Advisory asks Tree House shareholders to vote against financial statements

Proxy advisory firm SES has released a report asking shareholders of children’s playgroup network provider Tree House Education and Accessories to vote against the adoption of financial statements at the company’s upcoming annual general meeting.

In a review of its annual accounts, Stakeholder Empowerment Services (SES) has raised concerns regarding certain accounting entries and expenses by the company. Tree House reportedly spent ₹179 crore on furniture in 2015-16 while it had only spent a cumulative amount of ₹189 crore since the company’s inception. This indicates that “almost around ₹30 lakh was spent per school,” the report said. “SES leaves it open to imagination and the wisdom of shareholders to believe or question. Measured in another way, almost all revenue went into buying furniture.”

SES also pointed to a possible violation of the Maharashtra Minimum Wages Act by calculating the approximate salary of a teacher employed by Tree House. “The median salary as per company (accounts) is ₹50,323 per annum, amounting to ₹4,193 a month. This indicates that about 1,344 employees receive a salary equal to or less than ₹4,193/ month.”

The company’s accounts also mention the existence of interest-free fixed deposits amounting to ₹187 crore with educational trusts, but gives no information of the names of these trusts or the beneficiaries of the trust. The annual interest loss on account of these deposits, being interest-free, amounts to a minimum of ₹15 crore, SES estimated. The accounts also show an unjustifiably high trade receivables. Debtors too, of the company are very high, even after writing off ₹25.56 crore in bad debts.

The report also found that the Nominations and Remuneration Committee of the company does not comply with SEBI’s Listing Regulations and raised the question of seven C-Suite and director-level exits from the company in the last 22 months, including independent directors, executive director and the CFO. The company has not offered a reason for this slew of exits.

During FY16, the company’s performance recorded a total income of ₹219.42 crore as against ₹214.60 crore in the previous year registering a growth of 2.25 per cent. The profit after tax was lower by 88.87 per cent compared with the previous year. Due to a decline in profits, the proposed merger of Tree House with Zee Learn was put on hold and the valuation of the company was decreased from initial share exchange ratio of 53 shares of Zee learn for ₹1 each for 10 shares of Tree House of ₹10 each to a new share exchange ratio of 10 shares of Zee Learn of ₹1 each to 10 shares of Tree House of ₹10 each.

Tree House Education and Accessories could not be reached for comment.

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