1. BACKGROUND
Future Market Networks Limited (The Company) is a public limited company incorporated in India under the provisions of Companies Act, 1956 and validly existing under Companies Act, 2013. Equity shares of the Company are listed with BSE Limited and National Stock Exchange of India Limited. The company is engaged in the business of building capacity and enabling the infrastructure for future markets in a more efficient and cost effective manner. It aims to create a network of new markets by integrating and better organizing the modern wholesale trade, retail and logistics infrastructure in India. The Company is currently managing approximately 1 million sq ft of retail space and owns various real estate properties across India.
Estimation of fair value
Estimation of fair value - The fair valuation is based on current prices in the active market for similar properties. The main inputs used are quantum, area, location, demand, restrictive entry to the complex, age of building and trend of fair market rent in respective area. This valuation is based on valuations performed by an accredited independent valuer. Fair valuation is based on replacement cost method.
(i) During the Financial Year 2017-18, the Company has acquired 100% shares of Gati Realtors Private Limited
(ii) Further, the Company also acquired 100% stake in Future Trade Markets Private Limited (erstwhile Joint Venture Limited) by purchasing the balance 43,869 shares from the other co-venturer.
In July 2016, the Board of directors resolved to dispose 10 Acres Mall situated at Ahmedabad which is vested with the Company through an approved scheme of amalgamation. The buyer has been identified and the part of the property has been transferred. The balance sale portion is expected to be completed within next 12 months. The asset is presented separately under assets held for sale
Non-recurring fair value measurements
Assets classified as held for sale during the reporting period was measured at the lower of its carrying amount and fair value less costs to sell at the time of the reclassification. The fair value of the assets was based on the proposed sales considertion negotiated with the buyer.
Terms and Rights attached to equity shares:-
The company has only one class of equity shares having a par value of ' 10 per share. Each holder is eligible to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts in proportion of their shareholding.
Equity shares allotted as fully paid-up (during 5 years preceding March 31, 2018) including equity shares issued pursuant to contract without payment being received in cash
(i) In Financial Year 2015 -16 - Allotted 3,16,750 equity shares of ' 10/- each under FMNL - ESOS 2012 on December 11, 2015.
(ii) In Financial Year 2016 -17 - Allotted 1,20,125 equity shares of ' 10/- each under FMNL - ESOS 2012 on December 14, 2016.
Pursuant to the scheme of amalgamation of Manz Retail Private Limited, ESES Commercials Private Limited, PIL Industries Limited, Future Corporate Resources Limited, Gargi Business Ventures Private Limited, Weavette Business Ventures Limited with Suhani Trading and Investment Consultants Private Limited and their respective shareholders sanctioned by the National Company Law Tribunal, Mumbai Bench vide order dated October 18, 2017 and filed with ROC on November 14, 2017, the shares held by transferor companies in Future Market Networks Ltd now vested with Suhani Trading and Investment Consultants Private Limited.
Nature and purpose of other reserves
Securities premium reserve
Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.
FVOCI equity investments
The company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within the FVOCI equity investments reserve within equity. The group transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.
Share options outstanding account
The share options outstanding account is used to recognise the grant date fair value of options issued to employees under Future Market Networks Limited Employee stock option plan.
Secured borrowings and assets pledged as security
i) Bank overdraft (for previous year) secured by first and pari-passu hypothecation charge of all existing and future current assets including receivables of the borrower and personal guarantee of shareholder
The carrying amounts of financial and non-financial assets pledged as security for current and non-current borrowings are disclosed in note 28
2. Disclosure as per Indian Accounting Standard 19 - Employee Benefits Defined Contribution Plan Provident Fund
The contributions to the Provident Fund of the employees are made to a Government administered Provident Fund and there are no further obligations beyond making such contribution. Employer’s Contribution to Provident Fund amounting to Rs.16.21 Lakhs (previous year Rs.12.99 Lakhs) has been recognized as an expense in the Statement of Profit and Loss.
Defined Benefit Plan
Gratuity
The Company operates a gratuity plan administered by LIC. Every employee is entitled to a benefit equivalent to fifteen days salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972 or company scheme whichever is beneficial. The same is payable at the time of separation from the company or retirement, whichever is earlier. The benefits vest after five years of continuous service.
3(a) Fair value hierarchy
Investment in Mutual Funds which are measured at Fair Value through Profit and Loss Account are measured under Level 1.
Assets and liabilities which are measured at amortised cost for which fair values are disclosed are calculated under Level 3 except loans and security deposits which is measured at Level 2.
Investment in Equity Shares which are measured at Fair Value through Other Comprehensive Income are measured under Level 3.
Valuation processes
The Company has obtained assistance of independent and competent third party valuation experts to perform the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. Discussions of valuation processes and results are held between the Company and the valuer on periodic basis. Discount rates are determined using a capital asset pricing model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset.
The following methods and assumptions were used to estimate the fair values:
1. Fair value of trade receivables, trade payables, cash and cash equivalent, Bank balances other than above, other financial assets and other financial liabilities approximate their carrying amounts largely due to short term maturities of these instruments.
2. The fair values for loans and security deposits were calculated based on cash flows discounted using a current lending rate. They are classified as level 2 in the fair value hierarchy due to the inclusion of observable inputs.
3. The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk.
4. For financial assets and liabilities that are measured at fair value, the carriying amounts are equal to the fair values.
5. The fair value of the long-term Borrowings with floating-rate of interest is not impacted due to interest rate changes and will not be significantly different from their carrying amounts as there is no significant change in the under-lying credit risk of the Company borrowing (since the date of inception of the loans). Further, the Company has no long-term Borrowings with fixed rate of interest.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
4. Financial risk management
The Company’s business activities expose it to a variety of financial risks, namely liquidity risk, market risks and credit risk. The Company’s senior management has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk are reviewed regularly to reflect changes in market conditions and the company’s activities.
A. Market risks
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk. The company is not exposed to any foreign currency risk as neither operates internationally nor has any foreign currency transaction.
(a) Price Risk - Exposure:
The Company’s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet at fair value through OCI. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.
B. Credit Risks
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables).
Trade receivables
Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management.
The Company measures the expected credit loss of trade receivables and loan & advances customers wise based on historical trend. Loss rates are based on actual credit loss experience and past trends. Based on the historical data, adequate provision for the loss on collection of receivable has been made.
C. Liquidity Risk:
Liquidity risk is the risk that the company will face in meeting its obligations associated with its financial liabilities. The company’s approach to managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In doing this, management considers both normal and stressed conditions. A material and sustained shortfall in our cash flow could undermine the company’s credit rating and impair investor confidence.
The following table shows the maturity analysis of the company’s financial liabilities based on contractually agreed undiscounted cash flows as at the balance sheet date:
D. Capital Management
The Company aim to manages its capital efficiently so as to safeguard its ability to continue as a going concern and to optimise returns to our shareholders.
The capital structure of the Company is based on management’s judgement of the appropriate balance of key elements in order to meet its strategic and day-to-day needs. We consider the amount of capital in proportion to risk and manage the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company does not distribute dividends to the shareholders.
5. Segment information
In accordance with the Accounting Standard Ind-AS 108 - Operating Segment, segment information has been given in the consolidated financial statements of Future Market Networks Limited, no separate disclosure of segment reporting is required in these financial statements.
6. Acquisition of Subsidiaries:
a. Gati Realtors Private Limited:
On August 14, 2017 the company has accquired 10,000 Equity Shares of Gati Realtors Private Limited, being 100% shareholding of the company.
Subsequent to the accquisition of the 100% equity holding, during the year additional 10,852,500 shares were issued to the company at FV of Rs.10/- resulting in a total investment of Rs. 1,085.68 Lakhs
The acquisition of the specified assets referred to as " Business Combination" under Ind AS 103.
Total Purchase Consideration transferred:- Rs.0.42 Lakhs (entire cash) upon accquidition
The fair value of net assets acquired as at the date of acquisition were Rs.0.42 Lakhs
b. Future Trade Markets Private Limited.
The Company was holding 70% of the share captial in Future Trade Markets Private Limited. Pursuant to share purchase and buy back agreement dated August 16, 2017, the company has accquired 43,869 equity shares of Future Trade Markets Private Limited (Classified as a Joint Venture upto 31.03.2017) from the other co-venturer, being 5% of the share holding of the company and the balance 25% shareholding held by the other co-venturer was bought back by Future Trade Markets Private Limited. As a result, Future Trade Markets Private Limited became a wholly owned subsidiary of the Company.
The above acquisition of the specified assets referred to as " Business Combination" under Ind AS 103.
Total Purchase Consideration paid for the purpose of accquisition:
Upto August 16, 2017: 6,14,161 shares at a cost of Rs.3866.00 Lakhs fair value of such shares as on the date of acquiring full control was Rs.2142. 19 Lakhs During FY 2017-18: 43,869 shares at cost (which is equivalent to the fair value) of Rs.153.44 Lakhs The fair value of assets accquired and liabilities assumed as at the date of accquisition were:- Rs.2295.21 Lakhs
c. Future Retail Destination Limited
The Company is holding 50% of the shareholding in Future Retail Destination Limited. Pursuant to Share Purchase Agremeent dated 31 May, 2017 the company has agreed to purchase 1,50,00,000 shares of Future Retail Destination Limited (Classified as Joint Venture upto 31.03.2017) being balance 50% of the share holding of the said company from the other co-venturer by the end of September 2018. Further, the Company has also established full control over operations of Future Retail Destination Limited, by virtue of the agreement, thereby resulitng into a subsidiary of the Company.
Till May 31, 2017, the company has made an investment of Rs.1500 lakhs (representing 50% of the total shareholding), fair value of which as on the date of share purchase agreement is Rs.1466.82 lakhs. The fair value of assets and liabilities assumed at the date of share purchase agreement were: Rs.2933.63 Lakhs
7. Share based payments
(a) Employee option plan/ Tradable Options
Future Market Networks Limited (FMNL) has granted options to eligible employees on September 24, 2012 under Employee Stock Option Scheme 2012 ("ESOS 2012"). These options shall vest over a period of four years in the proportion of 25% for each year from the date of grant. These options can be exercised anytime within a period of three years from the date of vesting.
(d). Method and Assumptions Used to Estimate the Fair Value of Options Granted During the Year:
The fair value at grant date is determined using the Black Scholes Model which takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.
8. Payable to MSME
Disclosure of payable to vendors as defined under the "Micro, Small and Medium Enterprise Development Act, 2006" is based on the information available with the Company regarding the status of registration of such vendors under the said Act, as per the intimation received from them on requests made by the company. There are no overdue principal amounts/ interest payable amounts for delayed payments to such vendors at the Balance Sheet date. There are no delays in payment made to such suppliers during the year or for any earlier years and accordingly there is no interest paid or outstanding interest in this regard in respect of payments made during the year or brought forward from previous years.
Note:
(a). All the above loans have been granted for business purposes, except loan amounting to ' 2150.00 lakhs which has been granted to Unique Malls Private Limited, being promoter contribution, for the purpose of obtaining bank finance.
(b). All the above loans are interest bearing except loan to Gati Realtors Private Limited & Star Shopping Centres Private Limited which is in the nature of business advance, and promoter contribution to Unique Malls Private Limited as stated above.
9. Contingent Liabilities not provided for:
(a) Corporate Guarantee given to bank on behalf of Companies- Rs.52,450 Lakhs (2017: Rs.64,950 Lakhs)
Note: As on May 25, 2018, being the date of adopting the Financial Statements the amount of Corporate Guarantee is Rs.18,700 Lakhs (Refer note 34)
(b) Service Tax disputed demand - Rs.779.80 lakhs (2017: Rs.779.80 lakhs)
The demand is related to the tax liabilities of the erstwhile owner of the commercial property situated at D-09, Dhanvantari Chikitsa Kendra Yojna, Nanakheda, Ujjain, Madhya Pradesh - 456010. The property was acquired from a financial institution and not from the alleged assesse/erstwhile owner.
Based on the interpretation of other relevant provisions, the Company has been legally advised that the demand is not maintainable and the Company already filed a writ petition before Hon’ble High Court MP challenging the demand and accordingly no provision has been made.
(c) In an Arbitration proceedings before the sole Arbitrator, appointed by the Hon’ble High Court of Calcutta, in respect of disputes arose out of termination of a license agreement related to a shopping mall, the Arbitrator has awarded a net amount of Rs.12,90,52,379/- (Rupees Twelve Crore Ninety Lakhs Fifty Two Thousand Three Hundred Seventy Nine Only) to the Claimant after allowing certain counter claims of the Company.
The Company has filed an Arbitration Petition challenging the arbitration award U/s 34 of Arbitration and Conciliation Act, 1996 before the Hon’ble High Court, Calcutta.
Claimant through its Proprietor has also challenged the aforesaid arbitration award before the Hon’ble High Court, Calcutta.
The matters are pending before the High Court, Calcutta.
(d) The Company has sub lease rights with respect to a shopping mall in Mumbai and there were serious disputes amongst the parties under the said arrangement. During the year 2017-18, the parties have arrived at a settlement in a suit filed by the Company and tendered consent terms with Hon’ble High Court of Bombay in the suit filed by the Company. The consent terms deals with settlement of long standing dispute between the Company including settlement of past claims of sub lessor and in terms of the settlement entire outstanding till 30th June 2017 is settled for an amount of Rs.35.10 Cr, which is payable over a period of 3 years (over and above the existing receivables standing in the books) and the arrangement provides for future lease period and reduced rentals for the sub lease period upto August 2027. The arrangement deals with entitlement of lease rental in respect of premises owned by various third parties and a minority of such third party owners have intervened in the matter raising objections with respect of approval of consent terms by the Hon’ble Court. The Court has taken the consent terms on record but not yet issued an order sanctioning the consent terms. In case, the consent terms are accepted as filed, the Company will have to honour its payment obligations for the said amount after paymnets made, if any, and the parties shall be administrated in terms of the said consent terms. However, if the consent terms are not approved as agreed by the parties, it shall be relegated to the original position of the suit filed by the Company . In view of this, the above has been disclosed as contingent liabilities pending approval of Hon’ble High Court in relation to the consent terms.
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