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Dev Fastners Ltd.

BSE: 523666 Sector: Engineering
NSE: N.A. ISIN Code: INE150E01017
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Dev Fastners Ltd. (DEVFASTNERS) - Director Report

Company director report

DEV FASTENERS LIMITED ANNUAL REPORT 2001-2002 DIRECTORS' REPORT 1. Your directors are pleased to present the revised twelth annual report along with the audited accounts of the company for the period (18 months) ended 30 September 2002. 2. As the shareholders are aware, the board of directors had approved the accounts for 18 months period ending on 30th sep 2002, at the board meeting held on 11th November 2002. At the same meeting, the directors had also decided to appoint an outside agency to investigate some entries in the accounts of the company for the period under review, in view of certain critical remarks in the Audit Report. A preliminary report was received on 30th December 2002, which indicated that the accounts approved at the Board meeting held on 11th November 2002 and circulated to the shareholders did not present a true and fair view of the affairs of the company as on 30th September 2002. In view of this report, your directors withdrew the resolution relating to adoption of accounts and the Director's report at the Annual General Meeting held on 30th December 2002. 3. The investigation audit has brought out several areas of improper accounting and mismanagement in the past, particularly in the following areas a. The closing stock was consistently overstated and was not in accordance with the generally accepted accounting standards b. Sales returns of the previous years were not accounted properly in the respective years. c. Expenses under various heads, more specifically - Business Development, Repairs & Maintenance are not commensurate with the size and nature of the business of the company. 4. The present Board of Directors, which was completly re-cast in August 2002, have therefore decided to rectify the accounts and present the true picture which is as follows FINANCIAL PERFORMANCE 2001-02 2000-01 (18 months) (12 months) Rs. lacs Rs. lacs Sales and other income 1475.95 1079.93 Loss before interest and Depreciation 94.61 265.71 Interest 402.97 302.58 Depreciation 144.10 95.81 Loss for the year 641.68 664.10 Adjustments relating to Previous year 529.73 Loss brought forward 1463.84 799.74 Loss carried forward 2630.78 1463.84 5. OPERATIONS The performance of the Company during the period was affected significantly because of shortage of working capital funds resulting in lower production and sales. The impact of the huge losses incurred by the Company in the past years has depleted working capital resources completely resulting in severe cashflow constraints. In view of this, the company faced problems in production and supplies to regular customers. 6. MAJOR DEVELOPMENTS The year under review saw several developments in the company which are given below. a. In March 2002, your directors arranged for a strategic investor to invest in the company, subject to the approval of the lending banks and IDBI. Accordingly the investor brought in the first instalment of Rs.68 lacs into the company and also appointed four directors, Mr.C.S.Venugopal, Mr.A.B.S.Reddy, Mr.K.P.C.Rao and Mr.S.Venugopal on the board of the company on 2nd May 2002. b. However, all the four directors appointed by the investor resigned from the board on 25th July 2002. c. The Managing Director, Mr. N.G.Krishnan also resigned on 25 july 2002. Around the same time two other directors, Mr.P.N.Devarajan and Mr. V.Gopalan also resigned. d. It became imperative, therefore for the company to appoint new directors on the Board. Accordingly, Mr. N.Chandrasekaran and Mr.Vepa Sadasivam were appointed as additional directors on 7th August 2002. They have been re- appointed in the Annual General meeting held on 30th December 2002. e. Mr.D.R.Jawahar, I D B I nominee on the Board also resigned effective 13th September 2002. f. In view of the fact that the bank accounts were overdrawn beyond the sanctioned limit, the bankers to the company, Indian Bank and State Bank of Travancore decided not to allow any further operations in the accounts till they were regularized. This meant that the company was unable to purchase any raw materials and hence production was stopped in the factory from end Sept'02. g. As on 30th September 2002, the accumulated losses have exceeded the networth and hence the company has become a sick company. The company has made reference to the BIFR under SICA and BIFR registration is awaited. h. The Hon'ble Chennai High Court had issued a winding up order in June'02 on a petition filed by one of the creditors and had stayed the operation of the order Nov'02. On an application by the company that reference has been made BIFR, the Hon'ble court was pleased to stay the order till the application is heard/ disposed of by BIFR. PRESENT POSITION AND FUTURE OUTLOOK At present the bank accounts are not operational. IDBI and State Bank of Travancore have initiated recovery proceedings before the Debt Recovery Tribunal. Your directors are in discussions with the lead bankers, Indian Bank to arrive at a solution so that limited manufacturing operations can start with a view to resume supplies to important customers of the company and to enhance the prospect of attracting a stracgic investor. The Directors do not recommend Dividend for the period (18 months) ended 30 September, 2002, in view of the loss incurred by the Company. DIRECTORS RESPONSIBILITY STATEMENT In compliance with Section 217 (2AA) of the Companies Act, 1956, the Directors confirm that: .in the preparation of annual accounts the applicable Accounting Standards have been followed: .approporiate accounting policies have been selected and applied consistently and have 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 30th September, 2002 and of the losses of the Company for the period (18 months) ended on that date; .proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company; and for prevention and detection of fraud and other irregularities; the Annual Accounts have been prepared on a going concern basis. AUDITORS M/s. Revathi & Latha, Chartered Accountants, Chennai who retire at the end of this Annual General Meeting, have already been appointed in the Annual General meeting held on 30th Dec '2002. DIRECTOR'S RESPONSES TO AUDITOR'S QUALIFICATIONS (i) With reference to point no. 5 of Annexure to the Auditor's report, reference is drawn to point no: (vii)(a) to the Notes to the Accounts. (ii) With reference to point no 10 and 14 of the Annexure to the Auditor's report, the present management has taken necessary steps to ensure better internal control measures and proper documentation of all receipts and issues at the factory. (iii) With reference to point no. 15 of Annexure to the Auditor's report, the present Board of Directors are taking necessary steps to appoint an Internal Auditor. (iv) With reference to point no 19 of Annexure to the Auditor's report, it has been brought to the notice of the management that most of the expenses accounted under Business Development and some of the expenses various other heads have, not been actually incurred for the purpose stated. It is suspected that these expenses are not legitimate in the normal course of business and therefore, action against the previous management is being contemplated. (v) With reference to point no: 20 of Annexure to the Auditor's report, the company has made an application to Board for Industrial & Financial Reconstruction under Sec 15(1) of the said Act. CORPORATE GOVERNANCE A detailed report on this subject forms part of this Report. INDUSTRIAL RELATIONS The illegal strike resorted to by the workmen during the last accounting year continued until the first week of May 2001. The production levels stabilised subsequently. Your Company continues to maintain harmonious and cordial relations with its workers. PARTICULARS OF STATUTORY STATEMENTS (a) Particulars of Employees: No employee of the Company was paid remuneration in excess of limits prescribed under Section 217 (2A) of the Companies Act, 1956, read with the relevant Rules as amended. (b) Statement pursuant to Section 217 (1) (e) of the Companies Act 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules 1988 is given in the annexure forming part of this Report. (c) The Company has not accepted any deposits which come under the purview of Section 58A of the Companies' Act, 1956. ACKNOWLEDGMENT The Board of Directors would like to thank the customers, Financial Institutions, Banks, Vendors/ Contractors and the shareholders for their continued support. The Board would also take this opportunity to commend the employees of the Company at all levels for their continued commitment during these difficult times. (By Order of the Board) For Dev Fasteners Limited Place: Chennai Capt. S. Prabhala Date : 01.02.2003 Chairman Annexure - 1 Information as required under Section 217 (1) (e) of the Companies Act, 1956: A) CONSERVATION OF ENERGY. a) Measures taken: 1. Effective relining and maintenance of furnace to avoid heat loss, utilisation of full capacity of furnaces by proper co-ordination of load and improvement of power factor. 2. Re-use of treated effluent resulting in reduction in water consumption 3. Capacitors have been used for upgrading the power factor 4. Use of thermic fluid systems instead of electrical heating. b) Additional investment and proposals, if any, for reduction of consumption of energy: The Company is taking steps for reducing energy consumption on a continuous basis by adoption of energy efficient practices. B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION: a) Specific areas: (i) Development of new cold forged fasteners leading to import substitution. (ii) Surface engineering of tools to ensure consistent productivity improvement. (iii) Development of products for export markets with focus on value addition. (iv) The Company from the beginning has implemented various quality management systems to produce 'Quality Products' conforming to International Standards. This has enabled the Company to meet the stringent ISO 9002 Standards. (v) The Company has not taken any foreign technology. However, some senior Company personnel were sent abroad to USA, UK, Taiwan and japan. They underwent training in operation and maintenance of the machines. (vi) Improvement to Total Quality Management Systems. b) Benefits derived as a result of the above efforts: (i) Improvement in productivity (ii) Import substitution of fasteners c) Future plans of action: To continuously upgrade process, technology, productivity and improvement in overall performance, added cost effectiveness and import substitution. Expenditure on R & D: Expenditure on R & D, though incurred, has not been quantified as research and development expenses. C. Foreign Exchange Earnings & Outgo a. Foreign Exchange Outgo : Revenue Expenditure Rs. 48.14 lakhs b. Foreign Exchange earnings: Nil (By Order of the Board) For Dev Fasteners Limited Place: Chennai Capt. S. Prabhala Date : 01.02.2003 Chairman MANAGEMENT DISCUSSION AND ANALYSIS REPORT FASTENERS INDUSTRY TRENDS AND DEVELOPMENT Your Company, in the current period, has registered a sales performance of Rs. 1245.38 Lacs while the Fasteners industry has generally witnessed a stagnant market scanario. Competitive environment demands efficient processes, contemporary technology, skill upgradation and expanded service network to serve the customer at his doorstep. Your Company is on the look- out for a strategic investor to infuse funds, with a view to revive the operations in full swing as well as put in place a comprehensive system to meet future requirements and ensure cost effective total solution to our Customers. BUSINESS REVIEW Business overview: The performance of the Company during the period was affected significantly because of shortage of working capital funds resulting in lower production and sales. The impact of the losses incurred by the company in the past years made it difficult for the company to raise any funds in the form of additional borrowings. In view of the cash flow constraint, your company was unable to supply fasteners to its customers on schedule resulting in cancellation of some order. Your directors are taking step to find a strategic investor who will bring in additional funds in the form of equity so that liquidity position will improve. Information Technology: Like any other industry,, in the fasteners' industry as well, service to customers and ready availability of spare parts are essential. Your Company is according to taking necessary steps towards this objective. Human resources: Your Company attaches significant importance to continuous upgrading of human resources for sustaining highest level of customer satisfaction and maximising share holder value. It has an organization commensurate with the above objective. Your company has a competency based performance and potential appraisal system to identify managerial Talents for ensuring appropriate rewards for excellent performance. The training and development efforts of the company is directed towards building multi skills and ensuring a strong work force with high levels of attitudinal and cultural values to meet the challenges in the coming years. INTERNATION CONTROL SYSTEM AND THEIR AEQUACY It has been brought to the notice of the present management, by the special audit report that there are no adequate internal control measures commensurate with the size of the company. Taking note of the report, the present management is taking necessary steps to have adequate internal control for the company. The current period when there is no production at the factory is being fully utilised to ensure that adequate internal control system is in place immediately. (By Order of the Board) For Dev Fasteners Limited Place: Chennai Capt. S. Prahhala Date : 01.02.2003 Chairman