Ricoh India Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Mar 2017
Auditor and Management Disclosures and Notes for the annual results dated 31 Mar 2017
Notes to the accounts
1. Subject to the matters below the financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in India, the Accounting Standards specified under section 133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts) Rules 2014 and the relevant provisions of the Act.
Going concern
2. As at 31 March 2017 the Accounts show a deficiency of net assets of Rs. 15,268 Lacs. The Directors consider the preparation of the financial results on a going concern basis as appropriate, as they have received a letter of support from the ultimate parent company (Ricoh Company, Limited) that it shall provide support through the availability of funds, or such other support as may be required by the Company, for the 12 months from the date of filing these Accounts to enable the Company to pay off its debts as and when they fall due. This is evident from the capital infusion of Rs. 112,300 Lacs by NRG Group Limited (the second largest shareholder and Co-Promoter).
Background
3. As detailed in the Annual Report and Financial Statements for the year ended 31 March 2016 (note 45 therein) the Company had to deal with multiple concerns arising from the falsification of its accounts. To address these issues the Audit Committee of the Company (“Audit Committee”) engaged various investigating parties which ultimately comprised Shardul Amarchand Mangaldas & Co., Advocates & Solicitors (“SAM”) who in turn appointed PricewaterhouseCoopers Private Limited, India (“PwC”). In addition, a team comprising various Ricoh group representatives, all of whom were independent of Ricoh India Limited, was established to continue the investigations alongside PwC.
PwC issued a 'Report on Preliminary Findings’ (“Preliminary Report”) dated 20 April 2016. Upon receipt of the Preliminary Report, the Company made disclosures and filings with the various regulatory authorities including the BSE Limited, The Securities & Exchange Board of India (“SEBI”), Ministry of Corporate Affairs (“MCA”) and also filed a criminal complaint with the Delhi Police. On 12 April 2017 the Company received a letter from the Delhi Police/EOW relating to the closure of the criminal complaint filed by it. The Company has made representations to the Commissioner of Police, Delhi and is in ongoing discussions regarding the matter.
On 18th May, 2016, the Company published its financial results for the quarter and half year ended 30 September 2015. In the disclosures accompanying the financial results, the Board of Directors stated that the financial results did not represent a true and fair view of the state of affairs of the Company and the reasons thereof. The statutory auditors did not provide an opinion in their limited review report.
On 19 July 2016 the internal investigation team and the Company presented the estimated unaudited loss for the year ended 31 March 2016 of Rs. 112,300 Lacs to the Audit Committee. This estimated result was approved and filed with the BSE Limited.
On 19 July 2016 the Promoter, Ricoh Company Limited, filed a petition with the Hon’ble National Company Law Tribunal (“NCLT”) seeking various reliefs but in particular the recapitalisation of the Company.
On 24 August 2016 the NCLT issued an Order granting the cancellation of the shares of either Ricoh Company Limited, or the Co-Promoter NRG Group Limited, and the preferential issue of the same number of shares for an amount equivalent to the estimated unaudited loss announced on 19 July 2016 i.e. Rs.112,300 Lacs.
On 14 October 2016 an Extraordinary General Meeting was held that approved the recapitalisation by way of cancellation of the shares of NRG Group Limited and preferential issue of the same number of shares to NRG Group Limited. On 15 October 2016 the board approved the cancellation, issue and allotment for the consideration of Rs. 1,12,300 Lacs.
On 17 November 2016 PwC presented their final report (“the PwC Report”) and the independent team presented their findings to the Audit Committee. The PwC Report has been shared with the relevant regulatory authorities.
On 18 November 2016 the results along with the statutory auditor’s report for the quarter and nine months ended 31 December 2015 and the quarter and year ended 31 March 2016 were presented to the Audit Committee. These were subsequently approved by the board and filed with the BSE Limited.
The statutory auditors issued a disclaimer of opinion on the financial statements at 31 March 2016. The Company sought to satisfy the statutory auditors that the balance sheet represented a true and fair view but were unable to do so. The Directors filed the appropriate statement with the BSE Limited that there was no difference between the results reported and the results with the impact of the disclaimer of opinion. On the basis of the investigations carried out by PwC and the independent investigation team, and based on the information available to the Directors, the Directors confirmed their belief that the balance sheet as at 31 March 2016 materially represented a true and fair view and would form the basis for future reporting.
On 22 November 2016, the BSE Limited listed an appeal to the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) that the Company under the direction of the NCLT had not, inter alia, followed the appropriate legal procedures regarding the recapitalisation. On 23 May 2017 the NCLAT disposed the matter. The Company will now initiate discussion with the BSE Limited on the listing of the shares subscribed by NRG Group Limited.
On 12 December 2016 the results along with the statutory auditor’s report for the quarter ended 30 June 2016 and the quarter and half year ended 30 September 2016 were approved and filed with the BSE Limited. On 8 February 2017 the results along with the statutory auditor’s report for the quarter and nine months ended 31 December 2016 were approved and filed with the BSE Limited. The statutory auditors in each of these periods disclaimed from an opinion in their limited review report.
On 26 May 2017 the results along with the statutory auditor’s report for the quarter and year ended 31 March 2017 were presented to the Audit Committee. These were subsequently approved by the board and filed with the BSE Limited. Whilst, significant improvements have been made by the Company, and these are reflected in the audit report, the statutory auditors have as anticipated still disclaimed from an opinion in their report. The Directors have filed the appropriate statement with the BSE Limited that there was no difference between the results reported and the results with the impact of the disclaimer of opinion. On the basis of the information available to the Directors, the Directors have confirmed their belief that the balance sheet as at 31 March 2017 materially represented a true and fair view and hence that the result for the year then ended similarly represented a materially true and fair view. The Directors have addressed the contents of the statutory auditors’ report in the Directors’ Report included in the Annual Report for 2015 -16 and there are no new significant matters raised in the auditors’ report for the current period and hence no further updates to provide in this regard. Full details will be included in the Annual Report for 2016-2017.
Basis of preparation
4. As a result of the investigations and the matters identified, the Company concluded that it was impractical because of limitations in the available documentation, the inability to conclude on the nature of certain transactions, and due to time and cost, to seek approval to restate all financial periods up to 31 March 2016 during which the falsification of accounts had taken place.
Hence, the Company reported the final loss for the quarter and year ended 31 March 2016 and separately identified, where possible, the loss relating to previous periods. Given the nature of the falsification of accounts it was not possible to fully allocate the falsifications or errors since to do so would have required significant assumptions that would have been subjective.
In order to ensure that the Company can measure its operating performance the Company has, insofar as possible, restated the results for the quarter ended 31 March 2016. This proforma normalised data is unaudited but is prepared on the basis of consistent accounting policies.
The loss for the quarter ended 31 March 2017 and the previous four quarters.
Revenue from operations increased in the quarter ended 31 March 2017 compared to quarter ended 31 December 2016. This is because the Company’s revenue is dependent upon the timing of milestone achievement in respect of contracts in progress.
Operating loss before interest has decreased from previous quarter. The Interest cost reduced reflecting the capital infusion of Rs. l12,300 lacs on 15 October 2016. The Company is continuing its efforts to return to profitability.
5. The one off adjustments and/or accounting falsifications that were identified in the year ended 31 March 2016 and included in the loss for that year have had a significant impact on the Company. Given the significance of these matters the Company continues to work with all of the relevant authorities to take action against those responsible. At this time all such matters are subject to legal process and consequently it is inappropriate for the Company to comment in detail and potentially prejudice such action.
Further commentary
6. Further commentary will be included in the Company’s annual report and accounts as management discussion and analysis.
Other matters
7. Segment reporting.
The Board of Directors consider that the sale of goods is an integral part of the delivery of services whether it be by way of Ricoh product or third party product. The Board of Directors also consider that the delivery of IT services is an adjacent activity that extends the Company’s integrated offering to customers.
In view of the above the Directors continue to regard the business as a single business segment.
8. Ratios have been computed as follows:
Debt equity ratio = Total debt/net worth
Interest service coverage ratio = earnings before interest & tax/interest expense
Debt Service coverage ratio = earnings before interest & tax/interest expense & principal payments made during the year on long term loans
9. As a result of the falsification of accounts referred to above the Company is working with a number of regulatory authorities. The Company has no reason to believe that any liabilities will arise out of its cooperation with any investigation by such authorities and hence no provision is included in the accounts at 31 March 2017.
10. The figures for the quarter ended 31 March 2017 and 31 March 2016 are the balancing figures between audited figures in respect of the full financial year and the year to date published figures up to the period ended 31 December 2016 and 31 December 2015 respectively.
11. Previous year figures have been regrouped / re-arranged / re-classified, wherever necessary to make them comparable with the current period figures.