Your Director's have the pleasure of presenting their 45th Annual Report andaudited statements of accounts for the year ended 31st March 2017.
| || ||(Rs. in crore) |
|1. Financial Results ||2016-17 ||2015-16 |
|Net sales ||869.15 ||888.82 |
|Other operating income ||26.87 ||20.83 |
|Total income from operations (Net) ||896.02 ||909.65 |
|Other income ||7.13 ||4.11 |
|Total income ||903.15 ||913.76 |
|Profit before finance cost depreciation and amortisation ||87.79 ||140.57 |
|Finance cost ||54.72 ||60.31 |
|Profit before depreciation and amortisation ||33.07 ||80.26 |
|Depreciation and amortisation ||73.92 ||79.30 |
|Profit/Loss before tax ||(40.85) ||0.96 |
|Provision for taxation:- || || |
|Current year ||8.12 ||5.71 |
|Income tax for earlier years ||1.12 ||2.80 |
|Loss for the period ||(50.10) ||(7.55) |
|EPS (Basic) Rs. ||(12.54) ||(1.92) |
2. OVERALL PERFORMANCE
The Company recorded net sales of Rs.869.15 Crore during the financial year 2016-17 ascompared to Rs.888.82 Crore in the previous financial year. The Net loss during thefinancial year 2016-17 was at Rs.50.10 Crore as compared to a net loss of Rs.7.55 Crore infinancial year 2015-16 translating to basic earning per share at Rs.(12.54) for thefinancial year 2016-17 as against Rs.(1.92) in financial year 2015-16.
3. STATE OF COMPANY'S AFFAIRS
The analytical review of the Company's performance and its businesses includinginitiatives in the areas of Human Resources and Corporate Social Responsibility have beenpresented in the section of Management Discussion and Analysis of this Annual Report.
Significant reduction in EAF denominated steel making globally during the year underreview coupled with increased exports of steel from China forced the pertinent industryplayers to operate below 55% capacity in the first half of 2016-17. Situation improved forthe better towards the second half when the steel industry witnessed significantreduction in their inventories of electrodes envisaging fall in prices to continue. Therewas another year in succession where the pressure on prices continued unabated. Towardsthe end of the financial year fall in prices were majorly arrested and the new orders forthe following year showed signs of slight improvement as well. It can safely be saidthat the worst is over for the industry and the Company is ready to ride through with thereversal cycle of demand and growth.
Major consolidation in the Graphite Electrode Industry the process of which started in2014 seems to have ended this year with the acquisition of world's second largestproducer by an existing Graphite Electrode producer. This coupled with permanent closureof nearly 200000 metric tonne of inefficient and high cost manufacturing facilitiesglobally adjusted the supply side favorably for the industry thus making way for theindustry to adjust prices going forward.
With enhanced capacity utilization levels witnessed in recent past due to demand growthparticularly in India and closure on ground of polluting steel manufacturing units inChina the Company stands on a firm footing to reap the benefits as a result of improveddemand and prices going forward.
Power business comprises of facilities which are primarily run for meeting captiverequirement of manufacturing graphite electrodes and in the process also sells surpluspower in the open market.
The power segment which comprises of both hydro generation facility and also a thermalgeneration facility performed exceeding well this year especially the hydro segment. BothIndia and Madhya Pradesh where the hydro plant is located witnessed above averagerainfall during the year which helped the Company in generating one of the highest numberof units in past decade.
Since the generation in Thermal power generating facilities is primarily to meetproduction requirement of graphite electrodes the improvement in levels of capacityutilization for the year as a whole improved overall efficiency of the segment and inturn bottomline. Long term tie up with the state run coal company continue to keep thecoal cost under check and immune from volatile market forces. This has not only optimizedthe SHR of coal but also helped improve this segment's results for the year under review.
4. MATERIAL CHANGES AND COMMITMENTS
No material changes and commitments affecting the financial position of the Companyhave occurred between the end of the financial year of the Company to which the financialstatements relate and the date of the report.
5. CHANGE IN THE NATURE OF BUSINESS
There is no change in the nature of business during the financial year 2016-17.
6. SUBSIDIARY ASSOCIATE COMPANIES OR JOINT VENTURES
(i) Subsidiary Company
In terms of provisions of Section 136(1) of the Companies Act 2013 the auditedfinancial statements of HEG Graphite Products and Services Ltd the wholly ownedsubsidiary of the Company have been placed on the website of the Company and are notbeing annexed in this Annual Report.
The financial statements of the subsidiary Company are kept for inspection by theshareholders at the registered Office of the Company. The Company shall provide the copyof the financial statements of its subsidiary Company to the shareholders upon theirrequest.
There were no business operations in the subsidiary Company. The subsidiary reported anet loss of Rs.32573 in the financial year 2016-17.
The Managing Director of the Company does not receive any remuneration or commissionfrom its subsidiary.
The Board of Directors of the Company at its meeting held on 30th May 2017has accorded its in-principle approval for closure of its wholly owned subsidiary i.e. HEGGraphite Products and Services Limited. This wholly owned subsidiary was incorporated inthe year 2009 but has never carried out any commercial operation.
(ii) Associate Companies or Joint Ventures
There are two Associates of the Company namely Bhilwara Infotechnology Ltd. andBhilwara Energy Ltd. Bhilwara Infotechnology Ltd. had a turnover of Rs.40.77 Crore and NetProfit was Rs.3.96 Crore in the financial year 2016-17. Bhilwara Energy Ltd had aconsolidated turnover of Rs.383.43 Crore and Net Profit was Rs.14.85 Crore for thefinancial year 2016-17. The Company has no Joint Ventures.
No Company has become/ceased to be a Subsidiary Associate or Joint Venture during thefinancial year 2016-17.
Pursuant to the provisions of Section 129(3) of the Companies Act 2013 a statementcontaining the salient features of financial statements of the Company's subsidiary andassociate Companies in Form AOC-1 is attached to the Consolidated Financial Statements ofthe Company.
7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements have been prepared by the Company in accordancewith the applicable Accounting Standards. The audited consolidated financial statementstogether with Auditors' Report form part of the Annual Report.
The Auditor's Report does not contain any qualification reservation or adverseremarks.
In view of absence of net profits no dividend is being recommended for the financialyear 2016-17.
9. CORPORATE GOVERNANCE
A report on Corporate Governance forms part of the Annual Report along with theAuditors' Certificate on Corporate Governance as required under SEBI (Listing Obligationsand Disclosure Requirements) Regulation 2015. The Auditor's Certificate for the financialyear 2016-17 does not contain any qualifications reservations or adverse remarks.
10. MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report as required under the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 forms part of the AnnualReport.
11. INTERNAL CONTROL / INTERNAL FINANCIAL CONTROL SYSTEMS AND ADEQUACY THEREOF
The Company has an adequate internal control system commensurate with the size andnature of its business. An internal audit programme covers various activities andperiodical reports are submitted to the management. The Company has a well-definedorganisational structure authority levels and internal rules and guidelines forconducting business transactions.
Besides the Companies Act 2013 has put primary responsibility of implementing arobust Internal Financial Control framework and is under consistent supervision of AuditCommittee Board of Directors and also independent Statutory Auditors. During the year noreportable material weakness in the design or operation were observed.
a) Industrial relations
The industrial relations during the period under review generally remained cordial atall the plants of the Company.
b) Particulars of employees
The information required pursuant to Section 197 read with Rule 5 of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 is annexed herewith asAnnexure - I.
13. PUBLIC DEPOSITS
Your Company has not invited any deposits from public/
shareholders in accordance with Chapter V of the Companies Act 2013.
14. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There were no significant material orders passed by the Regulators/ Courts/ Tribunalsduring the financial year 201617 which would impact the going concern status of theCompany and its future operations.
15. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO
The information with regard to Conservation of Energy Technology Absorption ForeignExchange Earnings and outgo in accordance with the provisions of Section 134(3)(m) of theCompanies Act 2013 read with Rule 8 of the Companies (Accounts) Rules 2014 is given asAnnexure II forming part of this Report.
16. DIRECTORS AND KEY MANAGERIAL PERSONNEL
Your Directors inform you about the resignation of Shri Dantuluri SatyanarayanaRavindra Raju from the Directorship and Executive Directorship of the Company w.e.f. 31stAugust 2016. The Board appreciates the valuable contribution and guidance extended byShri Dantuluri Satyanarayana Ravindra Raju during his short- tenure as an ExecutiveDirector of the Company.
Shri Satish Chand Mehta was appointed as an Independent Director of the Company w.e.f.23rd June 2016.
Pursuant to the recommendation of the Nomination and Remuneration Committee Shri RajuRustogi Chief Financial Officer of the Company has also been appointed as the ChiefOperating Officer of the Company w.e.f. 1st September 2016.
Shri Ashish Sabharwal Company Secretary and Compliance Officer of the Company hasresigned and relieved from the services of the Company w.e.f. 30th November2016.
Shri Vivek Chaudhary a member of the Institute of Company Secretaries of India(Membership No. ACS 13263) has been appointed as Company Secretary and Compliance Officerof the Company w.e.f. 30th May 2017.
One of your Directors namely Shri Shekhar Agarwal shall retire by rotation at theensuing Annual General Meeting and being eligible offers himself for re-appointment. TheBoard recommends his re-appointment.
The brief profile pursuant to Regulation 36(3) of the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 of the Director eligible for appointment /re-appointment forms part of the Corporate Governance Report / Notice of Annual GeneralMeeting.
All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149(6) of the Companies Act 2013 and Regulation16 of the. SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.
17. BOARD EVALUATION
The Board has carried out an annual evaluation of its own performance the directorsindividually as well as the evaluation of the working of its Committees. The exercisecovered various aspects of the Board's functioning such as composition of the Board &Committee(s) their functioning & effectiveness contribution of all the Directors andthe decision making process by the Board.
The Directors express their satisfaction with the evaluation process.
18. FAMILIARIZATION PROGRAMMES FOR THE INDEPENDENT DIRECTORS
In compliance with the requirements of the SEBI (LODR) Regulations 2015 the Companyhas put in place familiarization programme for the Independent Directors to familiarizethem with their role rights and responsibility as Directors the working of the Companynature of the industry in which the Company operates business model etc. It is alsoavailable on the Company website and a weblink thereto is as under:http://www.hegltd.com/pdf/Details_of_Familiarisation_Programmes_imparted_to_Independent_Directors.pdf
19. NOMINATION AND REMUNERATION POLICY
The Nomination & Remuneration Policy of the Company is in place and is attached asAnnexure - III to this Report.
20. MEETINGS OF THE BOARD
The Board of Directors met 4 (four) times in the financial year 2016-2017. The detailsof the Board Meetings and the attendance of the Directors are provided in the CorporateGovernance Report.
21. CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES
All related party contracts/arrangements/transactions that were entered into during thefinancial year were on an arm's length basis and were in the ordinary course of business.
All Related Party Transactions are placed before the Audit Committee for approval.Prior omnibus approval of the Audit Committee was obtained for the transactions which areof a
foreseen and repetitive nature. The statement of transactions entered into pursuant tothe omnibus approval so granted is placed before the Audit Committee for its review on aquarterly basis. The statement is supported by a Certificate from the CFO.
The policy on Related Party Transactions as approved by the Board is uploaded on theCompany's website the weblink of which is as under:http://www.hegltd.com/pdf/Policy_on_Related_Party_ Transactions_HEG_ Limited.pdf
There are no pecuniary relationships or transactions of Non-Executive Directorsvis-a-vis the Company that have a potential conflict with the interests of the company.
No material Related Party Transactions i.e. transactions exceeding ten percent of theannual consolidated turnover as per the last audited financial statements were enteredduring the financial year by the Company. Accordingly the disclosure of Related PartyTransactions as required under 134 (3) (h) of the Companies Act 2013 in Form AOC-2 is notapplicable.
22. AUDIT COMMITTEE
The composition of the Audit Committee is stated in the Corporate Governance Report.All the recommendations of the Audit Committee were accepted by the Board during thefinancial year 2016-17.
M/s. Doogar & Associates Chartered Accountants and M/s. S.S. Kothari Mehta &Co. Chartered Accountants Auditors of the Company will mandatorily retire from theiroffice at the ensuing Annual General Meeting. They are however not eligible forre-appointment in terms of provisions of Section 139 of the Companies Act 2013 and rulesthereunder. The Auditors' Report read along with notes to accounts is self-explanatory andtherefore does not call for any further comments. The Auditors' Report does not containany qualification reservation or adverse remark.
During the year under review the Auditors had not reported any matter under Section143 (12) of the Companies Act 2013; therefore no detail is required to be disclosedunder Section 134 (3) (ca) of the Companies Act 2013.
Your Directors have recommended the appointment of M/s. S.C. Vasudeva & Co.Chartered Accountants (Firm Registration No. 000235N) as Statutory Auditors of the Companyto hold office for a period of 5 consecutive years from the conclusion of the 45thAnnual General Meeting of the Company scheduled to be held in the year 2017 till theconclusion of 50th Annual General Meeting to be held in the year 2022 subjectto the approval of the shareholders in the ensuing Annual General Meeting and subject toratification by members at every subsequent Annual General Meeting. They have furnished acertificate to the effect that their appointment will be in accordance within theapplicable provisions of the Companies Act 2013.
24. BUSINESS RISK MANAGEMENT
The objective of risk management at the Company is to protect shareholders value byminimizing threats or losses and identifying and maximising opportunities. Anenterprisewide risk management framework is applied so that effective management of riskis an integral part of every employee's job.
The Risk Management Policy of the Company is in place for Risk Assessment andMitigation. It is periodically reviewed by the Audit Committee / Board of Directors. TheCompany's risk management strategy is integrated with the overall business strategies ofthe organization and is communicated throughout the organisation. Risk managementcapabilities aide in establishing competitive advantage and allow management to developreasonable assurance regarding the achievement of the Company's objectives.
The annual strategic planning process provides the platform for identificationanalysis treatment and documentation of key risks. It is through this annual planningprocess that key risks and risk management strategies are communicated to the Board. Theeffectiveness of risk management strategies is monitored both formally and informally bymanagement and process owners. There is no major risk which may threaten the existence ofthe Company.
25. COST AUDITORS
The Cost Audit for financial year ended March 31 2016 was conducted by M/s. N.D. Birla& Co. (Firm Registration No. 000028). The said Cost Audit Report was filed on 27thAugust 2016.
Based on the Audit Committee recommendations at its meeting held on 30th May 2017 theBoard has approved the re-appointment of M/s. N.D. Birla & Co. (Firm Registration No.000028) as the Cost Auditors of the Company for the financial year 2017- 2018 on aremuneration of Rs.2 lacs plus service tax and out of pocket expenses that may be incurredby them during the course of audit. As required under the Companies Act 2013 theremuneration payable to the cost auditor is required to be placed before the Members in ageneral meeting for their ratification. Accordingly a Resolution seeking Member'sratification for the remuneration payable to M/s. N.D. Birla & Co. Cost Auditors isincluded in the Notice convening the Annual General Meeting.
26. SECRETARIAL AUDITOR
Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Company hadappointed M/s. GSK & Associates a firm of Company Secretaries in Practice toundertake the Secretarial Audit of the Company for the Financial year 2016-17. TheSecretarial Audit Report is annexed herewith as Annexure IV. The Secretarial Audit Reportdoes not contain any qualification reservation or adverse remark. The Board hasre-appointed M/s. GSK & Associates Company Secretaries in practice as SecretarialAuditor of the Company for the financial year 2017-18.
27. CORPORATE SOCIAL RESPONSIBILITY (CSR)
As part of its initiatives under Corporate Social Responsibility (CSR) the Company hasundertaken projects in the areas of promotion of education eradicating hunger &poverty initiatives towards Community Service and Rural Development HealthcarePlantation & Environment Development Protection of National heritage Art Cultureetc. These projects were in accordance with the CSR Policy of the Company and Schedule VIIof the Companies Act 2013.
The CSR Committee comprises Shri Ravi Jhunjhunwala (Chairman) Shri Dharmendar NathDavar and Smt. Vinita Singhania.
The CSR policy may be accessed on the Company's website at the link mentioned below:http://hegltd.com/pdf/Corporate_Social_Responsibility_
The Annual Report on CSR activities is enclosed as Annexure V forming part of thisreport.
28. INTERNAL AUDITORS
Based on the Audit Committee recommendations at its meeting held on 30thMay 2017 the Board has approved the re-appointment of M/s. S.L. Chhajed & Co as theInternal auditors of the Company for the financial year 2017-2018.
29. DIRECTORS RESPONSIBILITY STATEMENT
The Directors confirm that:
i) In preparation of the annual accounts the applicable accounting standards have beenfollowed and there are no material departures from the same;
ii) They have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of the financial year ended 31stMarch 2017 and of the loss of the Company for the year under review;
iii) They have taken proper and sufficient care for maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 for safe guarding theassets of the Company and for preventing and detecting frauds and other irregularities;
iv) They have prepared the annual accounts on a going concern basis;
v) They have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and are operating effectively;and
vi) They have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.
30. VIGIL MECHANISM /WHISTLE BLOWER POLICY
The Company has a vigil mechanism named Whistle Blower Policy in place. Thedetails of the Whistle Blower Policy are explained in the Corporate Governance Report andthe policy is also posted on the website of the Company the weblink of which is as under:http://hegltd.com/pdf/Whistle_Blower_Policy_HEG.pdf
The policy provides for adequate safeguard against victimization of director(s) /employee(s) who avail of the mechanism and also provides for direct access to the Chairmanof the Audit Committee. It is affirmed that no person has denied access to the AuditCommittee.
31. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 form part of the notes to the financial statements providedin the Annual Report.
32. EXTRACT OF ANNUAL RETURN
The extract of the Annual Return in form MGT-9 as required under Section 92(3) and Rule12 of the Companies (Management and Administration) Rules 2014 is appended as Annexure VIto this report.
33. GENERAL DISCLOSURE
The Company has a group policy in place against Sexual Harassment in line with therequirements of the Sexual Harassment of Women at the Workplace (Prevention Prohibition& Redressal) Act 2013. Internal Complaints Committee (ICC) has been set up to redresscomplaints received regarding sexual harassment. The Company has undertaken four workshops/ awareness programs against sexual harassment at workplace. No complaint of sexualharassment was received during the financial year 2016-17.
Your Directors wish to place on record their appreciation for the valuable assistanceand support received by your Company from banks financial institutions the CentralGovernment the Government of Madhya Pradesh the Government of Uttar Pradesh and theirdepartments. The Board also thanks the employees at all levels for the dedicationcommitment and hard work put in by them.
For and on behalf of the Board of Directors
|Place: Noida (U.P.) ||Ravi Jhunjhunwala |
|Dated: 30th May 2017 ||Chairman Managing Director & CEO |