Annual Report 2001-2002 From The Chairman It gives me great pleasure to present this Annual Report for the year 2001-2002, my first as Chairman of your Company. The year gone by has been momentous in several respects. We have taken steps to deliver on promises, to sustain strong performance and to lay the groundwork for long-term growth. Financially, it has been a good year for our seeds and herbicides business. Revenue from sales increased by 23% to Rs. 33032 Lacs while profit after tax improved substantially -- by 62% to Rs. 3110 Lacs, from Rs. 1924 Lacs in the previous year. Our exports during the year more than doubled and our herbicides and seeds portfolio performed exceptionally well. A significant milestone for the Indian agriculture sector has also been achieved. On March 26, 2002 the final approval for the commercialization of the country's first biotech crop, insect-protected Bt cotton, was received by our seed partner Mahyco. Coming at the very end of the financial year, this was a most welcome development because it embedded the third cornerstone of our business in India. Bollgard , as Bt cotton is branded, is being launched through our JV with Mahyco and distributed by both Monsanto and Mahyco. Several countries approved planting of new biotechnology crops during the year. This includes approvals for farmers to plant insect-protected cotton in Indonesia, Roundup Ready soyabeans in South Africa and Roundup Ready cotton in Argentina. Lower input costs, greater convenience, environmental benefits and higher yields make biotechnology a very attractive alternative for farmers. The future of our growth is driven by the increasing need for food and fibre to keep up with an expanding population, more nutritious diets and increased disposable incomes. Monsanto is uniquely positioned to take advantage of these opportunities. We are at the forefront in developing products and technologies that will help our farmers enhance yields and practice more sustainable farming. We are also well positioned to bring these products and technologies to market. We have developed a unique business model, such as the Humsafar project that offers integrated solutions to the farmer. The model integrates seeds, biotechnology traits and herbicides. India is largely an agrarian economy and its well being therefore depends to a great extent on the performance of agriculture sector. Owing to the continuing increase population, the land available for cultivation is shrinking and this demands high yields from less land, water and other resources. Towards this objective, we have made significant investments in market development activities and manufacturing infrastructure. The readiness of Indian farmers to adopt modern farming technologies, and the availability of hybrid seeds locally, is positive indication for the growth of the agriculture industry. Use of hybrid seeds is still very low in India but awareness of the high yield and good quality of produce from hybrid seeds is attracting farmers to switch over hybrids. Higher yields can also be assured reducing the loss of crops from weeds, pests and insects. Government policies are encouraging exports of agro-based products through incentives to the food processing industry, which demands high quality of agro produce. We see ourselves as uniquely positioned to play a major role in all of this. This Annual Report includes a Report on Corporate Governance along with a certificate from the Auditors of the Company regarding compliance with the conditions Corporate Governance, as well as a Management Discussion & Analysis Report pursuant to Clause 49 of the Listing Agreement. Monsanto India Limited is a subsidiary of Monsanto Company, USA and is committed to adopting the best global practices of Corporate Governance. This envisages the commitment of the Company towards the attainment of high levels of transparency, accountability and business propriety with the ultimate objective of increasing long term shareholder value, keeping in view the needs and interests of all other stakeholders. Brett D. Begemann An Overview Taking Ownership of our company's success We are pleased to report yet another year of successful financial results for Monsanto India Limited. The performance of your Company during the year was commendable despite lacklustre agro-climatic and market conditions. We capitalised on the good spread of monsoon in 2001, and gained from the consolidation of our operations that we began in 2000. Along with knowledge-based innovative marketing strategies and a strong export performance, we exceeded our best expectations and achieved a quantum jump in our financial performance for the year 2001-02. Our Sales Revenue increased by 23% to Rs. 33032 Lacs. The Profit After Tax (PAT) also increased substantially to Rs. 3110 Lacs from Rs. 1924 Lacs. Overall, our improved performance can be attributed to a combination of factors: successful penetration of the Indian market for agro inputs (herbicides & seeds), increased export volumes and a continuous focus on better cost management during the year. Higher Productivity and Better Cost Management Our growth is especially noteworthy because it has been achieved with increased productivity. While sales rose by 23% and net profit shot up by 62%, the expenditure grew by only 17%. Moreover, the operational expenses also included those incurred in taking over distribution of seeds from Rallis. Another highlight of the year is that cash balances increased nearly 229% over the previous year and we added Rs. 1645 Lacs to the cash balances. While we reduced receivables, we were strict on credit policies. Incentives for sales employees were linked with collection and we set aggressive targets for these. We also set up a special credit cell like a credit department in a bank, where limits were set for each customer. If any customer wanted credit beyond the pre-determined limit, an approval became necessary. All these steps worked well and a combination of these actions resulted in a positive cash flow situation. Increased Exports We did very well in exports last year. Your Company more than doubled its export volumes to Rs. 4943 Lacs, during the year under review, from Rs. 2461 Lacs, during the previous year. Due to the focus on exports, nearly 15% of the company's sales revenue comes from exports. Seeds, especially maize, are a big export growth area because our quality has improved dramatically and productivity from seeds is high. Our exports of maize seeds to South-East Asia (Indonesia, the Philippines and Thailand) took off well because we have delivered excellent quality at reasonable prices. We earned Rs. 4210 Lacs in foreign exchange through seed exports and we expect to recover the investment in the plant at Eluru, Andhra Pradesh, in record time.   OUR FOCUS - HERBICIDES, SEEDS, TRAITS Two years ago, we integrated all our agricultural businesses in India in the Company, thereby making your Company a comprehensive agricultural inputs provider in India. This came as a reaffirmation of our commitment to Indian agriculture: to provide unique solutions and products that will help farmers enhance agricultural yields and improve environment quality in a sustainable way, resulting in the growth of our revenues and incomes. We remain focused on our areas of strength, our three core businesses of Herbicides, Seeds and Traits as we concentrate on four key crops - rice, wheat, cotton and maize. Our results show that the integration strategy initiated two years ago is bearing fruit. Today, we are looking at innovative marketing strategies and bundling of products to provide unique solutions, by sourcing products from third parties, wherever necessary. Herbicides Our herbicides business is a mature industry and is growing well. Our prime goal is to replace manual weeding with cost-effective and efficient weed control, improve quality and yield while reducing production costs for the farmer and increasing his income. Our strategy is to build on our existing diversified herbicide business as a strong platform for growth. This will help us leverage our distribution strengths and add value to both our customers and our shareholders. The Conservation Tillage (CT) practised in the wheat project of Punjab and Haryana has now come to the aid of maize farmers in Bihar where fields are waterlogged through September and, sometimes, even October. This means delayed sowing for the winter crop. However by using CT, farmers have found they can sow as early as mid-September, regardless of the monsoon floods, and that unseasonal rain in October can actually help the crop if they use CT. Farmers report a gain of a tonne per hectare, which translates into Rs. 6,000 more per hectare against the Rs. 1,500 they spend on CT and the Roundup herbicide. Traits Your Company has secured the rights to distribute cotton seeds in parallel with Mahyco from the licensee Mahyco Monsanto Biotech Limited. Accordingly, the recent Bt cotton approval will impact your Company in terms of sales growth immediately, because of our role as an early distributor of the new technology. As farmers see the success of the new technology in controlling bollworms, the Bt cotton hybrid area is expected to increase significantly over the next five years. We will also begin work on biotech maize this year. Seeds It is the Seeds business that we see as our growth platform during the next 3 to 5 years. We have now established Dekalb and Asgrow hybrid maize and sunflower seeds in the Indian market. In fact, our maize seed business outperformed the industry and contributed significantly to our revenues and income. Our seeds have helped farmers improve productivity greatly despite the unfavourable weather conditions that resulted in uneven distribution of rain over large parts of the country. Our biggest success was in Bihar where, while the winter hybrid maize market grew by a mere 10%, we recorded a much higher growth rate, resulting in a significant increase in share of the seed market. The productivity of Bihar farmers growing maize is now as good as that of farmers in the US. Your Company is also planning to launch sorghum (jowar) hybrids soon and test marketing is on this year. We also saw great success with sunflower seeds in Andhra Pradesh, Maharashtra and Karnataka where we achieved a substantial increase in our market share. In fact, 2001 was one of our best years in the seeds business. We have already done the spadework here for growing sunflower and maize seeds, for which we expect results from 2003. The growth in your Company's seeds business in 2001 was well supported by capital expenditure to the tune of Rs. 1200 Lacs. Eluru got a new Wet Ear Gas Drying Seed Facility and adequate money was spent on enhancing capacity in Bellary. This has resulted in Monsanto India being recognised throughout South-East Asia as a reliable source of high quality seed. We also set up a Seed Production Research Centre at Eluru to identify hybrids which give higher yields to growers and can be produced at lower cost to the Company. Market Development - the Leader Shows the Way A strong desire to work closely with the farmer lies at the core of our philosophy. Monsanto has therefore always led the industry in its emphasis on market development. In the year under review, we took this emphasis to a new level when we set up a specific organisation focused solely on market development. This enabled us to connect very well with the farmer and work jointly with him round the year in enhancing his productivity. This focused market development work also helped us effectively communicate the value-enhancing propositions of our products to the farmer and strengthened our market leadership. Constant contact with these farmers, especially opinion leaders, on a regular basis, is the most important part of the market development model. This enabled us to learn about the needs of our customers and earn their trust. For example, the propagation and demonstration of the benefits of Leader wheat herbicide was led by intense contacts with small groups of farmers and opinion leaders in the villages of North India. In hybrid corn markets, on the other hand, our market development efforts focused on extensive demonstrations on farmer plots. These demonstrations were a comprehensive programme, wherein we supplied the seed, helped the farmer sow them on his plot, and stayed in touch with him through to harvest. We thus helped the farmer see the benefits of our hybrids in terms of yield and quality of output, ultimately leading to better returns per acre. Similarly, for Roundup herbicide, the tea plantations market development team in the North Eastern states worked closely with the technical teams of important plantations, jointly running year-long pilot programmes to demonstrate the cost and time benefits given by the appropriate use of Roundup. The above examples, by no means exhaustive, amply demonstrate the commitment and excellent execution of our company's market development focus, which enabled it to consolidate its position of market leadership in all the segments in which it is present. From Molecules to Farmers' Needs We were again driven by strong customer insight to drive sales of Fast Mix, a new environment-friendly Butachlor formulation for rice in Punjab and Haryana, where a shortage of water and electricity indicated we needed a herbicide that could do with less water. Fast Mix spreads better in low water collection and reaches faster into the soil to right where the weeds are. This is another example of moving away from a chemical or molecule-focused approach to associating a product with a farmer's need. Fast Mix focused on the action -- how this water-based herbicide spreads deeper in less water. The result: farmers began asking for the "Kum Paniwalla Fast Mix" (less water Fast Mix), their primary need! …and Novel Marketing Tie-ups We used another novel strategy to co-promote our hybrids along with a leading tractor company. We used a "lucky card" in maize packs that offered farmers the chance of winning a tractor. The result: a whopping 35% response rate that gave us a good database of large farm holders and won a lucky farmer a tractor. The Humsafar Small Holder Initiative Millions of our farmers meet our needs for food and feed on plots that are less than two hectares. To Monsanto, these farmers are as important as the big landholder. Often these small holders have no access to information about sustainable agricultural practices. We met that need through the Humsafar small holder initiative. Take the case of Onkar Singh, 53, a maize small farmer in Arned village of Chittorgarh district of Rajasthan. Like his forefathers, he has been growing the local desi variety of maize for decades, with average yields of 30 quintals per hectare. His fortunes changed when our Company included his village among the 14 chosen for the Humsafar maize project. Humsafar's goal: to provide small holders like Onkar a one-stop Total Solutions package, increase crop value in terms of yield, better prices for his produce, education on better agronomic practices and better farm management practices--and thereby increase profitability. Monsanto acted as a catalyst, and took the lead role of input partner. We roped in an output partner who could assure Onkar of a market for his produce, experts from agricultural universities and the government, and NGOs who could set up income-generating projects not based on agriculture, to bring about a qualitative change in Onkar's approach to farming and to life itself. Your Company partnered with a leading poultry feed manufacturer, which offered Onkar a net price of Rs. 415 per quintal, Rs. 30 above the then prevailing market price. Humsafar helped Onkar with Dekalb, Hishell & Allrounder m a i z e s e e d s . T h e Humsafar Project Officer, Mahender Singh, an agriculture graduate, guided Onkar in new ways of maize production, from preparing the land to harvesting the crop. Scientists from the local agricultural university participated with information, answers to questions and doubts about seeds, fertiliser, pests and plant disease. Though Onkar and his friends were initially sceptical, they were won over by Mahender who stayed in the village, was available for guidance round the clock and made regular visits to the fields of all adopted farmers. The farmers were convinced that Mahender was serious when a Humsafar Kisan Seva Kendra was set up in the village to provide the latest in farm information and agricultural tools and equipment on hire for spraying, etc. They also received valuable information at a Humsafar Kharif Crop Seminar, the first in their village. Mahender also brought in Lead Farmers under the Farmers Train Farmers concept. Your Company roped in an NGO, which set up non-agriculture income-generating programmes like soap making, stitching and formed self-help groups to induce farmers to save. A Humsafar Technology Farm was set up in nearby Vana village, besides several demonstration plots on farms where Monsanto's Dekalb, Hishell & Allrounder maize was grown. Onkar meticulously followed the practices recommended by Humsafar including the right seed rate, correct spacing and optimum fertilisation. In November, he was in for the surprise of his life -- he reaped a bountiful yield of 80 quintals per ha against the 30 quintals per ha that he normally gets. Says a jubilant Onkar, "I cannot recall any instance in my 53 years when anyone in my village or district ever got this kind of yield." CREATING A GREAT PLACE TO WORK In a far-flung organisation, where people are on the move in remote regions most of the time and linked only electronically, human resource management is crucial to high motivation and performance levels. Our people are the single most important element of our success and the basis of our confidence in our future. Hence, we pay a great deal of attention to motivation, training and development of every member of our staff. No one remains static at Monsanto, constant growth for self-fulfilment, an ongoing process with us. Responding to feedback from the global Employee Satisfaction Survey (ESS) last year, your Company has taken a number of measures, one being the creation of the Rapid Recognition Award (RRA), to immediately commend outstanding performance outside of that recognised by institutionalised awards. Unlike the functional Monsanto Excellence Awards, the RRA could be from peer to peer, supervisor to subordinate or subordinate to supervisor. The award consists of a handwritten "I appreciate" note and a memento. Our approach towards training is being constantly re-vitalised. Training programmes are now being customised to become more employee need-based. Two major organisation-wide programmes in the pipeline are "Product Refresher Programme" and "Finance for Non-Finance". We have also instituted the "National Training Resource Unit" with 15 representatives nominated by Regional Business Managers, across the country. The members of the NTRU have been entrusted with the task of identifying training needs among field staff, collating them and helping to organise and deliver these training programmes. Career Self-Reliance Challenges are constantly thrown up in an organisation like ours. Ours being a flat organisation, there is a need for Career Self Reliance -- to increase one's awareness of personal goals, values and interests, and strengthen the ability to create an alignment between personal interests and business needs. This calls for increasing the ability to communicate one's value effectively and to enhance integration of the company's performance/development goals with personal career satisfaction. So far, 17 workshops have been held to keep our people engaged and involved, and to p r o v i d e c h a l l e n g i n g opportunities across the organisation through lateral and upward movement, including to the Asia-Pacific and other regions. The challenge is even greater because we are in the developmental phase, with a rich pipeline of new products and technology. A major challenge for your Company during 2001 was to ensure optimal utilisation of resources, and also bring about developmental opportunities for people through growth from within, to fill up vacancies. This meant revisiting our structures and reorganising ourselves to see how existing employees could individually and collectively capitalise on available strengths, keep the head count down and manage costs better without compromising on efficiency or quality. Refresher and training programmes are routine at Monsanto. But the permission for commercialisation of meant new programmes on a war footing to prepare Monsanto and Mahyco staff with pre-launch training, to provide knowledge and understanding on the agronomy and commercial aspects of Bollgard . There were also programmes to meet new needs for the Market Development Focus and the identification of territories enabled us to put resources where required. In a bold move aligned with our Market Development Focus, 25 Territory Managers (one fourth of the 100 comprising the entire Sales force) were pulled out from conventional sales and reassigned to develop new markets through grassroots contact with farmers. This helped kick-start the Market Development initiative and made us a much more farmer-focused, streamlined and operationally-efficient organisation, with sound fundamentals and resources directed to priorities. GOOD CORPORATE CITIZENSHIP Environment, Safety and Health Monsanto recognises the importance of safety, health and environmental sustainability not only at the work place, but also at home and wherever Monsanto employees are on the move. Your Company took several steps during the year under review to make safety a personal ownership issue for all employees in addition to this being a key focus area for the Company. We believe in working towards zero risk. So, we set up the Behaviour Base Safety Programme to identify the 'at risk' behaviour of employees and correct it. Since many of our employees are on the road much of the time, we have instituted a Defensive Driving Programme to identify and anticipate risks from other drivers. Spouses are closely involved in this because nothing works like the pressure of loved ones. We believe safety concerns everyone, particularly the family: so spouses use a checklist to monitor safety not just at home for their families, but also as regards their partner's driving and other tasks. The Monsanto Research Centre, Bangalore, as well as the Mumbai corporate office of Monsanto have won the Global Safety & Health Award from Monsanto Company during the year under review. This is a major win for your company since only ten of the 150 company sites have won this award. The Mumbai corporate office is also the first corporate office in India to be awarded the Occupational Health Safety Assessment System (OHSAS-18001) certification by SGS International Certification Services, Singapore. The Occupational Health Safety Assessment System (BS-8800 / OHSAS-18001) and Environmental Management Systems (ISO-14001) are voluntary standards used by industries to quantitatively measure their safety performance. Obtaining the certification represents the highest level of recognition for safety in Monsanto and demonstrates our commitment to providing a healthy and safe workplace for our employees, contractors and visitors, and to having a neutral or positive environmental impact from our operations. Technology Sharing - Monsanto Supports Drought Tolerance Research The productivity of crops in drought-prone areas of the country is crucial for food security and the economic and social well being of large areas of the country. Monsanto Fund has this year committed $40,000 for research in India aimed at identifying genes capable of making crops drought tolerant. Dr. Gerard Barry, Director of Research for Product and Technology Cooperation, Monsanto Company, USA, presented the first instalment of $24,000 to Dr. A.M. Krishnappa, Vice-Chancellor of the University of Agricultural Sciences in Bangalore for the two-year project. Community Outreach In Rajasthan, your Company has been helping farmers reclaim abandoned land and bringing it under the plough to increase the farmer's income. In Andhra Pradesh, we got into partnership with 100 DWCRA (Development of Women and Children in Rural Areas) groups in two districts (Vizianagaram and Ranga Reddy) to empower women. Monsanto Meekosam (Monsanto For You) came in as a technology partner, offering farmer education and skills training in the latest agricultural technologies, including integrated crop management, in hybrid rice, cotton and maize through the DWCRA self-help groups. This included the setting up of Monsanto Meekosam Farmer Service Centres in villages to provide information, inputs and equipment. The 100 DWCRA self-help groups in 13 villages are so successful that we plan to extend the programme to Warangal and Rajahmundhry districts too. Bridging the Digital Divide in Hyderabad Schools The Monsanto Fund has provided a grant of $50,000 to help bridge the digital divide in 15 under-resourced schools in Hyderabad. The Fund has taken up the project along with ICICI and Schoolnet. Schoolnet aims at providing access to quality education using technology as a tool across the socio-economic spectrum, including less-empowered regional language schools. It believes that technology acts as a catalyst for fundamental change in the way students learn and revolutionises the methods teachers use. The Monsanto funding will take care of the programme fee in 10 schools for one year and hardware requirements for 15 schools. All this is in addition to Monsanto Vidyarthi Programme in Andhra Pradesh where we provided 40,000 school books and 8,000 school bags last year, scholarships to 450 students and seven scholarships to those pursuing higher education. Financial Highlights         Financial Summary for 10 years NOTICE NOTICE is hereby given that the FIFTY SECOND Annual General Meeting of Monsanto India Limited will be held on Tuesday, 23 rd July, 2002, at 10.30 a.m. at M.C.GHIA HALL, BHOGILAL HARGOVINDAS BUILDING, 2 nd Floor, 18/20, Kaikhushru Dubash Marg, Mumbai - 400 001, to transact the following business: ORDINARY BUSINESS: To receive, consider and adopt the Balance Sheet as at 31 st March, 2002 and the Profit and Loss Account for the year ended on that date, together with the reports of the Directors’ and Auditors’ thereon. To declare a dividend. To appoint a Director in place of Mr.R.C.Khanna, who retires by rotation and being eligible, offers himself for re-appointment. To appoint a Director in place of Mr.C.Y.Wong, who retires by rotation and being eligible, offers himself for re-appointment. To re-appoint Messrs Deloitte Haskins & Sells, Chartered Accountants, Mumbai as Auditors to hold office from the conclusion of this meeting until conclusion of the next Annual General Meeting and to authorise the Board of Directors to fix their remuneration. SPECIAL BUSINESS: To consider and if thought fit, to pass with or without modification(s), the following Resolution as an Ordinary Resolution: “RESOLVED that in accordance with the provisions of Sections 198, 269, 309, Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956 (“the Act”), the Company hereby approves re-appointment of Mr. Sekhar Natarajan as Managing Director of the Company for a period of five years with effect from 1 st October, 2002, upon the terms and conditions including remuneration, as are set out in the draft Agreement (“the Agreement”) to be executed between the Company and Mr.Sekhar Natarajan, which Agreement placed before this meeting duly initialled by the Chairman for the purpose of identification is hereby specifically approved with liberty to the Board of Directors of the Company (“the Board”) to alter and vary the terms and conditions of the Agreement in such manner as may be agreed to between the Board and Mr.Sekhar Natarajan and in accordance with the applicable provisions of the Act and any amendment thereto or re-enactment thereof; RESOLVED further that the Company hereby approves increase in the remuneration payable to Mr.Sekhar Natarajan upto 40% per annum of the basic salary last drawn by Mr.Sekhar Natarajan and consequential increase in the perquisites/benefits related to his basic salary with effect from 1 st October, 2002, for the balance tenure of the Agreement, upto 30 th September, 2007, and any amendment thereto. RESOLVED further that subject to the approval of Central Government, if necessary, in the event of any absence or inadequacy of net profit in any financial year, the aforesaid remuneration shall be paid as minimum remuneration; RESOLVED further that for the purpose of giving effect to this resolution, the Board be and is hereby authorised to do all such acts, deeds, matters and things as it may, in its absolute discretion deem desirable, necessary, expedient, usual or proper to implement this resolution.” EXPLANATORY STATEMENT PURSUANT TO SECTION 173(2) OF THE COMPANIES ACT, 1956: ITEM NO. 6 A. The Board of Directors, at their meeting held on 17 th June, 2002, re-appointed Mr.Sekhar Natarajan as Managing Director of the Company for a further period of five years with effect from 1 st October, 2002, subject to the approval of the shareholders in a general meeting. The material terms and conditions of the re-appointment contained in the draft Agreement between the Company and Mr.Sekhar Natarajan are as follows: The Managing Director shall, subject to the supervision and control of the Board of Directors, carry out such duties as may be entrusted to him by the Directors and shall exercise such powers as are delegated to him by the Board of Directors. Period of Agreement : 5 years from 1 st October, 2002. Remuneration : Basic Salary : Rs.2,67,480/- per month and as may be decided by the Board from time to time, subject to ceiling of 40% increase per annum. Commission, Bonus, Incentives & Other Allowances: As per the Company’s Schemes and as may be decided by the Board from time to time. Accommodation: Furnished accommodation with electricity, water and gas at the cost of the Company. Motor Car: Provision of motor car with a chauffeur. Medical Reimbursement: As per rules of the Company’s Scheme. Telephone: Telephone, telefax and other communication facilities at his residence at the cost of the Company. Leave Travel Concession: As per rules of the Company’s Scheme. Provident, Superannuation and other Funds: As per rules of the Company’s Scheme. Gratuity: As per rules of the Company’s Scheme. In computing the Gratuity benefits payable to the Managing Director, his period of employment from 23 rd June, 1980 would be considered as continuous employment with the Company and he would be eligible to receive gratuity benefits for such total continuous period of service. Insurance Coverage: 1> Cost of Insurance cover against the risk of any financial liability or loss because of any error of judgement as the Managing Director of the Company, as may be approved by the Board of Directors from time to time. 2> 48 times of the last monthly salary drawn in case of unfortunate death during the services with the Company will be paid by the Company to the survivors. Club Subscription: Reimbursement of club subscription fees to two clubs. Earned/Privilege Leave:As per rules of the Company’s Scheme. Other allowances: Subject to any statutory ceiling/s, the Managing Director may be given any other allowances, perquisites, benefits and facilities as may be decided by the Board of Directors from time to time. Minimum Remuneration: In the event of any absence or inadequacy of net profits in any financial year, the remuneration as mentioned in the Agreement entered between the Managing Director and the Company shall be the minimum remuneration payable to the Managing Director. The Managing Director shall be entitled to reimbursement of all actual expenses or charges including travel entertainment or other out-of-pocket expenses incurred by him for and on behalf of the Company, in furtherance of its business and objects. The terms and conditions of the said appointment and/or Agreement may be altered, enhanced or varied from time to time by the Board as it may, in its discretion, deem fit. The Managing Director shall be eligible to participate in the Global Stock Option Plans/Stock Appreciation Rights Plans etc. as in existence/to be declared by Monsanto Company, USA from time to time during his tenure. The Agreement may be terminated by either party giving the other party six months’ notice. For the purposes of calculating the value of perquisites hereinabove, the same shall be evaluated as per Income Tax Rules, 1962, wherever applicable or at actual cost. The Managing Director shall not be entitled to receive any fees for attending meetings of the Board/Committee. The draft Agreement between the Company and Mr.Sekhar Natarajan is available for inspection by the members of the Company at its Registered Office at Ahura Centre, 5 th Floor, 96, Mahakali Caves Road, Andheri (East), Mumbai – 400 093 between 4.00 p.m. and 5.00 p.m. on any working day of the Company upto the date of Annual General Meeting. This may be treated as an abstract of the Agreement between the Company and Mr.Sekhar Natarajan pursuant to Section 302 of the Companies Act, 1956. None of the Directors other than Mr.Sekhar Natarajan is interested in this Resolution since it relates to his re-appointment. Information such as brief resume, nature of expertise in specific functional areas and details of Directorship etc. as required to be furnished under clause 49(VI) of the Listing Agreement is provided in the section on Corporate Governance. B. The present terms of appointment of Mr.Sekhar Natarajan as Managing Director is for a period of five years from 1 st October, 1997 to 30 th September, 2002. The Board at its meeting held on 17 th June, 2002 has resolved to enhance the basic salary payable to Mr.Sekhar Natarajan from Rs. 2,44,900/- per month to Rs. 2,67,480/- per month with effect from 1 st April, 2002 to 30 th September, 2002. This may be treated as an abstract of the Agreement between the Company and Mr.Sekhar Natarajan pursuant to Section 302 of the Companies Act, 1956. Notes: A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND A PROXY NEED NOT BE A MEMBER. A PROXY IN ORDER TO BE EFFECTIVE, MUST BE RECEIVED BY THE COMPANY NOT LESS THAN 48 HOURS BEFORE THE MEETING. The Register of Members and Share Transfer books of the Company will be closed from Tuesday, 9 th July, 2002 to Tuesday, 16 th July 2002 (both days inclusive). Payment of dividend as recommended by the Directors, approved at the meeting, will be paid on or after 23 rd July, 2002, to those members whose names appear on the Company’s Register of Members as on 16 th July, 2002. Members are requested to notify change of address, if any, to the Company/Registrar & Share Transfer Agents. Shareholders desiring any information as regards the accounts are requested to write to the Company at least 7 days in advance, so as to enable the Company to keep the information ready. In accordance with the provisions of Section 205A of the Companies Act, 1956, the Company has transferred unclaimed dividends in November 1997 for the year ended 31 st March, 1994 to the General Revenue Account of the Central Government. Members concerned may, therefore, submit their claims in the prescribed form to the Registrar of Companies, Maharashtra, 2 nd Floor, Hakoba Compound, Dattaram Lad Marg, Kalachowki, Mumbai - 400 033. In terms of Section 205A and 205C of the Companies Act, 1956, any dividend remaining unpaid for a period of seven years from the due date of payment is required to be transferred to the Investor Education and Protection Fund. Members who have not encashed their dividend warrants for the year 1994-95 or thereafter are requested to write to the Company/ Registrar & Share Transfer Agents. By Order of the Board of Directors AJAI JAIN Counsel (Legal & Taxation) & Company Secretary Mumbai: June 17, 2002 Registered Office: Ahura Centre, 5 th Floor 96, Mahakali Caves Road Andheri (East), Mumbai – 400 093. ----------------------------------------------------------------------------------------------- DIRECTORS’ REPORT TO THE SHAREHOLDERS, Your Directors have pleasure in presenting their 52 nd Annual Report together with the Audited Accounts for the year ended 31 st March, 2002. 1. Financial Results 2. Business Operations The year has been good for our Company with Sales Revenues during the year increasing by 23% to Rs.33032 Lacs and profit increasing substantially by 62% to Rs.3110 Lacs. This improved performance is a combination of successful penetration of indigenous market for agro inputs (chemicals & seeds), increased export volumes and a continuous focus on cost management during the year. Our herbicides business growth was driven by aggressive market development work and innovative branding, our Corn seed business outperformed the industry and contributed significantly to our revenues and income. 3. Exports We continue to focus on exports of agro chemicals to Sri Lanka/ Bangladesh and seeds to the South East Asian countries. During the year the exports of the Company have gone up to Rs.4943 Lacs from Rs.2461 Lacs in the previous year. The new corn drying facility in Eluru, Andhra Pradesh has improved the quality of our seeds and supported the export thrust of the Company. 4. Dividend & Share Capital Your directors are pleased to recommend a dividend of Rs. 8/- per share on the share capital as enhanced by the issue of bonus shares during the year, against Rs. 10/- per share on the pre bonus share capital in the previous year. This bonus shares issued by capitalisation of general reserves, consequently the share capital increased to Rs.863 Lacs. 5. Registered Office The Company has shifted its registered office from Ballard Estate, Mumbai to Ahura Centre, 5 th Floor, 96, Mahakali Caves Road, Andheri (East), Mumbai – 400 093 with effect from 1 st November, 2001. 6. Manufacturing During the year the Company established a new corn drying facility at Eluru in Andhra Pradesh. This plant was commissioned in February 2002. The Company has set up another manufacturing unit in Silvassa to manufacture Roundup to support the growing agro chemicals business. 7. Enviornment Safety & Health Your Company continues to fulfill all its ESH responsibilities at its plants and work places. Our plants at Bellary and Silvassa are also certified for safety under BS-8800. Our Mumbai office has also been certified under the Occupational Health and Safety Assessment System (OHSAS) 18001 during the year. 8. Human Resources Our employees are the singlemost important element of our success and continuous training and development programmes support their capabilities and skill building efforts. The information required under Section 217(2A) of the Companies Act, 1956 (‘the Act’) and the rules made thereunder are given in the Annexure hereto and forms part of this report. In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding statement of particulars of employees under section 217(2A) of the Act. Any shareholder interested in obtaining a copy of the said statement may write to the Company at the Registered Office of the Company. 9. Directors During the year Mr.B.K.Chiu resigned from the Board in view his decision to leave Monsanto. Your directors would like to place on record their sincere gratitude towards the guidance and contribution made by Mr.B.K.Chiu in the growth of the business in India. Mr.Brett Begemann was appointed as a Director on 16 th January, 2002 in the casual vacancy caused by the resignation of Mr.B.K.Chiu. Mr.Sekhar Natarajan, Managing Director of the Company was re-appointed for a further period of five years from 1 st October, 2002, subject to necessary approvals of the shareholders in the forthcoming Annual General Meeting of the Company. Mr.R.C.Khanna and Mr.C.Y.Wong retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. 10. Directors' Responsibility Statement: In compliance of Section 217(2AA) of the Companies Act, 1956, your directors, to the best of their knowledge and belief and according to the information and explanation available to them, confirm the following: in the preparation of the annual accounts, the applicable accounting standards have been followed; they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at 31 st March, 2002 and of the profit or loss of the Company for that period; proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; the annual accounts are prepared on a going concern basis. 11. Corporate Governance A Report on Corporate Governance along with a certificate from the Auditors of the Company regarding compliance of the requirements of Corporate Governance, as also a Management Discussion & Analysis Report pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges are annexed hereto. 12. Auditors Messrs Deloitte Haskins & Sells, Chartered Accountants, Auditors of the Company retire at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. Members are requested to appoint auditors for the current year and to authorise the Board to fix their remuneration. 13.Foreign Exchange Earnings and Outgo: The details of expenditure and earnings in foreign currency are given under Notes to Accounts in Schedule 16 to the Profit and Loss Account and the Balance Sheet. 14. Conservation of Energy and Technology Absorbtion The information required to be furnished pursuant to Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 is appended hereto and forms part of this Report. 15. Acknowledgement The Board acknowledges the support given by its employees, shareholders, bankers/distributors/dealers and by the farmers, whose support and confidence have contributed to our success. Your Directors would also like to thank Monsanto Company, USA for their continued support, guidance and co-operation. For and on behalf of the Board of Directors SEKHAR NATARAJAN Managing Director R. C. KHANNA Director                           ANNEXURE TO THE BOARD OF DIRECTORS’ REPORT The information required under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988. I. CONSERVATION OF ENERGY: Energy conservation measure taken; Additional investments and proposals, if any being implemented for reduction of consumption of energy; Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods The Company continues to take all possible steps to conserve energy. These include modern electric fittings/ equipments which consume less energy than conventional ones FORM A Form for disclosure of particulars with respect to conservation of energy.   II. TECHNOLOGY ABSORPTION: Form B   CORPORATE GOVERNANCE REPORT 1. CORPORATE GOVERNANCE PHILOSOPHY: Monsanto India Limited is a subsidiary of Monsanto Company, USA and is committed to adapting the best global practices of Corporate Governance. Corporate Governance envisages commitment of the company towards the attainment of high levels of transparency, accountability and business propriety with the ultimate objective of increasing long term shareholders value, keeping in view the needs and interests of all other stakeholders. 2. BOARD OF DIRECTORS: The Board comprises of Executive and Non-Executive Directors. The present strength of the Board is seven Directors comprising of one Executive Director, three Independent Non-Executive Directors and three Non-Executive Directors, including the Chairman of the Company. The Executive and Non-Executive Directors are accomplished professionals and experts in their respective corporate fields. Monsanto Company, USA has certain rights enshrined in the Articles of Association pertaining to the appointment of Directors. The Board has a formal schedule of matters reserved for its consideration and decision, which includes reviewing Company performance, internal control system and issues coming out of internal/statutory audits. Mr.Brett D. Begemann was appointed as a Chairman in place of Mr.B.K. Chiu w.e.f. 16 th January, 2002. The details of the Directors on the Board of your Company are given below: None of the Directors is a member of more than 10 committees or acts as a Chairman of 5 committees across all companies in which he is a Director. Seven Board Meetings were held during the year on following dates: 1. 22 nd May, 2001 2. 25 th July, 2001 3. 20 th September, 2001 4. 27 th October, 2001 5. 28 th January, 2002 6. 8 th March, 2002 7. 27 th March, 2002 The time gap between any two consecutive meetings is not more than four months. 3. SHAREHOLDERS’ / INVESTORS’ GRIEVANCES COMMITTEE: In compliance of the requirement of Corporate Governance under the Listing Agreement with the Stock Exchanges, the Company has constituted a Shareholders’/Investors’ Grievances Committee on 20 th January, 2001 to look into issues relating to shareholders, including share transfers. The committee constitutes of: Mr. R.C. Khanna - Chairman Mr. Sekhar Natarajan - Managing Director Dr. S.P. Adarkar - Non-Executive Director Mr. H.C. Asher - Non-Executive Director Mr. Ajai Jain - Counsel (Legal & Taxation) & Company Secretary is the Compliance Officer of the Company. The company received 183 correspondences/complaints during the year, which have all been resolved. Shares Transfer System: The Company’s shares are in compulsory Dematerialisation Segment.Share Transfer in physical forms are presently registered and option letter for simultaneous dematerialisation of shares are being sent within a period of 20 days from the date of receipt, provided the documents are complete and the shares under transfer are not in dispute. The share certificates duly endorsed are being immediately dispatched after expiry of 30 days from the date of option letter to those who have not opted for simultaneous transfer cum dematerialisation. The total number of equity shares in physical form transferred during the year was 710643. 4. AUDIT COMMITTEE: This Committee has been constituted on 20 th September, 2001 and its members are: Mr. R.C. Khanna - Independent & Non-Executive Director-Chairman of the Committee Dr. S.P. Adarkar - Independent & Non-Executive Director Mr. H.C. Asher - Independent & Non-Executive Director Mr. Ajai Jain - Secretary of the Committee Mr. Sekhar Natarajan - Managing Director-Permanent Invitee The Chief Financial Officer, Internal Auditor and a representative of the statutory auditor will be the invitees at the Audit Committee meeting as and when required. One Audit Committee meeting was held on 27 October, 2001 and attended by all the members of the Committee and also by Chief Financial Officer and statutory auditors of the Company. 5. PECUNIARY RELATIONSHIP OR TRANSACTION WITH THE COMPANY OF NON-EXECUTIVE DIRECTORS: The Non-Executive Directors have no material pecuniary relationship or transaction with the Company in their personal capacity. REMUNERATION OF DIRECTORS: The details of remuneration paid to the Executive Director in the financial year are given in Note 5 of Notes to Accounts. Independent Non-Executive Directors viz. Dr. S.P. Adarkar, Mr. R.C. Khanna and Mr. H.C. Asher were paid commission of Rs.1,40,000/- each (for the year ended 31 st March, 2001) after adoption of the accounts at the Annual General Meeting held on 25 th July, 2001 and also sitting fees for attending various meetings. The Company does not have any Stock Option Scheme. However, the Managing Director and every employee of the Company participate in the Global Stock Option Plan/ Stock Appreciation Rights Plan of Monsanto Company, USA. 6. GENERAL BODY MEETINGS: 7. DISCLOSURES: The details of transaction with the Company, which are either under direct or indirect control of holding company i.e. Monsanto Company, USA are given in Note 19 of the Notes to Accounts. Besides these, the Company has no material transaction with its promoters, directors or the management, their subsidiaries or relatives, etc. that may have a potential conflict with the interest of the Company. The Company has complied with all regulatory requirements on capital market and has not been imposed any penalty/ strictures by the Stock Exchanges or SEBI or any other statutory authority. 8. MEANS OF COMMUNICATION: 9. GENERAL SHAREHOLDER INFORMATION:   10. BRIEF RESUME & OTHER INFORMATION IN RESPECT OF MR. SEKHAR NATARAJAN -MANAGING DIRECTOR, MR. R.C. KHANNA -DIRECTOR AND MR. C.Y. WONG - DIRECTOR, SEEKING RE-APPOINTMENT AT THE ENSUING ANNUAL GENERAL MEETING: a) Mr.Sekhar Natarajan, aged 48, joined the organisation in 1980 and has vast experience in finance, marketing and business operations in India. Currently, he is the Lead for South Asia and is responsible for managing/monitoring the business in all of South Asia. Mr.Natarajan is a qualified Chartered Accountant and Cost Accountant. His other Directorships include: Mahyco Monsanto Biotech (India) Ltd., Parry Monsanto Seeds Ltd., Monsanto (Bangladesh) Limited, Mahyco Vegetable Seeds Limited, Maharashtra Hybrid Seeds Company Limited and Energen International Limited. He is also a member of the Shareholders’/ Investors’ Grievances Committee of the Company. b) Mr. R.C. Khanna is 76 years old, and his qualifications are B.Com. (Lond.) F.C.A. (Eng. & Wales), A.C.M.A., F.C.A., A.I.C.W.A. He joined the Board of Directors of the Company in 1975. He is a Chartered Accountant and has vast experience in matters relating to corporate finance and taxation. His other Directorships include: Ador Technopak Limited, Cooperheat India Pvt. Ltd., Kotak Mahindra Asset Management Co. Ltd., Tata Chemicals Limited, Schrader Duncan Limited and Shriram Investments Limited. He is also Chairman of the following Committees viz. Kotak Mahindra Asset Management Co. Ltd. – Audit Committee, Tata Chemicals Limited – Audit Committee and Monsanto India Limited – Audit Committee & Shareholders’/Investors’ Grievances Committee. c) Mr. C.Y. Wong is 49 years old. Mr. Wong is currently the manufacturing manager for South-East Asia and South Asia, i.e. Malaysia, India, Pakistan, Thailand and has the responsibility for long-term strategic planning and direction of the manufacturing operation in the regions. His total experience is of about 23 years and his association with Monsanto is of about 19 years. He has vast experience in Engineering, Operations and setting up of new manufacturing sites. Mr. Wong is a qualified engineer with B.Sc. in Mechanical Engineering, Master of Engineering from University of Liverpool, certificate in Managerial Accounting from University of Pertanian Malaysia and certificate in Marketing Management from Malaysian Institute of Management. He is not a Director/Member of any other Company/Committee. The Board of Directors Monsanto India Limited Re: Auditors’ Certificate on Corporate Governance We have examined the compliance of conditions of corporate governance by Monsanto India Limited for the year ended on 31 st March, 2002 as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges. The compliance of conditions of corporate governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the company for ensuring compliance of the conditions of corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion, and to the best of our information and according to the explanations given to us, we certify that the company has complied in all material respects with the conditions of corporate governance as stipulated in the above mentioned Listing Agreement. Attention is however invited to Paragraph 4 of the Corporate Governance Report of the Board of Directors regarding the number of audit committee meetings held during the year. As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we have to state that according to the information and explanations given to us, no investor grievance is pending for a period exceeding one month against the Company as per the records maintained by the Shareholders’ and Investors’ Grievances Committee. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company. For Deloitte Haskins & Sells Chartered Accountants P. B. Pardiwalla Partner   MANAGEMENT DISCUSSION AND ANALYSIS REPORT Industry Structure & Development: With over 400 Million acres under cultivation and over 60% of our population dependant on agriculture, the well being of our people and economy depends to a great extent on the performance of the agriculture sector. Both the Crop Protection (CP) industry and Seeds industry play a crucial role in the agriculture sector. The CP industry helps in protecting crops from damage by weeds, pests, insects and fungus, both pre and post harvest. The seeds industry provides high quality varietal and hybrid seeds for farmers which help him to improve yields of his crops. The CP industry is commonly referred to as the pesticides industry and is regulated under a separate statute, the “Insecticides Act, 1968”. The seed industry is again regulated by an independent statute called the “Seeds Act, 1966” which specifies very stringent conditions and norms for the commercialisation of seeds. The two main activities in the CP industry are manufacturing of technical grade pesticides and formulations from these technical grade pesticides. Technical grade pesticides are manufactured indigenously as well as imported. The Indian CP industry is highly fragmented with the presence of large manufacturers operating on a national level and several small and regional players. The Indian seed industry can be broadly divided in two categories-field crop seeds (FCS) and vegetable seeds. This industry too has a few large producers operating at the national level and a number of small and regional producers and marketers. In an extremely competitive industry, continued growth depends on bringing new products and technologies through a strong Research & Development platform and the ability to invest and develop new markets through in-field farmer level work. Opportunities & Threats: The fortunes of our Ag industry is influenced and closely linked to the growth and development of the overall agricultural sector. With the steady increase in the population, land available for cultivation is shrinking. This means we need higher yields to feed a growing population. High yields generally can be assured by saving loss of crop from the losses caused by weeds, pests and insects. Higher yields can also be driven by better quality of seeds. This is a positive side for the long-term prospects of the CP and Seeds industry. In addition, current government policies encourage the growth of the food processing industry and exports of agro-based products. The use of hybrid seeds is still very low in India and farmers still prefer to save and use their residual crop as seed for next season. But awareness about, the high yield and good quality of produce from hybrid seeds, attracting them to switch over to new varieties of hybrid seeds, is growing. The farmers’ acceptance of modern technologies of farming and availability of hybrid seeds in several regions is also a positive indication for the growth of the seeds industry. Reform of the agriculture sector has not yet been touched upon and farm sizes and poor farm economies of scale still compel most farmers to still use old technologies/practices. This affects volume growth in the use of pesticides and new varieties of hybrid seeds. The dependence on the monsoon is again a major threat to an agriculture-based industry. The growing campaign by environmentalists against the use of pesticides, and the increasing stress on huge investments on effluent treatment, and excessive excise duty on pesticides (this, when fertilisers are exempt from such duties) are other areas of concern. Productwise Performance: Thanks to timely monsoons, the agriculture sector is poised for a 5.7% growth in 2001-02, against a negative growth of 0.2% in the last year. Both our agrochemical as well as seed businesses have performed well. Our agrochemicals business grew by 20% with growth coming in from our Machete, Roundup and Leader herbicides. With the weakening Sri Lankan and Bangladeshi currencies, we managed to hold on to our export business. Our seeds business has grown by 33% backed by our good corn and sunflower hybrids and a growing export business. Financial Performance: Although the overall margins have improved, our agrochemical margin continues to be under pressure because of lower realisation and competing molecules. Our seed margins have been slightly improved due to superior germplasm and better adoption. Our cost management efforts have yielded good results during the year. Good cash collections have also helped us reduce our working capital costs during the year. Outlook : Several factors have a major bearing on our performance and results: the state of economy, market conditions and monsoon trends, to name a few. The Indian Meteorological Department has predicted one more year of good monsoon for this year, which augurs well for our industry and our Company. MANAGEMENT DISCUSSION AND ANALYSIS REPORT We hope to continue with our focus on the growth of our business which will depend on our ability to penetrate untapped markets as well as capturing a greater share of the existing market. The Company will also continue to focus on better cost management to maintain its competitiveness in the market place. Risks & Concerns: The Company depends on imports for most of its technical material and hence the business is susceptible to the volatility of the exchange rates and import duties. The overall economic slowdown has also affected most segments of the economy including the agriculture markets. Competition in the market place continues to have an impact on our realisations and also exerts pressure on our margins. A good, evenly distributed monsoon, is always a crucial player in the growth of the agriculture sector and related industries. Internal Control System: Your Company’s management continuously reviews the internal control system and procedures to ensure orderly and efficient conduct of business. Your Company adheres to its written corporate policies with respect to all transactions, financial reporting and budgeting. The Company regularly conducts internal audits either through external or internal resources to monitor the effectiveness of internal control in the organisation. The Constitution of an Audit Committee during the year has further strengthened the overall control on the business. Human Resources: The Company has 384 employees as on 31 st March, 2002. Our Development, Performance and Rewards system is linked to our global HR systems and helps us to build an organisation that will help us be successful in India. Training needs are regularly identified and internal and external trainers were hired regularly to impart training. We have built a team-driven organisation where all employees work together to create our future. Cautionary Statement : The statement made in this report describing the Company’s projections, expectations and estimations may be a forward looking statement within the meaning of applicable securities laws and regulations. Actual results may differ from those expressed or implied in this report due to the influence of external and internal factors which are beyond the control of the Company. For and on behalf of the Board of Directors R C Khanna Director Sekhar Natarajan Managing Director AUDITORS’ REPORT TO THE SHAREHOLDERS We have audited the attached Balance Sheet of MONSANTO INDIA LIMITED as at 31 st March, 2002 and also the Profit and Loss Account of the Company for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Manufacturing and Other Companies (Auditor’s Report) Order, 1988, issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to in paragraph (1) above, we report that : We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of accounts; In our opinion the Balance Sheet and Profit and Loss Account dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; On the basis of the written representations received from the directors of the Company and taken on record by the Board of Directors as at 31 st March, 2002, we report that none of the directors is disqualified as at 31 st March, 2002 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with significant accounting policies and notes thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: In the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March, 2002 and In the case of the Profit and Loss Account, of the profit for the year ended on that date.   For Deloitte Haskins & Sells Chartered Accountants P. B. Pardiwalla Partner ANNEXURE TO THE AUDITORS’ REPORT [referred to in paragraph 1 of our report of even date] The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. All the assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its business. Accordingly, the physical verification of fixed assets has been carried out by the management during the year and we were informed that no material discrepancies were noticed on such verification as compared with the records of fixed assets. None of the fixed assets have been revalued during the year. The stocks of finished goods and raw materials have been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable. Stores and spare parts are expensed on purchase. The procedures of physical verification of stocks followed by the management are, in our opinion, reasonable and adequate in relation to the size of the Company and the nature of its business. The discrepancies noticed on physical verification of stocks as compared to book records were not material. On the basis of our examination of the stock records, in our opinion, the valuation of stocks is fair and proper in accordance with the generally accepted accounting principles, and is on the same basis as in the preceding year. The Company has taken an unsecured interest free loan from a Company under the same management as defined under Section 370(1B) of the Companies Act, 1956, the terms and conditions of which are, in our opinion, prima facie not prejudicial to the interests of the Company. The Company has not taken any loan from any other party under Section 370(1B) or under Section 301 of the Companies Act,1956. The Company has granted an unsecured loan to a company under the same management as defined under Section 370(1B) of the Companies Act, 1956 on terms and conditions that are, in our opinion, prima facie not prejudicial to the interests of the Company. The Company has not granted any loan to any other party under Section 370(1B) or under Section 301 of the Companies Act, 1956. The employees to whom the loans have been given by the Company are repaying principal amount as stipulated and are also regular in payment of interest, where stipulated. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business, for the purchase of stores, raw materials, including components, plant and machinery, equipment and other assets and for sale of goods. According to the information and explanations given to us, in respect of the transactions of purchase and sale of goods, made in pursuance of the contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 and aggregating to Rs.50,000/- or more in respect of each party, we were informed that there are no alternate acceptable sources since similar transactions with other parties have not been made and therefore, no comparisons of price was possible. There were no transactions of sale or purchase of materials or services entered in the said register. As explained to us, the Company has a procedure for determination of unserviceable or damaged stores, raw materials and finished goods and adequate provision has been made in the accounts for the loss arising on such accounts. In our opinion and according to the information and explanations given to us, the Company has not accepted any deposits from public. In our opinion, reasonable records have been maintained by the Company for the sale and disposal of realisable scrap. The internal audit system is a part of the overall internal control system of the company which in our opinion is commensurate with the size and nature of the company’s business. As explained to us, the internal audit department of Monsanto Company, USA performs the internal audit of all Monsanto entities worldwide in accordance with their global programme. Accordingly, the internal audit of the Company was performed in February 2002. In January 2002 the Company introduced a local internal audit function. We have broadly reviewed the books of account maintained by the Company for its Chemistry business pursuant to the Rules made by the Central Government for the maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have, however, not made a detailed examination of the records. According to the records of the Company, the Provident Fund and Employees State Insurance dues have been regularly deposited during the year with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty or excise duty were outstanding as at 31 st March, 2002, for a period of more than six months from the date they become payable. According to the information and explanations given to us, no personal expenses of employees or directors have been charged to revenue account, other than those payable under contractual obligations or in accordance with generally accepted business practice. The Company is not a sick industrial company within the meaning of clause (o) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. In relation to trading activity of the Company, we are informed that there were no damaged goods. In respect of service activity of the Company : This activity does not involve consumption of materials and stores. Allocation of man-hours to jobs is not maintained in view of the nature and volume of services rendered. In view of the above, the question of reasonableness of system of authorisation and internal control on allocation of stores and labour to jobs does not arise.   For Deloitte Haskins & Sells Chartered Accountants P. B. Pardiwalla Partner SCHEDULES FORMING PART OF ACCOUNTS SCHEDULE 16: SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 1. Company Background: Monsanto India Limited (‘the Company’) was incorporated on 8 th December, 1949. The Company changed its name to the present on 21 st July, 2000. During the previous year as part of a restructuring exercise, the agriculture business of Monsanto Company, USA in India was integrated into the Company. The Company is presently engaged in the business of production of agricultural chemicals and hybrid seeds. 2. Significant Accounting Policies: (A) Basis of preparation of financial statements: The accompanying financial statements have been prepared under the historical cost convention, in accordance with Indian Generally Accepted Accounting Principles and as per the provisions of the Companies Act, 1956. (B) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions to be made that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Differences between actual results and estimates are recognised in the periods in which the results are known / materialise. (C) Fixed Assets: Fixed Assets are stated at their historical cost of acquisition or construction less accumulated depreciation. Expenditure incurred in bringing the assets to their present location and condition are capitalised as part of the cost of the assets. The Company capitalises software and related implementation costs, where it is reasonably estimated that the software has an enduring useful life. Other application software purchased for internal use are charged to operations on purchase. (D) Depreciation: Depreciation on fixed assets (except as stated in (iii) and (iv) below) is provided for in accordance with Section 205(2) of the Companies Act, 1956 and in accordance with the methods and at the rates specified in Schedule XIV to the Act as follows: (i) On fixed assets acquired prior to 1 st April, 2000 (other than Silvassa) on Written Down Value basis. (ii) On all other fixed assets (other than field vehicles and leasehold improvements) on Straight Line basis. (iii) Field vehicles are depreciated at the rate of 20% on Straight Line basis. (iv) Leasehold improvements are amortised over the unexpired period of lease. (E) Borrowing Costs: Borrowing costs attributable to the acquisition of a qualifying asset, as defined in Accounting Standard-16 on Borrowing Costs are capitalised as part of the cost of acquisition. Other borrowing costs are expensed as incurred. (F) Inventories: Inventories are stated at the lower of cost or net realisable value. Cost of inventories comprise all costs of purchase - net of CENVAT, (costs of inputs for standing crops) cost of conversion and other costs incurred in bringing the inventory to their present location and condition. Inventories are adjusted for expected losses, if any. (G) Revenue Recognition: (i) Revenue on sale of products is recognised on delivery of the products, when all significant contractual obligations have been satisfied and the collection of the resulting receivable is reasonably expected. Sales are stated inclusive of excise duty and net of returns, trade discounts and sales tax recovered. (ii) Revenue in respect of royalty, interest, commission, etc. is recognised only when it is reasonably certain that the ultimate collection will be made. (H) Foreign Currency Transactions: (i) Transactions in foreign currency are recorded at the average monthly exchange rates, during the months in which the transactions are effected. (ii) Exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets are adjusted in the carrying amount of the respective fixed assets. The carrying amount of fixed assets is also adjusted at the end of each financial year for any change in the liability arising out of expressing the related outstanding foreign currency liabilities at the closing rates of exchange prevailing on the date of the balance sheet or at the rates specified in the related forward contract. (iii) Monetary items (other than those related to the acquisition of fixed assets) denominated in foreign currency are restated using the exchange rates prevailing on the date of the balance sheet or rates specified in the related forward contract. Gains/ losses arising on restatement and on settlement of such liabilities are recognised in the profit and loss account. (I) Retirement Benefits: The Company has schemes for Provident, Gratuity and Superannuation benefits, payable to employees on their retirement / superannuation. Contributions to the funds created under these schemes are made according to the rules of the respective schemes and charged to revenue. Gratuity and Leave Encashment liabilities are determined at the end of each year on the basis of third party actuarial valuations. (J) Earnings Per Share: The Company reports basic and diluted Earnings Per Share in accordance with Accounting Standard-20 on Earnings Per Share. Basic Earnings Per Share is computed by dividing the net profit or loss for the year by the weighted average number of Equity Shares outstanding during the year. Diluted Earnings Per Share is computed by dividing the net profit or loss for the year by the weighted average number of Equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares, except where the results are anti-dilutive. (K) Income Taxes: Income taxes are accounted for in accordance with Accounting Standard-22 on Accounting for Taxes on Income. Taxes comprise both current and deferred tax. Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. The tax effect of the timing differences that result between taxable income and accounting income and are capable of reversal in one or more subsequent periods are recorded as a deferred tax asset or deferred tax liability. They are measured using the substantively enacted tax rates and tax regulations. The carrying amount of deferred tax assets at each balance sheet date is reduced to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which the deferred tax asset can be realised. (L) Contingent Liabilities: These are disclosed by way of notes to the accounts. Provision is made in the books for those liabilities which are likely to materialise after the year end till the finalisation of accounts and those contractual claims / liabilities which may crystallise after negotiations with the concerned parties and which have material effect on the position stated in the balance sheet. SCHEDULES FORMING PART OF ACCOUNTS 21. The names of Small Scale Industrial undertakings to whom the Company owes a sum exceeding Rs.1.00 Lac for more than 30 days as on 31 st March, 2002 are : Air Stream Systems Pvt. Ltd. Aryan Paper Containers Bharat Products Pvt. Ltd. Caps and Containers Industries Deccan Cans and Printers Pvt. Ltd. Frontier Business Systems Pvt. Ltd. Innovative Equipments K E Material Handling Pvt. Ltd. Krishna Packaging Mipak Plastics Pvt. Ltd. Mullackal Polymers Pvt. Ltd. Nichrome India Ltd. Precision Industries Ltd. Premier Hollowares Pvt. Ltd. Sharp Industries Ltd. Tropical Agro Systems (India) Ltd. Unick Fix-O-Form Printers Ltd. 22. The income generated from seed production activities is essentially agricultural income and hence is not considered taxable. For the assessment year 1990-91 to 1995-96, the Income Tax Department decided that losses incurred by the Company are agricultural losses and not business losses. However, the matter is sub-judice for the financial years 1993-94 to 1997-98 and appeals are pending at various authorities of Income Tax Department. Based on legal opinion obtained by the Company, the management is confident of ultimately obtaining a favourable judgement. Accordingly, therefore no provision for Income Tax is made in the accounts for Agricultural Income. 23. Balance due from companies under the same management - included in: a) Inter Corporate Loans - Monsanto Holdings Private Limited Rs.1,475.00 Lacs (Previous Year - Rs.1,425.00 Lacs). Maximum Amount Outstanding during the year Rs.2,505.00 Lacs (Previous Year - Rs.2,200.00 Lacs). b) Other Receivables - Monsanto Holdings Private Limited Rs.88.56 Lacs (Previous Year - Nil). 24. Deferred Tax Liability at year end comprises of: 25. Earnings Per Share (EPS):