ESSAR PORTS LIMITED
(FORMERLY KNOWN AS ESSAR SHIPPING PORTS AND LOGISTICS LIMITED)
ANNUAL REPORT 2011-2012
DIRECTOR`S REPORT
To,
The Members of,
Essar Ports Limited.
Your Directors take pleasure in presenting the Thirty-Sixth Annual Report
of your Company together with Audited Accounts for the year ended March 31,
2012.
1. FINANCIAL RESULTS:
The summary of consolidated and standalone financial results of your
Company for the year ended March 31, 2012 are furnished below:
(Rs. in crore)
Particulars Consolidated Standalone
For the For the For the For the
year year year year
ended ended ended ended
March 31, March 31, March 31, March 31,
2012 2011 2012 2011
Total Income 1,131.06 2,086.12 52.56 659.36
Total Expenditure 217.85 1,174.10 23.52 378.55
EBITDA 913.21 912.02 29.04 280.81
Less: Interest & Finance charges 420.81 473.75 92.40 184.07
Less: Provision for Depreciation 220.24 320.83 7.40 59.87
Profit before exceptional item 272.16 117.44 (70.76) 36.87
Less: Exceptional item 235.51 - - -
Profit after exceptional 36.65 117.44 (70.76) 36.87
item and before Tax
Less: Provision for Tax (62.19) 34.60 (0.23) 16.00
Profit before Share of 98.84 82.84 (70.99) 20.87
Minority Interest
Less: Share of Minority Interest 34.89 12.69 - -
Profit after Tax 63.95 70.15 (70.99) 20.87
Note: The consolidated and standalone financial figures for the year ended
March 31, 2011 include the figures attributable to the demerged shipping &
logistics and oilfields services businesses upto September 30, 2010 and
hence are not comparable with the figures for the year ended March 31,
2012.
2. DIVIDEND:
Your Company proposes a dividend of 5% on the equity shares of the Company.
3. MANAGEMENT DISCUSSION & ANALYSIS:
Indian Economy and Infrastructure Sector:
The Indian Economy grew by a moderate 6.5% in FY12 compared to 8.4% in the
last two years. In spite of this slowdown, India remains one of the fastest
growing economies in the world. Manufacturing has showed signs of
deceleration in FY12, with growth of Index of Industrial Production (IIP)
slowing to 2.8% in FY12, as against a high of 8.2% in the previous year. On
the other hand, fundamentals of the economy remain strong, backed by
promising growth in external trade. Exports registered a growth of 21% in
FY12 to USD 303.7 billion while imports registered a growth of 32.2% to USD
488.6 billion. India had the fastest growth in exports among major
economies in 2011, with shipments rising 16.1% compared to global average
growth of 5% and a 9.3% growth in China.
Indian Economy witnessed high inflation during the year and to control
that Reserve Bank of India (RBI) introduced monetary controls. Recently,
RBI relaxed its monetary control as is evident from the 50 basis point
reduction in Repo rate in April 2012. Several banks have reduced their
lending and deposit rates following the monetary policy announcement, this
will fuel the investment in and growth of the economy.
The focus of the Government is on growth of the infrastructure sector to
ensure that earlier growth targets set in the ports, roads, steel and power
sectors are achieved and the economy gets back to 8% plus growth rate
trajectory.
Ports Sector:
Indian ports have handled a total of 929 million metric tonnes (MMT) of
cargo during FY12 registering a moderate growth of 5% compared to 884 MMT
of cargo handled during FY11. The ports sector in India has grown at a CAGR
of 10% in the last 10 years.
However, in the last 2 years, growth in the ports sector has been below its
potential due to imposition of higher export duty on iron ore and higher
railway charges for transportation of iron ore. Growth of the port sector
has also been affected by rise in prices of imported coal. However, these
issues are expected to be temporary in nature and the port sector growth
story is expected to remain intact in the long run.
Growth of the port sector is linked to the growth of Indian economy and
external trade. The Indian economy is expected to achieve growth rates of
8-9% in the next few years. Similarly, the growth in trade is expected to
be robust resulting in growth of traffic. As per Maritime Agenda 2010-20
published by the Ministry of Shipping, port traffic is expected to reach to
2,495 MMT by 2020 from 850 MMT in 2010. As the economy grows, port traffic
will increase and more investment opportunities will be created in this
sector. Considering high capacity utilisation of existing port assets and
expected higher traffic growth in future, new capacity addition in ports
will have good utilisation and the port sector will remain an attractive
investment destination.
Challenges faced by the port sector:
Several port projects have been affected due to procedural delays linked to
approvals and clearances required for the projects. Connectivity of ports
is another major challenge as it is critical for the ports to operate at
their optimum capacity. Government initiatives for development of port
connectivity as linkages to the hinterland would provide necessary boost to
the sector.
Essar Ports-performance:
Your Company is one of the largest private sector port and terminal
companies in India and the year under review has been a good year for the
Company.
Strategic partnership with Port of Antwerp:
Your Company has entered into a Strategic partnership with the Port of
Antwerp International which is an investment arm of the Port of Antwerp
(POA). POA is the second largest port in Europe.
The partnership envisages collaboration in the areas of training and
consultancy services, port planning, traffic flow, quality and productivity
improvement and will further build a mutually beneficial commercial
relationship based on mutual business and investment preferences.
Port of Antwerp International UK Limited has also invested approximately
Rs. 175 crore in the Global Depository Securities of your Company.
Your Company has issued 52,666 Global Depository Securities representing
1,74,32,446 underlying equity shares of Rs. 10/- each at a premium of
Rs.90/- per share.
Highlights:
* A 12 million metric tonnes per annum (MMTPA) handling capacity terminal
has been commissioned on April 1, 2011 by Vadinar Ports & Terminals
Limited.
* Cargo handled by your Company has increased by 9% from 39.55 MMT in FY11
to 43.23 MMT in FY12.
* Revenue increased by 51% from Rs.746 crore in FY11 (for the port segment
prior to demerger) to Rs.1,131 crore in FY12.
* EBITDA increased by 65% from Rs.550 crore in FY11 (for the port segment
prior to demerger) to Rs. 913 crore in FY12.
* Net profit doubled from Rs. 28.5 crore in FY11 (for the port segment
prior to demerger) to Rs. 63.9 crore in FY12.
* 3rd party cargo contributed about 4% of total revenue of Essar Bulk
Terminal Limited.
* Continued focus on Quality, Health, Safety and Environment resulted in
ISO 9001 certification for quality; ISO 14001 certification for Environment
and OHSAS 18001 certificates for occupational health and safety for the
Company`s Vadinar and Hazira facilities.
Performance Update:
This was the first full year of operations for your Company post the
demerger of shipping & logistics and oilfields services businesses. Despite
global slowdown and several other challenges being faced by the Indian
economy, your Company has performed exceptionally well in all areas of
operations inter alia:
* 9% increase in cargo is due to higher capacity utilisation at Hazira and
expansion of the port facilities at Vadinar for handling increased cargo.
* Your Company registered not only substantial increase in billed volume
but also substantial increase in realisation per tonne. The realisation on
billed volume increased by 26% during the year from Rs. 185/MMT in FY11 to
Rs. 233/MMT in FY12. The increase in billed volume and realisation has led
to 51% growth in revenue from Rs. 746 crore in FY11 (for the port segment
prior to demerger) to Rs.1,131 crore in FY12.
* Vadinar Ports & Terminals Limited commissioned its facilities on April 1,
2011, which has increased revenues substantially due to higher facility
usage charges and higher throughput. At Hazira, billed volume increased
substantially as per the cargo handling contract with customers. 3rd party
cargo handling at Hazira contributed 4% to the total revenue at Hazira.
* Your Company has recorded EBITDA margin of 80%, one of the highest in the
industry, an increase from 73% in FY11. The EBITDA of your Company
increased by 65% from Rs. 550 crore in FY11 (for the port segment prior to
demerger) to Rs. 913 crore in FY12.
* Your Company recognised a one time contingent liability of Rs.235.5 crore
as long term debt as per the agreement with the lenders of Vadinar Oil
Terminal Limited, which will be paid between 2019 and 2023 and carries an
interest of 5% p.a.
Progress of the project under implementation:
* A 16 MMTPA capacity berth at Paradip for handling iron ore is close to
commissioning and is expected to be completed during second quarter of
FY13.
* Progress of the construction of a 20 MMTPA coal berth at Salaya is as per
plan. All important equipment like ship unloader, ship loader and stacker
cum reclaimer have been delivered at the site.
* Construction of a 14 MMTPA coal terminal at Paradip is expected to
commence during second half of FY13. Environment clearance and stage I
forest clearance have been received and final forest clearance is expected
shortly.
Risk and Concerns:
Implementation and operation of port and terminal facilities are dependent
on various regulatory approvals and government policies. Changes in macro
economic factors like inflation, interest rate, world trade and natural
catastrophes also play an important role in the trade of goods and cargo.
Any adverse change in the above may affect the performance of your
Company.
Your Company periodically reviews the risks associated with the business
and takes steps to mitigate and minimise the impact of risks.
4. QUALITY, SAFETY AND ENVIRONMENT:
Your Company, in order to ensure highest standard of safety, has
implemented and initiated various measures with respect to Quality, Safety
and Environment Management Systems. The initiatives by your Company have
been rewarded with several recognitions. Some of the key recognitions are
as follows:
* Vadinar Oil Terminal Limited (VOTL) has been certified by British
Standard for Occupational Health & Safety Advisory Services (OHSAS) for,
`Zero Gas Release`, `Zero Fire Incident` and `Zero Loss Time Accident or No
Loss Time Accident`.
* VOTL completed 2,000 Lost Time Injury Free days during the year under
review.
* In line with Environment Management initiatives, VOTL successfully
achieved the `Zero Spill/No Spill`, target and `Reduction of Emission`.
* An Annual Audit was also successfully carried out for the following ISO
certifications:
- ISO 9001:2008 Quality Management
System by ABS
- ISO 14001:2004 Environment
Management System by Det Norske Veritas (DNV)
- ISO 18001:2007 OHSAS by DNV
- ISO 28000:2007 Security Management
System by ABS
- OCIMF Terminal Baseline Criteria
Certification by ABS
* Essar Bulk Terminal Limited (EBTL) also achieved Zero Loss Time Injury
during the year.
* EBTL has been certified for the following:
- ISO 18001:2007 OHSAS by IRQS for
Health & Safety
- ISO 14001:2004 Environment
Management System by IRQS
- ISO 9001:2008 Quality Management
System by IRQS
The terminal of EBTL also has the Navigation Safety at Ports Committee
(NSPC) approval from the Director General of Shipping, Mumbai.
5. INTERNAL CONTROL FRAMEWORK:
Your Company conducts its business with integrity and high standards of
ethical behaviour and in compliance with the laws and regulations that
govern its business. Your Company has a well-established framework of
internal controls in its operations, including suitable monitoring
procedures. In addition to an external audit, the financial and operating
controls of your Company at various locations are reviewed by Internal
Auditors, who report their observations to the Audit Committee of the
Board.
6. HUMAN RESOURCE:
Human resources have always been the key to success of your Company`s
business. New teams were constituted to steer projects at Salaya Port near
Jamnagar and Paradip Port in Odisha. A balance of internal and external
talent was maintained to ensure right skills are available to initiate
project activities. A large number of fresh talent comprising engineers and
management graduates were deployed to nurture future Essar Ports
facilities.
At the existing ports of Hazira and Vadinar, special emphasis was laid on
the training of employees with a combination of "On the job and Off the
job" training. Your Company has introduced technology-enabled HR practices
in Performance Management and Training to streamline and strengthen these
practices.
7. INFORMATION TECHNOLOGY:
Your Company successfully implemented SAP in its financial and related
systems. For dry bulk as well as oil terminals, systems have been
implemented to capture end-to-end workflow covering all activities from
pre-arrival intimations to actual departure of vessels. Expected berth
occupancy is being plotted thereby optimising the berth utilisation and
increasing berth efficiency. Various dashboard reports have been
implemented in the system for berth performance and resource monitoring.
8. SUBSIDIARIES:
As on March 31, 2012, the following were the subsidiaries of your Company:
1. Vadinar Oil Terminal Limited (VOTL)
2. Vadinar Ports & Terminals Limited (a subsidiary of VOTL)
3. Essar Bulk Terminal Limited
4. Essar Bulk Terminal (Salaya) Limited
5. Essar Paradip Terminals Limited
6. Essar Bulk Terminal Paradip Limited
In accordance with the general circular issued by the Ministry of Corporate
Affairs, Government of India, the Balance Sheet, Profit & Loss Account and
other documents of the subsidiary companies are not being attached with the
Balance Sheet of the Company. The Company will make available the Annual
Accounts of the subsidiary companies and the related information to any
member of the Company who may be interested in obtaining the same. The
annual accounts of the subsidiary companies will also be kept for
inspection at the Registered Office of the Company and that of the
respective subsidiary companies. The Consolidated Financial Statements
presented by the Company include the financial results of the subsidiary
companies.
9. DIRECTORS:
In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Company, Mr. Deepak Kumar Varma, Mr. K.V.
Krishnamurthy and Mr. Rajiv Agarwal retire at the ensuing Annual General
Meeting of the Company and being eligible, offer themselves for re-
appointment.
Mr. Shashi Ruia resigned from the directorship of your Company on May 25,
2012. Your Board places on record their appreciation for the invaluable
contribution made by Mr. Ruia in the growth and progress of the Company
during his tenure as Director.
Mr. Jan Adam has been appointed as an Additional Director on May 30, 2012.
The Company has received a notice from a member proposing the appointment
of Mr. Adam as a Director of your Company.
10. AUDITORS:
Your Company`s Auditors, Messrs. Deloitte Haskins & Sells, Chartered
Accountants, Ahmedabad, the Statutory Auditors of the Company hold office
until the conclusion of the ensuing Annual General Meeting and are eligible
for re-appointment.
The Company has received a letter from them to the effect that their
appointment, if made, would be within the prescribed limits under Section
224 (1B) of the Companies Act, 1956 (the Act) and that they are not
disqualified for re-appointment within the meaning of Section 226 of the
said Act.
11. CORPORATE GOVERNANCE:
The Company has complied with the requirements under the Corporate
Governance reporting system. The disclosures as required therein have been
furnished in the Annexure to the Directors` Report under the head
"Corporate Governance".
12. PARTICULARS REQUIRED UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN
THE REPORT OF THE BOARD OF DIRECTORS) RULES, 1988:
This does not apply to your Company as the Ports & Terminals industry is
not included in the Schedule to the relevant rules.
Foreign exchange earnings and outgo are summarised below:
Total Foreign Exchange:
(1) Earned (including freight, charter : Rs. 7.98 crore
hire earnings, interest income, etc.)
(2) Used (including loan repayments, : Rs. 11.67 crore
interest, operating expenses, etc.)
13. PARTICULARS OF EMPLOYEES:
Information as per Section 217(2A) of the Companies Act, 1956 read with the
Companies (Particulars of Employees) Rules, 1975, as amended, is given in
the Annexure forming part of this Report. However, as per the provisions of
Section 219(1)(b)(iv) of the said Act, the Report and Accounts are being
sent to all the shareholders of the Company excluding the statement of
particulars of employees under u/s.217(2A) of the said Act. Any shareholder
interested in obtaining a copy of this statement may write to the Company
Secretary for the same at the Registered Office of the Company.
14. STATEMENT OF DIRECTORS RESPONSIBILITIES:
Pursuant to the requirement of Section 217(2AA) of the Companies Act, 1956,
the Board of Directors hereby state that:
a) In the preparation of the annual accounts, the applicable accounting
standards have been followed and there have been no material departures;
b) The Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period;
c) The Directors have taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of this
Act for safeguarding the assets of the Company and for preventing and
detecting fraud and other irregularities; and
d) The Directors have prepared the annual accounts on a going concern
basis.
15. APPRECIATION AND ACKNOWLEDGEMENTS:
Your Directors express their sincere thanks and appreciation to all the
employees for their commendable teamwork and contribution to the growth of
the Company.
Your Directors also thank its bankers and other business associates for
their continued support and co-operation during the year.
For and on behalf of the Board
Rajiv Agarwal Shailesh Sawa
Managing Director Director Finance
Place: Mumbai
Date : May 30, 2012.
ANNEXURE TO THE DIRECTOR`S REPORT:
Information required to be disclosed as per Securities and Exchange Board
of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999:
Particulars Details
(a) Options granted 7,40,334
(b) The pricing formula The Options have been granted at a price
which is equal to the closing price of the
equity shares on the stock exchange having
the highest trading volume a day prior to
the meeting of the Compensation Committee.
(c) Options Vested Nil
(d) Options Exercised Nil
(e) Total number of shares Not Applicable
arising as a result of
exercise of Options (Equity
shares of Rs. 10/- each)
(f) Options lapsed Nil
(g) Variation of terms None
of Options
(h) Money realised by
exercise of Options Nil
(i) Total Number of Options 7,40,334
in force
(j) Employee-wise details
of options granted to:
i) Senior Managerial Mr. Rajiv Agarwal - 2,31,954
Personnel: Mr. Shailesh Sawa - 1,23,285
ii) Any other employee who Mr. Tej Nargundkar - 1,47,595
receives a grant, in any Capt. Rajen Sachar - 43,408
one year, of Options Capt. Rajesh Beri - 67,797
amounting to 5% or more of Mr. P.K. Srivastava - 49,568
Options granted during
that year Mr. S. Shanmugam - 45,952
iii) Identified employees Nil
who were granted Options,
during any one year, equal
to or exceeding 1% of the
issued capital (excluding
outstanding warrants and
conversions) of the
Company at the time of
grant.
(k) Diluted Earnings Per Not applicable as the Options are
Share (EPS) pursuant to anti-dilutive
issue of shares on exercise
of option calculated in
accordance with [Accounting
Standard (AS) 20 `Earnings
per Share`].
(l) Where the Company has If the compensation cost on account of stock
calculated the employee Options was computed using the fair value
compensation cost using method, the compensation cost and loss for
the intrinsic value of the the year would have been higher by Rs.26.78
stock Options, the lakhs. The impact on EPS for the year would
difference between the be Rs. 0.01.
employee compensation
cost so computed and the
employee conpensation cost
that shall have been
recognised if it had used
the fair value of the
difference on profits and
on EPS of the Company
shall also be disclosed.
(m) Weighted-average Rs. 71.10 per Option
exercise prices and
weighted-average fair
values of Options shall
be disclosed separately
for Options whose exercise
price either equals or
exceeds or is less than
the market price of the
stock.
(n) A description of the
method and significant
assumptions used during
the year to estimate the
fair values of Options,
including the following
weighted-average
information:
(i) Risk-free interest rate 8.36%
(ii) Expected life 5-7 years
(iii) Expected volatility 64.81%
(iv) Expected dividends Nil
(v) The price of the Rs.71.10
underlying share in
market at the time
of Option grant.
For and on behalf of the Board
Rajiv Agarwal Shailesh Sawa
Managing Director Director Finance
Place: Mumbai
Date : May 30, 2012. |