Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

Date : 03/13/2019 @ 1:17PM
Source : Edgar (US Regulatory)
Stock : Amira Nature Foods Ltd (ANFI)
Quote : 0.425  -0.0296 (-6.51%) @ 7:52PM

Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A

 

(Mark one)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2018

 

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ___________

 

Commission file number 001-35681

 

Amira Nature Foods Ltd

(Exact name of the Registrant as specified in its charter)

 

British Virgin Islands

(Jurisdiction of incorporation or organization)

 

29E, A.U. Tower

Jumeirah Lake Towers

Dubai,

United Arab Emirates

(Address of principal executive offices)

 

Mr. Karan A. Chanana, Chief Executive Officer
29E, A.U. Tower

Jumeirah Lake Towers

Dubai, United Arab Emirates
Telephone: +97144357303
Facsimile: +97142387767

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class Name of each Exchange on which registered
ORDINARY SHARES, PAR VALUE $0.001 New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.

 

EXPLANATORY NOTE

 

Amira Nature Foods, Ltd. is filing this Amendment No.1, (the “Form 20-F/A”), to its Annual Report on Form 20-F (the “Original Form 20-F”) for the year ended March 31, 2018, filed with the Securities & Exchange Commission on October 16, 2018 (the “Original filing date”) to provide its Form 20-F formatted in XBRL (Extensible Business Reporting Language). Except as stated and except a few other insignificant changes, the Original Form 20-F has not been amended, updated or otherwise modified. This Amendment No. 1 on Form 20-F/A (including the exhibits) does not reflect events occurring after the filing of the Original Report in Form 20F on October 16, 2018. This Amendment should be read in conjunction with the Original Form 20-F and other information that ANFI has filed or furnished to the SEC subsequent to the Original Filing Date

 

On March 31, 2018, the issuer had 46,384,091 ordinary shares outstanding, including 7,005,434 ordinary shares issuable pursuant to an exchange agreement described in detail in this report under the heading “Item 5. Operating and Financial Review and Prospects” and 1,465,183 share options granted and vested through March 31, 2018.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  Yes  ¨ No  x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

  Yes  ¨ No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes  x No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

  Yes  x No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

¨          Large Accelerated filer x            Accelerated filer ¨          Non-accelerated filer
    ¨          Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

¨          US GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board ¨            Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

  ¨  Item 17 ¨  Item 18

 

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes  ¨ No  x

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I.    
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3
ITEM 3. KEY INFORMATION 3
A. Selected Financial Data 3
B. Capitalization and Indebtedness 6
C. Reasons for the Offer and Use of Proceeds 6
D. Risk Factors 6
ITEM 4. INFORMATION ON THE COMPANY 26
ITEM 4A. UNRESOLVED STAFF COMMENTS 47
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 47
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 66
A. Directors and senior management 66
B. Compensation 68
C. Board Practices 77
D. Employees 79
E. Share Ownership 80
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 80
A. Major shareholders 80
B. Related Party Transactions 81
C. Interests of Experts and Counsel 82
ITEM 8. FINANCIAL INFORMATION 82
A. Consolidated Statements and Other Financial Information 82
B. Significant Changes 82
ITEM 9. THE OFFER AND LISTING 82
A. Offer and Listing Details 82
B. Plan of Distribution 83
C. Markets 83
D. Dilution 83
E. Expenses of the Issue 83
ITEM 10. ADDITIONAL INFORMATION 83
A. Share Capital 83
B. Memorandum and Articles of Association 84
C. Material Contracts 86
D. Exchange controls 86
E. Taxation 86
F. Dividends and paying agents 91
G. Statement by experts 91
H. Documents on display 91
I. Subsidiary Information 91
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 92
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 92
     
PART II.    
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 92
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 92
ITEM 15. CONTROLS AND PROCEDURES 92
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 93
ITEM 16B. CODE OF ETHICS. 93
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 94
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. 94
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. 94
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT. 94
ITEM 16G. CORPORATE GOVERNANCE 94
ITEM 16H. MINE SAFETY DISCLOSURE 95
     
PART III.    
ITEM 17. FINANCIAL STATEMENTS 95
ITEM 18. FINANCIAL STATEMENTS 95
ITEM 19. EXHIBITS 95

 

1

 

 

CONVENTIONS USED IN THIS REPORT

 

In this annual report on Form 20-F (the “Annual Report”), unless otherwise stated or unless the context otherwise requires, references to (i) ‘‘we’’, ‘‘us’’, ‘‘our’’, ‘‘the Company’’, “the Group”, ‘‘our Company’’ or “ANFI” are to Amira Nature Foods Ltd, a British Virgin Islands business company, including its subsidiaries; (ii) references to “Amira Mauritius” are solely to Amira Nature Foods Ltd, a Mauritius company and ANFI’s wholly owned subsidiary; and (iii) references to “Amira I Grand Foods Inc. (BVI)” are to Amira I Grand Foods Inc. a British Virgin Island business company and its subsidiaries, including Amira Grand I Foods Inc. and Amira K.A Foods International DMCC and (iv) “APFPL” or “Amira India” are to Amira Pure Foods Private Limited, and its subsidiaries, including Amira I Grand Foods Inc., Amira Food Pte. Ltd., Amira Foods (Malaysia) SDN. BHD., Amira C Foods International DMCC, Amira Basmati Rice GmbH EUR (formerly known as Basmati Rice GmbH Europe), Basmati Rice North America LLC, Amira G Foods Limited and Amira Ten Nigeria Limited.

 

In this report, references to “India” are to the Republic of India, references to “BVI” are to the British Virgin Islands, and references to “Mauritius” are to the Republic of Mauritius. References to “$”, “USD” , “dollars” or “U.S. dollars” are to the legal currency of the United States and references to “Rs.”, “Rupees”, “INR” or “Indian Rupees” are to the legal currency of India.

 

The audited consolidated financial statements for the fiscal years ended March 31, 2018, 2017 and 2016 and notes thereto included elsewhere in this report have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). References to a particular “fiscal year” are to our fiscal year ended March 31 of that year. Our interim period ends on September 30. References to a year other than a “fiscal” are to the calendar year ended December 31.

 

In this report, references to our “international sales” are to those sales which are made to international markets outside of India. In this report, references to increase/ decrease in percent for the financial statement items have been computed based on absolute figures reported in “Item 18. Financial Statements”. We also refer in various places within this report to earnings before interest, tax, depreciation and amortization (EBITDA), adjusted EBITDA, adjusted profit after tax, adjusted earnings per share, adjusted net working capital and net debt, which are non-IFRS measures and are more fully explained in the section titled “Non-IFRS Financial Measures” in “Item 5. Operating and Financial Review and Prospects”. The presentation of this non-IFRS information is not meant to be considered in isolation or as a substitute for our consolidated financial results prepared in accordance with IFRS as issued by the IASB.

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report contains statements of a forward-looking nature. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect ,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “future” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:

 

· our goals and strategies;

 

· our expansion plans;

 

· our future business development, results of operations and financial condition;

 

· our ability to protect our intellectual property rights;

 

· projected revenue, profits, adjusted profits, EBITDA, adjusted EBITDA, earnings, adjusted earnings and other estimated financial information;

 

2

 

 

· our ability to maintain strong relationships with our customers and suppliers;

 

· governmental policies regarding our industry; and

 

· the impact of legal proceedings.

 

We would like to caution you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Risk Factors” appearing elsewhere in this Annual Report. Those risks are not exhaustive. We operate in a rapidly evolving environment. New risk factors emerge from time to time, and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The following selected consolidated statements of profit or loss data for each of the years ended March 31, 2018, 2017 and 2016 and selected consolidated statement of financial position data as of March 31, 2018 and 2017 are derived from our audited consolidated financial statements included in this Annual Report beginning on page F-1. The selected consolidated statements of profit or loss data for the fiscal year ended March 31, 2015 and 2014 and selected consolidated statement of financial position data as of March 31, 2015 and 2014 have been derived from our audited consolidated financial statements of those respective years, which are not included in this Annual Report. Since October 15, 2012, when we completed our initial public offering, we own 80.4% of Amira India pursuant to the terms of a share subscription agreement between Amira Mauritius and Amira India. We accounted for this combination using the “pooling of interest method,” and accordingly, our consolidated financial statements included in this Annual Report include our and Amira India’s assets, liabilities, revenues and expenses, which have been recorded at their carrying values and all periods in these financials have been retrospectively adjusted as applicable. The remaining 19.6% of Amira India that is not owned by ANFI is reflected in our consolidated financial statements as a non-controlling interest, and accordingly, the profit after tax attributable to equity shareholders of ANFI is reduced by a corresponding percentage.

 

The following selected consolidated financial statements data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. Our historical results for any period are not necessarily indicative of results to be expected in any future period.

 

· Statements of Profit or Loss Data

 

3

 

 

    March 31, 2018     March 31, 2017     March 31, 2016     March 31, 2015     March 31, 2014  
Revenue   $ 413,901,480     $ 551,830,966     $ 563,451,016     $ 700,044,891     $ 547,344,368  
Other income     5,031,827       48,833       956,336       186,404       160,064  
Cost of materials     (373,451,132 )     (492,189,652 )     (432,030,831 )     (619,100,865 )     (454,123,161 )
Change in inventory of finished goods     (106,193,580 )     35,517,661       (22,509,438 )     63,181,906       39,859,583  
Employee benefit expenses     (6,797,731 )     (8,753,175 )     (12,884,266 )     (11,831,777 )     (11,642,833 )
Depreciation and amortization     (1,617,118 )     (1,778,968 )     (2,061,698 )     (2,396,874 )     (2,064,264 )
Freight, forwarding and handling expenses     (2,535,261 )     (3,139,061 )     (9,082,563 )     (16,508,963 )     (23,359,177 )
Other expenses     (12,705,159 )     (14,905,710 )     (23,275,173 )     (24,609,109 )     (22,855,617 )
    $ (84,366,674 )   $ 66,630,894     $ 62,563,383     $ 88,965,613     $ 73,318,963  
Finance costs     (34,108,621 )     (29,272,826 )     (27,063,456 )     (34,988,422 )     (25,859,231 )
Finance income     29,669       263,231       1,187,095       2,256,120       2,766,518  
Other gains and (losses)     4,908,564       (1,512,928 )     1,123,900       5,534,369       (2,800,475 )
Profit/(loss) before tax   $ (113,537,062 )   $ 36,108,371     $ 37,810,922     $ 61,767,680     $ 47,425,775  
Income tax (expense)/credit     19,941,298       (4,596,968 )     (4,897,325 )     (8,603,974 )     (9,293,071 )
                                         
Profit/(loss) after tax for the year   $ (93,595,764 )   $ 31,511,403     $ 32,913,597     $ 53,163,706     $ 38,132,704  
Profit/(loss) after tax for the year attributable to:                                        
Shareholders of the company   $ (78,222,174 )   $ 25,087,388     $ 25,791,973     $ 42,125,065     $ 29,956,327  
Non-controlling interest   $ (15,373,590 )   $ 6,424,015     $ 7,121,624     $ 11,038,641     $ 8,176,377  
                                         
Earnings per share                                        
Basic earnings per share (1)   $ (2.30 )   $ 0.84     $ 0.90     $ 1.47     $ 1.04  
Diluted earnings per share (1)   $ (2.30 )   $ 0.84     $ 0.90     $ 1.46     $ 1.04  

 

 

(1) Basic earnings per share is calculated by dividing our profit after tax as reduced by the amount of a non-controlling interest reflecting the remaining 19.6% of Amira India that is not owned by us, by the number of our weighted average outstanding ordinary shares, during the applicable period. Diluted earnings per share is calculated by dividing our profit after tax, as reduced by the amount of a non-controlling interest reflecting the remaining 19.6% of Amira India that is not owned by us, by the number of our weighted average outstanding ordinary shares adjusted by the dilutive impact of the equivalent stock options granted. The dilutive impact of total share options 1,465,183 granted to Mr. Karan A. Chanana in the years ended March 31, 2018, 2017, 2016, 2015, and 2014, (see heading “Item 18. Financial Statements”; under Note 29 “Earnings per share”) is anti-dilutive (in FY2018) and not material in previous years and hence there is no change in the presented basic and diluted earnings per share in the table above.

 

· Adjusted EBITDA, Adjusted profit after tax and adjusted earnings per share

 

For the fiscal year ended March 31, 2018, we had adjusted EBITDA of $59.0 million, adjusted loss after tax of $ 3.5 million and adjusted earnings per share of ($0.09). In the following tables we have provided reconciliation of non-IFRS measures* to the most directly comparable IFRS measure:

 

4

 

 

1. Reconciliation of profit after tax to EBITDA and adjusted EBITDA:

 

    Fiscal year ended March 31,  
    2018   2017     2016   2015  
    (Amount in $)  
Profit/(loss) after tax (PAT)     (93,595,764 )   31,511,403     32,913,597     53,163,706  
Add: Income tax expense/(credit)     (19,941,298 )   4,596,968     4,897,325     8,603,974  
Add: Finance costs (net of finance income)     34,078,952     29,009,595     25,876,361     32,732,302  
Add: Depreciation and amortization     1,617,118     1,778,968     2,061,698     2,396,874  
EBITDA     (77,840,992 )   66,896,934     65,748,981     96,896,856  
Add: Non-cash expenses for share-based compensation     1,205,809     1,312,250     3,523,412     1,719,037  
Add: Onetime expenses related to proposed Senior Secured Second Lien Notes offering     -     -     -     1,256,995  
Add: One-time provision for impairment of inventory     133,984,426     -     -     -  
Add: One-time legal & professional charges     1,695,323     2,295,995     5,461,146     -  
Adjusted EBITDA     59,044,566     70,505,179     74,733,539     99,872,888  

   

2. Reconciliation of profit after tax to adjusted profit after tax (excluding IPO-related expenses):

 

  Fiscal year ended March 31,  
  2018   2017   2016   2015  
  (Amount in $)  
Profit/(loss) after tax (PAT)   (93,595,764 )   31,511,403     32,913,597     53,163,706  
Add: Non-cash expenses for share-based compensation   1,205,809     1,312,250     3,523,412     1,719,037  
Add: Onetime expenses related to proposed Senior Secured Second Lien Notes offering   -     -     -     1,256,995  
Add: One-time provision for impairment of inventory (net of taxes)   87,164,908     -     -     -  
Add: One-time legal & professional charges   1,695,323     2,295,995     5,461,146     -  
Adjusted profit/(loss) after tax   (3,529,724 )   35,119,648     41,898,155     56,139,738  

   

3. Reconciliation of earnings per share and adjusted earnings per share:

 

        Fiscal year ended March 31,  
        2018   2017   2016   2015  
          (Amount in $)  
                               
Profit/(loss) after tax (PAT)         (93,595,764 )   31,511,403     32,913,597     53,163,706  
Profit attributable to Shareholders of the company     (A)   (78,222,174 )   25,087,388     25,792,843     42,125,065  
Weighted average number of shares (for Basic earnings per share)     (B)   34,064,348     29,822,470     28,805,738     28,723,273  
Weighted average number of shares (for diluted earnings per share)     (C)   34,064,348     29,822,470     28,805,738     28,927,135  
Basic earnings per share as per IFRS     (A) ÷ (B)   (2.30 )   0.84     0.90     1.47  
Diluted earnings per share as per IFRS     (A) ÷ (C)   (2.30 )   0.84     0.90     1.46  
                               
Share Issuable under share exchange agreement for non-controlling interest     (D)   7,005,434     7,005,434     7,005,434     7,005,434  
Number of shares outstanding including shares for non-controlling interest-fully diluted     (E) = (C) + (D)   41,069,782     36,827,904     35,811,172     35,932,569  
                               
Profit/(loss) after tax (PAT)         (93,595,764 )   31,511,403     32,913,597     53,163,706  
Add: Non-cash expenses for share-based compensation         1,205,809     1,312,250     3,523,412     1,719,037  
Add: Onetime expenses related to proposed Senior Secured Second Lien Notes offering         -     -     -     1,256,995  
Add: One-time provision for impairment of inventory (net of taxes)         87,164,908     -     -     -  
Add: One-time legal & professional charges         1,695,323     2,295,995     5,461,146     -  
Adjusted profit/(loss) after tax     (F)   (3,529,724 )   35,119,648     41,898,155     56,139,738  
                               
Adjusted earnings per share     (F) ÷ (E)   (0.09 )   0.95     1.17     1.56  

 

*The group has used adjusted Cost of goods sold (after accounting for the impact of impairment of inventories) as explained in the MDA section

 

5

 

 

· Statements of Financial Position Data

 

  As at March 31,  
  2018   2017   2016   2015   2014  
Cash and cash equivalents $ 1,216,642   $ 16,831,655   $ 17,412,501   $ 46,660,922   $ 37,606,098  
Total current assets   492,312,312     552,972,603     476,034,239     471,018,305     394,689,932  
Total assets   512,826,507     574,605,215     502,986,145     497,071,917     422,450,650  
Total equity   241,608,876     303,224,421     249,721,766     221,325,125     171,841,007  
Debt (Long term & Short term)   250,231,474     224,440,023     209,442,252     211,044,573     184,842,761  
Total liabilities   271,217,631     271,380,794     253,264,379     275,746,792     250,609,643  
Total equity and liabilities   512,826,507     574,605,215     502,986,145     497,071,917     422,450,650  

  

· Capital stock (excluding long-term debt and redeemable preferred stock) and number of shares as adjusted to reflect changes in capital

 

Described in detail in this report under the heading “Item 18. Financial Statements”; under Note 18 “Equity”.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

We are subject to certain risks and uncertainties described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are not presently known or are currently deemed immaterial may also impair our business and financial results.

 

Risks Related to Our indebtedness

 

If we are unable to amend our agreements with Amira India’s existing lenders or refinance the existing debt, we may be unable to implement our business strategy and the lenders may cause us to sell assets to repay the existing debt, any of which could have a material adverse effect on our business, results of operations and financial condition.

 

6

 

 

 

On January 23, 2018, Amira India received approval of a license from the Directorate of Town & Country Planning of Haryana India to convert nine acres of its approximately 17 wholly owned acres of real estate property from factory use to residential use. Amira India applied for the license in early 2017 for all 17 acres and the license for the remaining eight acres is pending. In connection with the receipt of the license, Amira India will begin the planned process of re-locating its existing manufacturing facility to a new location. The conversion of the zoning of this portion of Amira India’s real estate from factory to residential use requires Amira India’s existing lenders to amend and/or refinance the existing debt of Amira India to include the re-zoned real estate as collateral. Our discussions with Amira India’s existing lenders regarding an amendment to the terms of the existing debt agreements or a refinance are ongoing and we have already proposed them to reclassify the debt between real estate and working capital. If we are unable to amend our agreements with Amira India’s existing lenders or refinance the existing debt as proposed, we may be unable to implement our business strategy and the lenders may cause us to sell assets to repay the existing debt, any of which could have a material adverse effect on our business, results of operations and financial condition.

 

Risks Related to Our Business

 

We face significant competition from both Indian and international producers of Basmati and other rice and food products.

 

We compete for customers principally on the basis of product selection, product quality, reliability of supply, processing capacity, brand recognition, distribution capability, and pricing. With respect to our Basmati rice, we compete with numerous types of competitors in the fragmented and unorganized Basmati rice market, from other large Indian processors to smaller businesses in India and around the world. Basmati rice has historically only been grown successfully in certain states in North India and in a part of the Punjab region located in Pakistan, which regions have climates conducive to growing Basmati rice. In addition, our Basmati rice competes with a type of rice grown in California and Texas, among other places, which is marketed as Basmati rice to compete with our products.

 

Many of our competitors in the markets for our rice and other food products have a broader product selection, greater processing capacity, brand recognition advantages in certain Indian and international markets, and significantly greater financial and operational resources than we have. Also, since outside of supply chain management and distribution there are no substantial barriers to entry to the markets for our rice and other food products, increased consolidation and, particularly, a more organized Basmati market could decrease our market share or result in lower selling prices of our products or result in higher costs of our raw materials, thereby reducing our earnings.

 

Our growth significantly depends on our ability to penetrate and increase the acceptance of our Basmati rice and other products in new Indian and international markets.

 

Our historic compound aggregate growth results and trends are not indicative of our future results and may not be sustainable for the future .

 

We have industry pricing dynamics and an improvement in mix. As a result, the historic CAGR data and trends set out elsewhere in this Form 20F are not indicative of our future results and may not be sustainable for the future. In particular, our future growth CAGRs may increase at a lower rate or may not increase at all, which in turn would have a negative impact on our business, results of operations and financial condition. In fact, the Company had a particularly challenging year during its fiscal year ended March 31, 2017 where it had declines to its financial results due in part to challenging industry conditions, including the impact of currency exchange fluctuations on its business in India and lower industry pricing, as well as certain business disruptions that management believes were short term in nature.

 

7

 

 

We have a substantial amount of indebtedness, which could have a material adverse effect on our financial health and our ability to obtain financing in the future.

 

We have incurred a substantial amount of debt totaling $250.23 million, $224.4 million and $209.4 million as of March 31, 2018, 2017 and 2016, respectively. The aggregate amount outstanding under our various financing arrangements as of March 31, 2018 was $250.23 million, of which $0.03 million consisted of our non-current (long-term) debt and $250.2 million consisted of our current (short-term) debt, comprised primarily of our secured revolving credit facilities.

 

Our significant amount of debt could limit our ability to operate our business and impair our competitive position. For example, it could:

 

· limit our ability to refinance our indebtedness on terms acceptable to us or at all;

 

· require us to dedicate a significant portion of our cash flow from operations for paying the principal of and interest on our indebtedness, thereby reducing funds available for other corporate purposes; and

 

· make us more vulnerable to economic downturns and limit our ability to withstand competitive pressures.

 

As of March 31, 2018, our outstanding current (short-term) debt, amounting to $250.2 million and comprising substantially all of our debt, bears interest at floating rates. Any upward movements in these interest rates would increase the interest costs of such loans and could harm our financial condition. Infact, the Reserve Bank of India has increased the interest rates in India two times in fiscal year 2018.

 

The Reserve Bank of India in 2018, promulgated the revised framework and guidelines for ‘loan asset’ identification, classification and provisioning for commercial banks in India. Businesses including ours (and individuals) across India, have faced cash management issues especially in the rapidly evolving regulatory regime in India since early part of fiscal of 2017. This has resulted in tightening of regulatory and credit environment in India. This tightening of credit has adversely impacted and disrupted our cash-to-cash cycle.

 

Further, amidst regulatory and credit tightening, the Indian lender banks have not agreed to reclassify loans extended to us into working capital and real estate loans. As a result, certain of our Indian lenders have classified our loan balances as Non-performing assets (NPAs). This continued impasse with the banks can result in revenues of the Indian subsidiary being severely impacted.

 

Further, the agreements and instruments governing our debt place specified limitations on incurrence of additional debt. Despite current indebtedness levels, we and our subsidiaries may be able to incur substantial additional indebtedness in the future. However, if new debt is added to our and our subsidiaries’ current debt levels, the related risks would intensify.

 

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy obligations under our indebtedness, which may not be successful.

 

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is highly sensitive to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient enough to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Any future refinancing of our indebtedness may not be on favorable terms and could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

 

The terms of our existing debt agreements may restrict our ability to operate and grow our business.

 

Our agreements with certain banks and financial institutions for short-term and long-term debt contain restrictive covenants, including, but not limited to, requirements that we obtain consent from the lenders prior to altering our capital structure or Amira India’s organizational documents, effecting any merger or consolidation with another company, restructuring or changing our management, declaring or paying dividends under certain circumstances, undertaking major projects or expansions, incurring further debt, undertaking guarantee obligations which permit certain Indian lenders to claim funds invested in us by our management or principal shareholders, entering into long-term or otherwise material contractual obligations, investing in affiliates, creating any charge or lien on our assets or sale of any hypothecated assets or undertaking any trading activities other than the sale of products arising out of our manufacturing operations. Also, we are required to maintain a current ratio (the ratio of the book value of our current assets to our current liabilities outstanding, including current debt as per statutory requirements) of at least 1.33 during the term of our secured revolving credit facilities for Amira India. Certain of our other credit facilities also include various financial covenants, but such facilities are not material. We may not be able to comply with such financial or other terms or be able to obtain the consents from our lenders necessary to take the actions that we believe are required to operate and grow our business.

 

8

 

 

We require substantial working capital and as a result, may seek additional financing in the form of debt or equity to meet our working capital requirements.

 

Our business requires substantial working capital, primarily because Basmati rice must be aged for approximately as much as 12 months or more (at times up to 24 months) before it reaches premium quality. Accordingly, we need to maintain a sufficient stock of Basmati paddy and rice at all times to meet processing requirements, which leads to higher inventory holding costs and increased working capital needs. In addition, we may need additional capital to develop our new processing facility and additional company-managed distribution centers in India and across the world.

 

We meet our working capital requirements largely by debt incurred under our revolving credit facilities, which we typically need to renew in a year or less. Sources of financing have historically included commercial banks under such credit facilities and equity investments. If we decide to incur more debt, our interest payment obligations will increase and our lenders may impose additional restrictions on our business which could result in reduced cash flows. If we decide to issue equity, the new equity will dilute the ownership interest of our existing shareholders.

 

We may not be able to raise adequate financing on acceptable terms, in time, or at all. Since the second half of fiscal 2008, disruption in the global financial markets has made obtaining additional financing in India more difficult. For example, due to inflation in India, the Reserve Bank of India has raised interest rates multiple times since 2011, thereby substantially increasing our borrowing costs. Moreover, restrictions on foreign investment in India may limit our ability to obtain financing for Amira India. See “Restrictions on foreign investment in India may prevent us and other persons from making future acquisitions or investments in India, which may harm our results of operations and financial condition” in this section. Our failure to obtain sufficient financing or maintain our existing credit facilities could harm our results of operations and financial condition and result in a reduction in our operations and the delay or abandonment of our development plans.

 

Our inability to meet the quality requirements of our customers or to anticipate and adapt to changes in the market demand for our products could reduce demand for our products and harm our sales.

 

Our results of operations and growth strategy depend upon the demand for Basmati rice and our other food products in the Indian and international markets. Demand for our products depends primarily on consumer-related factors such as demographics, local preferences and food consumption trends and macroeconomic factors such as general economic condition and the level of consumer confidence. We are also subject to regulation by the countries or regions where our customers are located, such as the European Union (“EU”) and the United States (“US” or the “U.S.”), relating to the quantity, quality, characteristics and variety of the Basmati rice and other food products sold there. Authorities may upgrade or change these regulations from time to time. Our international customers often require that the rice we sell matches their quality standards and conduct sample checks on our products. The results from their sample checks may not reflect the quality of the rice we deliver to them and the rice we sell to them may not comply with their quality specifications or requirements. If our customers’ sample checks identify any deficiencies in our rice, they will generally have the right to return the entire batch we sold to them. Consumer preferences often change over time, and, if we are not able to anticipate, identify or develop and market products that respond to changes in consumer preferences, demand for our products may decline. We must, on a regular basis, keep pace with the quality requirements and consumer preferences of our Indian and international customers, invest continuously in new technology and processes to provide the desired quality product and continually monitor and adapt to the changing market demand. Any failure to meet the quality requirements of our customers or to anticipate and adapt to changes in market demand could harm our business, results of operations and financial condition.

 

9

 

 

We face risks associated with our international business.

 

In fiscal 2018, 2017 and 2016, we generated 65.3%, 50.1% and 56.4%, respectively, of our revenue outside India and we expect to increase our international presence over time. We currently have international offices in Malaysia, Singapore, the United Arab Emirates (“UAE”), the United Kingdom, the United States and Germany, and we sell our products throughout Asia Pacific, EMEA and North America. Our existing and planned international business operations are subject to a variety of risks, including:

 

· difficulties in staffing and managing foreign and geographically dispersed operations;
· compliance with various foreign laws, including local labor laws and regulations, where we operate throughout the world (as applicable);
· government expropriation of assets;
· changes in or uncertainties relating to foreign rules and regulations that may harm our ability to sell our products;
· tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to move our products out of these countries or interfere with the import of essential materials into these countries;
· increase in withholding and other taxes, or limitations on remittances and other payments by foreign subsidiaries or strategic partners;
· varying and possibly overlapping tax regimes, including the risk that the countries in which we operate will impose taxes on inter-company relationships;
· economic, political or social instability in foreign countries;
· the enforceability of legal agreements and judgments in foreign countries;
· an inability, or reduced ability, to protect our intellectual property; and
· government subsidies or other incentives that favor local competitors.

 

We currently expect to expand in our existing and additional target international markets, but our expansion plans may not be successful. Failure of, or delay in, our expansion plans could significantly harm our business, reputation and financial condition.

 

We may not be successful in identifying and acquiring suitable acquisition targets or making strategic investments, which could adversely affect our growth.

 

We have in the past expanded, and intend to expand in the future, our operations and markets through acquisitions or strategic investments. The identification and completion of such acquisitions or investments are dependent upon various factors, including satisfactory completion of due diligence, negotiation of definitive agreements and our ability to compete with other entities to acquire attractive targets. There is no assurance that in the future we will be able to identify and acquire appropriate acquisition targets on commercially acceptable terms, if at all, or will have sufficient capital to fund such acquisitions or investments. Failure to identify and acquire suitable acquisition targets or to make strategic investments in the future could adversely affect our growth.

 

Adverse conditions in the global economy and disruption of financial markets may prevent the successful development and commercialization of our products, as well as significantly harm our results of operations and ability to generate revenue and become profitable.

 

As a global company, we are subject to the risks arising from adverse changes in global economic and market conditions. The worldwide economy has been experiencing significant economic turbulence, and global credit and capital markets have experienced substantial volatility and disruption. These adverse conditions and general concerns about the fundamental soundness of Indian and international economies could limit our existing and potential partners’ and suppliers’ ability or willingness to invest in new technologies or capital. Moreover, these economic and market conditions could negatively impact our current and prospective customers’ ability or desire to purchase and pay for our products, or negatively impact our operating costs or the prices for our products. Changes in governmental banking, monetary and fiscal policies to address liquidity and increase credit availability may not be effective. Significant government investment and allocation of resources to assist the economic recovery of various sectors which do not include the food industry may reduce the resources available for government grants and related funding that could assist our expansion plans or otherwise benefit us. Any one of these events, and continuation or further deterioration of these financial and macroeconomic conditions, could prevent the successful and timely development and commercialization of our products, as well as significantly harm our results of operations and ability to generate revenue and become profitable.

 

10

 

 

We derive a significant portion of our income from international sales of Basmati rice, other specialty rice and other food products, which may be dependent upon the economies and government policies of the key countries to which we sell our products; any unfavorable change in such economies or government policies may harm our business.

 

We sell Basmati rice, other specialty rice and other food products to customers across five continents with significant portions of our international sales to Asia Pacific, EMEA and North America. We currently plan to expand our international operations into additional countries in the near future. For fiscal 2018, our international revenue accounted for 65.3% of our total revenue. If an economic slowdown or other factors adversely affect the economic health of the countries to which we sell, our international customers may reduce or postpone their orders, which may in turn lower the demand for our products and harm our revenue and profitability. In addition, uncertainty surrounding the potential exit of the United Kingdom from the European Union may have a significant impact on the global economy and foreign exchange rates which could have a negative impact on our financial condition.

 

Our rice may not comply with the applicable policies of the countries where we sell it and be returned to us. For instance, a change to a more stringent EU standard on the level of the pesticide isoprothiolane in Basmati rice in September 2008 led to a significant overall decrease in sales of Basmati rice to the EU. In November 2012, the EU standard reverted to the 2008 level.

 

In addition, any change in government policies and regulations, including any ban imposed on a particular variety of rice by a government, or any duties, pre-conditions or ban imposed by a country to which we sell our products, might harm our international sales. The loss of any significant international rice market because of such events or conditions could harm our business, results of operations and financial condition. Our international sales are also exposed to certain political and economic and other related risks inherent to exporting products, including exposure to potentially unfavorable changes in tax or other laws, a reduction in import subsidies, partial or total expropriation and the risks of war, terrorism and other civil disturbances in our international markets. Our insurance coverage may not be sufficient to protect us against all such risks.

 

We may also be subject to certain sanctions imposed on, or reductions in import subsidies by, the countries or regions where our international customers are located. Further, we provide credit to our customers in connection with most of our international sales of Basmati rice, so, if any sanctions are imposed on the countries to which we sell, our collection of international receivables may be significantly delayed. Import subsidies may be removed by, and international sanctions may be imposed on, any Basmati importing countries in the future, and we may have reduced sales or not be able to collect revenue from all sales made there on a credit basis, which could harm our business, results of operations and financial condition.

 

We are exposed to foreign currency exchange rate fluctuations and exchange control risks, which may harm our results of operations and cause our financial results to fluctuate between periods.

 

Our operating expenses are denominated primarily in Indian Rupees; however, 65.3% of our total revenue for fiscal 2018 was denominated in other currencies, typically in U.S. dollars and occasionally in Euros, GBP and UAE Dirham, due to our international sales. In addition, some of our capital expenditures, and particularly those for equipment imported from international suppliers, are denominated in foreign currencies and we expect our future capital expenditure in connection with our proposed expansion plans to include significant expenditure in foreign currencies for imported equipment and machinery. A significant fluctuation in the Indian Rupee and U.S. dollar and other foreign currency exchange rates could therefore have a significant impact on our results of operations. The exchange rate between the Indian Rupee and these currencies, primarily the U.S. dollar, has fluctuated in the past and any appreciation or depreciation of the Indian Rupee against these currencies can impact our profitability and results of operations. Such fluctuations have affected our results of operations in the past and may do so again in the future. For example, the Indian Rupee has depreciated against the U.S. dollar over the past three years, which may affect our results of operations in future periods. Any amounts we spend to hedge the risks to our business due to fluctuations in currencies may not adequately protect us against any losses we incur due to such fluctuations.

 

11

 

 

We may be unable to adequately protect or continue to use our intellectual property; failure to protect such intellectual property may harm our business.

 

The success of our business, in part, depends on our continued ability to use the “Amira” name and other intellectual property to increase awareness of the “Amira” name. We attempt to protect our intellectual property rights through available copyright and trademark laws. Despite these precautions, existing copyright and trademark laws afford only limited practical protection in certain countries, and the actions taken by us may be inadequate to prevent imitation by others of the “Amira” name and other intellectual property. In addition, if the applicable laws in these countries are drafted or interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase. We also distribute our Amira branded products in some countries in which there is no trademark protection. As a result, it may be possible for unauthorized third parties to copy and distribute our Amira branded products or certain portions or applications of our Amira branded products, which could have a material adverse effect on our business, prospects, results of operations and financial condition. If we fail to register the appropriate trademarks or our other efforts to protect relevant intellectual property prove to be inadequate, the value of the Amira name could decrease, which could harm our business and results of operations.

 

We have also initiated legal proceedings against certain parties for infringement of our intellectual property rights. For instance, Amira India has filed multiple legal proceedings before various courts and forums in India against a number of third parties for infringement of the trademarks “Amira” and “Guru.” Amira India has successfully sought injunctive relief against a party from deceptively using our trademark “Guru” in one of the cases and in some cases has sought rectification of the register of trademarks to restrain the third parties from using any mark or label that is identical or deceptively similar to Amira India’s registered trademarks.

 

In the future, additional litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Regardless of the validity or the success of the assertion of any claims, we could incur significant costs and diversion of resources in enforcing our intellectual property rights or in defending against such claims, which could harm our business and results of operations.

 

We are a holding company and are dependent on dividends and other distributions from our subsidiaries, particularly Amira India, which we do not wholly own, and which will not pay us 100% of any dividend it declares, and whose ability to declare and pay dividends is restricted by loan covenants and Indian law.

 

We are a holding company and currently have no direct operations. As a result, we are dependent on dividends and other distributions from our subsidiaries (in particular, Amira India) for our cash requirements, which would include funds to pay dividends and other cash distributions to our shareholders. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and neither ANFI nor Amira India anticipates paying any cash dividends for the foreseeable future. Investors’ ownership of us represents a smaller corresponding indirect ownership interest of Amira India. Should we decide to pay dividends to our shareholders in the future, our ability and decision to pay dividends will depend on, among other things, the availability of dividends from Amira India. However, under the terms of some of Amira India’s current secured revolving credit facilities, we need the consent of lenders under our current secured revolving credit facilities to declare dividends for any year except (i) out of profits relating to that year after meeting all the financial commitments to the bank(s) and making all other due and necessary provisions and (ii) that no default had occurred in any repayment obligations during the year. Amira India has not paid or declared any cash dividends on its equity. The declaration and payment of any dividends by Amira India in the future will be recommended by its Board of Directors and approved by its shareholders at their discretion. Under Indian law, a company declares dividends upon a recommendation by its Board of Directors and approval by a majority of the shareholders at the annual general meeting of shareholders. However, while final dividends can be paid out by a company only after such dividends have been recommended by the Board of Directors and approved by shareholders, interim dividends can be paid out with only a recommendation by the Board of Directors. The shareholders have the right to decrease but not to increase any dividend amount recommended by the Board of Directors.

 

Amira India does not intend to pay dividends to its shareholders, including Amira Mauritius, in the foreseeable future, and may be prevented from doing so by certain restrictions on paying dividends under Indian law. Amira India may not have sufficient profits in any year or accumulated profits to permit payment of dividends to its shareholders. We do not own 100% of Amira India, therefore any dividend payment made by Amira India to us will also involve a payment to the other shareholders of Amira India, including Mr. Karan A. Chanana, our Chairman and Chief Executive Officer , and his affiliates.

 

12

 

 

Insiders have substantial control over us; ownership by insiders of our ordinary shares and ownership by our Chairman and Chief Executive Officer of direct and indirect equity interests in Amira India give rise to conflicts of interest with our public shareholders.

 

Mr. Karan A. Chanana, our Chairman and Chief Executive Officer , and his affiliates, including various companies controlled by him and direct members of his family, and certain of our other directors, directly or indirectly hold approximately 65.0% (including share options granted and vested) of the outstanding ordinary shares of ANFI as on March 31, 2018. Accordingly, these shareholders are able to control all matters requiring approval by holders of a majority of our outstanding ordinary shares, including the election of all the members of our Board of Directors (which allow them day-to-day control of our management and affairs), amendments to our memorandum and articles of association, our winding up and dissolution, and other significant corporate transactions. Specifically, they are able to approve any sale of more than 50% in value of our assets, and certain mergers or consolidations involving us, a continuation of the company into a jurisdiction outside the British Virgin Islands where we are currently domiciled, or our voluntary liquidation. As a result, Mr. Chanana and his affiliates can cause, delay or prevent a change of our control, and generally preclude any unsolicited acquisition of us, even if such events would provide our public shareholders with the opportunity to receive a premium for their ordinary shares, or are otherwise in the best interests of our public shareholders.

 

In addition, Mr. Karan A. Chanana and certain of his affiliates, including various companies controlled by him and certain members of his family, hold a significant minority equity interest in Amira India, an entity through which we conduct a significant portion of our operations. These shareholders may have conflicting interests with our public shareholders. For example, if Amira India indirectly makes distributions to us, Mr. Karan A. Chanana and his affiliates will also be entitled to receive distributions pro rata in accordance with their percent of ownership in Amira India, and their preferences as to the timing and amount of any such distributions may differ from those of our public shareholders. In addition, the structuring of future transactions may take into consideration tax or other ramifications to Mr. Karan A. Chanana and these affiliates even where there would be no similar implication to us or our public shareholders.

 

Mr. Karan A. Chanana and Ms. Anita Daing (a former Director of Amira Pure Foods Private Limited “APFPL”) have also issued personal guarantees of $235.7 million in favor of lead banks or lenders of certain of our credit facilities; in the event of a default under these credit facilities, the lenders may seek payment from Mr. Chanana and/ or Ms. Daing. As a result of these guarantees, Mr. Chanana and Ms. Daing may have a conflicting interest with our shareholders and/or other creditors of the Company which may not be resolved in our best interest. However, ANFI has indemnified its present and former directors and officers, including Mr. Chanana and Ms. Daing, in accordance with its Amended and Restated Memorandum and Articles of Association and indemnification agreements entered into with such directors and officers. Such indemnification includes indemnification for Mr. Chanana’s and Ms. Daing’s personal guarantees described above.

 

If the transfer pricing arrangements we have among our subsidiaries are determined to be inappropriate, our tax liability may increase.

 

We have transfer pricing arrangements among our Indian, Dubai, UK, Germany, and U.S. subsidiaries. U.S. and Indian transfer pricing regulations, as well as regulations applicable in other countries in which we operate, require that any international transaction involving associated enterprises be on arm’s length terms. We consider the transactions among our subsidiaries to be on arm’s length terms. If, however, a tax authority in any jurisdiction reviews any of our tax returns and determines that the transfer prices and terms we have applied are not appropriate, or that other income of our affiliates should be taxed in that jurisdiction, we may incur increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows.

 

We could be subject to tax risks attributable to previous tax assessment periods.

 

We could accrue unanticipated tax expenses in relation to previous tax assessment periods which have not yet been subject to a tax audit or are currently subject to a tax audit. In such tax audits, the tax laws or relevant facts could be interpreted by the tax authorities in a manner deviating from the relevant company's view. As a result, the tax authorities could revise original tax assessments, which would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows.

 

13

 

 

Risks Related to our Business and Operations in India

 

A substantial portion of our business and operations are located in India; we are subject to regulatory, economic, social and political uncertainties in India.

 

A substantial portion of our business and employees are located in India and we intend to continue to develop and expand our business in India. Consequently, our financial performance and the market price of our ordinary shares will be affected by changes in exchange rates and controls, interest rates, changes in government policies, including taxation policies, social and civil unrest and other political, social and economic developments in or affecting India.

 

The Government of India has exercised and continues to exercise significant influence over many aspects of the Indian economy. Since 1991, successive Indian governments have generally pursued policies of economic liberalization and financial sector reforms, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and we cannot assure you that such liberalization policies will continue. The present government, formed in May 2014, has announced policies and taken initiatives that support the continued economic liberalization policies that previous governments have pursued. The rate of economic liberalization could change, and specific laws and policies affecting food companies, foreign investments, currency exchange rates and other matters affecting investments in India could change as well. Further, protests against privatizations and government corruption scandals, which have occurred in the past, could slow the pace of liberalization and deregulation. A significant change in India’s policy of economic liberalization and deregulation or any social or political uncertainties could significantly harm business and economic conditions in India generally and our business and prospects.

 

The Reserve Bank of India and the Ministry of Finance of the Government of India withdrew the legal tender status of INR 500 and INR 1,000 currency notes pursuant to notification dated November 8, 2016. The short-term impact of these developments has been, among other things, a decrease in liquidity of cash in India. There is uncertainty on the long-term impact of this action. The short- and long-term effects of demonetization on the Indian economy and our business are uncertain and may have a negative effect on our business, results of operations and financial condition.

 

The Indian government levied GST on sales of branded food products in second half of 2017 resulting in supply chain disruption and also extended operating cash cycle.

 

Business environment (including legal and regulatory) in India is continuously evolving and there are new laws, regulations and /or ordinances being enacted like demonetization, GST, bankruptcy laws, new and updated banking regulations in India etc. which has a significant impact on the Company’s business. These and continuing changes by the Indian administration have impacts which are not essentially positive for the business environment, as initially anticipated.

 

All these changes have the potential to create an untested and unfavorable situation for our business, where the impact to our business is unknown. Some vendors have attempted to use and misuse some of these laws against us.  However, these can happen again and create a negative impact on the business.

 

The Reserve Bank of India in 2018, promulgated the revised framework and guidelines for ‘loan asset’ identification, classification and provisioning for commercial banks in India. Businesses including ours (and individuals) across India, have faced cash management issues in the rapidly evolving regulatory regime in India since early part of fiscal of 2017. As a result, certain of our Indian lenders have classified our loan balances as Non-performing assets (NPAs). This continued impasse with the Indian banks can result in revenues of the Indian subsidiary being severely impacted. The Indian company has been working pro-actively to negotiate the reclassification of its loans with Indian lenders. Collateral offered to banks, being factory land (9 acres out of 17 acres), has been licensed and approved for conversion to residential real estate. This has infact, increased the value of the security for banks and at the same time gives us the opportunity to monetize the asset and reduce the loans in future. However, amidst regulatory and credit tightening, the Indian lender banks have not agreed to reclassify loans extended to us into working capital and real estate loans.

 

14

 

 

The Government of India has previously banned the export of certain of our products, and future changes in the regulation of our sales to international markets may harm our results of operations and financial condition.

 

We generated 65.3% of our revenue in fiscal 2018 from products we sold outside India. As such, a portion of such international revenue is subject to the Government of India’s export control laws. Unfavorable changes in, or interpretations of, existing Indian laws, rules and regulations, or the adoption of new Indian laws, rules and regulations applicable to us and our business, may harm our results of operations and financial condition. Such unfavorable changes could decrease our ability to supply our products, increase our costs or subject us to additional liabilities. For example, from October 2007 to September 2011, the Government of India prohibited the export of non-Basmati rice from India. In addition, the Government of India has in the past and may in the future impose export duties or other export restrictions on our products that could harm our business and financial condition. The Government of India also determines the Minimum Export Price (“MEP”), which is the minimum price below which rice (except Basmati rice) cannot be exported from India, and so could at any time increase the prices at which we may sell our non-Basmati rice products outside India. While the Government of India terminated the MEP for Basmati rice in July 2012, the Government of India may in the future reinstitute the MEP for Basmati rice. Any increase or reinstitution of the MEP above our then current prices could decrease our international sales and harm our results of operations and financial condition. In addition, any other duties or tariffs, adverse changes in export policy or other export restrictions enacted by the Government of India and related to our international business could harm our results of operations and financial condition.

 

As the Indian market constitutes a significant source of our revenue, a slowdown in economic growth in India could cause our business to suffer.

 

In fiscal 2018, we derived 34.7% of our revenue from sales in India. Based on latest information from the CIA World Factbook, estimates for consumer inflation in India was 3.8% in 2017 and 4.5% in 2016. The performance and growth of our business are necessarily dependent on economic conditions prevalent in India, which may be significantly harmed by political instability, regional conflicts and economic slowdown elsewhere in the world or otherwise. The Indian economy also remains largely driven by the performance of the agriculture sector which depends on the quality of the monsoon, which is difficult to predict. Although the Indian economy has grown significantly, any future slowdown in the Indian economy could harm the demand for the products we sell and, as a result, harm our results of operations and financial condition. India’s trade relationships with other countries and its trade deficit may significantly harm Indian economic conditions. If trade deficits increase or are no longer manageable, the Indian economy, and therefore our business, our financial performance and the price of our ordinary shares could be significantly harmed. India also faces major challenges in sustaining its growth, which include the need for substantial infrastructure development and improved access to healthcare and education. If India’s economic growth cannot be sustained or otherwise slows down significantly, our business and prospects could be significantly harmed.

 

Restrictions on foreign investment in India may prevent us and other persons from making future acquisitions or investments in India, which may harm our results of operations and financial condition.

 

India regulates ownership of Indian companies by foreigners and, although some restrictions on foreign investment and borrowing from foreign persons have been relaxed in recent years, these regulations and restrictions may still apply to acquisitions by us or our affiliates, including Amira Mauritius and other affiliates which are not resident in India, of shares in Indian companies, or the provision of funding by us or any other entity which is not resident in India to Amira India. Under current Indian regulations, transfers of shares between non-residents and residents are permitted (subject to certain exceptions) if they comply with, among other things, the pricing guidelines and reporting requirements specified by the Reserve Bank of India. If the transfer of shares is not in compliance with such pricing guidelines or reporting requirements, or falls under any of the exceptions referred to above, then the prior approval of the Reserve Bank of India is required. We may not be able to obtain any required approval from the Reserve Bank of India or any other Indian regulatory authority on favorable terms or at all.

 

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Further, under its consolidated foreign direct investment policy, the Government of India has set out additional requirements for foreign investments in India, including requirements with respect to downstream investments by Indian companies owned and controlled by non-resident entities. Amira Mauritius, which is considered a non-resident entity under applicable Indian laws, directly holds a majority of Amira India’s equity shares. Accordingly, any downstream investment by Amira India into another Indian company will have to comply with conditions applicable to such Indian entity, in accordance with the consolidated foreign direct investment policy. While we believe that these regulations will not have any material impact on our operations in India, these requirements, which currently include minimum valuations for Indian company shares and restrictions on sources of funding for such investments, may restrict our ability to make further equity investments in India, including through Amira Mauritius and Amira India.

 

Natural or man–made calamities and health epidemics could have a negative impact on the Indian economy and cause our business to suffer.

 

A substantial portion of our operations, employees and customers are located in India, which has historically experienced natural or man-made calamities such as earthquakes, tsunamis, floods, climate change and drought. In December 2004, Southeast Asia, including both the eastern and western coasts of India, experienced a massive tsunami, and, in October 2005, the State of Jammu and Kashmir experienced an earthquake, both of which caused significant loss of life and property damage. The extent and severity of these natural or man-made disasters determines their impact on the Indian economy. Natural or man-made disasters may occur in the future and may have an adverse effect on our business.

 

In recent years, certain regions of the world, including India and several other countries in which we operate, have experienced outbreaks of swine flu caused by the H1N1 virus. Any future outbreak of swine flu or other health epidemics may restrict the level of business activity in affected areas which could adversely affect our business.

 

Adverse weather, disease, pests and over farming in India could reduce the general availability of paddy, which may affect our operations and growth plans.

 

Although Basmati rice is not entirely dependent upon a successful monsoon, the consistent failure of monsoons in India, extreme flooding, adverse weather or other natural calamities may harm the production of Basmati and other paddy. In addition paddy farmers could shift their production to other crops, resulting in a drop in paddy production. Such adverse weather and supply conditions may occur at any time and create volatility for our business and results of operations. Crop diseases and pest infestations may also affect production; such events may vary in severity, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Major diseases and pests such as leaf blight, sheath blight, smut, blast, rice tango virus and stern borer affect our suppliers’ production. The costs to control these diseases and other infestations vary depending on the severity of the damage and the extent of the plantings affected. The available technologies to control such diseases and infestations may not continue to be effective. Furthermore, the continued use of intensive irrigated rice-based cropping systems in producing paddy may cause deterioration of soil health and productivity. Any of these risks can affect the availability and current and future cost of paddy. The future growth of our business depends upon our ability to procure quality paddy on a timely basis. We may not be able to procure all of our paddy requirements, and our failure to do so would harm our business, results of operations and financial condition.

 

Water or power shortage or other interruptions in utility supply issues in India could disrupt our processing and harm our business, results of operations and financial condition.

 

Our processing facility and our storage and distribution facilities require a continual supply of utilities such as water and electricity. Our processing facility and most of our storage and distribution facilities are located in India, and the Indian authorities may ration the supply of utilities. Interruptions of water or electricity supply could result in temporary shutdowns of our storage, processing, packaging and distribution facilities. Any major suspension or termination of water or electricity or other unexpected service interruptions could significantly harm our business, results of operations and financial condition.

 

Terrorist acts and other acts of violence involving India or other neighboring countries could significantly harm our operations directly, or may result in a more general loss of customer confidence and reduced investment in these countries that reduces the demand for our products.

 

Terrorist attacks and other acts of violence or war involving India or other neighboring countries may significantly harm the Indian markets and the worldwide financial markets. The occurrence of any of these events may result in a loss of business confidence, which could potentially lead to economic recession and generally cause significant harm to our business, results of operations and financial condition. In addition, any deterioration in international relations may result in investor concern regarding regional stability, which could decrease the price of our ordinary shares.

 

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South Asia has also experienced instances of civil unrest and hostilities among neighboring countries from time to time. There have also been incidents in and near India such as terrorist attacks in Mumbai, Delhi and on the Indian Parliament, troop mobilizations along the India and Pakistan border and an aggravated geopolitical situation in the region. Such military activity or terrorist attacks in the future could significantly harm the Indian economy by disrupting communications and making travel more difficult. Resulting political tensions could create a greater perception that investments in Indian companies involve a high degree of risk. Furthermore, if India were to become engaged in armed hostilities, particularly hostilities that were protracted or involved the threat or use of nuclear weapons, we might not be able to continue our operations. Our insurance policies may not be sufficient to protect us from terrorist attacks or business interruptions caused by terrorist attacks, violence, acts of war, civil unrest, hostilities or other reasons.

 

Stringent labor laws in India may harm our ability to have flexible human resource policies; labor union problems could negatively affect our processing capacity and overall profitability.

 

India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee removal and imposes financial obligations on employers upon employee layoffs. These laws may restrict our ability to have human resource policies that would allow us to react swiftly to the needs of our business, discharge employees or downsize our operations. We may also experience labor unrest in the future, which may delay or disrupt our operations. If such delays or disruptions occur or continue for a prolonged period of time, our processing capacity and overall profitability could be negatively affected. For instance, in May 2005, certain workers at our processing facility declared a strike to demand higher wages and enhanced labor policies, and to protest certain workforce reductions. The strike was called off in 2006, but certain of such workers’ claims are currently pending adjudication before the Gurgaon Labour Court and the outcome of such adjudication may not be favorable to us. We also depend on third party contract labor. It is possible under Indian law that, despite our having made appropriate payment to the contractors, we may be held liable for wage payments to these laborers if their contractors default on payments to the laborers. Liability for any non-payment by contractors may harm our business and results of our operations. In addition, an industrial court or tribunal in India could direct us to absorb our contract workers as permanent employees and the government of a state in India may prohibit the employment of contract labor. If we are required to employ contract workers on the same terms as our permanent employees, this may increase our costs.

 

Changing tax laws, rules and regulations and legal uncertainties in India, including adverse application of tax laws, may adversely affect our business and financial performance.

 

The regulatory and policy environment in which our business in India operates is evolving and subject to change. Such changes, including the few instances (which are only illustrative and not exhaustive) briefly mentioned below, may adversely affect our business, financial condition, results of operations and prospects, to the extent that we are unable to suitably respond to and comply with such changes in applicable law and policy:

 

· The General Anti Avoidance Rules, are scheduled to come into effect from April 1, 2017. The intent of this legislation is to prevent business arrangements set up with the intent to avoid tax incidence under the IT Act. In the absence of any precedents on the subject, the application of these provisions is uncertain.

 

· The Government of India has issued revised Income Computation and Disclosure Standards ("ICDS") that will be applied in computing taxable income and payment of income taxes thereon, applicable with effect from the assessment period for the Fiscal Year 2017. ICDS shall apply to all taxpayers following an accrual system of accounting for the purpose of computation of income under the heads of "profits and gains of business or profession" and "income from other sources". Such specific standards for computation of income taxes in India are relatively new, and the impact of the ICDS on our results of operations and financial condition is uncertain.

 

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· The Indian Parliament has recently approved the adoption of a comprehensive national goods and services tax ("GST"), regime that will combine taxes and levies by the central and state governments into a unified rate structure. It is not clear, however, how the GST will be applied and implemented, and there can be no assurance that the GST will not result in significant additional taxes being payable, which in turn, may harm our results of operations and financial conditions.

 

· The Government of India has also amended its rules which determine the 'tax residency' of a company in India with effect from April 1, 2017. Previously, a foreign company could be a tax resident of India only if its control and management was situated wholly in India. Under the amended rules, a company will be treated as tax resident of India if (i) it is an Indian company; or (ii) its place of effective management ("POEM") is in India. POEM is defined in the Income Tax Act, 1961, to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made. The Government of India has also issued the final guidelines for determining the POEM of a company on January 24, 2017. The applicability of the amended rules and the treatment of our subsidiaries under such rules is uncertain.

 

The impact of any or all of the above changes to Indian legislation on our business cannot be fully determined at this time. Uncertainty in the applicability, interpretation or implementation of any amendment to governing law, regulation or policy may impact the viability of our current business or restrict our ability to grow our business in the future. Further, if we are affected, directly or indirectly, by the application or interpretation of any provision of such laws and regulations or any related proceedings, or are required to bear any costs in order to comply with such provisions or to defend such proceedings, our business results of operations and financial condition may be adversely affected.

 

Risks Related to Our Operations

 

Any decline in the market price of Basmati rice while held by us for aging could harm our results of operations and financial condition.

 

The Basmati rice industry is cyclical and dependent on the results of the Basmati paddy harvest, which occurs for only seven months of the year (September to March). We purchase Basmati paddy from farmers through government regulated agricultural produce markets or through licensed procurement agents and then process it throughout the year. A unique feature of Basmati rice is that its quality is perceived to improve with age. Our Basmati rice is sold as much as 12 months or more (at times up to 24 months) after harvesting and generally commands a price premium. As a result, we typically allow our Basmati paddy to age from six to eight months and our processed Basmati rice to age for an additional four to six months before we sell it. If there is any fall in the price of Basmati rice during the time we hold it for aging, we may not be able to recover, or generate the same margins from, our investment in Basmati paddy or processed rice, which may harm our results of operations and financial condition.

 

The price we charge for our Basmati rice depends largely on the prevailing wholesale market price; lower market prices may harm our results of operations and financial condition.

 

Numerous factors affect the wholesale price of Basmati rice, including weather, government policies such as the reintroduction of minimum support prices and minimum export prices, changes in prices of other staples, seasonal cycles, pest and disease problems and balance of demand and supply. Furthermore, the highly fragmented nature of the Basmati rice industry in India limits the pricing power of individual companies. Any prolonged decrease in Basmati rice prices could harm our results of operations and financial condition. Currently, we are not able to hedge against such price risks since Basmati rice futures do not actively trade on any commodities exchange.

 

Due to the seasonality of our business, our operating results may vary over interim periods.

 

Our revenue is typically higher from October through March than from April through September. We procure most of our Basmati paddy between September and March. Our business requires a significant amount of working capital primarily due to the fact that a significant amount of time passes between when we purchase Basmati paddy and sell finished Basmati rice. Accordingly, we maintain substantial levels of working capital indebtedness that is secured by our inventory. Therefore, our revenues and cash flows are affected by seasonal cyclicality.

 

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We rely on agents to procure sufficient Basmati paddy of the proper quality for our processing requirements.

 

We are largely dependent on agents known as “pucca artiyas” who are authorized to make purchases of Basmati paddy (or rough, unprocessed Basmati rice) in the organized and government-regulated agricultural produce markets in India known as “mandis.” These agents may not be able to procure the quantities required for our business while maintaining our quality standards. We have adopted standard operating procedures with respect to purchases, which include training and monitoring the performance of these agents, but we have no direct control over their purchasing activities. Any failure by these agents to deliver the right quantities or quality of Basmati paddy at the right price could harm our results of operations and financial condition. In addition, we typically enter into oral, non-binding agreements with these agents for the services they provide, and we may not be able to maintain these arrangements on substantially the same terms, if at all, which could harm our business, results of operations and financial condition.

 

In addition, despite the recent trend of consolidation in the Indian market for Basmati rice, the Basmati paddy market remains relatively fragmented and includes organized and unorganized suppliers such as small family owned farms. We expect this fragmentation to continue for the foreseeable future. These smaller companies may not be able to maintain a required flow of Basmati paddy to us should our volume requirements rapidly increase. If we are unable to buy from these agents sufficient Basmati paddy which meets our quality requirements, we may not be able to process and sell as much finished rice as we planned or promised to our customers, which could harm our reputation with these customers, as well as our business and results of operations.

 

We currently rely on our one processing and packaging facility and a limited number of third party processing facilities. An interruption in operations at our facility or in such third party processing facilities could inhibit our ability to fill orders for our products.

 

We operate a single processing and packaging facility in Gurgaon, near New Delhi, India. Any significant disruption at this facility for any reason, including regulatory requirements, the loss of certifications or approvals, technical difficulties, labor disputes, war or civil disorder, power interruptions or other infrastructure failures, fires, earthquakes, hurricanes or other force of nature, could disrupt our ability to supply our products and significantly harm our business, results of operations and financial performance. We also heavily depend upon a limited number of third party processing facilities to produce products responsible for substantial portions of our revenue, some of which facilities are owned by our competitors. These facilities are subject to their own unique operational and financial risks, which are out of our control. We have no production agreements with these third party processing facilities, and can provide no assurance that we will be able to use their processing capacity to produce our products. If any of these processors choose not to provide us processing services, we may need to find and enter into arrangements with one or more replacement processors. Finding alternate processing facilities could involve significant delays and other costs and these sources may not be available to us on reasonable terms or at all. Any disruption of processing or packaging could delay delivery of our products, which could harm our business, results of operations and financial condition.

 

We generally do not enter into long-term or exclusive supply contracts with our Basmati rice and other customers or with our distributors. Failure to receive timely repeat orders from our customers or our distributors may harm our business.

 

We generally do not enter into long-term supply contracts with most of our customers. Our customers instead submit purchase orders from time to time, which are short-term commitments for specific quantities of Basmati rice and other products at an agreed price. In addition, we typically complete the paddy procurement process two to six months before we receive purchase orders from customers, forcing us to rely primarily on historical trends, other market indicators and management estimates to predict demand, which is particularly difficult as we expand into new markets. We usually expand our procurement operations based on a trend of historical growth and delivery, but we may not receive purchase orders commensurate with our expanded operations on substantially the same terms, or at all, and we may not get expected repeat orders from our customers. As a result, we are vulnerable to volatility in market demand, which could harm our business and results of operations.

 

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In addition, we typically do not enter into long-term or exclusive arrangements with our distributors. If we are not able to supply our distributors the quantities of our products that we have historically supplied them, they may place orders with and even move some or all of their business permanently to our competitors. In addition, our distributors could change their business practices or seek to modify the terms under which we usually do business with them, including the amount and timing of their payments to us. Further, we rely upon our distributors to assess the demand for our products in their market based on their interactions with retailers and consumers. If our distributors do not accurately predict the demand for our products, delay in placing orders with us, fail to market our products successfully or choose to market the products of our competitors instead, such actions could harm our business growth and prospects, financial condition and results of operations. Further, our inability to maintain our existing distributors or to expand our distribution network in line with our growth strategy could harm our business, results of operations and financial condition.

 

We derived 37.0% of our total revenue from our top five customers and distributors in fiscal 2018; the loss of the revenue from any such customer would harm our results of operations and financial condition.

 

Our top five customers and distributors accounted for 37.0%, 24.0% and 30.4% of our total revenue for fiscal 2018, 2017 and 2016, respectively. We anticipate that this concentration of sales among customers may continue in the future. Although we believe we have strong relationships with certain of our key customers, we do not have any long-term supply contracts with these customers obligating them to buy product from us. Our inability to maintain or further develop our relationships with our key customers and distributors would harm our results of operations and financial condition. Moreover, changes in the strategies of our largest customers, including a reduction in the number of brands they carry or a shift to competitors’ products, could harm our sales.

 

Production of paddy is subject to risks related to potential climate change such as global warming.

 

Agriculture is extremely vulnerable to climate change, including large-scale changes such as global warming. Global warming is projected to have a significant impact on conditions affecting agriculture, including temperature, carbon dioxide concentration, precipitation and the interaction of these elements. Higher temperatures may eventually reduce yields of desirable crops while encouraging weed and pest proliferation. Increased atmospheric carbon dioxide concentration may lead to a decrease in global crop production. Changes in precipitation patterns increase the likelihood of short-run crop failures and long-run production declines. While crop production in the temperate zones may reap some benefit from climate change, crop production in the tropical and subtropical zones appears more vulnerable to the potential effects of global warming. Even a high degree of farm-level adaptation by the suppliers of our paddy may not entirely mitigate such negative effects. All of our paddy is grown in tropical and subtropical areas. As a result, all of our suppliers’ production is particularly susceptible to climate change in these areas. Rapid and severe climate change may decrease our suppliers’ crop production, which may significantly harm our business, results of operations and financial condition.

 

Improper storage, processing and handling of our paddy or rice could damage our inventories and, as a result, harm our business and results of operations.

 

We typically store paddy in covered warehouses or in bags placed on open-air, raised plinths (or platforms) and processed rice in covered warehouses. In the event our paddy is not appropriately stored, handled and processed, spoilage may reduce the quality of the paddy and the resulting processed rice. Even if paddy is appropriately stored on open-air plinths, above-average rains may still harm the quality and value of paddy stored in this manner. In addition, the occurrence of any mistakes or leakage in the rice storage process may harm the yield, quality and value of our rice, leading to lower revenue.

 

The development of our new processing facility is subject to various risks; we may not be able to complete the facility as planned or on schedule.

 

As part of our growth strategy, we intend to develop a new processing facility in India. We estimate the cost to be approximately $64 million in total and we intend to rely on outside funding for this facility. Our plans remain subject to certain potential problems and uncertainties, including availability of financing, increased costs of equipment or manpower, completion delays due to the need to find an appropriate location for the facility at acceptable costs, a lack of required equipment, financing permits or approvals or other factors, defects in design or construction, changes in laws and regulations or other governmental action, cost overruns, accidents, natural calamities and other factors, many of which may be beyond our control. Any delays in completing this facility could result in our loss or delayed receipt of revenue, as well as increases in financing and construction costs. Our proposed expansion will also require significant time and resources from our management team. Any failure by us to meet revenue or income targets may require us to reconsider our development plans. If these plans do not proceed as planned, our business, results of operations and financial condition may be harmed. Even if completed, our new processing facility may not yield the expected or desired benefits in terms of process and cost efficiencies, or an expansion in our business. We will also incur additional fixed costs from the new facility, and may not be able to timely reduce these or other fixed costs in response to a decline in revenue, which would harm our results of operations and profitability.

 

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We rely upon independent third party transportation providers for substantially all shipments through our supply chain and are subject to increased shipping costs as well as the potential inability of our third party transportation providers to deliver on a timely basis.

 

We currently rely upon a network of independent third party transportation providers for substantially all of our shipments of paddy and rice to storage, processing, packaging and distribution facilities, as well as from distribution facilities to market. These transportations are primarily made by trucks within the same country and by ship between countries. Our use of these delivery services for our shipments subjects us to many risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and inclement weather, which may impact our shippers’ ability to provide delivery services that adequately meet our shipping needs. If we change the shipping companies we use, we could face logistical difficulties that could delay deliveries, and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from our current independent third party transportation providers, which in turn would increase our costs.

 

Employee shortages and rising employee costs may harm our business and increase our operation costs.

 

As of March 31, 2018, we employed 209 persons (including 35 employees in locations outside of India) to perform a variety of functions in our daily operations. Lower labor costs in India provide us with a cost advantage. However, we have observed an overall tightening of the employee market and an emerging trend of shortage of labor supply. Failure to obtain stable and dedicated employee support may cause disruption to our business that harms our operations. Furthermore, employee costs have increased in India in recent years and may continue to increase in the near future. To remain competitive, we may need to increase the salaries of our employees to attract and retain them. Any increase in employee costs may harm our results of operations and financial condition.

 

Loss of key personnel or our inability to attract and retain additional key personnel could impair our ability to execute our growth strategy, harm our product development effort and delay our launch of new products.

 

Our business involves operations spanning a variety of disciplines and demanding a management team and employee workforce that is knowledgeable in many areas necessary for our operations. While we have been successful in attracting experienced, skilled professionals, the loss of any key member of our management team, or operational or product development employees, or the failure to attract and retain additional such employees, could slow the execution of our business strategy, including expansion into new target markets, and our development and commercialization of new products. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, the resulting staffing constraints will harm our ability to expand, satisfy customer demands for our products and develop new products. Competition for such personnel from numerous companies may limit our ability to attract and retain them on acceptable terms, or at all, and we have no “key person” insurance to protect us from any losses of personnel.

 

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Our operations are highly regulated in the areas of food safety and protection of human health and we may be subject to the risk of incurring compliance costs as well as the risk of potential claims and regulatory actions.

 

Our operations are subject to a broad range of foreign, national, provincial and local health and safety laws and regulations, including laws and regulations governing the use and disposal of pesticides and other chemicals. These regulations directly affect our day-to-day operations, and violations of these laws and regulations can result in substantial fines or penalties, which may significantly harm our business, results of operations and financial condition. For example, there has been a recent focus in the U.S. on the potential levels of arsenic in rice and the Food and Drug Administration (“FDA”) has indicated that it will evaluate strategies designed to limit arsenic exposure from rice and rice products. In December 2013, FDA issued an import alert enabling it to detain shipments of Indian Basmati rice for compulsory testing for residue of certain pesticides. While Amira is currently exempted from the import alert, FDA’s interest in Indian Basmati rice could impact our business. While the U.S. Environmental Protection Agency (“EPA”), which establishes the Maximum Residue Limit (“MRL”) for pesticide residue allowed in food imported into the U.S., has yet to set an MRL for most of the pesticides used by Indian farmers to protect Basmati rice from pests, it has recently set an import tolerance for tricyclazole in Indian Rice at 3.0 parts per million (“PPM”). For other pesticides without an MRL, however, if even 0.01 PPM are detected in any rice shipments into the U.S. they will be rejected by FDA. FDA’s enforcement activities have not, to date, materially affected our business or the results of our operations because our sales of Basmati rice in the United States have been limited, representing less than 13.0% in fiscal 2018. However, FDA’s regulatory activities may limit our growth in the U.S. Until FDA’s regulation of Basmati rice is resolved, there can be no assurance as to what additional measures, if any, may be taken by FDA or any other regulatory body and the impact of any such measures. To stay compliant with all of the laws and regulations that apply to our operations and products, we may be required in the future to modify our operations or make capital improvements. Our products may be subject to extensive examinations by governmental authorities before they are allowed to enter certain regulated markets, which may delay the processing or sale of our products or require us to take other actions, including product recalls, if we or the regulators believe any such product presents a potential risk. If we are granted access to any such regulated market, maintaining regulatory compliance there may be expensive and time consuming, and if approvals are later withdrawn for any reason, we may be required to abruptly stop marketing certain of our products there, which could harm our business, results of operations and financial condition. In addition, we may in the future become subject to lawsuits alleging that our operations and products cause damage to human health.

 

We rely on certifications by industry standards-setting bodies; loss of a certification could reduce our sales.

 

Certifications are not compulsory in the rice industry. However, some of our customers require us to have one or more internationally recognized certification. We have received an ISO 9001:2008 quality system certification and an ISO 22000:2005 food safety management certification for our rice processing facility, and an SQF Certificate. In addition, we have received certifications from BRC Global Standards and the U.S. Food and Drug Administration, as well as being Kosher certified, and have received a certificate of approval for the export of Basmati rice by the Export Inspection Council of India. We incur significant costs and expenses, including any necessary upgrades to our manufacturing facilities, associated with maintaining these certifications. If we fail to maintain any of our certifications, our business may be harmed because our customers that require them may stop purchasing some or all of our products.

 

We also have organic certifications for our rice products from Ecocert India Private Limited, an international certification body that certifies our compliance with the requirements of the EU, Regulations and as per the USDA National Organic Program’s Organic Standards.

 

Our historical and future international sales to certain non-U.S. customers, including independent resellers, expose us to special risks associated with operating in particular countries. If we are not in compliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures.

 

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) administers certain laws and regulations, or U.S. Economic Sanctions Laws, that restrict U.S. persons and, in some instances, non-U.S. persons like us, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions, or sanctions targets. We did not used any proceeds, directly or indirectly, from our IPO to fund any activities or business with any sanctions target. In compliance with Indian laws, Amira India and our other non-U.S. subsidiaries have sold rice to independent non-U.S. customers in international markets that resell products to their own customers, which customers may have included private customers in Iran, Syria and other countries in the region. Iran and Syria are currently sanctions targets. In fiscal year 2018 and 2017, there were no sales to Iran, Syria and Sudan. Currently, direct and indirect sales of rice into Iran are allowed under an OFAC general license issued in October 2011. Sales of rice into Syria are not restricted by OFAC or by the U.S. Department of Commerce, Bureau of Industry and Security, which primarily administers U.S. restrictions on exports or re-exports to Syria. Therefore, we believe we are in compliance with U.S. Economic Sanctions Laws. We believe that we conducted our historical activities in compliance with applicable U.S. Economic Sanctions Laws in all material respects; however, it is possible that U.S. authorities could view certain of our past transactions to have violated U.S. Economic Sanctions Laws. If our activities are found to violate applicable sanctions or other trade controls, we may be subject to potential fines or other sanctions. For example, a violation of OFAC’s Iran regulations could currently result in a civil monetary penalty of up to the greater of $250,000 or twice the value of the transaction involved. We intend to conduct our business activities in compliance with all applicable laws and regulations. We will continue to monitor developments in countries that are the subject or target of any of these laws or regulations so that our sales to Sanction Targets will be conducted in compliance with all applicable law.

 

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We are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and other laws concerning our international operations. Legislation in other jurisdictions contains similar prohibitions, although varying in both scope and jurisdiction. Although our U.S. subsidiary only transacts business in the U.S., we operate in many parts of the world that have experienced governmental corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, which may negatively impact our results of operations.

 

We have adopted and are in the process of continuous improvement and strengthening of the formal controls and procedures to ensure that we are in compliance with OFAC, FCPA and similar laws, regulations and sanctions. The implementation of such controls and procedures could result in the discovery of issues or violations with respect to the foregoing by us or our employees, independent contractors, subcontractors or agents of which we were previously unaware. Any violations of these laws, regulations and procedures by our employees, independent contractors, subcontractors and agents could expose us to administrative, civil or criminal penalties, fines or restrictions on export activities (including other U.S. and Indian laws and regulations as well as foreign laws). A violation of these laws and regulations, or even an alleged violation, could harm our reputation and cause some of our U.S. investors to sell their interests in our company to be consistent with their internal investment policies or to avoid reputational damage, and some U.S. institutional investors might forego the purchase of our ordinary shares, all of which may negatively impact the trading prices of our ordinary shares.

 

We may incur significant costs to comply with environmental, health and safety laws and regulations; failure to comply could expose us to significant liabilities.

 

We are subject to a variety of environmental, health and safety laws and regulations in India and in the other locations in which we operate. Although we have implemented procedures to comply with these laws and regulations, we cannot be sure that our measures are compliant or capable of eliminating the risk of injury or contamination from the use, generation, manufacture, or disposal of our products. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our insurance coverage. Violations of environmental, health and safety laws may occur as a result of human error, accident, equipment failure or other causes. Environmental proceedings had been initiated against Amira India before the District Court, Gurgaon, India, alleging that Amira India’s failure to make proper arrangements for the disposal of ash and straw by products of its rice processing operations had caused air and noise pollution. We have taken corrective measures and. since then we have obtained renewal approvals under the Indian Air (Prevention and Control of Pollution) Act, 1981 and the Indian Water (Prevention and Control of Pollution) Act, 1974, and the current approvals are valid until March, 31, 2021. However, similar or other allegations or legal proceedings may be initiated against us in the future relating to non-compliance with applicable environmental laws.

 

Compliance with applicable environmental health and safety laws and regulations may be expensive, and the failure to comply could result in the imposition of fines, regulatory oversight costs, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations, and our liability may exceed our total assets. We expect to encounter similar laws and regulations in most if not all of the countries in which we may seek to establish production capabilities or operate and the scope and nature of these laws and regulations will likely be different from country to country. Environmental, health and safety laws could become more stringent over time, requiring us to change our operations or incur greater compliance or capital costs, or could provide for increased penalties for violations, all of which could impair our research, development or production efforts and harm our business. The costs of complying with environmental, health and safety laws and regulations and any claims concerning noncompliance, or liability arising thereunder, could significantly harm our results of operations or financial condition.

 

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We may become subject to lawsuits or indemnity claims, including those related to class action suits, product contamination and product liability, which could harm our business and results of operations.

 

From time to time, we may be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, infringement of the intellectual property rights of others, or civil penalties and other losses of injunctive or declaratory relief. In the event that such actions or indemnities are ultimately resolved unfavorably for amounts exceeding our accrued liability, or are otherwise significant, the outcome could harm our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could harm our liquidity.

 

In addition, the distribution and sale of our products involve an inherent risk of product liability claims and product recalls if our products become adulterated or misbranded, as well as any associated adverse publicity. Our products may contain undetected impurities or toxins that are not discovered until after the products have been consumed by customers. For instance, our products are subject to tampering and to contamination risks, such as mold, bacteria, insects and other pests. This could result in claims from our customers or others, or in a significant product recall, which could damage our business and reputation and involve significant costs to correct. In addition, these kinds of events could result in cancellation of contracts by our customers or the recall of products. We may also be sued for defects resulting from errors of our commercial partners or unrelated third parties, and any product liability claim brought against us, regardless of its merit, or product recall could result in material expense, divert management’s attention, and harm our business, reputation and consumer confidence in our products.

 

Our insurance policies may not protect us against all potential losses, which could harm our business and results of operations.

 

Operating our business involves many risks, which, if not adequately insured, could harm our business and results of operations.

 

We believe that the extent of our insurance coverage is consistent with industry practice. Our insurance policies include coverage for risks relating to personal accident, burglary, medical payments, product liability and marine cargo, including transit cover covering certain employees, office premises and consignments of rice. In addition, the inventory stored at our processing facility and warehouses is insured against fire and other perils such as earthquake, burglary and floods, and we have fire and allied perils insurance coverage for business interruptions at our milling facility. Additionally, we maintain insurance policies that provide coverage for class action litigation resulting from claims made against us in connection with the offer and sale of our securities. However, any claim under our insurance policies maintained by us may be subject to certain exceptions, may not be honored fully, in part, in a timely manner or at all, and we may not have purchased sufficient insurance to cover all losses that we may incur. For instance, a majority of our inventory consists of paddy and rice. In the event our inventory is not appropriately stored or is affected by fires or natural disasters such as floods, storms or earthquakes, our inventory may be damaged or destroyed, which would harm our results of operations. In addition, if we were to incur substantial liabilities or if our business operations were interrupted for a substantial period of time, we could incur costs and suffer losses. Our insurance policies may not cover such inventory and business interruption losses. Additionally, in the future, insurance coverage may not be available to us at commercially acceptable premiums, or at all.

 

We have been recently subject to short sale attacks which could harm our reputation and negatively affect our operations.

 

In February 2015 and July 2015, we were subject to short sale attacks by a short seller firm. As a result of the short sale attack, we have been subject to two shareholder class action lawsuits before the United States District Court for the Central District of California. See “ Business‒Legal Proceedings .” The short sale attack and the ensuing shareholder litigation, resulted in a significant decrease in the value of our shares, exposed us to significant litigation costs, diverted our management's attention from day-to-day operations and negatively affected our credibility and reputation, which in turn disrupted our operations and relationships and negatively impacted our ability to effectively market, distribute and sell our products in various jurisdictions and negative effect on our business, financial condition and results of operations. We may be exposed to additional short sale attacks in the future which could result in operational and reputational harm, which in turn could negatively affect our business, financial condition and results of operations and credit ratings. See also “ Management's Discussion and Analysis of Our Financial Condition and Results of Operations‒Factors Affecting Our Results of Operations .”

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Risks Related to Our Public Company Status

 

We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to the Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. issuer.

 

Because we qualify and report as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time, and (iii) the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. We intend to furnish reports to the Securities and Exchange Commission on Form 6-K which contain our six month results for the period ending September 30 of each year, for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act, although the information we furnish is not as frequent or the same as the information that is required in quarterly reports on Form 10-Q for U.S. domestic issuers. In addition, while U.S. domestic issuers that are not large accelerated filers or accelerated filers are required to file their annual reports on Form 10-K within 90 days after the end of each fiscal year, for the fiscal years ending on or after December 15, 2011, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. Although we intend to make interim reports available to our shareholders in a timely manner, investors in our securities may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

 

As a foreign private issuer and a controlled company, we are permitted to take advantage of certain exemptions to the corporate governance requirements of the New York Stock Exchange; this may afford less protection to holders of our ordinary shares.

 

Our ordinary shares are listed on the New York Stock Exchange. As a foreign private issuer, we may elect to follow certain home country (BVI) corporate governance practices in lieu of certain New York Stock Exchange requirements, including the requirements that (1) a majority of the Board of Directors consist of independent directors, (2) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (3) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, and (4) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken. A foreign private issuer must disclose in its annual reports filed with the Securities and Exchange Commission each significant New York Stock Exchange requirement with which it does not comply followed by a description of its applicable home country practice.

 

In addition, we are a controlled company, or a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. As a controlled company, we are exempt from complying with certain corporate governance requirements of the New York Stock Exchange. A foreign private issuer is required to disclose in its annual report that it is a controlled company and the basis for that determination.

 

As a company incorporated in the BVI and listed on the New York Stock Exchange, we are meeting the New York Stock Exchange’s requirements without making use of the above-mentioned exemptions, unless otherwise disclosed. However, in the future we may rely on certain exemptions. Such practices may afford less protection to holders of our ordinary shares.

 

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If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price of our ordinary shares.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. We are aware that deficiencies in our internal controls may adversely affect our management’s ability to record, process, summarize, and report financial data on a timely basis.

 

As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. In addition, we are required by Section 404 of the Sarbanes-Oxley Act of 2002 to include an auditor’s attestation report on our internal control over financial reporting in our annual reports on Form 20-F.

 

On management testing done by us, no significant weaknesses was detected by the management. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

 

We cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price of our ordinary shares.

 

We have incurred and will continue to incur increased costs as a result of being a public company.

 

As a public company, we have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company, particularly after we no longer qualify as an “emerging growth company.” In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the Securities and Exchange Commission, has required changes in corporate governance practices of public companies. These rules and regulations have increased our legal, accounting and financial compliance costs and make certain corporate activities more time-consuming and costly. In addition, we have incurred or may incur in future additional costs associated with our public company reporting requirements. We continue to evaluate and monitor developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

ITEM 4. INFORMATION ON THE COMPANY

 

Overview

 

We are a leading global manufacturer, marketer and distributor of branded packaged specialty rice and other related food products, with sales across five continents around the world. We generate the majority of our revenue through the sale of Basmati rice, a premium long-grain variety of rice grown only in the geographically indicated region of the Indian sub-continent, as well as other specialty rice. We sell our products under our flagship Amira brand, as well as under other Company owned brands and third party brands. We have expanded our product offerings in recent years to include other value-add categories such as edible oils and organics. We also sell other products such as wheat, barley, legumes and other produce to large institutional customers. Our fourth generation leadership has built on a rich, century-old legacy and transformed Amira from a local family-run business to a publicly-listed globally focused packaged food company with a global leadership position in the high growth Basmati rice sector. Under our current leadership, we significantly expanded our footprint in India and internationally. We completed an initial public offering (“IPO”) in October 2012 and our shares are listed on the New York Stock Exchange with the stock symbol ANFI.

 

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We primarily operate in the global packaged rice market and we have focused our efforts on premium, packaged, specialty rice, with a concentration in Basmati rice, a long-grain aromatic rice with favorable health attributes that can be grown only in the geographically indicated region of the Indian sub-continent. The global rice market is a large, staple market with stable growth, while specialty rice and specifically Basmati rice benefits from premium pricing and increasing consumption patterns. The global rice market represented approximately $275 billion in value based on benchmark rice export prices for the international rice trade, according to statistics from Horizon Research in 2012. The Indian rice industry was valued at approximately $50 billion in wholesale prices in 2013 according to the CRISIL equity research report on the Indian rice industry. CRISIL has also estimated the Indian Basmati rice market to be approximately $6.9 billion in fiscal 2014, of which approximately 30% was sold in India and approximately 70% was sold internationally. In recent years, the Basmati rice segment has benefited from increased consumption trends both in India and internationally. According to information provided by APEDA Agri-exchange, WASDE and Jefferies LLC research estimates from September 2016, domestic consumption of Indian Basmati rice has increased at a 4.2% CAGR over the past 10 years, while international sales volumes of Indian Basmati rice have increased at a 3.7% CAGR over the same time period.

 

We sell our products globally in both emerging and developed markets through a broad distribution network. Our Amira branded products are currently sold by retailers such as Bharti Retail, Big Bazaar, Carrefour, Costco, EDEKA, HEB, Jetro Restaurant Depot, Kaufland, Metro Cash & Carry, Morrisons, Publix, Reliance Retail Limited, REWE, Safeway Albertsons, Spencer’s Retail, Star Bazaar, Tesco, Waitrose, Walmart, Wegman’s and Whole Foods. In emerging markets, our products are sold by global retailers and regional supermarkets (the “modern trade”), as well as a network of small, privately-owned independent stores (the “general trade” or “traditional retail”). We maintain a strong distribution platform into the restaurant channel and have long standing network of distributors, third party branded partners and institutional customers who sell our products throughout the world. Our third party branded business is often conducted under contracts with our customers, which enable us to have a high degree of visibility on our sales, volumes, margins and profitability.

 

We have successfully expanded our distribution platform to reach customers across five continents around the world and we continue to invest resources to further establish the Amira brand as a premium, high quality, and packaged specialty rice brand. We also go to market under additional Company owned brands and sub-brands such as Atry, Dum, Guru, Sadry, Sativa, Amira Good Length and Amira Daily Fresh, which allow us to sell at multiple channels and various price points across the value chain to maximize our customer exposure. We have tailored our strategy to local market requirements and continuously focus on developing new value-added products to sell to our customers.

 

We are vertically integrated and participate across the entire rice supply chain beginning with the procurement of paddy (unprocessed rice) to its storage, aging, processing into rice, packaging, marketing and distribution. We believe that our flexible, vertically integrated model provides us with significant advantages in ensuring stability of supply and maintaining quality control throughout the processing cycle. We have longstanding relationships with a large network of procurement agents and a large number of local Indian paddy farmers which allow us to consistently source high-quality paddy. Over the past several years, we have also developed organic sourcing initiatives, which allow us to source and sell organic certified products in India, Europe and the United States. Additionally, we have relationships with several independent rice millers throughout India from whom we supplement our production capacity to fully meet our product needs. Meanwhile, our international operations also source products from outside India from time to time. We believe that our flexible, vertically integrated model provides us with significant advantages in ensuring stability of supply and maintaining quality control throughout the processing cycle.

 

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We operate a sophisticated, fully automated and integrated processing and milling facility that is strategically located on nearly 20 acres of land in Gurgaon, Haryana, India. The facility spans a covered area of approximately 310,000 square feet, with a processing capacity of approximately 24 metric tons of paddy per hour. We also own 48.2 acres of land in nearby Karnal, Haryana, India in the vicinity of key Basmati rice paddy producing regions in northern India. We have plans for a new rice processing and milling facility in Karnal, Haryana, which we currently expect, when completed, will increase our production capacity to more than 60 metric tons of paddy per hour. This increased production capacity will permit increased processing of higher margin early stage products and increased economies of scale, which we expect to improve our margins.

 

We were an “emerging growth company,” as defined in the JOBS Act, enacted on April 5, 2012 until the fifth anniversary of our IPO that expired in 2018. We are required to comply with certain reporting requirements that apply to other public companies.

 

For the fiscal year ended March 31, 2018, we had revenues of $413.9 million, adjusted EBITDA of $59.0 million, and adjusted profit after tax of $(3.5) million. In fiscal 2018, 2017 and 2016 our revenue was $413.9 million, $551.8 million and $563.4 million, respectively, our adjusted EBITDA was $59.0 million, $70.5 million and $74.7 million, respectively and our adjusted profit after tax was $(3.5) million, $35.1 million and $41.9 million, respectively. For the fiscal year ended March 31, 2018, we derived 34.7% of our revenue from sales in India, 52.9% from sales in the Europe, Middle East and Africa, or EMEA region, 0.4% from sales in the Asia Pacific region (other than India), and 12.1% from sales in North America.

 

See “Non-IFRS Financial Measures” for additional information regarding EBITDA, adjusted EBITDA, adjusted profit after tax and other Non-IFRS Measures. For a reconciliation of Non-IFRS Measures to the most directly comparable IFRS measure, see “Summary Financial and Other Data.”

 

Our Strengths

 

We believe that the following competitive strengths have contributed to our expansion and strong track record and will continue to benefit us over time:

 

· A Global Leader in the Attractive Packaged Specialty Rice Industry, and Primarily Basmati Rice. We are a leading global manufacturer, marketer and distributor of packaged specialty rice, and primarily Basmati rice, a premium specialty rice that is well known for its long-grain and appealing aroma, and which can only be grown in the geographically indicated region of the Indian sub-continent. Our leadership in the Basmati rice segment represents a distinct competitive advantage since Basmati is a premium rice variety with a long shelf life that generally commands higher prices and is more profitable than other types of rice. The size of the Indian Basmati rice market is approximately $6.9 billion (CRISIL Equity Research Report, 2014), while the overall global rice market is equal to approximately $275 billion (Horizon Research, 2012). Demand for Basmati rice has remained strong over the past 10 years with sales volumes of Indian Basmati rice in both the domestic Indian market and international markets increasing at more than a 3% CAGR during this time period.

 

· A Market Leader with a Differentiated Business Model. We believe that we have a unique opportunity within the global premium, packaged specialty rice industry. As one of the few globally focused participants in the packaged rice category, we believe that we have the flexibility to reach customers with differentiated offerings across continents and within the various countries in which we operate. By utilizing our locally based professional management teams, we believe that we are better able to provide localized solutions to our customers' product needs while also maximizing our capital allocation and marketing efforts.

 

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· Successful Track Record of Brand-Building and Product Innovation. We launched our flagship Amira brand in 2008 and have since rapidly expanded the presence of our Amira branded products across five continents around the world accounting for approximately $173.2 million in revenue, or approximately 41.9% of our total revenue for the fiscal year ended March 31, 2018. Our Amira branded sales have grown at a 6.0% CAGR from $121.8 million for the fiscal year ended March 31, 2012 to $173.2 million for the fiscal year ended March 31, 2018. In 2011 and 2013, Planman Marcom recognized the Amira brand as one of only six food Power Brands in our Indian market. Separately, Inc. India, a leading Indian business magazine identified Amira as one of India's fastest growing mid-sized companies multiple times since 2010. In 2013, Amira was voted as one of "Asia's Most Promising Brands" by WCRC group. In 2014-2015, VWP World Brand recognized the Amira Brand as "the Admired Brand of India." We believe that our brand leadership in the Indian rice market is particularly advantageous, given the underlying strength of Indian demographic and economic trends. India's rapidly growing middle class is expected to propel growth in the modern trade channel, which is a core focus area that we expect will outgrow the overall market. In addition to our focus on marketing, we are consistently growing our Amira branded presence by introducing new products to sell to our customers and thereby driving further growth.

 

· Global Presence Across Five Continents. We currently sell our products across five continents around the world. We sell our products in India through a network of small privately-owned independent stores (the "general trade" or "traditional retail"), as well as global retailers and regional supermarkets (the "modern trade"). Additionally, we have been selling our products globally for almost forty years and we have built a strong distribution platform throughout the emerging markets, utilizing a combination of direct sales and distributors to sell our products in the general trade and modern trade channels of these localized markets. We have also added substantially to our distribution efforts in the developed world and our products are now sold in many leading retailers in the United States, the United Kingdom and in Continental Europe. Our sales in India have grown at a 4.2% CAGR from $112.0 million in the fiscal year ended March 31, 2012 to $143.5 million for the fiscal year ended March 31, 2018. Our international sales have grown at a 3.7% CAGR from $217.0 million to $270.4 million over the same time period. Amira has been recognized in several years since 2010 by the World Economic Forum as a Global Growth Company, an invitation-only community consisting of approximately 300 of the world's fastest growing companies, including illycaffe S.p.A. and Intralinks.

 

· Deep Relationships with Broad Customer Base. We have been operating continuously in India for more than one hundred years and we have been selling our products internationally for nearly forty years. Our experiences have allowed us to develop a deep and extensive customer base with strong relationships among our large international and regional customers who market our products under our brand names, as well as their own. These relationships have provided us a deep understanding of consumer preferences in numerous markets worldwide. Our ability to consistently deliver large quantities of high-quality products globally in a timely manner has been essential to our success in our Amira branded, third-party branded and institutional businesses. Our products are sold across five continents around the world by many leading retailers such as Bharti Retail, Big Bazaar, Carrefour, Costco, EDEKA, HEB, Jetro Restaurant Depot, Kaufland, Metro Cash & Carry, Morrisons, Publix, Reliance Retail Limited, REWE, Safeway Albertsons, Spencer's Retail, Star Bazaar, Tesco, Waitrose, Walmart, Wegman's and Whole Foods. As a result of our global operations and diverse customer base, we have limited customer concentration. For the fiscal year ended March 31, 2018, our top five customers accounted for approximately 37.0% of our total revenue.

 

· Broad Product Portfolio that Can Be Tailored to Specific Customer and Regional Requirements. We sell our products through more than 300 SKUs, which includes our premium and everyday Basmati rice offerings, as well as other specialty rice, a growing line of other value-add food products including edible oils and organic product offerings and an opportunistic agricultural business which includes sales of wheat, barley, legumes and other produce to our institutional customers. We have the ability to tailor our products to our customers' needs which allows us to sell at various price points across the value chain and maximize our customer exposure.

 

· Flexible, Vertically Integrated, Supply Chain. We are vertically integrated and participate across the entire rice supply chain beginning with the procurement of paddy (unprocessed rice) to its storage, aging, processing into rice, packaging, marketing and distribution. We believe that our flexible, vertically integrated model provides us with significant advantages in ensuring stability of supply and maintaining quality control throughout the processing cycle. We have long-standing relationships with a large network of procurement agents and a large number of local Indian paddy farmers which allow us to consistently source high-quality paddy. Over the past several years, we have also developed organic sourcing initiatives which allow us to source and sell organic certified products in India, Europe and the United States. Additionally, we have relationships with several independent rice millers throughout India from whom we supplement our production capacity to fully meet our product needs. Meanwhile, our international operations also source products from outside India from time to time. We believe that our flexible, vertically integrated model provides us with significant advantages in ensuring stability of supply and maintaining quality control throughout the processing cycle.

 

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· Sophisticated, Fully Automated Manufacturing Facility. We operate a sophisticated, fully automated and integrated processing and milling facility that is located on nearly 20 acres of land in Gurgaon, Haryana, India. The facility spans a covered area of approximately 310,000 square feet, with a processing capacity of approximately 24 metric tons of paddy per hour. We also own 48.2 acres of land in Karnal, Haryana, India in the vicinity of key Basmati rice paddy producing regions in northern India. We have plans for a new rice processing and milling facility in Karnal, Haryana, which we expect to increase our production capacity to more than 60 metric tons of paddy per hour.

 

· Strong Financial Track Record Underpinned by Stable Margins and Robust Discretionary Cash flows. We have a strong financial track record. We have grown our sales at a 9.4% CAGR from $201.7 million for the fiscal year ended March 31, 2010 to $413.9 million for the fiscal year ended March 31, 2018. We have grown our adjusted EBITDA at a 13.5% CAGR from $21.5 million to $59.0 million during the same time period. We have consistent, stable operating margins and our adjusted EBITDA margin has averaged 13.2% over the same time period. Additionally, as a result of our attention to costs, efficient capital spending and an attractive blended tax rate, we have generated significant discretionary cash flows which we define as adjusted EBITDA less capital expenditures and taxes over this time period. In line with our corporate strategy, we have elected to invest in the continued growth of our business by increasing our working capital in order to support our future sales. Our largest financial outlay tends to be the purchase of paddy and rice which we believe is a monetizable asset that can generally be converted into sales at various times throughout its expected life cycle.

  

· Strong Management Team with a Track Record of Success. As a family-owned and managed business that has operated since 1915, we have more than a century of experience in the food business. In 2006, our Chairman and Chief Executive Officer , Mr. Karan A. Chanana, assumed responsibility for our operations. Under Mr. Karan A. Chanana's leadership, we have transitioned from a family-owned and managed business to an international, professionally-managed business. Our management team has significant experience in the rice industry and broad knowledge about paddy procurement, processing and marketing activities. We have augmented our management team and Board of Directors by adding individuals with a significant array of global experience.

 

Our Strategy

 

Our goal is to be the leading global rice brand. Key elements of our strategy to achieve this goal include:

 

· Pursue our Bi-Focal Business Model Focused on Premium Specialty Rice Segments, with an Emphasis on Basmati. We sell our products under our flagship Amira brand, as well as other Company owned brands and third party brands. We believe that consumers recognize our brand and associate it with high quality, premium and authentic specialty rice. We successfully expanded the Amira brand across five continents within only nine years of its launch, and we are investing resources to further establish our brand with the consumer as the standard for high-quality Basmati rice. Our Amira branded sales accounted for approximately 41.9% of our total revenue or $173.2 million for the fiscal year ended March 31, 2018, a substantial increase from $121.8 million for the fiscal year ended March 31, 2012. As a part of our bi-focal strategy, we also supply our products to third party branded partners. We have been selling products to many of our third party branded partners for generations. These relationships provide stability to our business and grant us visibility over our sales and profits in any given year. In addition, we also continue to add new third party customers over time. The strategic deployment of third party branded products helps us secure footholds into new markets and provides us with proprietary, deep understanding of end markets, consumer preferences and price points, which helps us to obtain insights into the local trends and consumer preferences. This unique knowledge helps us refine our strategy for our branded product offerings to cater to specific needs of each customer segment in those markets, hence allowing for greater chances of success. We have successfully used this strategy to increase our Amira branded presence in both emerging and developed markets. Our third party branded sales accounted for approximately 45.8% of our total revenue or $189.5 million for the fiscal year ended March 31, 2018, compared to $180.7 million for the fiscal year ended March 31, 2012. Basmati remains our core category, accounting for approximately 67.6% of our total revenue for the fiscal year ended March 31, 2018, which stems from our strong presence in our home market and heritage around the category.

 

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· Expand our Presence in International Markets in both Developed and Emerging Economies, while building upon our Strong Foothold in India. Despite its importance as a staple, the packaged rice market remains highly fragmented in both emerging and developed economies which typically see concentrated market positions across most consumer categories. Additionally we believe that most of these markets have yet to fully realize the full potential of the premium/gourmet, specialty segments within the broader rice category. As a result, we believe that emerging markets across the Middle East, Africa and Asia, and developed markets such as the United States, the United Kingdom and Europe represent compelling growth opportunities for us in the near term. We believe that our unyielding focus on high quality, branded specialty rice will allow us to strengthen our market position over time. Our products are currently sold by major retailers in markets such as: Costco, Publix, Safeway Albertsons and Whole Foods in the United States; Morrisons, Tesco and Waitrose in the United Kingdom; and EDEKA, Kaufland and REWE in Germany. We plan to expand our footprint, building on our existing presence as well as increasing our penetration into new countries. In India, we believe that the increase in purchasing power resulting from population growth and an expanding middle class in India will create additional demand for our Basmati rice and value-added product offerings across all distribution channels. Our extensive distribution strength, stemming from more than 200 Indian distributors and 15 company managed distribution centers in India, will allow us to further capitalize on the extensive growth opportunities across both traditional and Western-style modern retail locations.

 

· Continue Building on our Local Organization and Infrastructure in Each Market as we Expand Globally. We believe that the presence of local management teams and sales teams in each of our core markets is one of our key strengths and differentiating aspects vis-à-vis other rice players. We employ dedicated sales teams focused on promoting our products on a country and regional basis. This provides us with a superior interface with the customers, allowing us to better promote our products, respond better to consumer trends and preferences, align our value chain, consistently deliver superior products in a timely manner and further strengthen customer relationships. Outside of India, which we cover on a region-by-region basis, we have local teams in the United Kingdom, the United States, Europe and the Middle East. We will continue to invest in our local organization by further additions as we expand into new markets.

 

· Drive Margin Expansion through further Vertical Integration and Operating Efficiencies. We have a highly flexible, vertically integrated supply chain and production model. We continuously strive to incorporate incremental elements of the value chain into the Amira owned operations, thereby capturing additional profitability upside and increased margins, while also retaining flexibility. We constructed what we believe was the first automated rice processing facility calibrated for Basmati rice in Gurgaon, Haryana, India in 1995. We made significant improvements to this facility and doubled our production capacity in 2010. We believe this facility remains one of the most sophisticated rice processing plants in India today. We have plans to augment our production capabilities through the construction of a new milling plant at a new facility in Karnal, Haryana, India. We expect the new facility will more than double our production capacity, permitting increased processing of higher margin early stage products and increased economies of scale, thereby enabling improving margins.

 

· Develop new Higher Margin, Branded Products in line with Consumer Trends and Preferences. Consistent with our bi-focal business model, we plan to continue to build on the success of our third party branded products in international markets to further develop our Amira branded product sales. In addition to penetrating new markets and increasing our presence in existing markets with our Amira branded and third party branded rice offerings, we are also focused on developing on new branded product offerings such as edible oils, organic categories, snacks and ready-to-eat meals to increase our relevance to consumers and drive further growth. We have leveraged our brand strength and diverse product offerings to allow us to sell our products at various price points across the value chain and maximize our customer exposure. We plan to further penetrate the higher margin, premium segments of the customer proposition through the development of new Amira branded offerings leveraging on our consumer insights, strong global distribution network and established customer relationships.

 

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· Opportunistic Inorganic Expansion through Small Bolt-on Acquisitions to Expand our Presence. The highly fragmented nature of the industry presents a wide range of opportunities for consolidation and entering new markets and consumer segments. We have a very selective approach towards inorganic growth which is based on an extensive assessment of the target company and the opportunity it presents in terms of growth and synergy extraction potential. For example, in December 2013, we entered the German market through our acquisition of AMIRA BASMATI RICE GMBH EUR, which sells its products under the Amira, Atry, Sadry, Sativa, Scheherazade and Sultan brand names into leading retailers such as Edeka, Metro and Rewe in Germany and in neighboring European countries. We further built upon that acquisition in March 2017, when our German entity acquired a portfolio of packaged specialty rice brands from Euro Basmati GmbH. The brands, which include Al Amir, Al Hakim, Bano, Dalia, Hanna and Shah Pari are sold primarily in the ethnic channel in the key markets of Hamburg and Berlin.

 

History

 

Our business was originally founded in 1915 by the Chanana family as an agricultural commodities and salt trading business. Prior to 1947, we were one of the largest suppliers of grain to the British Indian Army. Following the partition of India and Pakistan, we re-located our business in New Delhi, India and expanded to include the trade and supply of lentils and other legumes to Indian government agencies. Throughout the 1960s and 1970s, we focused on the processing and distribution of legumes. In 1978, we first established an international business division which imported legumes. In 1985, we began to process and distribute Basmati rice in India and internationally. In 1995, we constructed what we believe was the first automated rice plant in India which we have continuously upgraded to increase capacity. In 2006, our Chairman and Chief Executive Officer, Mr. Karan A. Chanana, assumed responsibility for our operations. Under his leadership, we have transitioned from a family owned and managed business to an international, professionally managed business. We launched the Amira branded strategy in 2008 to enhance our growth in both the India retail channel and globally. In 2012, we completed our IPO and were listed on the New York Stock Exchange (the “NYSE”).

 

Corporate Structure

 

ANFI was incorporated on February 20, 2012 as a BVI business company and currently has no direct operations of its own. The principal office of the Company is located at 29E, A.U. Tower Jumeirah Lake Towers Dubai, United Arab Emirates. Since the completion of our IPO all our operations are conducted through Amira India and our international operating entities, which we control through our wholly owned subsidiary, Amira Mauritius.

 

In connection with the IPO, ANFI’s wholly-owned subsidiary Amira Mauritius purchased through a new issue of 53,102,500 equity shares of Amira India, representing 80.4% of Amira India’s outstanding equity shares. Other than equity shares, Amira India has no other class of equity outstanding, with or without voting rights. As a result, Amira Mauritius controls but does not wholly own Amira India. This purchase by Amira Mauritius was funded with substantially all of the net proceeds of the IPO and occurred just after the completion of the IPO. The actual number of equity shares that Amira Mauritius purchased equaled such net proceeds divided by the per share value of such shares, or $1.45, as determined using the discounted free cash flow method in accordance with the Reserve Bank of India’s then-current pricing guidelines for issuance of shares to persons resident outside India (the “RBI Price”).

 

As of March 31, 2018, out of 19.6% of total of Amira India share capital (being non-controlling interest), 17.4% are legally and beneficially owned by Mr. Karan A. Chanana, and his affiliates, including various companies controlled directly by Mr. Chanana and indirectly controlled by him through members of his family. As such, as on March 31, 2018, Mr. Karan A. Chanana’s ownership of ANFI (including of his affiliates) stands at 65.0% (including share options granted and vested). On May 1, 2012, Mr. Karan A. Chanana, in his individual capacity, entered into an agreement with a holder of 1,500,000 equity shares of Amira India (representing 2.2% of the current outstanding equity shares of Amira India) to purchase such shares. This agreement provides that the purchase will be affected when Indian regulatory approval for the purchase is obtained. The price per Amira India share that Mr. Karan A. Chanana will pay was negotiated on an arm’s length basis and will be substantially similar to the purchase price paid by Amira Mauritius for the Amira India shares as described below. Assuming such purchase has occurred, Mr. Karan A. Chanana’s ownership of ANFI (including of his affiliates) stands at 65.0% (including share options granted and vested). As a result, an investor’s ownership of our ordinary shares represents a smaller corresponding indirect ownership of Amira India equity shares.

 

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Governance of Amira Mauritius and Amira India

 

Under the Companies Act 2001 of the Republic of Mauritius and Amira Mauritius’ organizational documents, the shareholders of Amira Mauritius elect the Board of Directors of Amira Mauritius at its general meeting. ANFI is the sole shareholder of Amira Mauritius, and the Board of Directors of Amira Mauritius consists of Mr. Karan A. Chanana, Mr. Druvnath Damry and Nazia Bibi Mungroo. Under the Indian Companies Act, 2013, as amended, and the articles of association of Amira India, the Board of Directors of Amira India is elected by the vote of shareholders of Amira India holding a majority of its equity shares at its general meeting. Amira Mauritius owns more than a majority of the equity shares of Amira India and the Board of Directors of Amira India consists of Mr. Karan A. Chanana and Mr. Rajesh Arora.

 

Exchange Agreement and Right of First Refusal

 

We have also entered into an exchange agreement, dated September 27, 2012 (the “Exchange Agreement”), under which the shareholders of Amira India prior to the Amira Mauritius subscription (the “India Shareholders”) described above, have the right, subject to the terms of the Exchange Agreement, to exchange all or a portion of their Amira India equity shares for, at our option, (1) ANFI ordinary shares at an exchange ratio of 1.85 Amira India equity shares for one ANFI ordinary share, or (2) cash per Amira India equity share in an amount equal to the product of the exchange ratio and the volume weighted average price per share on the exchange upon which ANFI ordinary shares are listed for the 15 trading days preceding the delivery of the notice of exchange, on the last day of each fiscal quarter. The exchange ratio is subject to adjustment by the Board of Directors of ANFI upon an India Shareholder’s exercise of such right to exchange in order that the exchange ratio accurately represents the ratio of the fair market value of Amira India and all of its subsidiaries as compared to the fair market value of ANFI and its subsidiaries. The purpose of the Exchange Agreement is to provide the terms upon which Amira India equity shares may eventually be converted into ordinary shares of ANFI at the option of the India Shareholders and to give us the flexibility to convert these Amira India equity shares into ANFI ordinary shares prior to or upon a change of control in order to increase the returns of our shareholders in the change of control.

 

In addition, in connection with a change of control, we will have the right to exchange all Amira India equity shares held by the India Shareholders for, at our option: (1) ANFI ordinary shares at the exchange ratio of 1.85 Amira India equity shares for one ANFI ordinary share, or (2) cash per Amira India equity share in an amount equal to the product of the exchange ratio and the per share consideration that the holders of ANFI ordinary shares are entitled to receive in the change of control transaction. An exchange in connection with a change in control will only be effective if the applicable change in control is consummated. As defined in the Exchange Agreement, a “change of control” refers to any:

 

· merger, consolidation or other business combination of ANFI, Amira Mauritius Amira India or any of ANFI’s subsidiaries that, individually or as a group, represent all or substantially all of the consolidated business of ANFI or Amira India at that time, or any of their successors or other entities that own or hold substantially all the assets of ANFI, Amira Mauritius or Amira India and their respective subsidiaries (the “Amira Business”) that results in the shareholders or other equity holders of ANFI, Amira Mauritius, Amira India or the Amira Business, as the case may be, holding, directly or indirectly, less than fifty percent (50%) of the voting power of ANFI, Amira Mauritius, Amira India or the Amira Business, as applicable,

 

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· any transfer, in one or a series of related transactions, of (1) with respect to ANFI or any successor or other entity owning or holding substantially all the assets of ANFI, ordinary shares (or other equity interests) representing 50% of or more of the voting power of ANFI, or such successor or other entity, to a person or group (other than ANFI or any of its controlled subsidiaries), (2) with respect to Amira Mauritius or any successor or other entity owning or holding substantially all the assets of Amira Mauritius, equity interests representing 50% or more of the voting power of Amira Mauritius or such successor or other entity, to a person or group (other than ANFI or any of its controlled subsidiaries), (3) with respect to Amira India or any successor or other entity owning or holding substantially all of the assets of Amira India, equity shares representing 50% or more of the voting power of Amira India or such successor or other entity, to a person or group (other than ANFI or any of its controlled subsidiaries), other than the issuance of equity shares of Amira India to Amira Mauritius in accordance with the terms of the subscription agreement, or (4) with respect to the Amira Business, equity shares representing 50% or more of the voting power of the entities constituting the Amira Business, to a person or group (other than ANFI or any of its controlled subsidiaries), or

 

· the sale or other disposition, in one or a series of related transactions, of all or substantially all of the assets of ANFI, Amira Mauritius, Amira India or the Amira Business.

 

Pursuant to the Exchange Agreement, ANFI, Amira Mauritius and Amira India have agreed that within 30 days after the date that the Board of Directors of ANFI has either authorized a corporate action to effect a change of 5% or greater in the ratio of the fair market value of Amira India and all of its subsidiaries as compared to the fair market value of ANFI and its subsidiaries, or determined that such a material change has occurred, the Board of Directors of ANFI will in good faith adjust the exchange ratio, determine the date when the adjusted exchange ratio will apply, and provide written notice of the material change and adjustment to the exchange ratio to the India Shareholders.

 

Any exchange of shares under the Exchange Agreement will be subject to all necessary approvals, including receipt of prior approval of Indian regulatory authorities. Further, any acquisition of Amira India’s equity shares by ANFI or Amira Mauritius from the India Shareholders, by exchange or in cash, must comply with applicable pricing guidelines issued by the Reserve Bank of India from time to time, and under current regulations, cannot be at a price lower than the RBI Price.

 

The Exchange Agreement also provides ANFI and Amira Mauritius a right of first refusal to purchase equity shares of Amira India that an India Shareholder (including Mr. Karan A. Chanana and his affiliates) proposes to transfer to any person, at the same price and on the same terms and conditions as those offered to the proposed transferee, subject to customary exceptions (including for estate planning purposes).

 

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Our Organizational Structure

 

The diagram below illustrates our corporate structure as of March 31, 2018, assuming Mr. Karan A. Chanana has completed the purchase of 1,500,000 equity shares of Amira India as described previously. This diagram does assume the exchange by the shareholders of Amira India of any of their Amira India equity shares for ANFI ordinary shares pursuant to the Exchange Agreement.

 

 

 

 

 

(1) Includes non-controlling interest in Amira India of 19.6% (after considering Share options granted and vested through March 31, 2018). Also, assumes the completion of the purchase by Mr. Karan A. Chanana of 1,500,000 equity shares of Amira India.

 

(2) International subsidiaries include:
Amira I Grand Foods Inc.
Amira Food Pte. Ltd.
Amira C Foods International DMCC
Amira Foods (Malaysia) SDN. BHD.
Amira Ten Nigeria Limited

 

(3) Subsidiaries include:
Amira K.A. Foods International DMCC
Amira Grand I Foods Inc.
Basmati Rice North America LLC
Amira G Foods Limited

 

(4) Subsidiaries include

Amira Basmati Rice GmbH EUR (formerly known as Basmati Rice GmbH Europe)
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On February 17, 2017, Mr. Karan A. Chanana completed a gift of 3,500,000 restricted shares to JDIF TRUSTEES SARL as Trustees of the XEATON5 Trust dated November 3, 2016. Mr. Karan A. Chanana's spouse and children are the beneficiaries of the Xeaton 5 Trust.

 

We own 80.4% of Amira India and have consolidated its financial results in the financial statements included in this Annual Report. As a result, the remaining 19.6% of Amira India that is not owned by ANFI has been reflected in our consolidated financial statements as a non-controlling interest and accordingly, the profit after tax attributable to equity shareholders of ANFI has been reduced by a corresponding percentage.

 

The following table sets forth our significant subsidiaries** as of March 31, 2018:

 

Name of company   Country of incorporation
or establishment
  Attributable equity interest held
Amira Nature Foods Ltd (“Amira Mauritius”)   Mauritius   100% by ANFI
         
Amira I Grand Foods Inc.   British Virgin Islands   100% by Amira Mauritius
         
Amira Grand I Foods Inc.   United States   100% by Amira I Grand Foods Inc. (BVI)
         
Amira K.A. Foods International DMCC   UAE   100% by Amira I Grand Foods Inc. (BVI)
         
Amira Basmati Rice GmbH EUR *   Germany   100% by Amira Mauritius
         
Amira Pure Foods Private Limited (“Amira India”)   India   80.4% by Amira Mauritius
         
Amira I Grand Foods Inc.   United States   100% by Amira India
         
Amira Food Pte. Ltd.   Singapore   100% by Amira India
         
Amira C Foods International DMCC   UAE   100% by Amira India
         
Amira Foods (Malaysia) SDN. BHD.   Malaysia   100% by Amira Food PTE Ltd.
         
Basmati Rice North America LLC   United States   100% by Amira I Grand Foods Inc. (BVI)
         
Amira G Foods Limited   United Kingdom   100% by Amira I Grand Foods Inc. (BVI)
         
Amira Ten Nigeria Limited   Nigeria   100% by Amira C Foods International DMCC

 

 

* Formerly known as Basmati Rice GmbH Europe

**A new company named Amira International Finance B.V. has been incorporated in Netherlands on July 30, 2018. Amira International Finance B.V. is a 100% owned subsidiary of Amira Nature Foods Limited.

 

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Our Products

 

We are primarily engaged in the business of processing, distributing and marketing packaged Indian specialty rice, primarily Basmati rice, which accounted for 67.6% of our revenues for the fiscal year ended March 31, 2018. We also sell non-Basmati specialty rice and provide ready-to-eat snacks and edible oils, and are launching numerous additional rice, snack and ready to heat meal products. We are also engaged in the institutional sale of bulk commodities to large international and regional trading firms.

 

We offer all of our products in an array of packages to meet different market needs. We continuously evaluate our existing products for quality, taste, nutritional value and cost and make improvements where possible. Additionally, we develop new products where we see market opportunity. We offer several types of rice, including AMIRA Brown Basmati, which is low-fat, cholesterol-free, high in fiber, and rich in vitamin B and manganese, and our Parboiled Basmati Products, which have 80% of the nutrients found in brown rice. In addition, we have begun to market Amira Smoked Basmati and Amira Organic Basmati in certain geographies.

 

Amira Branded Products

 

Our Amira branded products, consist of several rice varieties, as well as a growing line of complementary products including edible oils, ready to eat snacks and ready to heat meals. A representative list of our products is set forth below.

 

 

  Premium Basmati Rice Value Basmati Rice Other Specialty Rice Other Product Adjacencies
         

Brand/ Product

Lines

•      Pure Basmati Rice

•      Extra Long Grain Basmati Rice

•      Indian Basmati Rice

•      Brown Basmati Rice

•      Traditional Basmati Rice

•      Smoked Basmati Rice

•      Daily Fresh Basmati Rice

•      Goodlength Day to Day Basmati Rice

•      Everyday Basmati Rice

•      Goodlength Broken Basmati Products

•      Parboiled Basmati Products

•      Banquet Rice

•      Thai Jasmine Rice

•      Sharbati Aromatic Long Grain Rice

•      Kheer Rice

•      Khichdi Rice

•      Sona Masoori Rice

•      Edible Oils

•      Organic Products

 

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Product

Features

•      Consists of the finest grains of aromatic Basmati

•      Aged for as much as 12+ months

•      More than doubles in size when cooked

•      Rich taste and fragrant aroma

•      Consist of different types of high-quality rice such as a mix of Basmati rice varieties or a mix of broken rice

•      Value alternative commonly used as an "everyday" Basmati and by restaurants or catering companies

•       Thai Jasmine: sourced from Thailand and has a fragrant aroma and chewy texture

•       Sharbati Aromatic Long Grain: an everyday rice for daily consumption; often purchased by foodservice customers

•       Kheer: formulated for rice pudding

•       Khichdi: formulated for Indian and South Asian comfort food; also used as infant and toddler food

•       Sona Masoori: aromatic and light grain white rice

•      Oils used in food preparation

 

Third Party Branded Products

 

We sell a number of varieties of Basmati and non-Basmati packaged rice to many large international and regional customers, such as Euricom Spa, Indonesia’s Business State Logistics Agency (Bulog), Platinum Corp. FZE, the Seychelles State Trading Corporation Limited who market them under their own brand through their own distribution networks. Our third party branded business is primarily focused on emerging markets where the retail channel is highly fragmented. The following table shows examples of our third party branded rice products.

 

  Third Party Basmati Rice Third Party Non-Basmati Rice
     

Brand/ Product

Lines

•      Euricom Brown Basmati Rice, Italy

•      Mahe Regular White Basmati Rice (Economy), Seychelles

•      Mahe Premium White Basmati Rice (Premium), Seychelles

•      Bulog Non-Basmati Rice, Indonesia

•      Platinum Corp. FZE Non-Basmati Parboiled Rice, Nigeria

•      Bonne Chance Long Grain Rice, Abidjan

Product

Features

•      Consists of the finest grains of pure traditional aromatic Indian Basmati

•      Available in brown, white and parboiled rice

•      Rich taste and fragrant aroma

•      Non-Basmati white rice which is between 10% and 100% broken and may be parboiled

 

Institutional Products

 

Our institutional business primarily consists of the opportunistic sale of bulk commodities, including wheat, barley, legumes, maize, sugar, soybean meal, onion, potato and millet. We sell these products to large international and regional trading firms.

 

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Customers and Sales Channels

 

We sell our products through a broad distribution network across five continents throughout the world. Our Amira branded products are sold by Indian retailers such as Bharti Retail, Big Bazaar, Metro Cash & Carry, Reliance Retail Limited, Spencer’s Retail and Star Bazaar. We also sell in India to traditional retail (small, privately owned independent stores, typically at a single location) which we access through our distributor network. Internationally, our Amira branded products are sold by global retailers such as, Carrefour, Costco, EDEKA, HEB, Jetro Restaurant Depot, Kaufland, Morrisons, Publix, REWE, Safeway Albertsons, Tesco, Waitrose, Walmart, Wegman’s and Whole Foods. We also sell our products in India and internationally through the food service channel. Our third party branded products are sold to many international and regional customers, such as Indonesia’s Business State Logistics Agency (Bulog) and Platinum Corp. FZE, who market them under their own brands through their own distribution networks. Third party sales provide a level of sales visibility as they are made during January-March for delivery during the year. Our institutional products are sold to large international and regional trading firms. Sales to our top five customers and distributors collectively accounted for 37.0% and 24.0% of our revenue for the fiscal years ended March 31, 2018 and 2017, respectively. Our two largest customers or distributors accounted for approximately 28.7% and 10.7% of our revenue during the fiscal years ended March 31, 2018 and 2017, respectively.

 

Production

 

Our Basmati rice operations include procurement, inspection, cleaning, drying, parboiling, storage and aging, processing, sorting, packaging, branding and distribution. We purchase our non-Basmati rice from other rice processors, and contract with third parties to produce and package our ready to eat meals, snacks and edible oils.

 

Paddy and Semi-Processed Rice Procurement

 

Paddy Procurement

 

The primary raw material that we use in producing Basmati rice is Basmati paddy. Rice seed is typically planted in flooded fields in the early spring and, after it matures, water is drained from the fields and the crop is harvested. The harvested grain is referred to as “paddy.” In India, Basmati paddy is typically harvested between September and March. Basmati paddy available during this period is generally of superior quality compared to paddy available during the off-season, although we also purchase small quantities of paddy in the off-season to supplement our annual procurement and to benefit from lower paddy prices. Our Basmati procurement team purchases paddy to be stored for aging and processing throughout the year from the major Basmati paddy production centers, including the Indian states of Haryana, Punjab, Rajasthan, Uttarakhand, and Western Uttar Pradesh, either directly at the organized and government regulated agricultural produce markets in India known as “mandis,” and/or through licensed procurement agents. Licensed procurement agents, or “pucca artiyas,” evaluate, test and purchase paddy on our behalf at mandis. We have non-contractual long-standing relationships with procurement agents for sourcing paddy and are knowledgeable about and experienced with local areas and farmers.

 

Our ability to procure adequate quantities and good quality paddy is affected by crop conditions. For example, yields of paddy could decrease and the price of paddy could increase due to inadequate or delayed monsoons or heavy rains and high winds. We believe paddy is generally available at reasonable, stable prices prevalent in the current market. We have not encountered any processing interruptions due to paddy shortages since we commenced our Basmati operations in 1985.

 

Semi-Processed Rice Procurement

 

Semi-processed rice procurement is done through approved vendors. These vendors are sourced through approved brokers with whom we have a historic relationship. Vendors or suppliers are millers who have bought and aged non-Basmati rice. We purchase the semi-processed rice, transport the product into our rice mill and then finish, pack and sell the product to our customers and distributors. Processed Rice Procurement

 

We also purchase processed rice based on our specifications from third parties in India and internationally to supplement our product needs. We purchase the rice and then sell the product to our customers and distributors on our terms and conditions.

 

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Paddy Drying, Parboiling, Storage and Aging

 

After the paddy is tested and then unloaded at our processing facility, it is pre-cleaned and dried to prevent deterioration. After it has been dried, some of our paddy is parboiled. Parboiling involves soaking the paddy in water, steaming it before removing the husk, and further hydrating, heating and drying it. Parboiling improves the nutritional profile of Basmati rice, causing it to retain more nutrients than regular milled Basmati rice, and changes its texture so that it has a fluffier consistency. After it has been dried, and where appropriate, parboiled, we store and age the paddy for as much as seven months or more in our warehouses or open plinths. Aging dehydrates the Basmati paddy, which results in its rice grains elongating more when cooked.

 

Processing and Additional Storage and Aging

 

Prior to further processing, the paddy is cleaned again to remove any residual dust or impurities and foreign materials. The paddy is then milled using a rice huller to remove the paddy’s outer and inner husk. Once the husk has been removed, the resulting rice is polished and the broken rice is removed and retained. We sell broken Basmati rice as Amira branded “Every Day” Basmati rice at an economical price compared to full grain Basmati rice. Byproducts produced as a result of processing the paddy are husk, bran and broken rice, which we further process and sort to produce other Amira branded rice products such as Kheer and Kichdi rice and Amira Goodlength Day to Day rice. Once the paddy products and the broken rice have been removed, the remaining rice is sorted by color and graded. Basmati rice is hygienically aged in our warehouses for as much as six months or more. Finally, our rice and rice products are packaged in our processing facility and prepared for shipment.

 

Inspection

 

Paddy is checked for quality at the time of purchase and prior to loading it on the trucks that transport paddy to our processing facility. Further, the paddy bags are sample checked on arrival at storage locations to ensure that the paddy meets the quality specifications based on our purchase. We have a fully equipped laboratory that checks quality at various stages of paddy procurement and rice processing. In addition, after the rice has been processed, we inspect the rice to ensure that it meets our and our customers’ quality standards. We have implemented strong measures throughout processing to ensure product quality and food safety. Our standardized processing, product grading standards, monitoring and testing systems help to ensure consistent adherence to our quality control and food safety policies. We have also received an ISO: 9001:2008 quality management accreditations for our rice processing facility, which has been renewed yearly and is currently valid until July 2018.

 

Certifications

 

While certifications are not compulsory in the rice industry, we maintain a number of internationally recognized certifications. We have received an ISO 9001:2008 quality system certification, an ISO 22000:2005 food safety management certification for our rice processing facility, and a SQF Certificate. In addition, our facilities have received certifications from BRC Global Standards, an international company which provides health and safety certifications, the U.S. Food and Drug Administration, and are Kosher certified and have received a certificate of approval for the export of Basmati rice by the Export Inspection Council of India.

 

We have organic certifications for our rice products from Ecocert India Private Limited, an international certification body that certifies our compliance with the requirements of the EU and the NOP, which tracks the US FDA organic regulations.

 

Sales, Marketing and Distribution

 

As of March 31, 2018, we had 55 employees working in sales, marketing and distribution around the world. We now have 15 company-managed distribution centers in India compared to just one at the time of our IPO. We believe this will allow us to further capitalize on the extensive growth opportunities across both traditional and Western-style modern retail locations. We support our sales force using a marketing strategy including extensive media advertising in both Indian and international markets. We use television, radio and print advertisements to promote the Amira brand name to our end-users.

 

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Our products also reach our Indian and international customers through our network of more than 225 distributors who coordinate regional marketing, sales and distribution.

 

Competition

 

The global packaged rice market is highly fragmented with no dominant players on a global basis or in India. According to Euromonitor, for example, in 2015 the top 10 brands only accounted for approximately 11% of market share by value around the world. Competition in the rice markets is principally on the basis of product selection, product quality, reliability of supply, processing capacity, brand recognition, distribution capability and pricing. With respect to our Basmati rice, we compete with various types of competitors in the fragmented and unorganized Basmati rice market, including other large Indian distributors and national rice brands, as well as, to smaller businesses in India and around the world. Internationally, our major competitors are leading Indian overseas Basmati rice companies, as well as non-India based companies that sell basmati and non-basmati rice. Basmati rice has historically only been grown successfully in the Indian states of Haryana, Uttar Pradesh, Uttaranchal and Punjab, Rajasthan, Jammu and Kashmir, and in a part of the Punjab region located in Pakistan which enjoy the climatic conditions required to successfully grow Basmati rice. A type of rice similar to Basmati is grown and sold as Basmati rice from California and Texas, among other places.

 

Intellectual Property

 

We protect our intellectual property through copyright and trademark laws. Our intellectual property includes the registered trademarks “Amira,” “Goodlength,” “Daily Fresh,” “Goodhealth,” “Indigo,” “Sativa,” “Sharbati,” “Pashmina” and “Love @1st bite” among others under the Indian Trade Marks Act, 1999 and other foreign trademark and copyright legislations. The registration of a trademark is generally valid for ten years but can be renewed. In addition, we have applied for the registration of the “Amira Food Connect” logo, “Make Something Beautiful,” the “Amira Pure” label and “Amira” across certain other product categories. The registration of any trademark in India is a time-consuming process, and there can be no assurance that any such registration will be granted. Further, we have obtained copyright protection for certain of our intellectual property, which include our “Amira” label and logo, under the Indian Copyright Act, 1957. While registration is not a prerequisite for acquiring or enforcing copyrights, registration creates a presumption favoring the ownership of the registered owner. Copyright registration in India gives copyright protection in 165 other countries which are signatories to the Berne Convention.

 

In December 2013, we entered the German market through our acquisition of Amira Basmati Rice Gmbh EUR, which sells its products under the Amira, Atry, Sadry, Sativa, Scheherazade and Sultan brand names into leading retailers such as Edeka, Metro and Rewe in Germany and in neighboring European countries. We further built upon that acquisition in March 2017, when our German entity acquired a portfolio of packaged specialty rice brands from Euro Basmati GmbH. The brands, which include Al Amir, Al Hakim, Bano, Dalia, Hanna and Shah Pari are sold primarily in the ethnic channel in the key markets of Hamburg and Berlin.

 

We have also registered, or are in the process of registering, trade names and trademarks internationally in various countries where our products are sold, including in the U.S.

 

Employees

 

As of March 31, 2018 and 2017, we had 209 and 236 full-time employees, respectively. As of March 31, 2018, we had 49 full time employees working in our finance, accounting & legal department, 55 working in sales, marketing & distribution, 47 working in HR, IT & administration, and 58 working in operations and processing facility. We have entered into employment agreements with all of our fulltime employees that provide for termination of their employment upon delivery of two months’ severance or notice, and that prohibit them from soliciting any of our other employees during or after their employment. There is a registered trade union comprising a small number of workers at the processing facility. We consider our relations with our employees to be amicable.

 

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Insurance

 

We currently maintain commercial general liability insurance and property insurance. We also have liability insurance for our directors and officers.

 

Legal Proceedings

 

We are subject to litigation in the normal course of our business. Except as set forth below, we are not currently, and have not been in the recent past subject to any material legal, arbitration or government proceedings (including proceedings pending or known to be contemplated) that we believe could have a significant effect on our financial position or profitability.

 

On April 4, 2012, a vessel carrying rice owned by Amira C Foods International DMCC (“Amira C Foods”) with a market value of approximately $10 million arrived at the Subic Special Economic Zone (“SSEZ”) in the Port of Subic Bay, a free trade zone located in the Republic of the Philippines for purposes of temporary warehousing and trans-shipment. Metro Eastern Trading Corp (“Metro Eastern”) a registered “locator,” duly authorized and regulated by the Subic Bay Metropolitan Authority was engaged to unload, warehouse, and transship the vessel’s cargo. On May 15, 2012, the Collector of Customs (“COC”) in the Port of Subic Bay issued a warrant of seizure and detention to Metro Eastern alleging violation of certain sections of the Tariff and Customs Code of the Philippines. To protect its interests, on June 8, 2012, Amira C Foods intervened in the proceedings and argued that the COC lacked jurisdiction over the goods because they were never imported into the Philippines, but rather only transshipped into the SSEZ. The COC upheld seizure of the rice shipment and forfeiture of the goods to the Philippines on grounds that the shipment was imported into the Philippines without a valid import permit. This decision was upheld by the Commissioner of the Bureau of Customs (“BOC”), and Amira C Foods filed an appeal with the Court of Tax Appeals (the “CTA”).

 

On June 27, 2012, the rice subject of the warrant was sold to a related party for $11.4 million under an arrangement that effectively transferred all risks and rewards to the goods without any recourse or further obligation, other than Amira C Foods’ obligation to make best efforts to assist the purchaser in any regulatory, port and customs clearance required to transship the goods, the cost of which will be borne by the purchaser.

 

On October 17, 2012, the COC conducted a public auction for the seized rice and an entity named Veramar Rice Mill and Trading Company was declared as the highest bidder with a bid of Php 487 Million ($11.7 million at the rate of Php 41.18 to one U.S. dollar). Based on representations by BOC’s legal counsel during the hearing of October 22, 2012 before the CTA, the full bid amount was delivered to the COC and such amount was deposited in escrow to be released to the final prevailing party. Should the CTA find the forfeiture to be invalid, it will issue a ruling that the escrowed amount be released to Amira C Foods. The CTA case is currently at the trial stage Amira completing the presentation of its evidence-in-chief. The Republic will then present its evidence to refute the arguments raised by Amira in its Petition. Should the CTA rule against Amira C Foods, we intend to appeal the ruling.

 

The CTA case is currently pending. We do not believe that the Company will suffer any financial loss as a consequence of this proceeding.

 

On February 10, 2015, two shareholder class action lawsuits were filed in the United States District Court for the Central District of California. The complaints, which were subsequently consolidated, named the Company and certain of our current and former officers and directors as defendants. The consolidated lawsuit purported to state claims for violation of Section 11 and Section 15 of the Securities Act and Section 10(b) and Section 20(a) of the Exchange Act, generally alleging that certain statements in the Company’s Registration Statement and certain subsequent Exchange Act filings were false and misleading and seeking damages in an unspecified amount.

 

We filed a Motion to Dismiss the Plaintiff’s amended complaint on October 2, 2015, and on July 18, 2016 the Court granted our Motion to Dismiss the complaint in its entirety. The second amended class action complaint was also dismissed on August 12, 2016. The Plaintiffs did not file a third amended complaint in the time permitted by the judge. On August 26, 2016, the Plaintiffs filed a motion for relief from the Court’s order on the motion to dismiss. The Plaintiff’s motion was denied on December 18, 2017.

 

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In December 2015, the Company filed a formal complaint in the United States District Court in the Southern District of New York against a short-selling firm, related entities and individuals as a result of their dissemination of material false, misleading and defamatory information about the Company. We sought damages and injunctive relief for defamation and a permanent injunction. On April 6, 2017 we accepted a settlement agreement with the defendants and dismissed the action. The financial terms of the settlement are subject to confidentiality requirements and as such, have not been disclosed.

 

Unlike in the United States, in India, private citizens are permitted to initiate criminal complaints against companies and individuals. For instance, Amira India and its executives have been named in certain civil and criminal complaints filed by its suppliers and vendors from time to time. We do not believe that these proceedings would have a material adverse effect on our financial condition, if determined adversely.

 

On April 30, 2018, we initiated an action in Dubai International Financial Centre Court against IDBI Bank Limited for its breach of an irrevocable letter (“the Irrevocable Letter”) whereby IDBI failed to deliver payment to us in the amount $4,134,000 upon its receipt of funds from our customer as required by the Irrevocable Letter. We are seeking damages, costs and injunctive relief against IDBI. We were provided interim relief by the court and the money was paid. We have further pursued case against IDBI Bank Limited for damages and costs. This has risk pertaining to cancellation of the facility extended by IDBI Bank Limited, though.

 

The conversion of the zoning of a portion of Amira India’s real estate from factory to residential use requires Amira India’s existing lenders to amend and/or refinance the existing debt of Amira India to include the re-zoned real estate as collateral. Our discussions with Amira India’s existing lenders regarding an amendment to the terms of the existing debt agreements or a refinance are ongoing and we have already proposed them to reclassify the debt between real estate and working capital. One of our financial lenders in India (part of the consortium banking arrangement, entered in late 2015) has applied to NCLT (National Country Law Tribunal), under section 9 of the Insolvency and Bankruptcy Code, 2016 and forcing us to repay the loan an amount of $14.1 million (as per their application) extended to us. The application has not been admitted as at the filing of the annual report in this Form 20F. The Company believes the stand of the financial creditor is without merit and unwarranted and driven by general tightening credit environment.

 

Seasonality of our Business

 

Our revenue is typically higher from October through March than from April through September. Due to inherent seasonality in our business, our results may vary over reporting periods. We procure most of our Basmati paddy between September and March. Our business requires a significant amount of working capital primarily due to the fact that a significant amount of time passes between when we purchase Basmati paddy and sell finished Basmati rice. Our average combined holding period of processed Basmati rice and paddy is as much as 12 months or more (at times up to 24 months). Accordingly, we maintain substantial levels of working capital indebtedness that is secured by this inventory. Our results of operations may also be impacted by fluctuations in foreign currency. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Foreign exchange fluctuations.”

 

Government Regulations Applicable to Our Business in India

 

The following description is a summary of the material regulations and policies, which are applicable to our business in India.

 

Regulations Related to Agricultural Produce and Exports

 

The Government of India, under the Foreign Trade (Development & Regulation) Act, 1992, or the Foreign Trade Act, together with the Foreign Trade Policy, provides for development and regulation of foreign trade by facilitating imports into, and augmenting exports from India, as a part of which it sets the MEP, including Basmati and non-Basmati rice, from time to time. While the MEP for Basmati rice was terminated in July 2012, the Government of India may in the future reinstitute an MEP for Basmati rice. The Foreign Trade Act empowers the Director General of Foreign Trade to advise the Government of India in formulation of export and import policy and to implement such policy. The Foreign Trade Act prohibits any person from importing or exporting any goods without an importer-exporter code number, granted by the Director General of Foreign Trade or an officer authorized by the Director General of Foreign Trade.

 

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The Indian Ministry of Agriculture has established the Commission for Agricultural Costs and Prices, or CACP, to advise it on the price policy of major agricultural commodities. The CACP provides recommendations in relation to the minimum fixed price of major agricultural produce, such as paddy, every year. These prices are announced by the Government of India with a view to ensure compensatory prices to farmers for their produce.

 

Further, agriculture produce market committee laws have been enacted by various Indian state governments for benefit of Indian farmers, providing for better regulation of the purchase, sale, storage and processing of agricultural produce, including rice, and the establishment of established market areas for such produce known as “mandis”, each governed by a market committee, within the respective state. Under the legislation, only persons with valid licenses are permitted to purchase, sell, store or process agricultural produce on behalf of buyers and sellers.

 

In addition to the above policies of the Government of India, the following are some of the important regulations that apply to our business in India:

 

Agricultural Produce (Grading and Marking) Act, 1937

 

The Agricultural Produce (Grading and Marking) Act, 1937, or the APGM Act, was enacted to provide for the grading and marking of agricultural and other produce. The APGM Act gives powers to the Government of India to make rules for fixing the quality of agricultural produce. It provides powers of entry, inspection and search and seizure to the inspecting authorities and penalties for violating the provisions of the AGPM Act.

 

The Export (Quality Control and Inspection) Act, 1963

 

The Export (Quality Control and Inspection) Act, 1963, or the Export Quality Act, was enacted for the further development of an export trade from India through quality control and inspection. The Export Quality Act provides for establishment of export inspection council to advise the Government of India regarding measures for quality control and inspection for commodities intended for export. The Export Quality Act authorizes the Government of India to notify commodities which shall be subject to quality control and inspection and specify the type of quality control or inspection applicable, and the agencies authorized to conduct quality control or inspection. The Government of India also has power to obtain information from exporters, inspect their premises and seize commodities. The Export Quality Act also provides for fines and penalties in case of non-compliance.

 

The Agricultural and Processed Food Products Export Development Authority Act, 1985

 

The Agricultural and Processed Food Products Export Development Authority Act provides for the establishment of the Agricultural and Processed Food Products Export Development Authority for the purpose of promotion and development of industries engaged in the export of certain scheduled products, including cereal and cereal products, and registration of and filing of returns by persons exporting the scheduled products. Under this act, the Government of India also has the authority to prohibit, restrict or otherwise regulate the import and export of the scheduled products.

 

The Export of Basmati Rice (Quality Control and Inspection) Rules, 2003

 

In exercise of powers conferred under Export (Quality Control and Inspection) Act, 1963 the Government of India has adopted the Export of Basmati Rice (Quality Control and Inspection) Rules, 2003, or the Basmati Rice Rules. The Basmati Rice Rules provide for inspection of Basmati rice by the Export Inspection Council to ascertain conformity with quality specifications prescribed by the Government of India. An exporter intending to export a consignment of Basmati rice is required to register the contract with the Agricultural and Processed Food Products Export Development Authority along with a declaration that adequate quality control has been exercised. On satisfying itself that adequate quality controls have been exercised, the agency issues a certificate declaring the consignment as export worthy.

 

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In 2007, the Government of India banned the export of non-Basmati rice. However, pursuant to a notification (No. 71 (RE-2010)/2009-2014) dated September 9, 2011, issued by the Ministry of Commerce and Industry of the Government of India, non-Basmati rice can again be exported from India, subject to certain conditions specified in the notification.

 

Regulations Related to Food Quality

 

The Food Safety and Standards Act, 2006

 

The Food Safety and Standards Act, 2006, or the FSS Act, provides for the establishment of the Food Safety and Standards Authority of India, or the Food Authority, which lays down scientific standards for food and regulates the manufacture, storage, distribution, sale and import of food. The Food Authority is also required to provide scientific advice and technical support to the Government of India and Indian state governments in framing the Policy Rules and Regulations under the Act relating to food safety and nutrition. The FSS Act also sets forth regulations relating to the license and registration of food businesses, general principles for food safety, responsibilities of food business operators and liability of manufacturers and sellers, and provides for punishment, prosecution and adjudication for offences under the Act.

 

Environmental Regulations

 

We are subject to various environmental, health and safety laws and regulations. Our operations require various environmental and other permits covering, among other things, water use and discharges, waste disposal and air and other emissions. Although we have implemented procedures to comply with these laws and regulations, we cannot be sure that our measures are compliant or capable of eliminating the risk of injury or contamination from the use, generation, manufacture, or disposal of our products. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our insurance coverage. Violations of environmental, health and safety laws may occur as a result of human error, accident, equipment failure or other causes.

 

Compliance with applicable environmental, health and safety laws and regulations may be expensive, and the failure to comply could result in, among other things, the imposition of fines, regulatory oversight costs, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations and our liability may exceed our total assets. We expect to encounter similar laws and regulations in most, if not all, of the countries in which we may seek to establish production capabilities or operate, and the scope and nature of these laws and regulations will likely be different from country to country. We have made, and expect to continue to make, expenditures pursuant to such laws and regulations. Environmental, health and safety laws could become more stringent over time, requiring us to change our operations or incur greater compliance or capital costs, or could provide for increased penalties for violations, all of which could impair our research, development or production efforts and harm our business. The costs of complying with environmental, health and safety laws and regulations and any claims concerning noncompliance, or liability arising thereunder, could significantly harm our results of operations or financial condition. Major environmental laws applicable to our operations are set forth below.

 

The Environment (Protection) Act, 1986

 

The Environment (Protection) Act, 1986, or the EPA, is an umbrella legislation which encompasses various environment protection laws in India. The EPA grants the Government of India the power to take any measures it deems necessary or expedient for protecting and improving the quality of the environment and preventing and controlling pollution. Penalties for violation of the EPA include imprisonment, payment of a fine, or both.

 

Under the EPA and the Environment (Protection) Rules, 1986, as amended, the Government of India has issued a notification (S.O. 1533(E)) dated September 14, 2006, or the EIA Notification, which requires that prior approval of the Ministry of Environment and Forests, or the MoEF, or the State Environment Impact Assessment Authority, or the SEIAA, as the case may be, be obtained for the establishment of any new project and for expansion or modernization of existing projects specified in the EIA Notification. The EIA Notification states that obtaining of prior environment clearance includes four stages: screening, scoping, public consultation and appraisal.

 

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An application for environment clearance is made after the prospective project or activity site has been identified, but prior to commencing construction activity or other land preparation. Certain projects which require approval from the SEIAA may not require an EIA report. For projects that require preparation of an EIA report, public consultation involving public hearing and written responses is conducted by the State Pollution Control Board, prior to submission of a final EIA report. The environmental clearance (for commencement of the project) is valid for up to five years for all projects (other than mining projects). This period may be extended by the concerned regulator for up to five years.

 

The Water (Prevention and Control of Pollution) Act, 1974

 

The Water (Prevention and Control of Pollution) Act, 1974, or the Water Act, aims to prevent and control water pollution and to maintain or restore water purity. The Water Act provides for one central pollution control board, as well as various state pollution control boards, to be formed to implement its provisions. The Water Act debars any person from establishing any industry, operation or process or any treatment and disposal system likely to discharge sewage or other pollution into a water body, without prior consent of the State Pollution Control Board.

 

The Air (Prevention and Control of Pollution) Act, 1981

 

The Air (Prevention and Control of Pollution) Act, 1981, or the Air Act, aims to prevent, control and abate air pollution, and stipulates that no person shall, without prior consent of the State Pollution Control Board, establish or operate any industrial plant which emits air pollutants in an air pollution control area. The Central Pollution Control Board and State Pollution Control Board constituted under the Water Act perform similar functions under the Air Act as well. Not all provisions of the Air Act apply automatically to all parts of India, and the State Pollution Control Board must notify an area as an “air pollution control area” before the restrictions under the Air Act apply.

 

The Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008

 

The Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008, or the Hazardous Wastes Rules, regulate the collection, reception, treatment, storage and disposal of hazardous waste by imposing an obligation on every occupier and operator of a facility generating hazardous waste to dispose of such waste without harming the environment. Every occupier and operator of a facility generating hazardous waste must obtain approval from the applicable State Pollution Control Board.

 

The occupier is liable for damages caused to the environment resulting from the improper handling and disposal of hazardous waste and must pay any fine that may be levied by the respective State Pollution Control Board.

 

The Plastic (Waste Management and Handling) Rules 2011

 

The Plastic (Waste Management and Handling) Rules 2011 take into account the significant growth in waste generation, predominantly in the form of carry bags and multi-layered plastic packaging, and lays out procedures and guidelines for plastic waste collection, segregation and disposal. The Plastic Rules include the stipulation of benchmarked standards for recycling facilities, mandatory pricing of consumer carry bags given by retailers, a labeling scheme, and extended responsibility to both manufacturers and users of plastic packaging.

 

Foreign Investment Regulations

 

Pursuant to the current Consolidated Foreign Direct Investment policy (effective from May 12, 2015) issued by the Department of Industrial Policy and Promotion of the Government of India, 100% foreign direct investment is allowed in services related to agricultural and related sectors.

 

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Principal Operating Facilities

 

As of March 31, 2018, our material properties consist of one office and one processing facility in India, seven international offices (one each in Dubai, Germany, Malaysia, Singapore, the United Kingdom and two offices in the United States), 15 distribution centers in India, 9 warehouse facilities in India, as well as additional warehousing facilities in in Dubai, Germany and the United States. We own our processing facility and lease our other properties.

 

Our current processing facility is located on nearly 20 acres in Gurgaon, Haryana, India, which is near New Delhi. We presently have a total installed hourly milling capacity of 24 metric tons of paddy per hour across a covered area of approximately 310,000 square feet. We also own 48.2 acres of land in Karnal, Haryana, India on which we intend to build a new processing facility should we be successful in locating financing. When completed, we expect our facilities to have total installed hourly milling capacity of approximately 60 metric tons of paddy per hour.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Forward-Looking Statements” and “Item 3D. Risk Factors” and elsewhere in this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

 

Overview

 

We are a leading global manufacturer, marketer and distributor of branded packaged specialty rice and other related food products, with sales across five continents around the world. We generate the majority of our revenue through the sale of Basmati rice, a premium long-grain variety of rice grown only in the geographically indicated region of the Indian sub-continent, as well as other specialty rice. We sell our products under our flagship Amira brand, as well as under other Company owned brands and third party brands. We have expanded our product offerings in recent years to include other value-add categories such as edible oils and organics. We also sell other products such as wheat, barley, legumes and other produce to large institutional customers. Our fourth generation leadership has built on a rich, century-old legacy and transformed Amira from a local family-run business to a publicly-listed globally focused packaged food company with a global leadership position in the high growth Basmati rice sector. Under our current leadership, we significantly expanded our footprint in India and internationally. We completed an initial public offering (“IPO”) in October 2012 and our shares are listed on the New York Stock Exchange with the stock symbol ANFI.

 

We primarily operate in the global packaged rice market and we have focused our efforts on premium, packaged, specialty rice, with a concentration in Basmati rice, a long-grain aromatic rice with favorable health attributes that can be grown only in the geographically indicated region of the Indian sub-continent. The global rice market is a large, staple market with stable growth, while specialty rice and specifically Basmati rice benefits from premium pricing and increasing consumption patterns. The global rice market represented approximately $275 billion in value based on benchmark rice export prices for the international rice trade, according to statistics from Horizon Research in 2012. The Indian rice industry was valued at approximately $50 billion in wholesale prices in 2013 according to the CRISIL equity research report on the Indian rice industry. CRISIL has also estimated the Indian Basmati rice market to be approximately $6.9 billion in fiscal 2014, of which approximately 30% was sold in India and approximately 70% was sold internationally. In recent years, the Basmati rice segment has benefited from increased consumption trends both in India and internationally. According to information provided by APEDA Agri-exchange, WASDE and Jefferies LLC research estimates from September 2016, domestic consumption of Indian Basmati rice has increased at a 10% CAGR over the past 10 years, while international sales volumes of Indian Basmati rice have increased at a 13% CAGR over the same time period.

 

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We sell our products globally in both emerging and developed markets through a broad distribution network. Our Amira branded products are currently sold by retailers such as Bharti Retail, Big Bazaar, Carrefour, Costco, EDEKA, HEB, Jetro Restaurant Depot, Kaufland, Metro Cash & Carry, Morrisons, Publix, Reliance Retail Limited, REWE, Safeway Albertsons, Spencer’s Retail, Star Bazaar, Tesco, Waitrose, Walmart, Wegman’s and Whole Foods. In emerging markets, our products are sold by global retailers and regional supermarkets (the “modern trade”), as well as a network of small, privately-owned independent stores (the “general trade” or “traditional retail”). We maintain a strong distribution platform into the restaurant channel and have long standing network of distributors, third party branded partners and institutional customers who sell our products throughout the world. Our third party branded business is often conducted under contracts with our customers, which enable us to have a high degree of visibility on our sales, volumes, margins and profitability.

 

Factors Affecting our Results of Operations

 

Our results of operations, cash flows and financial condition are affected by a number of factors, including the following:

 

Demand for Basmati rice

 

In fiscal 2018, 2017 and 2016, we derived 67.6%, 75.2% and 66.0% of our revenue, respectively, from sales of Basmati rice. Its unique taste, aroma, shape and texture have historically elicited premium pricing and strong demand. According to CRISIL, total sales of Indian Basmati rice were approximately $6.9 billion in 2014, of which approximately 70% was sold internationally and 30% was sold in India. While we expect growth to remain strong over time, we cannot guarantee that such growth materialize every year, furthermore any negative change in customer preferences for Basmati rice may result in reduced demand and could harm our business and results of operations.

 

Demand for our products in our international markets

 

In fiscal 2018, 2017 and 2016, our revenue from international sales was $270.4 million, $276.6 million and $317.6 million, respectively, and accounted for 65.3%, 50.1% and 56.4% respectively, of our revenue in these periods. We sold our products to customers across five continents and significant portions of our international sales were to Asia Pacific, EMEA and North America.

 

    FY 2018     FY 2017     FY 2016  
    (Amount in $ million)  
EMEA     218.8       242.8       299.2  
Asia Pacific (excluding India)     1.5       6.1       5.9  
North America     50.1       27.7       12.5  
Total     270.4       276.6       317.6  

 

We plan to expand our international operations into additional countries in the near future. Our international sales are dependent on general economic conditions in our various international markets and regulatory policies and governmental initiatives of these jurisdictions relating to the import of Basmati rice and our other products from India. Over the last decade, our relationships with key customers have led to an increase in the number as well as the size of orders, which resulted in increased revenue from international sales of Basmati rice.

 

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Sales of Amira branded products in India and international markets

 

Our Amira branded products were formally launched in 2008. In fiscal 2018, Amira branded products sales amounted to $173.2 million. Our Amira branded products are sold through distributors to general retail (mom and pop stores) and also by retailers in India such as Bharti’s Easy day, Reliance Retail Limited, Big Bazaar, Metro Cash & Carry, Spar, Spencer’s Retail and Star Bazaar (Tesco in India), Walmart, and by global retailers including both emerging and developed markets such as Carrefour, Costco, EDEKA, HEB, Jetro Restaurant Depot, Kaufland, Morrison’s, Publix, REWE, Safeway Albertsons, Tesco (UK), Waitrose and through the foodservice channel.

 

In India, we primarily sell Basmati rice, other specialty rice and a growing line of other Amira branded products including edible oil, snacks, ready-to-heat meals, and organics. Branded Basmati rice typically produces higher margins compared to non-branded Basmati rice. Sales of our branded products have increased as a percentage of revenue in recent years, and we believe that the expansion of our distribution network and arrangements with large retail chains in India will result in increased Indian revenue from Amira branded products.

 

Consistent with our historical branded growth strategy, we plan to leverage our success in existing international markets to further penetrate them and enter other international markets with our Amira branded product offerings. From our existing international operations, we have gained a deep understanding of end markets and consumer preferences which helps us to shape our strategy for branded products. We plan to continue to expand our international operations in the future.

 

Cost of capital and working capital cycle

 

We procure most of our Basmati paddy between September and March. Our business requires a significant amount of working capital primarily due to the fact that a significant amount of time passes between the time of purchase of raw material - Basmati paddy and the final sale of packaged Basmati rice. Our combined holding period of processed Basmati rice and paddy is as much as 12 months or more (at times up to 24 months). Hence, we maintain substantial levels of short term indebtedness, primarily in the form of secured revolving credit facilities that are secured primarily by this inventory. As of March 31, 2018, 2017 and 2016, we had $250.2 million, $224.4 million and $209.4 million of total indebtedness, respectively, of which 100% had floating rates of interest. Any fluctuations in interest rates may directly affect the interest costs of such loans, and could harm our results of operations. For more information, see “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources”.

 

Capacity expansion

 

As part of our growth strategy, we intend to significantly expand our rice processing capacities. We plan to expand our milling and sorting capacity from 24 metric tons per hour as of March 31, 2017 with the addition of a new milling plant located in Karnal, Haryana, India, which we expect will provide additional milling and sorting capacity of 48 metric tons per hour. Upon the completion of this new facility, we also plan to close down the oldest two of the three milling plants at our existing facility in Gurgaon, each of which has a milling and sorting capacity of 6 metric tons per hour, which will result in our total milling and sorting capacity reaching approximately 60 metric tons per hour. Our future expansion plans are expected to require additional capital expenditures. We expect that the increased processing capacity will improve our operational efficiencies and yield and will drive margin expansion.

 

Procurement and cost of Basmati paddy and aged rice

 

Our primary raw materials are Basmati paddy and semi-processed rice. Our business and results of operations are significantly dependent on the cost of raw materials used in our production process and our ability to procure sufficient good quality Basmati paddy and ungraded rice, which is semi-processed rice where the husk has been removed but the rice has not been fully processed. Cost of material, which includes the costs of finished goods sold that have been consumed during the period by adjusting for any increase or decrease in our finished goods inventory, constitutes the largest component of our expenditures and, as a percentage of revenue in fiscal 2018, 2017 and 2016 were 115.9%, 82.8% and 80.7%, respectively. Since Basmati paddy crop is grown once a year, we are required to complete most of our annual procurement during the period between September and March. Basmati paddy available during this period is generally of superior quality compared to paddy available during the off-season. We purchase small quantities of paddy in the off-season to supplement our annual procurement and to benefit from lower paddy prices.

 

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Our ability to procure adequate quantities and high quality Basmati paddy also depend on crop conditions. For example, crop yields of Basmati paddy could decrease due to inadequate or delayed monsoons or heavy rains and high winds. The price of Basmati paddy procured by us depends on the variety of Basmati paddy we purchase, which is primarily determined by the demand for specific Basmati rice varieties. The price of Basmati paddy also depends on the quality of that season’s crop, which depends on weather conditions and the amount of monsoon or seasonal rainfall, and prevailing Indian and international demand, particularly during the paddy harvesting season. In determining the quantity and price of Basmati paddy that we purchase, we rely on the historic demand and supply of particular Basmati varieties, estimates and forecasts of demand based on market information through continuing interaction with significant customers, and expectation of the supply, quantity, quality and price of Basmati paddy based on information from farmers and our procurement agents.

 

Foreign exchange fluctuations

 

Our international sales account for a significant percentage of our revenue, and are primarily denominated in U.S. dollars and to a lesser extent Euros, GBP and UAE Dirham. In fiscal 2018, 2017 and 2016, our revenue from international sales was 65.3%, 50.1% and 56.4%, respectively, of our revenue. As of March 31, 2018, foreign currency receivables were $0.8 million.

 

Since most of our operations are located in India, our operating and other expenditures are denominated principally in Rupees. Depreciation of the Rupee against the U.S. dollar and other foreign currencies could cause our products to be more competitive in international markets compared to our competitors from other countries. Appreciation of the Rupee could also cause our products to be less competitive by raising our prices in terms of such other currencies, or alternatively require us to reduce the Rupee price we charge for international sales, either of which could harm our profitability. Our foreign currency exchange risks arise from the mismatch between the currency of a substantial majority of our revenue and the currency of a substantial portion of our expenses, as well as timing differences between receipts and payments which could result in an increase of any such mismatch. We have historically entered into forward foreign exchange contracts taken against sales contracts to hedge against our foreign exchange rate risks in connection with our international sales. There were no Forward foreign currency exchange contracts outstanding as of March 31, 2018 and 2017 and there were $16.5 million Forward foreign currency exchange contracts outstanding as of March 31 2016 respectively. Our results of operations have been impacted in the past and may be impacted by such fluctuations in the future. For example, the Indian Rupee depreciated significantly against the U.S. dollar during fiscal 2018, and this nature of depreciation in the future, may impact our results of operations in future periods.

 

Financial Operations Overview

 

Revenue

 

We derive our revenue primarily from the sale of Amira branded and third party branded products and institutional sales to our customers in both Indian and international markets. Revenue is measured at the fair value of consideration received, excluding discounts, rebates, and sales tax or duty.

 

Other income

 

Other income primarily consists of income from export benefit (duty entitlement) in accordance with the Indian customs rules for being an exporter, insurance claims received by us under the various policies taken against the loss of stock of Basmati paddy and rice.

 

Cost of material including change in inventory of finished goods

 

Cost of material consists of cost of raw materials (paddy, semi-processed rice and other products), other expenses used in processing our products, certain direct expenses to bring inventory to its present location, and related taxes net of tax credit available, if any. Cost of material also includes cost of finished goods consumed during the period by adjusting for any increase or decrease in our finished goods inventory.

 

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The price of Basmati paddy procured by us depends on the variety of Basmati paddy we purchase, which is primarily determined by the demand for specific Basmati rice varieties. The price of Basmati paddy also depends on the quality of that season’s crop, which depends on weather conditions and the amount of monsoon or seasonal rainfall, and prevailing Indian and international demand, particularly during the paddy harvesting season. We also procure aged rice typically after the paddy procurement season is over based on our requirements from time to time, which we then further process, polish, sort and grade before selling it to our customers.

 

Employee benefit expenses

 

Employee benefit expenses primarily consist of:

 

· wages and salaries of our employees,

 

· defined benefit plans (gratuity), defined contribution plan (provident fund) accrued annual leave and sick leave, severance payments and bonuses,

 

· employee stock options, and restricted share awards, and

 

· employee welfare expenses.

 

Depreciation and amortization

 

Depreciation consists primarily of depreciation expense recorded on property, plant and equipment, such as buildings, plant and machineries, furniture and fixtures, office equipment and vehicles. Amortization expense consists primarily of amortization recorded on intangible assets, such as trademarks registration fees, software, customer relationships and favorable lease.

 

Depreciation on property, plant and equipment is charged to income on a systematic basis over the useful life of assets as estimated by management. Depreciation is computed using the straight line method of depreciation.

 

Freight, forwarding and handling expenses

 

Freight, forwarding and handling expenses primarily consists of ocean freight, inland freight, customs clearing and freight forwarding, material handling and demurrage.

 

Other expenses

 

Other expenses are comprised primarily of expenses of our sales and marketing operations and field location administrative costs which include:

 

· Export Credit Guarantee Corporation, or ECGC, premiums, which we pay in India to insure against payment defaults by buyers of our exported products,

 

· product insurance,

 

· traveling,

 

· rent,

 

· power and fuel expenses,

 

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· corporate headquarters expenses related to our executive, general management, finance, accounting and administrative functions,

 

· commission, claims and compensation,

 

· advertising and business promotion expenses,

 

· legal fees, and

 

· other functions.

 

These costs are based on our volume of business and expenses incurred to support corporate activities and initiatives such as training. We plan to expand our sales and marketing efforts, improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required for a public company.

 

Finance costs

 

Finance costs consist primarily of interest expense (borrowing costs) accrued on short term and long term loans taken from our lenders to fund working capital, bank charges and other interest paid to supplier for credit they extend when we purchase paddy.

 

Finance income

 

Finance income primarily consists of interest received on deposits including collateral deposits made by us to obtain letters of credit and other non-cash instruments and short term interest bearing fixed deposits with banks.

 

Other gains and (losses)

 

Other gains and (losses) primarily consist of our gain or loss due to foreign exchange fluctuations, or fluctuations in the value of the Rupee, in which we maintain our accounts, and the U.S. dollar, in which a portion of our revenue is denominated or other currencies in which our indebtedness is incurred. Other gains and (losses) also include, gain or loss on forward contracts settled during the year and to the extent hedges are not effective, mark-to-market gain or loss on open forward contracts (not designated for hedging) as of the reporting date, gain or loss on disposal of fixed assets, gain or loss on restatement of financial assets and liabilities at closing rates and gain or loss on sale of available for sale financial assets. We expect that income from these items will continue to contribute an insignificant percentage (on a net basis) of our revenue in the near future.

 

We have designated certain derivative instruments as hedging instruments in a cash flow hedge relationship. All derivative financial instruments used for hedge accounting are recognized and measured at fair value. Changes in the fair value of the derivative hedging instruments designated as a cash flow hedge are recognized in other comprehensive income and held in cash flow hedging reserve, a component of equity to the extent that the hedges are effective. To the extent that the hedge is ineffective, changes in fair values are recognized in the consolidated statements of profit or loss and reported in “Other gains and (losses)”. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the consolidated statements of profit or loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, such cumulative balance is immediately recognized in the consolidated statements of profit or loss. Previously, before March 31, 2012 such derivative financial instruments were not designated as effective hedges, and all changes in instruments’ fair value that were reported in the consolidated statements of profit or loss were included in “Other gains and (losses)”.

 

Results of Operations

 

On October 15, 2012 we completed the IPO of our ordinary shares. On October 16, 2012, we subscribed through our wholly owned subsidiary, Amira Nature Foods Ltd, Mauritius (“Amira Mauritius”) for 53,102,500 equity shares of Amira Pure Foods Private Limited (“Amira India”), representing 80.4% of the outstanding shares of Amira India pursuant to a subscription agreement dated September 27, 2012, as subsequently amended on October 10, 2012.

 

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We accounted for this combination using the “pooling of interest method,” and accordingly, our financial statements included in this Annual Report include our and Amira India’s assets, liabilities, revenues and expenses, which have been recorded at their carrying values and retrospectively adjusted for all periods presented in these financial statements.

 

· Our results of operations for the fiscal years ended March 31, 2018, 2017 and 2016, respectively, were as follows:

 

    (Amounts in USD)  
    Fiscal years ended  
    March 31, 2018     March 31, 2017     March 31, 2016  
Revenue   $ 413,901,480     $ 551,830,966     $ 563,451,016  
Other income     5,031,827       48,833       956,336  
Cost of materials     (373,451,132 )     (492,189,652 )     (432,030,831 )
Change in inventory of finished goods     (106,193,580 )     35,517,661       (22,509,438 )
Employee benefit expenses     (6,797,731 )     (8,753,175 )     (12,884,266 )
Depreciation and amortization     (1,617,118 )     (1,778,968 )     (2,061,698 )
Freight, forwarding and handling expenses     (2,535,261 )     (3,139,061 )     (9,082,563 )
Other expenses     (12,705,159 )     (14,905,710 )     (23,275,173 )
    $ (84,366,674 )   $ 66,630,894     $ 62,563,383  
Finance costs     (34,108,621 )     (29,272,826 )     (27,063,456 )
Finance income     29,669       263,231       1,187,095  
Other gains and (losses)     4,908,564       (1,512,928 )     1,123,900  
Profit/(loss) before tax   $ (113,537,062 )   $ 36,108,371     $ 37,810,922  
Income tax expense     19,941,298       (4,596,968 )     (4,897,325 )
                         
Profit/(loss) after tax for the year   $ (93,595,764 )   $ 31,511,403     $ 32,913,597  
Profit/(loss) after tax for the year attributable to:                        
Shareholders of the Company     (78,222,174 )     25,087,388       25,792,843  
Non-controlling interest     (15,373,590 )     6,424,015       7,120,754  
                         
Earnings per share                        
Basic earnings per share   $ (2.30 )     0.84       0.90  
Diluted earnings per share   $ (2.30 )     0.84       0.90  

  

(1) Basic earnings per share is calculated by dividing our profit after tax as reduced by the amount of a non-controlling interest reflecting the remaining 19.6% of Amira India that is not owned by us, by the number of our weighted average outstanding ordinary shares, during the applicable period. Diluted earnings per share is calculated by dividing our profit after tax as reduced by the amount of a non-controlling interest reflecting the remaining 19.6% of Amira India that is not owned by us, by the number of our weighted average outstanding ordinary shares adjusted by the dilutive impact of equivalent stock options granted. The dilutive impact of total share options 1,465,183 granted to Mr. Karan A. Chanana in the years ended March 31, 2018, 2017, 2016, 2015, 2014 and 2013, (see heading “Item 18. Financial Statements”; under Note 29 “Earnings per share”) is anti-dilutive (in FY2016) and not material in previous years and hence there is no change in the presented basic and diluted earnings per share in the table above.

 

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· Adjusted EBITDA and adjusted earnings per share

 

Described in detail in this report under the heading “Item 5. Operating and Financial Review and Prospects”; under section “Non-IFRS Financial Measures”.

 

Comparison of the Fiscal Years ended March 31, 2018 and 2017

 

Our results of operations for fiscal 2018 and 2017, respectively, were as follows:

 

Revenue

 

Revenue for fiscal 2018 was $413.9 million, a decrease of $137.9 million or 25.0% compared to $551.8 million in fiscal 2017. The revenue decline was primarily driven by decrease sale volume in the Company’s India markets and to an extent in International markets business. The decline has been partly set off by increase in price realisations for basmati and non-basmati. Notably, two of our key markets, India and UAE implemented country-wide indirect taxes (GST in India and VAT in UAE).

 

Revenue for our Amira branded and third party branded products was $362.7 million in fiscal 2018, compared to $505.8 million for the same period in fiscal 2017. Our Amira branded sales were $173.2 million and accounted for 41.9% of total sales, compared to $245.6 million accounting for 44.5% of total sales in 2017. Decline in Amira branded products was driven largely by levy of GST (Goods and Service Tax) in India on branded food products in the second half of 2017. Third party branded sales were $189.5 million in fiscal 2018 compared to $260.2 million in fiscal 2017. Sales to the Company’s institutional customers were $51.2 million during fiscal 2018 compared to $46.0 million in fiscal 2017.

 

Revenue in India was $143.5 million in fiscal 2018, a decrease of $131.7 million or 47.8% compared to $275.2 million in fiscal 2017. Revenue decline in India was positively impacted by the appreciation of the Indian rupee against the U.S. dollar in fiscal 2018. Our sales in India, decreased by approximately 49.9%, when measured in Indian rupees in fiscal 2018. Our sales in India were also impacted by lower volumes of Basmati rice offset to an extent by better prices for Basmati rice.

 

Revenue from international sales decreased by $6.3 million, or 2.3%, to $270.4 million in fiscal 2018 from $276.6 million in fiscal 2017, primarily due to lower sales volumes, as well as lower pricing for institutional products sold internationally to our institutional customers which were offset in part by higher pricing of Basmati rice.

 

In Fiscal 2018, tightening of regulatory and credit environment in financial sector in India, resulted in non-availability of sufficient working capital, adversely impacting our cash-to-cash cycle and achievement of revenue targets for the fiscal. The Indian entity entered into certain business transactions with its buyers and suppliers involving sales and purchase of basmati rice worth $93.2 million. Although the sales was originated and generated by the business of Indian company, in accordance with IAS 18 and after careful evaluation of underlying documents, the group concluded and determined, that it acted primarily as an agent in those transactions. In accordance with IAS 18 Revenue recognition, the group has decided to recognize the net commission income from such transactions, instead of recognizing the revenue on gross basis. The net income has been recognized as ‘other income’.

 

A breakdown of our revenue by geographic region is as follows:

 

Region   FY 2018     FY 2017  
    Amount in
$ million
    %     Amount in
$ million
    %  
India     143,515,397       34.7 %     275,183,618       50.1 %
EMEA     218,805,726       52.9 %     242,773,808       44.0 %
Asia Pacific (excluding India)     1,465,763       0.4 %     6,137,993       1.1 %
North America     50,114,594      

12.0

%     27,735,547       5.0 %
Total     413,901,480       100.0 %     551,830,966       100.0 %

 

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Other income

 

Other income increased to $5.0 million in the year ended March 31, 2018 compared to $48,833 in the year ended March 31, 2017. The commission income (as explained above) has been recognized as ‘other income’.

 

Cost of materials, including change in inventory of finished goods

 

Cost of materials including change in inventory of finished goods was $479.6 million or 115.9% of revenue in fiscal 2018, compared to $456.7 million or 82.8% of revenue in fiscal 2017, primarily reflecting the higher input costs. Notably, the group recognized provision for impairment of inventory (being one-time expense) for the amount of $134.0 million in fiscal 2018. Accordingly, in fiscal 2018, adjusted cost of materials* (including change in inventory of finished goods) is 83.5% of the revenue, compared to 82.8% of revenue in fiscal 2017.

 

We carry inventories for a regular period of time and at times upon careful consideration, inventories are written off on their natural qualitative deterioration. However, this year we identified certain deterioration in quality of inventories primarily due to large number of warehousing facilities spread across India, the mismatch in cash-to-cash cycle and sporadic unfavourable weather conditions. The management believes these are one-time events driven largely by macro-economic conditions as also, by uncontrollable external factors. This deterioration in quality of inventory results into a higher percentage of broken rice content upon processing. The management has decided, consciously and conservatively, to recognise a provision for impairment of inventories for $134.0 million, considering the adjustment in its realisable value.

 

Also, notably, one of our significant markets – India, implemented a nation-wide GST (Goods and Service tax) in July 2017 onwards (including on sales of branded food products). This implementation of GST by Government of India was done without giving due time and a reasonable moratorium period. Coupled with adverse impact of credit tightening and implementation of GST led to negative impact on revenues and cash flows.

 

* (Adjusted cost of materials is arrived at as summation of cost of materials and change in inventories of finished goods, after taking the impact of impairment of inventory values)

 

Employee benefit expenses

 

Employee benefits expenses decreased by $2.0 million to $6.8 million in fiscal 2018 from $8.8 million in fiscal 2017, primarily due to a reduction in the number of employees versus the prior year. As a percentage of revenue, employee benefit expenses were 1.6% and 1.6% in fiscal 2018 and 2017, respectively.

 

Depreciation and amortization

 

Depreciation and amortization expense marginally decreased by $0.2 million to $1.6 million in fiscal 2018 as compared to $1.8 million in fiscal 2017. As a percentage of revenue, depreciation and amortization costs remained same at 0.3% in fiscal 2018 and 2017, respectively.

 

Freight, forwarding and handling expenses

 

Freight, forwarding and handling expenses were $ 2.5 million or 0.5% of sales in fiscal 2018 compared to $3.1 million or 0.6% of sales in fiscal 2017.

 

Other expenses

 

Other expenses decreased by $2.2 million, or 14.8%, to $12.7 million in fiscal 2018 from $14.9 million in fiscal 2017. As a percent of revenue, other expenses decreased to 3.1% in fiscal 2018 from 2.7% in fiscal 2017.

 

Finance costs

 

Finance costs were $34.1 million in fiscal 2018 compared to $29.3 million in fiscal 2017. The increase of $4.8 million is in line with increase in our debt from $224.4 million in fiscal 2017 to $234.0 million in fiscal 2018.

 

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Finance income

 

Finance income was $0.03 million in fiscal 2018 compared to $0.26 million in fiscal 2017 driven by a lower balance of cash and other marketable securities.

 

Other gains and (losses)

 

Other gains and losses was a gain of $4.9 million in fiscal 2018 compared to a loss of $1.5 million in fiscal 2017 primarily due to the impact of a stronger dollar relative to rupee.

 

Profit before tax

 

Profit before tax decreased by $149.6 million, or (414.4%) to a loss of $113.5 million in fiscal 2018 from a gain of $36.1 million in fiscal 2017. This decrease was primarily due to a decrease in revenue and increase in cost of material margins and one-time provision created on impairment of inventory. Profit before tax as a percentage of revenue was (27.4%) and 6.5% in fiscal 2018 and fiscal 2017.

 

Income tax expense

 

Corporate tax expense was $(19.9) million in fiscal 2018 as compared to expense of $4.6 million in fiscal 2017. We recognized our income tax liability of $(0.7) million and deferred tax liability of $0.8 million as of March 31, 2018. Deferred income taxes are calculated using a balance sheet liability method on temporary differences between the carrying amount of assets and liabilities and their tax bases using the tax laws that have been enacted or substantively enacted as on the reporting date.

 

Profit after tax

 

Profit after tax decreased by $125.1 million, or (397.0%), to a loss of $93.6 million in fiscal 2018 from a gain of $31.5 million in fiscal 2017 as explained above. Profit after tax as a percentage of revenue was to (22.6%) in fiscal 2018 compared to 5.7% in fiscal 2017.

 

Comparison of the Fiscal Years ended March 31, 2017 and 2016

 

Our results of operations for fiscal 2017 and 2016, respectively, were as follows:

 

Revenue

 

Revenue for fiscal 2017 was $551.8 million, a decrease of $11.6 million or 2.1% compared to $563.4 million in fiscal 2016. The revenue decline was primarily driven by decreased volumes in the Company’s international emerging markets business that management team believes to be short term in nature, as well as macro effects on the business that include the impact of currency translation on the Company’s India sales and lower prices globally for Basmati rice sales.

 

 Revenue for our Amira branded and third party branded products was $505.8 million in fiscal 2017, compared to $507.8 million for the same period in fiscal 2016. Our Amira branded sales were $245.6 million and accounted for 44.5% of total sales, compared to $247.2 million or 43.9% of total sales in in 2016. Third party branded sales were $260.2 million in fiscal 2017 compared to $260.6 million in fiscal 2016. Sales to the Company’s institutional customers were $46.0 million during fiscal 2017 compared to $55.6 million in fiscal 2016.

 

Revenue in India was $275.2 million in fiscal 2017, an increase of $29.3 million or 11.9% compared to $245.9 million in fiscal 2016. Revenue growth in India was negatively impacted by the depreciation of the Indian rupee against the U.S. dollar in fiscal 2017. Our sales in India, increased by approximately 14.8%, when measured in Indian rupees in fiscal 2017. Our sales in India were also impacted by lower prices for Basmati rice, offset by higher volumes of Basmati rice.

 

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Revenue from international sales decreased by $40.9 million, or 12.9%, to $276.6 million in fiscal 2017 from $317.5 million in fiscal 2016, primarily due to lower sales volumes to our institutional customers, as well as lower pricing for Basmati rice sold internationally which was offset in part by higher volumes of Basmati rice.

 

A breakdown of our revenue by geographic region is as follows:

 

Region   FY 2017     FY 2016  
    Amount in $
million
    %     Amount in $
million
    %  
India     275.2       50.0 %     245.9       43.6 %
EMEA     242.8       44.0 %     299.2       53.1 %
Asia Pacific (excluding India)     6.1       1.0 %     5.8       1.1 %
North America     27.7       5.0 %     12.5       2.2 %
Total     551.8       100.0 %     563.4       100.0 %

 

Other income

 

Other income decreased to $48,833 in the year ended March 31, 2017 compared to $956,336 in the year ended March 31, 2016.

 

Cost of materials, including change in inventory of finished goods

 

Cost of materials including change in inventory of finished goods was $456.7 million or 82.8% of revenue in fiscal 2017, compared to $454.5 million or 80.7% of revenue in fiscal 2016, primarily reflecting the lower input costs which were off-set by the declines in revenue.

 

Employee benefit expenses

 

Employee benefits expenses decreased by $4.1 million to $8.8 million in fiscal 2017 from $12.9 million in fiscal 2016, primarily due to a reduction in the number of employees versus the prior year, as well as a decrease in the non-cash share based compensation incurred during the year ended March 31, 2017. As a percentage of revenue, employee benefit expenses were 1.6% and 2.3% in fiscal 2017 and 2016, respectively.

 

Depreciation and amortization

 

Depreciation and amortization expense decreased by $0.3 million to $1.8 million in fiscal 2017 as compared to $2.1 million in fiscal 2016. As a percentage of revenue, depreciation and amortization costs were 0.3% and 0.4% in fiscal 2017 and 2016, respectively.

 

Freight, forwarding and handling expenses

 

Freight, forwarding and handling expenses were $3.1 million or 0.6% of sales in fiscal 2017 compared to $9.1 million or 1.6% of sales in fiscal 2016. Freight, forwarding and handling expenses declined primarily due to the decrease in international sales, lower fuel cost and a greater percentage of sales which were conducted on FOB basis.

 

Other expenses

 

Other expenses decreased by $8.4 million, or 36.0%, to $14.9 million in fiscal 2017 from $23.3 million in fiscal 2016. As a percent of revenue, other expenses decreased to 2.7% in fiscal 2017 from 4.1% in fiscal 2016. The decrease was primarily due to a reduction in legal and professional expenses, and reduction in travel, power and advertisement.

 

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Finance costs

 

Finance costs were $29.3 million in fiscal 2017 compared to $27.1 million in fiscal 2016. The increase of $2.2 million is in line with increase in our debt from $209.4 million in fiscal 2016 to $224.4 million in fiscal 2017.

 

Finance income

 

Finance income was $0.3 million in fiscal 2017 compared to $1.2 million in fiscal 2016 driven by a lower balance of cash and other marketable securities.

 

Other gains and (losses)

 

Other gains and losses was a loss of $1.5 million in fiscal 2017 compared to a gain of $1.1 million in fiscal 2016 primarily due to the impact of a stronger dollar relative to rupee.

 

Profit before tax

 

Profit before tax decreased by $1.7 million, or 4.5%, to $36.1 million in fiscal 2017 from $37.8 million in fiscal 2016. This decrease was primarily due to a decrease in revenue and increase in cost of material margins. Additionally, the company had elevated spending on legal and professional expenses driven by certain litigations. Profit before tax as a percentage of revenue was 6.5% and 6.7% in fiscal 2017 and fiscal 2016.

 

Income tax expense

 

Corporate tax expense was $4.6 million and our effective tax rate was 12.7% in fiscal 2017. This is similar to our situation as compared to fiscal 2016 corporate tax expense was of $4.9 million and effective tax rate of 13.0%. We recognized our income tax liability of $15.8 million and deferred tax liability of $4.5 million as of March 31, 2017. Deferred income taxes are calculated using a balance sheet liability method on temporary differences between the carrying amount of assets and liabilities and their tax bases using the tax laws that have been enacted or substantively enacted as on the reporting date.

 

Profit after tax

 

Profit after tax decreased by $1.4 million, or 4.3%, to $31.5 million in fiscal 2017 from $32.9 million in fiscal 2016, due to lower profits before tax. Profit after tax as a percentage of revenue was to 5.7% in fiscal 2017 compared to 5.8% in fiscal 2016.

 

Interim reporting

 

We intend to furnish reports to the Securities and Exchange Commission on Form 6-K which contain our six month results for the period ending September 30 of each year, for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. The following table presents unaudited half yearly financial information for each of our last four interim periods on a historical basis. We believe the half yearly information contains all adjustments necessary to fairly present this information. The operating results for any interim period are not necessarily indicative of the results for any future period.

 

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    FY 2018     FY 2017  
    Six months ended     Six months ended  
    March 31, 2018*     September 30, 2017     March 31, 2017*     September 30, 2016  
Revenue     184,971,844       228,929,636       340,906,282       210,924,684  
Other income     5,012,717       19,110       29,151       19,682  
Cost of material     (148,189,775 )     (225,261,357 )     (309,210,852 )     (182,978,800 )
Change in inventory of finished goods     (143,153,777 )     36,960,197       22,743,524       12,774,137  
Employee benefit expenses     (3,494,611 )     (3,303,120 )     (4,191,503 )     (4,561,672 )
Depreciation and amortization     (786,280 )     (830,838 )     (842,697 )     (936,271 )
Freight, forwarding and handling expenses     (1,627,670 )     (907,591 )     (1,742,222 )     (1,396,839 )
Other expenses     (6,472,653 )     (6,232,506 )     (6,510,283 )     (8,395,427 )
      (113,740,206 )     29,373,531       41,181,400       25,449,494  
Finance costs     (17,113,806 )     (16,994,815 )     (15,275,389 )     (13,997,437 )
Finance income     974       28,695       115,624       147,607  
Other gains and (losses)     4,234,887       673,677       (381,974 )     (1,130,954 )
Profit/(loss) before tax     (126,618,151 )     13,081,088       25,639,661       10,468,710  
Income tax (expense)/credit     21,499,609       (1,558,311 )     (4,162,644 )     (434,324 )
Profit/(loss) after tax     (105,118,542 )     11,522,777       21,477,017       10,034,386  

 

*The figures of the last half year of the fiscal year are arrived at as the balancing figures between the annual audited figures in respect of the full fiscal year and the published year-to-date unaudited figures up to the September 30, of the relevant fiscal year.

 

Liquidity and Capital Resources

 

As of March 31, 2018, we had debt and liabilities in the following amounts:

secured revolving credit facilities, aggregating $198.0 million;
other facilities, aggregating $34.5 million;
related party debt, aggregating $16.4 million;
term loan facilities (including current portion of long-term debt amounting to $1.4 million), aggregating $1.4 million;

· vehicle loans (including current portion of vehicle loan amounting to $0.01 million), aggregating $0.03 million; and

trade payables, aggregating $11.7 million.

 

Debt incurred under our secured revolving credit facilities bears interest at variable rates of interest, determined by reference to the relevant benchmark rate. Most of our debt is denominated in Rupees.

 

As of March 31, 2018, the Group had Nil undrawn financing facilities which remained available for drawdown under existing financing arrangements

 

The weighted average interest rates (including corresponding bank processing charges and fees for bank-related facilities) for each of the reporting periods were as follows:
 

    Terms of Interest   Fiscal year ended March 31,  
        2018     2017     2016  
Secured revolving credit facilities   Floating Rates of Interest     14.7 %     14.5 %     14.0 %
Other facilities   Floating Rates of Interest     12.45 %     9.7 %     9.9 %
Related party debt – Mr. Karan A. Chanana   Fixed Rate of Interest     11.6 %     11.6 %     11.6 %
Related party debt – Others   Fixed Rate of Interest     9.4 %     9.4 %     9.4 %
Term loans   Floating Rate of Interest     18.30 %     13.0 %     12.5 %
Vehicle loan   Fixed Rate of Interest     4.62 %     7.0 %     11.4 %
Trade payables   Fixed Rate of Interest     -       21.0 %     21.0 %

 

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The Group has paid interest to certain suppliers for the payments made beyond the normal credit period as required under “Association of artiyas (agents)”.

 

Our secured revolving credit facilities have been provided to us by a consortium of 11 * banks (Canara Bank, ICICI Bank, Oriental Bank of Commerce, Indian Overseas Bank, Yes Bank, Bank of India, State Bank of India, State Bank of Hyderabad, Bank of Baroda, Vijaya Bank, Punjab National Bank and IDBI Bank), while the term loan facilities have been provided by ICICI Bank. (*State Bank of India and State Bank of Hyderabad (two of the banks comprising of the consortium) merged during the year)

 

Our outstanding secured revolving credit facilities and term loans have been secured by, among other things, certain current and fixed assets of Amira India, including property, plant and equipment, and supported by personal guarantees issued by Mr. Karan A. Chanana (our Chairman and Chief Executive Officer ) and Ms. Anita Daing (a former Director of Amira Pure Foods Private Limited “APFPL”). Mr. Karan A. Chanana and Ms. Anita Daing (a former Director of Amira Pure Foods Private Limited “APFPL”) have issued personal guarantees in favor of Canara Bank, the lead bank of a consortium of 11 banks that granted Amira India its outstanding secured revolving credit facilities. Under these personal guarantees, Mr. Karan A. Chanana and Ms. Anita Daing (a former Director of Amira Pure Foods Private Limited “APFPL”) have guaranteed the repayment of the secured revolving credit facilities, up to a sum of 1.4 million, along with any applicable interest and other charges due to the consortium. In the event that Amira India defaults in its payment obligations, Canara Bank has the right to demand such payment from Mr. Karan A. Chanana and/or Ms. Anita Daing (a former Director of Amira Pure Foods Private Limited “APFPL”), who are obligated under the terms of the personal guarantees to make such payment. Ms. Anita Daing was a director of Amira India until May 23, 2016.

 

Additionally, personal guarantees containing similar terms have been issued by Mr. Karan A. Chanana and Ms. Anita Daing in favor of ICICI Bank for amounts not exceeding $235.7 million guaranteeing repayment of the term loan facilities availed by Amira India from these banks.

 

ANFI has indemnified its directors and officers, including Mr. Karan A. Chanana and Ms. Anita Daing, in accordance with its Amended and Restated Memorandum and Articles of Association and indemnification agreements entered into with such directors and officers. Such indemnification includes indemnification for Mr. Karan A. Chanana’s and Ms. Anita Daing’s personal guarantees described above.

 

Under the terms of some of Amira India’s current secured revolving credit facilities (representing less than 10% of our total debt outstanding as of March 31, 2018), we need the consent of lenders under our current secured revolving credit facilities to declare dividends for any year except (i) out of profits relating to that year after meeting all the financial commitments to the bank(s) and making all other due and necessary provisions and (ii) that no default had occurred in any repayment obligations during the year. Additionally, such financing arrangements contain limitations on Amira India’s ability to:

 

incur additional indebtedness,
effect a change in Amira India’s capital structure,
formulate any merger or other similar reorganization such as a scheme of amalgamation,
implement a scheme of expansion, diversification, modernization,
make investments by way of shares/debentures or lend or advance funds to or place deposits with any other company, except in the normal course of business,
create any charge, lien or encumbrance over its assets or any part thereof in favor of any financial institution, bank, company or persons, and
make certain changes in management or ownership.

 

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In fiscal 2018, 2017 and 2016, we spent $0.4 million, $0.1 million and $0.6 million, respectively, on capital expenditures.

 

Historically, our cash requirements have mainly been for working capital as well as capital expenditures. As of March 31, 2018, our primary sources of liquidity, aside from our secured revolving credit facilities, were $1.2 million of cash and cash equivalents.

 

Our trade receivables primarily comprise receivables from our retail and institutional customers to whom we typically extend credit periods. Our trade receivables were $258.3 million as of March 31, 2018.

 

Our prepayments and current assets primarily consist of advances to our suppliers to secure better prices and availability of inventory in future periods, insurance claim receivables, short-term investments and input tax credit receivables. Our prepayments were $66.0 million as of March 31, 2018.

 

We believe that our current cash and cash equivalents, cash flow from operations, debt incurred under our secured revolving credit facilities and other short and long-term loans will be sufficient to meet our anticipated regular working capital requirements and our needs for capital expenditures for at least the next 12 months. We may, however, require additional cash resources to fund the development of our new processing facility or to respond to changing business conditions or other future developments, including any new investments or acquisitions we may decide to pursue.

 

Since we are currently a holding company, we do not generate cash from operations in order to fund our expenses. Restrictions on the ability of our subsidiaries to pay us cash dividends may make it impracticable for us to use such dividends as a means of funding the expenses of ANFI. However, in the event that ANFI requires additional cash resources, we may conduct certain international operations or transactions through ANFI using transfer pricing principles that involve Amira India or its trading affiliates, or seek third-party sources of financing in the form of debt or equity.

 

As of March 31, 2018, the Group had nil undrawn financing facilities which remained available for drawdown under our existing financing arrangements. The Indian company is carrying negotiation and dialogue with banks to reclassify its debt between working capital and real estate. The current factory land is owned by the Indian Company. Approximately, 9 acres of the total of 17 acres of factory land has already been converted and licensed as residential real estate. The balance of 8 acres of factory land is under advanced stage of approval and licensing for conversion. We are in the process of injecting liquidity through various means like land base monetization etc. Management is confident to address the issue of liquidity.

 

However, as mentioned in our risk factors, due to tightening of regulatory and credit environment in India, banks have not agreed to reclassify our debt into working capital and real estate. This has resulted in some of the banks classifying the loan to Indian Company as Non-performing assets. The Indian Company is in the process of monetizing its assets and attempting to raise fresh capital.

 

The following table sets forth the summary of our cash flows for the periods indicated:

 

    Fiscal year ended March 31,  
    2018     2017     2016  
    (Amount in $ million)  
Net cash generated from/(used in) operating activities     (28.4 )     5.8       (6.5 )
Net cash generated from/(used in) investing activities     1.4       3.3       1.8  
Net cash generated from/(used in) financing activities     7.6       (18.6 )     (21.8 )
Effect of change in exchange rate on cash and equivalents     3.7       8.9       (2.8 )
Net increase/(decrease) in cash and cash equivalents     (15.6 )     (0.6 )     (29.3 )
Cash and cash equivalents at the beginning of the year     16.8       17.4       46.7  
Cash and cash equivalents at the end of the year     1.2       16.8       17.4  

 

Net cash generated from/ (used in) operating activities

 

In fiscal 2018, net cash generated from/(used in) operating activities was $(28.4) million in comparison to net cash used of $5.8 million in fiscal 2017.

 

In fiscal 2017, net cash generated from operating activities was $5.8 million in comparison to net cash used of $6.5 million in fiscal 2016.

 

Generally, factors that affect our earnings include, among others, sales price and volume, costs and productivity, which similarly also affect our cash flows from or (used in) operations. While management of working capital, including timing of collections and payments, affects operating results only indirectly, its impact on working capital and cash flows provided by operating activities can be significant.

 

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Net cash used in investing activities

 

In fiscal 2018, cash generated from investing activities was $1.4 million compared to cash generated of $3.3 million in fiscal 2017 which was primarily due to interest income slightly offset by capital expenditure.

 

In fiscal 2017, cash generated from investing activities was $3.3 million compared to cash generated of $1.8 million in fiscal 2016 which was primarily due to interest income slightly offset by capital expenditure.

 

Net cash generated from financing activities

 

In fiscal 2018, cash flow from financing activities was $7.6 million which was primarily due to the net proceeds of $33.5 million from the incurrence of short-term debt. We repaid long-term debt of $0.02 million and interest of $25.9 million during the fiscal 2018.

 

In fiscal 2017, cash used in financing activities was $18.6 million which was primarily due to the net proceeds of $9.4 million from the incurrence of short-term debt. We repaid long-term debt of $0.5 million and interest of $27.5 million during the fiscal 2017.

 

Contractual Obligations

 

The following is a summary of our contractual obligations and other commitments as of March 31, 2018:

 

    Payments due by period  
    Total    

Less than 1

year

    1-2 years     2-5 years     More than
5 years
 
    (Amount in $ million)  
Long-Term Debt Obligations:                                        
Current portion of Long Term Debt     1.4       1.4       -       -       -  
Non-Current portion of Long Term Debt     0.1       -       0.1       -       -  
Interest liability     0.2       0.2       -       -       -  
Total Long-Term Debt Obligations (A)     1.7       1.6       0.1       -       -  
Operating Lease Obligations (B)     0.3       0.3       -       -       -  
Short-Term Debt Obligations:                                        
Current Debt     250.2       250.2       -       -       -  
Less: Current portion of Long-Term Debt     (1.4 )     (1.4 )     -       -       -  
Trade Payables     11.7       11.7       -       -       -  
Other Financial Liabilities     7.3       7.3       -       -       -  
Total Short-Term Debt Obligations (C)     267.8       267.8       -       -       -  
                                         
Total Contractual Obligations (A)+(B)+(C)     269.8       269.7       0.1       -       -  

 

Capital commitments

 

Capital commitments net of advances amounted to $8.5 million, $8.5 million and $8.4 million as of March 31, 2018, 2017 and 2016 respectively.

 

Inflation

 

Our results of operations and financial condition have historically not been significantly affected by inflation because we were able to pass most, if not all, increases in raw materials prices on to our customers through price increases on our products.

 

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Off-Balance Sheet Arrangements

 

As of March 31, 2018, we had no off-balance sheet arrangements, other than items disclosed under the heading “Item 18. Financial Statements”.

 

Critical Accounting Policies and Estimates

 

Information relating to “Critical Accounting Policies and Estimates” are described in detail under the heading “Item 18. Financial Statements – Note 6”.

 

New standards/amendments relevant for the Group adopted from April 1, 2016 and new standards/amendments issued but not yet effective relevant for the Group

 

Information relating to “New standards/amendments relevant for the Group adopted from April 1, 2016” and “New standards/amendments issued but not yet effective relevant for the Group” are described in detail under the heading “Item 18. Financial Statements – Note 4 and 5”.

 

Non-IFRS Financial Measures

 

In evaluating our business, we consider and use the non-IFRS measures EBITDA, adjusted EBITDA, adjusted profit after tax, adjusted earnings per share, adjusted net working capital and net debt as supplemental measures to review and assess our operating performance. The presentation of these non-IFRS financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS. We define:

 

(1) EBITDA as profit after tax plus finance costs (net of finance income), income tax expense and depreciation and amortization;

 

(2) adjusted EBITDA, as EBITDA plus non-cash expense for share-based compensation for fiscal 2018, fiscal 2017 and fiscal 2016, respectively, other one-time legal & professional charges for fiscal 2018, 2017 and fiscal 2016 and one-time provision for impairment of inventory in fiscal 2018;

 

(3) adjusted profit after tax, as profit after tax plus non-cash expense for share-based compensation for fiscal 2018, fiscal 2017 and fiscal 2016, respectively, other one-time legal and professional charges for fiscal 2016, 2017 and 2018; and one-time provision for impairment of inventory in fiscal 2018;

 

(4) adjusted earnings per share as the quotient of: (a) adjusted profit after tax and (b) the sum of our weighted average number of shares (including dilutive impact of share options granted) for the applicable period and the ordinary shares subject to the exchange agreement between us and the non-controlling shareholders of Amira India; during the applicable period;

 

(5) adjusted net working capital as total current assets minus: (a) total current liabilities (b) cash and cash equivalents and plus current debt; and

 

(6) net debt as total current and non-current debt minus cash and cash equivalents.

 

(7) Adjusted Cost of goods sold as Cost of goods sold after accounting for the impact of impairment of inventories.

 

We use both EBITDA and adjusted EBITDA as measures of operating performance to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations, for evaluating actual results against such expectations and as a performance evaluation metric, including as part of assessing and administering our executive and employee incentive compensation programs. We believe that the use of EBITDA and adjusted EBITDA as non-IFRS measures facilitates investors’ assessment of our operating performance from period to period and from company to company by backing out potential differences caused by variations in items such as capital structure (affecting relative finance or interest expenses), the book amortization of intangibles (affecting relative amortization expenses), the age and book value of property and equipment (affecting relative depreciation expenses) and other non-cash expenses. We also present these non-IFRS measures because we believe they are frequently used by securities analysts, investors and other interested parties as measures of the financial performance of companies in our industry.

 

These non-IFRS financial measures are not defined under IFRS and are not presented in accordance with IFRS. These non-IFRS financial measures have limitations as analytical tool, and when assessing our operating performance, investors should not consider it in isolation, or as a substitute for profit/ (loss) or other consolidated statements of operations data prepared in accordance with IFRS. Some of these limitations include, but are not limited to:

 

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· it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

· it does not reflect changes in, or cash requirements for, our working capital needs;

 

· it does not reflect the finance or interest expenses, or the cash requirements necessary to service interest or principal payments, on our debt;

 

· it does not reflect income taxes or the cash requirements for any tax payments;

 

· although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted net profit and EBITDA do not reflect any cash requirements for such replacements;

 

· other companies may calculate EBITDA differently than we do, limiting the usefulness of this non-IFRS measure as a comparative measure.

 

We compensate for these limitations by relying primarily on our IFRS results and using EBITDA only as a supplemental measure.

 

We present adjusted EBITDA, adjusted profit after tax, adjusted earnings per share, adjusted net working capital and net debt because we believe these measures provide additional metrics to evaluate our operations and, when considered with both our IFRS results and the reconciliation to profit after tax, basic and diluted earnings per share, working capital and total current and non-current debt, respectively, provide a more complete understanding of our business than could be obtained absent this disclosure. We also believe that these non-IFRS financial measures are useful to investors in assessing the operating performance of our business after reflecting the adjustments described above.

 

In the following tables we have provided reconciliation of non-IFRS measures to the most directly comparable IFRS measure:

 

1. Reconciliation of profit after tax to EBITDA and adjusted EBITDA:

 

    Fiscal year ended March 31,  
    2018     2017     2016  
    (Amount in $)  
Profit/(loss) after tax (PAT)     (93,595,764 )     31,511,403       32,913,597  
Add: Income tax expense     (19,941,298 )     4,596,968       4,897,325  
Add: Finance costs (net of finance income)     34,078,952       29,009,595       25,876,361  
Add: Depreciation and amortization     1,617,118       1,778,968       2,061,698  
EBITDA     (77,840,992 )     66,896,934       65,748,981  
Add: Non-cash expenses for share-based compensation     1,205,809       1,312,250       3,523,412  
Add: One-time provision for impairment of inventory     133,984,426       -       -  
Add: One-time legal & professional charges     1,695,323       2,295,995       5,461,146  
Adjusted EBITDA     59,044,566       70,505,179       74,733,539  

 

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2. Reconciliation of profit after tax to adjusted profit after tax (excluding IPO-related expenses):

 

    Fiscal year ended March 31,  
    2018     2017     2016  
    (Amount in $)  
Profit/(loss) after tax (PAT)     (93,595,764 )     31,511,403       32,913,597  
Add: Non-cash expenses for share-based compensation     1,205,809       1,312,250       3,523,412  
Add: One-time provision for impairment of inventory (net of taxes)     87,164,908       -       -  
Add: One-time legal & professional charges     1,695,323       2,295,995       5,461,146  
Adjusted profit/(loss) after tax     (3,529,724 )     35,119,648       41,898,155  

 

3. Reconciliation of earnings per share and adjusted earnings per share:

 

            Fiscal year ended March 31,  
            2018     2017     2016  
              (Amount in $)                  
                                 
Profit/(loss) after tax (PAT)             (93,595,764 )     31,511,403       32,913,597  
Profit attributable to Shareholders of the company     (A)       (78,222,174 )     25,087,388       25,792,843  
Weighted average number of shares (for Basic earnings per share)     (B)       34,064,348       29,822,470       28,805,738  
Weighted average number of shares (for diluted earnings per share)     (C)       34,064,348       29,822,470       28,805,738  
Basic earnings per share as per IFRS     (A) ÷ (B)       (2.30 )     0.84       0.90  
Diluted earnings per share as per IFRS     (A) ÷ (C)       (2.30 )     0.84       0.90  
                                 
Share Issuable under share exchange agreement for non-controlling interest     (D)       7,005,434       7,005,434       7,005,434  
Number of shares outstanding including shares for non-controlling interest-fully diluted     (E) = (C) + (D)       41,069,782       36,827,904       35,811,172  
                                 
Profit/(loss) after tax (PAT)             (93,595,764 )     31,511,403       32,913,597  
Add: Non-cash expenses for share-based compensation             1,205,809       1,312,250       3,523,412  
Add: One-time provision for impairment of inventory (net of taxes)             87,164,908       -       -  
Add: One-time legal & professional charges             1,695,323       2,295,995       5,461,146  
Adjusted profit/(loss) after tax     (F)       (3,529,724 )     35,119,648       41,898,155  
                                 
Adjusted earnings per share     (F) ÷ (E)       (0.09 )     0.95       1.17  

 

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4. Reconciliation of working capital (total current assets minus total current liabilities) and adjusted net working capital:

 

          Fiscal year ended March 31,  
    2018     2017     2016  
    (Amount in $)  
Current assets:                        
Inventories     161,278,863       273,063,839       239,048,161  
Trade receivables     258,331,963       209,673,239       189,702,525  
Derivative financial assets     -       -       439,488  
Other financial assets     3,612,232       5,467,164       5,577,017  
Prepayments     65,977,255       47,272,153       22,572,280  
Other current assets     1,170,200       664,553       1,282,267  
Cash and cash equivalents     1,216,642       16,831,655       17,412,501  
Total current assets     491,587,155       552,972,603       476,034,239  
                         
Current liabilities:                        
Trade payables     11,741,143       13,004,865       14,513,988  
Debt     250,204,044       224,391,280       208,924,196  
Current tax liabilities (net)     -       15,799,116       15,716,854  
Derivative financial liabilities     -       -       453  
Other financial liabilities     7,285,473       12,259,830       6,856,677  
Other current liabilities     871,160       1,101,744       1,197,855  
Total current liabilities     270,101,820       266,556,835       247,210,023  
                         
Working Capital (Total current assets minus Total current liabilities)     221,485,335       286,415,768       228,824,216  
Less: Cash and cash equivalents     1,216,642       16,831,655       17,412,501  
Add: Current debt     250,204,044       224,391,280       208,924,196  
Adjusted net working capital     470,472,737       493,975,393       420,335,911  

 

5. Reconciliation of total current and non-current debt to net debt:

 

          Fiscal year ended March 31,  
    2018     2017     2016  
    (Amount in $)  
Current debt     250,204,044       224,391,280       208,924,196  
Non-current debt     27,430       48,743       518,056  
Total current and non-current debt as per IFRS     250,231,474       224,440,023       209,442,252  
Less: Cash and cash equivalents     1,216,642       16,831,655       17,412,501  
Net debt     249,014,832       207,608,368       192,029,751  

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and senior management

 

The following table sets forth as of March 31, 2018, information about our directors and executive officers:

 

Name   Age   Position
Karan A. Chanana   45  

Chairman of the Board of Directors and Chief Executive Officer

Varun Sethi   36   Chief Financial Officer
Neal Cravens (1)(2)(3) *   65   Independent Director
Robert Wagman (1)(2)(3)   54   Independent Director
Nathalie Dauriac*   40   Independent Director
Harash Pal Sethi (1)(2)(3)   68   Independent Director
Rajesh Arora   53   Managing Director of Amira India
Alireza Yazdi   50   Vice President of Amira I Grand Foods Inc., USA

* New director Herve Larren joined the board as independent director in May 2018. Neal Cravens retires on October 16, 2018 and is replaced by Mohit Malik on the Board and also the Audit Committee. Nathalie Dauriac resigned on May 17, 2018.

 

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(1) Member of Audit Committee
(2) Member of Corporate Governance and Nominating Committee
(3) Member of Compensation Committee**

 

Mr. Karan A. Chanana has been our Chief Executive Officer and Chairman of the Board of Directors since our Initial Public Offering in 2012. His employment agreement as CEO of ANFI expired in July 2017 and has since not been renewed. Mr. Chanana became Chief Executive Officer of Amira India in 2006 and has been a Director of Amira India since 1994. Mr. Chanana has previously served as the Chairman for the Food Processing Value Addition Council of the Associate Chamber of Commerce and Industry of India and as a member of various committees of the Confederation of Indian Industries, including the Agricultural Committee. Mr. Chanana received a Bachelor of Commerce degree from the University of Delhi in 1993.

 

Mr. Varun Sethi , has been our Chief Financial Officer since August 11, 2017. From April 2012 to April 2013 and from July 2016 to present, Varun Sethi has worked for Amira, as part of its corporate finance and financial reporting team. From November 2015 to September 2016, Varun Sethi worked for Protiviti Consulting (formerly Arthur Anderson Consulting) based in Delhi NCR providing transaction and financial advisory services involving accounting advisory for International Financial Reporting Standards (“IFRS”) and U.S. Generally Accepted Accounting Principles (“GAAP”) for Indian and multinational clients. Varun Sethi has also held positions at Ernst & Young and Grant Thornton in India. Varun Sethi’s professional experience includes capital markets and transactions advisory, financial due diligence and valuations, IFRS & US GAAP accounting advisory for Indian and multinational companies, statutory audit and risk audits of businesses. His experience spans consulting projects in sectors including consumer goods and services, real estate, pharmaceuticals and manufacturing sectors.  Mr. Varun Sethi received his Chartered Accountancy degree from Institute of Chartered Accountants of India (ICAI) in July of 2004 and attained a Bachelors of Commerce (Honours) degree from the University of Delhi, India in May of 2003. In February of 2007, Varun Sethi became a Certified Information Systems Auditor from the Information Systems Audit and Control Association (“ISACA”).

 

Mr. Neal Cravens has been a member of our Board of Directors since October 2012. Previously, Mr. Cravens served as the Chief Financial Officer of Cott Corporation, a leading global supplier of private label soft drinks from 2009 to 2012. From 2005 to 2009, he served in various capacities including Chief Financial Officer of Advantage Sales and Marketing LLC, a consumer products broker, Chief Financial Officer of Almatis, a leading global supplier of specialty alumina and Senior Vice President of Finance at Warner Music Group. Mr. Cravens also held a variety of roles from 1978 through 2000 at Seagram Company Ltd., the beverage, consumer products, and media & entertainment company, including senior Vice President of Finance, Chief Accounting Officer and Vice President of planning, mergers and acquisitions. He also served as Executive Vice President and Chief Financial Officer of Seagram’s Tropicana and Universal Music Group divisions. While at Seagram, Mr. Cravens had responsibility for SEC reporting, managing credit facilities, conducting equity and debt financings, strategic planning and M&A. Mr. Cravens received a Bachelor’s degree from the University of Kentucky in 1974 and a M.B.A. from the University of Kentucky in 1976. After serving the Company continuously for last six years, Neal Cravens has retired as a director effective October 16, 2018. Mr. Cravens was a member of the Company’s Board of Directors and Audit Committee from October 15, 2012 until his retirement on October 16, 2018. Mr. Cravens’ retirement was not a result of any disagreement with the Company on any matter. He shall be replaced on October 16, 2018 by Mr. Mohit Malik.

 

Mr. Harash Pal Sethi has been a member of our Board of Directors since November 2013. He brings with him over 40 years of experience in the areas of finance, accounting, corporate finance, cross-border investments, investment advisory and structuring of joint ventures in the UK, Europe, the Middle East and India. Mr. Sethi has been a part of Cornelius Barton & Co, a London-based firm providing audit, accounting, tax and consulting services to family-owned businesses and high net worth individuals since 1972 as a chartered accountant, partner and the sole proprietor since 1990. He has been a partner at Blenheim Equity LLP since 2005 and Blenheim Windfarms LLP since 2007 focusing on equity and financing transactions for European wind and solar projects. He is the chairman of the JKS Restaurant Group, which owns and manages restaurants in the UK and Europe, and advises on international opportunities for diversification and development. Mr. Sethi has also been a director of Euro Afro Financial Holdings Limited, an investment holding company between 2002 and 2013. As a member of the Board of Directors of Eoxis India Private Limited from February 2011 through February 2013, Mr. Sethi advised on India-based investments, business development and acquisitions of India-based projects. Mr. Sethi received a Bachelor of Commerce degree from Delhi University, India in 1971. He also qualified as a Chartered Accountant in 1976 from the Institute of Chartered Accountants in England & Wales and is presently a Fellow Member.

 

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Mr. Robert Wagman , has been an independent director of the Company since September 26, 2017. From January of 2011 through June of 2017, Mr. Wagman was the President and Chief Executive Officer of LKQ Company, a Fortune 500 Company listed on the NASDAQ stock exchange. LKQ is North America’s largest provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. LKQ has operations in North America, Europe and Taiwan. As its Chief Executive Officer, Mr. Wagman was responsible for the oversight of LKQ’s operations.

 

Mr. Mohit Malik, is an independent director of the Company following approval from the Board of Directors his appointment is effective as of October 16, 2018. Mr. Malik graduated in Law (LLB) from prestigious Delhi University and practices law since 1984. He has served as the past President of Gurgaon Chamber of Industry & Commerce and is presently serving as the Executive Member of the Chamber. He is an accomplished professional and has over 34 years’ experience in the field of Corporate Debt Restructuring, Corporate Financial Restructuring, advise on Amalgamations and Mergers, etc.

 

Ms. Nathalie Dauriac , was an independent director of the Company from August 11, 2017 until May 17, 2018. In February of 2015, Nathalie Dauriac founded Hay Hill Wealth Management, a wealth manager located in London, England and since such time has served as its Chief Executive Officer. In November of 2009 Nathalie Dauriac founded Signia Wealth, a private banking and asset management company in London, England and served as its Chief Executive Officer until December 2014.Nathalie Dauriac received a Post-Graduate Diploma in Management Studies from Queens College, Cambridge University in May 2000. Since July of 2012 Nathalie Dauriac served as the Director of the Young Presidents’ Organization - London Mayfair Chapter. Nathalie Dauriac resigned on May 17, 2018.

 

Mr. Rajesh Arora is Managing Director of Finance of Amira India and has been with Amira India since 1998. Previously, from 1988 to 1998, Mr. Arora was with Pure Drinks (New Delhi) Ltd. Mr. Arora is a Chartered Accountant, qualified in 1988 and is a member of the Institute of Chartered Accountants of India. He received a Bachelor of Commerce, with Honors, from Delhi University in 1985.

 

Mr. Alireza Yazdi joined the Company in 2008 as a Vice President of Amira I Grand Foods Inc., USA with more than 20 years of experience in the operation, distribution and retailing of the basmati rice industry in the United States and Canada. Mr. Yazdi is responsible for the Company’s revenue, operation and corporate planning functions. Previously, Mr. Yazdi worked with Kusha Rice Corporation as a General Manager for more than 13 years and was instrumental in launching the Royal brand in the United States. In 2006 he started his own distribution business of rice, and olive oil from Spain. Mr. Yazdi received a Bachelor of Science in Industrial Engineering from the Complutense University of Madrid.

 

None of our officers and directors is related to each other.

 

**Further, the Company eliminated its compensation committee effective May 4, 2018. As a Foreign Private Issuer as defined by Securities Exchange Act Rule 3b-4(c), under the rules of the New York Stock Exchange we are not required to have a compensation committee and as such, we have elected to follow home country governance practices.

 

B. Compensation

 

Compensation of Directors and Executive Officers

 

Director Compensation

 

We incurred an aggregate amount of $1,172,343 as compensation (in cash and shares awards) for services of independent directors to the Board of Directors and its committees for the fiscal year 2018.

 

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Mr. Harash Pal Sethi, Mr. Robert Wagman and Mr. Neal Cravens each received compensation of $80,000 for fiscal year ended March 31, 2018, for their services as directors. While Nathalie Dauriac received compensation of $55,000 for fiscal year ended March 31, 2018, for her services as a director.

 

Additionally, Mr. Neal Cravens, Robert Wagman, Nathalie Dauriac and Herve Larren are entitled to receive ordinary shares having a value of $55,000 each, on an annual basis for each year of their service in October every year, as a director. A new director Herve Larren joined the board as independent director in May 2018. Nathalie Dauriac resigned on May 17, 2018.

 

Accordingly,

· In fiscal 2018, Mr. Harash Pal Sethi, received ordinary shares having a value of $225,000 relating to fiscal 2017 and $175,000 relating to fiscal 2016 for his increased responsibilities as the Chairman of the Audit Committee.
· We do not pay any compensation to our executive directors for their services to the Board. We reimburse our directors for expenses accrued in connection with their services to the Board.

 

Executive Officer Compensation

 

During fiscal 2018, none of our senior executives received more than $365,000 in cash compensation pertaining to fiscal year 2018.

 

Compensation for our CEO* and CFO   Karan A.*
Chanana
    Varun Sethi  
    (Amount in $)  
Annual Salary     -       425,000  
Cash Bonus     -       475,000  
Equity-Based Compensation (non-cash expense – see “Item 18. Financial Statements”; under Note 19.1 “Share-based compensation”)     -          
Other Compensation     -       -  
Total     NIL       900,000  

 

* On June 14, 2012, the Company entered into an employment agreement to act as the CEO with its Chairman, Karan A. Chanana. The Agreement had an initial term of 5 years after which the Agreement renews each year. The agreement may be terminated by either party by providing written notice to the other party at least thirty days before the end of the term. The Company is presently in negotiations with Mr. Chanana concerning the terms of his employment. However, pending a documented agreement, he has not been remunerated/ paid remuneration as the Chief Executive Officer during the fiscal 2017-18. Mr. Chanana is the Chief Executive Officer of the Company despite the expiration of the Employment Agreement until his successor has been duly elected and appointed by the Board of Directors.

 

Employment Agreements

 

Employment Agreement with Mr. Karan A. Chanana

 

On June 14, 2012, Mr. Karan A. Chanana entered into an employment agreement with ANFI governing his role as Chairman of the Company. Previously Mr. Chanana had a similar role and had an agreement with Amira C Foods International DMCC which was replaced by the employment agreement dated June 14, 2012. The terms of his employment agreement that expired on June 13, 2017, with ANFI, are detailed below. Based upon the Amended and Restated Memorandum and Articles of Association, Mr. Chanana is the Chief Executive Officer of the Company despite the expiration of the Employment Agreement until his successor has been duly elected and appointed by the Board of Directors.

 

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For the fiscal year ended March 2017, Mr. Chanana was paid an annual base salary of $540,000. Under the terms of his agreement Mr. Chanana was also reimbursed for all business and travel expenses, annual living expenses of $120,000 and a discretionary annual target bonus of $351,000 based on the achievement of certain performance objectives. Additionally, on October 15, 2012, upon the closing of our IPO, Mr. Chanana was granted an option pursuant to our contemplated 2012 Omnibus Incentive Plan to purchase such number of ordinary shares of ANFI equal to one percent (1%) of ANFI’s fully diluted outstanding ordinary shares on October 15, 2012, with an exercise price equal to the per share offering price. The options had a vesting period of 48 equal and consecutive monthly installments commencing on the first month anniversary date of grant. This vesting period was amended by the Board on December 9, 2013 which made the options immediately exercisable. Consequently, the total cost of these share options has been charged to the consolidated statements of profit or loss for the fiscal year ended March 31, 2014.

 

Pursuant to the terms of the employment agreement, Mr. Chanana is entitled to receive or participate in all employee benefit programs and perquisites applicable to senior executives. Mr. Chanana is entitled to reimbursement of business expenses and certain personal expenses incurred in India. We shall also provide and maintain adequate directors’ and officers’ liability insurance coverage for Mr. Chanana.

 

Under his employment agreement, Mr. Chanana is entitled to receive payments and other benefits upon the termination of his employment. These payments and other benefits are described below under “—Potential payments upon termination of employment or a change of control”.

 

On October 15, 2013, an addendum to the Employment Agreement was entered into between the Company and Mr. Chanana. This addendum provides that: “subject to approval by the Compensation Committee of the Board and subject to the terms and conditions of the 2012 Omnibus Securities and Incentive Plan, the Board in its sole discretion may review and grant such options to Mr. Chanana from time to time at an exercise price to be determined by the Compensation Committee of the Board.”

 

On June 15, 2014, the Board of Directors increase Mr. Chanana’s annual base salary from $475,200 to $540,000 for the fiscal year 2015 which is an increase of 13.6% over Mr. Chanana’ s base salary for 2013-2014.

 

On July 18, 2014, an addendum to the Employment Agreement was entered into between the Company and Mr. Chanana. This amendment allows for reimbursement of all business-related expenses incurred by Mr. Chanana for conveyance, travel, business, entertainment, sales and business promotion and certain non-business related expenses.

 

Potential payments upon termination of employment or a change of control

 

Mr. Chanana is currently entitled to receive certain benefits in connection with a termination of employment or a change in control of the Company. The employment agreement requires specific payments and benefits to be provided to Mr. Chanana in the event of termination of employment under the circumstances described below. The following is a description of the payments and benefits that we will owe to Mr. Chanana upon termination of his employment.

 

Termination without Cause or for Good Reason not in Connection with a Change in Control.  If we terminate Mr. Chanana’s employment without cause or Mr. Chanana terminates his employment for good reason, then Mr. Chanana is entitled to receive the following payments and benefits:

 

· an amount equal to his unpaid base salary earned through the date of termination and any unpaid bonus earned for the preceding year;

 

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· an amount equal to any business expenses that were previously incurred but not reimbursed and are otherwise eligible for reimbursement;

 

· any accrued but unused vacation pay and any payments or benefits payable to him or his spouse or other dependents under any other company employee plan or program;

 

· an amount equal to the bonus amount that would have been earned by him for the year in which the termination occurs if his employment had not terminated, prorated for the number of days elapsed since the beginning of that year, payable when the bonus for such year would otherwise have been paid;

 

· an amount equal to a multiple (the “severance multiplier”) of (a) his highest annual rate of base salary during the preceding 24 months, plus (b) his target bonus award for the calendar year in which the termination occurs (or, if greater, the actual short-term incentive award earned by him for the preceding calendar year). The severance multiplier is the greater of (i) 365 days or (ii) the number of days from and including the day after the termination date through the last day of the then-current term of the employment agreement, in each case, divided by 365, for payments and benefits payable in the event of a termination without cause or for good reason. However, the severance multiplier is 1.0 plus the above-mentioned multiple, if we terminate Mr. Chanana’s employment without cause at the request of an acquirer or otherwise in contemplation of a change in control in the period beginning six months prior to the date of a change in control, or he terminates his employment for good reason within two years after a change in control;

 

· immediate vesting of his option award to purchase 1,465,183 ordinary shares granted under the terms of his employment agreement and any outstanding long-term incentive awards;

 

· continued participation by him and his spouse or other dependents in our group health plan, at the same benefit and contribution levels in effect immediately before the termination for 24 months or, if sooner, until similar coverage is obtained under a new employer’s plan. If continued coverage is not permitted by our plan or applicable law, we will pay the cost of continuation coverage to the extent any of these persons elects and is entitled to receive continuation coverage; and

 

· continued receipt for 24 months of those employee benefit programs or perquisites made available to him during the 12 months preceding the termination. If continued receipt of such employee benefit programs or perquisites is not permitted by the applicable benefit plan or applicable law, we will pay the cost of continuation coverage to the extent any of these persons elects and is entitled to receive continuation coverage.

 

Under the employment agreement, Mr. Chanana is deemed to have been terminated without cause if he is terminated for any reason other than: (1) a commission of any felony or misdemeanor (other than minor traffic violations or offenses of a comparable magnitude not involving dishonesty, fraud or breach of trust); or (2) a breach of any of his material obligations under the employment agreement, subject to a 30-day cure period if such breach is curable by Mr. Chanana.

 

Mr. Chanana is deemed to have terminated his employment for good reason if the termination follows: (1) a breach by ANFI of any of its material obligations under the employment agreement; or (2) a relocation of his principal place of employment of more than 50 miles.

 

For example, in the event we terminate Mr. Chanana without cause or Mr. Chanana terminates his employment for good reason, the cash payments that would be payable to Mr. Chanana (assuming the termination date is 548 days, or approximately 18 months, following his initial employment date, and based on compensation received in fiscal 2013) would be the sum of:

 

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· $0 (assuming all base salary earned through the date of termination and any unpaid bonus earned for the preceding year has been paid in full);

 

· $0 (assuming any business expenses that were previously incurred have been reimbursed);

 

· $0 (assuming no accrued but unused vacation pay is owed);

 

· approximately $216,000 (the bonus amount that would have been earned by Mr. Chanana for the year in which the termination occurs if his employment had not terminated, prorated for the number of days elapsed since the beginning of that year); and

 

· $783,000 (Mr. Chanana’s highest annual rate of base salary during the preceding 24 months ($432,000), plus his target bonus award for the calendar year in which the termination occurs ($351,000), multiplied by 1.0 (365 days divided by 365)), or

 

· $1,566,000 (the amount above multiplied by 2.0) if we terminate Mr. Chanana’s employment without cause at the request of an acquirer or otherwise in contemplation of a change in control in the period beginning six months prior to the date of a change in control, or he terminates his employment for good reason within two years after a change in control.

 

Accordingly, under the above scenarios, the total cash payment that would be payable to Mr. Chanana is approximately $999,000 or, if the termination is in connection with a change in control as described above, and the total cash payment that would be payable to Mr. Chanana is approximately $1,782,000. However, these amounts would be different in any given year.

 

Termination in Connection with a Change in Control  If we terminate Mr. Chanana’s employment in contemplation of a change in control in the period beginning six months prior to the date of a change in control, or he terminates his employment for good reason within two years after a change in control, then he is entitled to receive the payments and benefits described above, except that the severance multiple is 1.0 plus the above-mentioned multiple. Accordingly, under the above scenario, the total cash payment that would be payable to Mr. Chanana is approximately $1,782,000. Under the employment agreement, a change in control is defined as: (1) the acquisition of 40% or more of our ordinary shares, except in connection with a consolidation, merger or reorganization where (a) the shareholders of ANFI immediately prior to the transaction own at least a majority of the voting securities of the surviving entity, (b) a majority of the directors of the surviving entity were directors of ANFI prior to the transaction, and (c) no person, subject to certain exceptions, beneficially owns more than 50% of the voting securities of the surviving entity; (2) the completion of a consolidation, merger or reorganization, unless (a) the shareholders of ANFI immediately prior to the transaction own at least a majority of the voting securities of the surviving entity, (b) a majority of the directors of the surviving entity were directors of ANFI prior to the transaction, or (c) no person, entity, or group, subject to certain exceptions, beneficially owns more than a majority of the voting securities of the surviving entity; (3) a change in a majority of the members of our board, without the approval of the then incumbent members of the board; or (4) the shareholders approve the complete liquidation or dissolution of ANFI, or a sale or other disposition of all or substantially all of the assets of ANFI.

 

Termination Due to Death or Disability If Mr. Chanana’s employment terminates due to death or is terminated by us due to disability; he (or his beneficiary) is entitled to receive:

 

· a lump-sum payment in an amount equal to (a) his base salary for six months, plus (b) an amount equal to the bonus amount that would have been earned by him for the year in which the termination occurs if his employment had not terminated, prorated for the number of days elapsed since the beginning of that year, payable when the bonus for such year would otherwise have been paid; and

 

· continued participation by him and his spouse or other dependents in our group health plan, at the same benefit and contribution levels in effect immediately before the termination for 24 months or, if sooner, until similar coverage is obtained under a new employer’s plan. If continued coverage is not permitted by our plan or applicable law, we will pay the cost of continuation coverage to the extent any of these persons elects and is entitled to receive continuation coverage.

 

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Obligations of Mr. Chanana Payment and benefits under the employment agreement are subject to compliance by Mr. Chanana with the restrictive covenants in the agreement, including non-disclosure, non-competition and non-solicitation covenants. The non-competition and non-solicitation covenants expire on the second anniversary of the termination of Mr. Chanana’s employment. The non-disclosure covenant does not expire. If Mr. Chanana violates any of these or other covenants or obligations contained in the agreement, we will be entitled to recover all costs and fees incurred to enforce ANFI’s rights under the agreement and are not restricted from pursuing other available remedies for such breach.

 

Employment Agreements with Other Senior Executive Officers

 

We have entered into employment agreements with our senior executive officers. We may terminate a senior executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as the commission of any felony, or any material breach of any Company policy or code after being afforded a reasonable opportunity to cure such failure. We may also terminate a senior executive officer’s employment without cause at any time, and we shall provide severance payments to the officer in accordance with the terms of the respective employment agreement. A senior executive officer may terminate his or her employment at any time, subject to the specifics of his or her employment agreement.

 

In connection with their respective employment agreements, each senior executive officer has agreed to not disclose any confidential or proprietary information of the Company or its business, including, without limitation, all of the Company’s customer lists, financial data, sales figures, costs and pricing figures, marketing and other business plans, product development, marketing concepts, computer software or data of any sort developed or compiled by the Company, formulae or any other information relating to the Company’s services, products, sales, technology, research data, software and all other know-how, trade secrets or proprietary information. Each officer also agrees that the Company will own all the intellectual property created, made or conceived by such executive officer during his or her employment.

 

Retirement Benefits

 

During fiscal 2017, we accrued $95,295 for post-employment benefits through defined contribution and defined benefit plans for our employees (including executive officers).

 

Equity Benefit Plan

 

Our Board of Directors and existing shareholders have adopted and approved the 2012 Plan and a further 2017 plan. The 2012 & 2017 Plan, effective as applicable, is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, ANFI and our subsidiaries. The purpose of the 2012 & 2017 Plan is to help us attract, motivate and retain such persons and thereby enhance shareholder value.

 

Administration The 2012 Plan is administered by the Compensation Committee* of the Board of Directors, which consists of, Mr. Neal Cravens and Mr. Harash Pal Sethi, who are each (i) “Outside Directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, (ii) “non-employee directors” within the meaning of Rule 16b-3, or Non-Employee Directors, and (iii) “independent” for purposes of any applicable listing requirements; provided, however, that the Board of Directors or the Committee may delegate to a committee of one or more members of the Board of Directors who are not (x) Outside Directors, the authority to grant awards to eligible persons who are not (A) then “covered employees” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such award, or (B) persons with respect to whom we wish to comply with the requirements of Section 162(m) of the Code, and/or (y) Non-Employee Directors, the authority to grant awards to eligible persons who are not then subject to the requirements of Section 16 of the Exchange Act. If a member of the Compensation Committee is eligible to receive an award under the 2012 Plan, such committee member shall have no authority hereunder with respect to his or her own award. Among other things, the Compensation Committee has complete discretion, subject to the terms of the 2012 Plan, to determine the employees, non-employee directors and non-employee consultants to be granted an award under the 2012 Plan, the type of award to be granted, the number of ordinary shares subject to each award, the exercise price under each option and base price for each SAR (as defined in a subsequent paragraph), the term of each award, the vesting schedule for an award, whether to accelerate vesting, the value of the ordinary shares underlying the award, and the required withholdings, if any. The Compensation Committee is also authorized to construe the award agreements, and may prescribe rules relating to the 2012 Plan. (* the Company eliminated its compensation committee effective May 4, 2018. As a Foreign Private Issuer as defined by Securities Exchange Act Rule 3b-4(c), under the rules of the New York Stock Exchange we are not required to have a compensation committee and as such, we have elected to follow home country governance practices.)

 

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Grant of Awards; Ordinary Shares Available for Awards The 2012 Plan provides for the grant of awards which are distribution equivalent rights, incentive share options, non-qualified share options, performance shares, performance units, restricted ordinary shares, restricted share units, share appreciation rights, or SARs, tandem share appreciation rights, unrestricted ordinary shares or any combination of the foregoing, to key management employees and non-employee directors of, and non-employee consultants of, ANFI or any of its subsidiaries (each a “participant”) (however, solely our employees or employees of our subsidiaries are eligible for awards which are incentive share options). We have reserved a total of 3,962,826 ordinary shares for issuance as or under awards to be made under the 2012 Plan. Further, we have reserved a total of 4,500,000 ordinary shares for issuance as or under awards to be made under the 2017 Plan. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any ordinary shares subject to such award shall again be available for the grant of a new award; provided, however, that ordinary shares surrendered or withheld as payment of the exercise price under an award or for tax withholding purposes in connection with an award shall not be available for the grant of a new award. The 2012 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors in its discretion may terminate the 2012 Plan at any time with respect to any ordinary shares for which awards have not theretofore been granted; provided, however, that the 2012 Plan’s termination shall not materially and adversely impair the rights of a holder with respect to any award theretofore granted without the consent of the holder. The number of ordinary shares for which awards which are options or SARs may be granted to a participant under the 2012 Plan during any calendar year is limited to 1,000,000.

 

Future new hires, non-employee directors and additional non-employee consultants would be eligible to participate in the 2012 Plan as well. The number of awards to be granted to officers, non-employee directors, employees and non-employee consultants cannot be determined at this time as the grant of awards is dependent upon various factors such as hiring requirements and job performance.

 

Options The term of each share option shall be as specified in the option agreement; provided, however, that except for share options which are incentive share options, or ISOs, granted to an employee who owns or is deemed to own (by reason of the attribution rules applicable under Code Section 424(d)) more than 10% of the combined voting power of all classes of our ordinary shares or the capital stock of our subsidiaries (a “ten percent shareholder”), no option shall be exercisable after the expiration of ten (10) years from the date of its grant (five (5) years for ISOs granted to an employee who is a ten percent shareholder).

 

The price at which an ordinary share may be purchased upon exercise of a share option shall be determined by the Compensation Committee; provided, however, that such option price (i) shall not be less than the fair market value of an ordinary share on the date such share option is granted, and (ii) shall be subject to adjustment as provided in the 2012 Plan. The Compensation Committee or the Board of Directors shall determine the time or times at which or the circumstances under which a share option may be exercised in whole or in part, the time or times at which options shall cease to be or become exercisable following termination of the share option holder’s employment or upon other conditions, the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, and the methods by or forms in which ordinary shares will be delivered or deemed to be delivered to participants who exercise share options.

 

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Options which are ISOs shall comply in all respects with Section 422 of the Code. In the case of ISOs granted to a ten percent shareholder, the per share exercise price under such ISO (to the extent required by the Code at the time of grant) shall be no less than 110% of the fair market value of a share on the date such ISO is granted. ISOs may solely be granted to employees. In addition, the aggregate fair market value of the shares subject to an ISO (determined at the time of grant) which are exercisable for the first time by an employee during any calendar year may not exceed $100,000.

 

Restricted Share Awards A restricted share award is a grant or sale of ordinary shares to the participant, subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Compensation Committee or the Board of Directors may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Compensation Committee or the Board of Directors may determine at the date of grant or purchase or thereafter. Except to the extent restricted under the terms of the 2012 Plan and any agreement relating to the restricted share award, a participant who is granted or has purchased restricted shares shall have all of the rights of a shareholder, including the right to vote the restricted shares and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Compensation Committee or the Board of Directors). During the restricted period applicable to the restricted shares, subject to certain exceptions, the restricted shares may not be sold, transferred, pledged, hypothecated, or otherwise disposed of by the participant.

 

Unrestricted Share Awards An unrestricted share award is the award of ordinary shares which are not subject to transfer restrictions. Pursuant to the terms of the applicable unrestricted share award agreement, a holder may be awarded (or sold) ordinary shares which are not subject to transfer restrictions, in consideration for past services rendered thereby to us or an affiliate or for other valid consideration.

 

Restricted Share Unit Awards A restricted share unit award provides for a payment of cash or shares to be made to the holder upon the satisfaction of predetermined individual service-related vesting requirements, based on the number of units awarded to the holder. The Compensation Committee shall set forth in the applicable restricted share unit award agreement the individual service-based or performance-based vesting requirement which the holder would be required to satisfy before the holder would become entitled to payment and the number of units awarded to the Holder. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such award, the Compensation Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions. The holder of a restricted share unit shall be entitled to receive a cash payment equal to the fair market value of an ordinary share, or one (1) ordinary share, as determined in the sole discretion of the Compensation Committee and as set forth in the restricted share unit award agreement, for each restricted share unit subject to such restricted share unit award, if and to the extent the applicable vesting requirement is satisfied. Such payment shall be made no later than the fifteenth (15th) day of the third (3rd) calendar month next