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Hindustan Photo Films Manufacturing Company Ltd.

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Hindustan Photo Films Manufacturing Company Ltd. (HINDPHOTOFILMS) - Director Report

Company director report

DIRECTORS

Dear Shareholders,

Hindustan Photo Films has completed 50 years of service to the Nation and has completedits Golden Jubilee. Your Directors present the fiftieth (50th) Annual Report on theworking of the Company along with the audited accounts for the year ended 31st March 2011,report of the Statutory Auditors and the comments thereon by the Comptroller and AuditorGeneral of India.

Corporate Performance

The audited financial data for the last ten years are summarised below along with theCash flow statement for 2010-11.

Share Capital

The Authorised and Paid up Capital of the Company as on 31st March 2011 stood at ^ 210Croresand Rs. 204.87Croresrespectively.

Fixed Deposit

No deposit has been received by the Company during the year under report.

Corporate Results Production

The production during the year was 1.61 M.Sq.m valued at Rs. 4077.59 Lakhs as against0.961 valued at Rs. 2625 Lakhs achieved during the previous year. The itemwise productionis given below:

(In Million Sq.m)
2010-11 2009-10
Cine Products ... 0.004
X-Ray(lncl. Indl. X-Ray) 1.153 0.810
Graphic Arts 0.446 0.135*
Others (Miscellaneous)* 0.345 0.012
Total 1.944 0.961
'Includes job order production of 0.331 0.023

Though production in the current year shows an improved trend as compared to theprevious years, the low volume of production is attributable to increased raw materialcost and lack of orders due to stiff competition from MNCs in the domestic market. TheCompany continues to explore areas for diversifying its activities. The amount of Rs. 30Crores received towards Working Capital as a part of the fund infusion for Revival wasploughed into operations fully and it has helped in the increased turnover.

Financial Data for the last ten years Year ending 31 "March

in lakhs)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Production 2978.36 2667.32 2746.66 1519.52 1536.95 1768.22 1761.53 2409.93 2549.80 3992.46
Sales 2895.03 2697.80 2778.39 1738.56 1461.41 1459.34 1716.53 2618.48 2625.01 3718.32
Net Profit/Loss -35371.86 -38539.24 -44302.47 -49641.27 -56090.18 -65305.92 -78949.15 -89026.05 -100921.51 -115665.42
Growth Rate (%)
- Turnover 13.89 -6.81 2.99 -37.43 -15.94 -0.14 17.62 52.54 0.25 41.64
- Production 25.82 -10.44 2.97 -44.68 1.15 15.05 -0.38 36.81 5.80 56.55
Net profit(As a % of)
-Turnover -1221.81 -1428.54 -1594.54 -2855.32 -3838.09 -4475.03 -4599.35 -3399.91 -3814.61 -3110.69
- Capital employed* -69.91 -79.77 -101.67 -124.68 -150.50 -192.51 -269.87 -338.11 -418.00 -552.81
Networth -161088.24 -199518.26 -243506.90 -293148.16 -349138.34 -414444.27 -493093.42 -582019.47 -682840.98 -798406.40
Inter Corporate loan 3607.00. 3607.00 3607.00 3607.00 3607.00 3607.00 3607.00 3607.00 3607.00 3607.00
Gross Block
(Excluding Capital WIP) 71504.98 71506.72 72062.52 72063.41 72063.70 72065.78 72078.91 71552.47 71566.57 71566.75
Gross Block
(Including Capital WIP) 71513.18 71514.92 72062.52 72063.41 72063.70 72065.78 72078.91 71552.47 71566.57 71566.75
Inventories 1683.23 1526.90 1415.02 1113.41 1201.94 1617.27 1607.00 1411.14 1396.93 1541.50
Depreciation 3289.70 3288.33 3386.32 3354.04 3328.61 3323.37 3315.40 3241.61 3212.35 3166.17
Interest 29024.34 33649.46 38835.10 44698.45 51595.13 60230.85 71820.89 83014.38 95498.84 111525.07

Note: Figures for the current year have been re-grouped wherever necessary

* Capital employed represents Net Fixed Assets (Excluding Project(under Construction)and Net Current Assets

Turnoverand Loss

During the year under review, the Company achieved a turnover of Rs. 37.18 Crores asagainst f 26.25 Crores in the previous year. The Company's . operations resulted in a netloss of X 1156.65 Crores for the year as compared to a net loss of Rs. 1009.21 Crores inthe previous year. The operating loss during the year was X 11.84 Crores as against X13.46 Crores during the previous year. Low capacity utilisation and the prevailing marketscenario besides heavy interest burden continue to be the major factors affecting thefinancial position of the Company. The Company adopted various strategies to improve itsoperations and effected cuts in its administrative expenses. These processes would bepursued vigorously to improve its financial position and bring down the operating lossfurther in the coming year.

MOU 2010-11

We are to inform that during the year 2010-11, the Company had entered into a MOU withthe DHI, envisaging achievement of Production of X 77.84 Crores and Sales of X 73:51Crores . Amidst various constraints, the Company has significantly achieved production andsales of Rs. 39.92 Crores and X 37.18 Crores respectively which is 56.55 % and 41.64 %growth over the previous year.

Polyester Base Medical X-Ray, Industrial X-Ray and Graphic Arts Films Plant

The Plant has produced 1.50 M.sq.m of Films during the year under report as against0.923 M.sq.m during the previous year. The performance of the Plant is expected to improvein the coming year.

Research and Development

Specific Areas in which R&D was carried out by this Company

R&D activities were carried out on New Product

Development, Product/Process Improvement, Technology Up gradation, Import Substitution, Cost Reduction and Production Trouble Shooting works.

Benefits derived as a result of the above R&D

Company's requirements with respect to 13 Specialty Chemicals were met by manufacturingthe same at Organic Synthesis Unit resulting in cost savings of X 30.88 Lakhs.

Following products, for which Plant Trials are in progress, will soon becommercialized.

=> Graphic Arts Red Laser Scanner Film /Image

Setter Film

=> Inkjet Paper

=> Subbingof polyester X-ray Base

=> Digital X-ray Film

=> Medical Imaging Film (Panchromatic)

=> Laser Printer Film

=> Acid Violet dye and KF 508 dye (import substitution)

Future Plan of Action

Future R&D program covers Development / implementation of know-how for thefollowing:

a) Improvement/Cost reduction on the following products:

1. Medical X-ray Film

2. Graphic Arts Red Laser Film/Image Setter Film

3. Industrial X-ray Film

4. Medical X-ray (Ortho) Film

5. Processing Chemicals Developer and Fixer

b) Developmental Work on following Products

1. Low Speed Industrial X-ray Film (IRF 100 and IRF50)

2. Indigenization and Manufacturing of Fine Chemicals

3. Acid Violet Dye(lmport Substitution) for Graphic Arts Gel backing

4. KF 508 Dye (Import Substitution) for Graphic Arts Products

5. SilkScreen Printing Film

6. Thermal Imaging Film

7. Thermal Paper c) Non Silver Digital Imaging Technology

New Product for Non Silver Digital Imaging Technology works in association with M/sTechnova Imaging Systems (P) Ltd., Mumbai, progressed well and the Company could generatejob order revenue of several lakhs rupees

Production trial of Non Silver Screen printing Film was successfully carried out andNon-Silver Medical Imaging Film production trial will be taken in association with M/sTechnova

R&D Expenditure (X In lakhs)

a) Capital : Nil
b) Recurring : 83.12
c) Total : 83.12
d) Total R&D expenditure as a % of total turnover ": 2.24%

Technology absorption, adaptation and Innovation:

Information regarding imported technology
=* Collaboration agreement if any
=* Technology import
=* Year of import Nil
=*> Has technology been fully absorbed
=*> If not fully absorbed, areas where it has not taken place, reasons therefore

Quality Assurance

HPF an ISO 9001:2000 Company has now been accredited with ISO 9001:2008 certificationby the British Certifications INC under JAS-ANZ and has taken various steps to maintainthe quality standard of its products.

The Quality Assurance Department checks all incoming raw materials and packingmaterials for their suitability for use in production. Raw materials from new sources arealso developed. Annual vendor rating analysis are carried out to study the performance ofsuppliers of raw materials, chemicals and packing materials. Sensitivity of the fresh andaged photographic goods are measured. All finished goods are checked by OA as a firstcustomer to see that no defective material is passed on to the customer. OA has addressedthe concern of the customer at the point of usage. Analysis on production/rejectionperformance are done and circulated to production division, as feedback information.

OA guides Production in online corrective and preventive action, to realise qualitytarget. Statistical sampling plans are being suggested for new products. OA carries outthe task of updating testing methods and revising specifications for existing products anddrawing specifications for new products. OA has Radiographic testing facilities,facilities for testing of waste water, drinking water and process water.

To keep track of performance of our products in the market customer complaint detailsare studied periodically. The quality performance index was within the target level of 6sigma.

Energy Conservation Electrical Energy conservation

The power factor was always maintained well above 0.95 by power capacitors according tothe requirement. Energy efficient copper chokes were installed and maintained. Heater andlighting loads were regulated. Power transformers were utilised to the optimum level.Preventive maintenance schedule was strictly followed to improve efficiency of motors andother equipments. Optimum utilization of process equipment was made based on productionschedule. The cold storage compressor was effectively operated with the help of AutomaticControl Circuit. The Plant operations were sustained with reduced level of maximum demand.Street lights and security lights were effectively utilised with the help of timercircuits.

Thermal Energy Conservation

Combustion control in Boiler and in Hot Water Generator was maintained at reduced levelof excess air. The blow down level was optimized by monitoring the feed water and blowdown water quality. The Boilers and Hot water generator operation was optimised bystaggered production schedules. Strict follow-up of preventive maintenance activities wasdone.

As a result of the above measures, savings to the tune of X 22 Lakhs was achieved.

Personnel

The total number of permanent employees as on 31st March 2011 stood at 731. Based onthe order of the Supreme Court and approval of DHI vide Order No. 19(10)/2009-PE.III dt20th Oct 2010, 56 persons working as casual workers/ NMRs were appointed as regularemployees.

The representation of SC and ST categories in the total employees' strength was asfollows:

Representation of SC category : : 130(17.78%;
Representation of ST category : : 42(5.75%)

The Company continued to follow the reservation policies in respect of scheduled casteand scheduled tribe communities in accordance with the directives issued by the Governmentof India from time to time.

The total strength of ex-servicemen employed by the Company as on 31st March 2011 stoodat 16 representing 2.19 % of the total strength. The number of physically handicappedemployees stood at 22 as on 31st March 2011 consisting of 3 blind, 9 ortho-handicapped and10 deaf and dumb employees.

With the trend of manpower rationalization continuing, 45 persons have been relieved onVRS during the year and the available manpower is being put to the best possible use.

Training and Development

The Company has a full-fledged Training and Development Department to take care of thetraining needs of the employees. Internal training programmes were conducted.

Industrial Relations

By and large, the Industrial Relation scenario remained cordial. The IndustrialRelations Committee comprising of Management and Trade Unions representatives met anddiscussed from time to time to resolve various industrial problems.

Environment

For maintaining ecological balance, the Company has done some conservation programmes.Effluent treatment and disposal systems have been fine-tuned in compliance with all thestatutory rules and regulations. During the year under report, the Company has spent Rs.5.57 Lakhs in this regard.

Insurance

Assets of the Company were generally insured.

Implementation of official language

The Company continued to take effective steps for implementation of the provisions ofthe Official Language Act and the instructions received from the Central Government inthis regard from time to time.

Development of Ancillaries

During the year under report, the Company purchased materials to the tune of rs. 195.03Lakhs from Ancillary and SSI Units for its production requirements.

Contribution to Exchequer

During the year under review, the contribution made by the Company to the Exchequer -both central and State has been of the order of rs.rs. 572.73 Lakhs by way of Sales tax,Octroi, Customs duty and Excise duty etc.

Vigilance Activities

Vigilance Department continued to keep strict vigil within the Organization. TheDepartment was engaged in activities like investigation of complaints from varioussources, conducted surprise inspections and detailed inspections of transactions. Toimprove Vigilance administration and to ensure transparency all open/limited tenders wereput on the website of the company. Purchase Manual and Marketing Manual was updated inaccordance with CVC guidelines. A compendium of vigilance guidelines framed by ChiefVigilance Officer has been forwarded to Head of Departments for adherence. Interactivesessions on vigilance with Head of Departments were also conducted by CVO. Deficiencieswith regard to systems and procedures were pointed out for necessary remedial actions. Thepractice of opening of tenders in the presence of trade representatives was introduced tobring out more transparency in the organizational transactions. The department recommendedfor introduction of Electronic Fund transfer and e-tendering. Vigilance Awareness Week wasobserved from 25.10.10 to 01.11.10 in a befitting manner.

RTI Act

The Company has implemented the provisions of the RTI Act 2005 and has nominated thefollowing officials:

Public Information Officer:

Mr. A.B. Kumar

Assistant Public Information Officer:

Ms. M. Gita

Appellate Authority :

Mr. P. Jagadeeswaran, CMD

All applications and first appeals received under RTI during the year 2010-11, havebeen addressed.

Particulars of Employees

Information as per Sub-section 2(A) of Section 217 of the Companies Act 1956, read withCompanies (Particulars of Employees) Rules 1975, and forming part of Directors' Report fortheyearended 31st March 2011- Nil.

Directors

Shri. P. Jagadeeswaran, Director (Finance) continued to hold additional charge of thepost of Chairman-cum-ManagingDirector-HPp.

Audit Committee

As on 31.3.2011, the Audit Committee comprised of the following members:

Shri R.Subburathinam Independent Dir Chairman
ShriGautam Basu Independent Dir Member
Shri G.R.Sundaravadivel Nominee Dir Member
ShriShashankGoel Part time Govt. Dir Member

Shri. Shashank Goel, Government Director resigned from the Board of the Company witheffect from 24.3.2011.

Directors' Responsibility Statement

As per requirements of Section 217 (2AA) of the Companies Amendment Act 2000, yourDirectors hereby declare that:

i. In the preparation of the annual accounts, the applicable accounting standards havebeen followed along with proper explanation relating to material departures.

ii. The Directors have selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of 31st March 2011 and of theprofit or loss of the Company for that period.

iii. The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities.

iv. The Directors have prepared the annual accounts on a going concern basis.

Auditors

M/s. Padmanabhan Prakash & Co., Chartered Accountants, Chennai have been appointedby the Government of India as Auditors of the Company for the financial year 2010-11.

Corporate Governance

In compliance with the requirements of Clause 49 of the Listing Agreement with theStock Exchanges, the following are annexed to this report:-

• The Management Discussion and Analysis Report

• A report on Corporate Governance

• The Certificate of the Auditors on Corporate Governance

Status before BIFR / AAIFR / Revival

Consequent upon recommendations of BIFR and AAIFR for winding up of HPF, in the year2005, the Unions, Officers Association and the Company had approached the Madras HighCourt and has obtained a stay on further proceedings of BIFR and AAIFR. In the meanwhile,with the approval of the Government, a Revised Revival Strategy for HPF was drawn up byConsultants, M/s Ernst & Young. The Ministry of Heavy Industries, after considerationof the report had forwarded the same to the BRPSE in Apr 2008.

The Revival proposal of HPF has been considered by BRPSE and recommended for approvalto the Govt. A CCEA note was circulated by DHI and the recommendations were put up to theCabinet for consideration. The Cabinet secretariat has reviewed the note and referred itto a committee of Secretaries for their views. The Company now awaits final nod of theCabinet to the Restructuring Proposal, as approved by BRPSE.

The Company has entered into a MOU with the Govt, for the year 2011-12 involvingproduction/ sales target of Rs. 81.50 Crores each. In anticipation of Revival, the Companyis committed to achieve these targets in the coming year.

Acknowledgement

Your Directors wish to place on record their sincere thanks to the Government of India,particularly the Department of Heavy Industry, the Bankers, valued customers, for theircooperation and support. Your Company sincerely appreciates the valuable services renderedby the employees of the Company. Their efforts and support for the cause of revival wascommendable.

For and on behalf of the

Board of Directors

S. Girish Kumar

Chairman-cum-Managing Director