's financial statements have been brpared for the fifteen months period from January 01, 2014 to March 31, 2015 and hence not comparable with those of brvious year. Previous year figures have been regrouped / reclassified, where necessary, to conform to this period's classification. As per our report of even date For S. R. Batliboi & Co. LLP Firm Registration No. 301003E Chartered Accountants For and on behalf of the Board of Directors of HeidelbergCement India Limited per Sanjay Vij Partner Membership No.: 95169 Anil Kumar Sharma Chief Financial Officer Dr. Albert Scheuer Director P.G. Mankad Chairman Jamshed Naval Cooper CEO & Managing Director S. Krishna Kumar Director Rajesh Relan Legal Head & Company Secretary Pradeep V. Bhide Director Daniel R. Fritz Director Soek Peng Sim Director Sushil Kumar Tiwari Wholetime Director Place : Gurgaon Date : May 25, 2015 |