AQUA LOGISTICS LIMITED ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT To, The Members of Aqua Logistics Limited Your Directors are pleased to present the Thirteenth Annual Report of the Company along with Audited Statement of Accounts for the period ended on 31st March, 2012. FINANCIAL HIGHLIGHTS Your Company's performance during the year under review is summarized below: (Rs. in Lacs) Particulars For the year ended 31-03-2012 31-03-2011 Sales & Other Income 31298.97 38215.29 Profit Before Depreciation, Interest and Taxes 1735.95 3661.76 Interest and Financial Charges 1178.27 725.00 Depreciation 386.84 388.37 Profit before Tax 170.84 2548.39 Provision For Tax 40.00 141.56 Deferred Tax Liability 15.47 120.13 Profit after Tax Before Prior Period Item (NET) 115.37 2286.70 Prior Period Items (NET) 0.00 47.70 Profit After Tax 115.37 2239.00 Profit brought forward from Previous Year 6038.37 3,799.37 Profit carried to Balance Sheet 6153.74 6038.37 REVIEW OF OPERATIONS During the year, your Company has registered Income from operations of Rs.31,035.01 lacs as compared to Rs. 38,087.93 lacs in the previous year. Profit before Depreciation, Interest and Tax (PBDIT) has decreased from Rs. 3661.76 lacs for the year ended March 31, 2011 to Rs. 1735.95 lacs showing the decrease of 52.59%. During FY 2012, your Company has recorded PBDIT of 5.55% of the income from operations as against 9.58% during FY 2011. The reduction in operating margin is due to decrease in income from operation.. During the year, Profit after Tax (PAT) has decreased from Rs. 2239.00 lacs for the FY 2011 to Rs. 115.37 lacs in FY 2012 due to decrease in income from operations. During FY 2012 your Company recorded PAT margin of 0.37% as against 5.86% for FY 2011. The Directors of your Company are currently doing their best to improve the Company's earning and the results show up in the ensuing quarters. BUSINESS & FUTURE OUTLOOK Business is not usual due to the changing trends and volatile market conditions. Your Company is making enormous efforts to streamline all its business verticals; be it Distribution of Resources to various verticals or the strategy itself. Allocation of resources is currently being done based on the latest information and purely based on cash-flows. The expected effect is to increase in our clientele base and to improve customer satisfaction, trust and collaborate more with clients on their specific demands and requirement. This is truly a differentiator at Aqua Logistics Limited. Changes are taking place as you are reading this on Strategic Level, Operational & Tactical Levels. Aqua Logistics has gone through all the different eras starting from just being a logistics support provider on to becoming a truly world class SCM Company. Aqua Logistics understands the need to specialize and is poised to becoming a fully integrated SCM Company so that more and more clients stay focused on their core competencies and let the SCM handled by Aqua Logistics. More focus being laid on understanding Customer's manufacturing, installation and service management processes. So, the focus for the future shall be on controlling cost and improving services of customers. Special Focus shall be laid on productivity measures to utilize more of our capacities and all the above with unmatchable speed and eficiency is assured to our clients and investors. DIVIDENDS In order to conserve the profits of the business of the company, to meet the growing funding requirements, your Directors have not recommended any dividend for the year under report. PUBLIC DEPOSITS Your Company has neither invited nor accepted any deposits from public, within the meaning of section 58A of the Companies Act, 1956 and Rules made thereunder. SUBSIDIARY COMPANIES In accordance with the General Circular no. 2/2011 File no. 51/12/2007-CL- III dated 8th February, 2011 issued by the Ministry of Corporate Affairs, Government of India, granting general exemption to the Companies Under Section 212 (8) of the Companies Act, 1956 the Balance Sheet, Profit and Loss Account and other Reports and statement of the Subsidiary Companies are not being attached with the Balance Sheet of the Company. A summary of the financial information of the subsidiary companies is also attached to the Annual Report of the Company. AMOUNT TO BE CARRIED TO RESERVES Since it is not proposed to declare any dividend, the entire amount of Rs.115.37 lacs is proposed to be transferred to the Reserves of the Company. AUDITORS M/s. Anil Nair & Associates, Chartered Accountants, Chennai, the Statutory Auditors of the Company, retires at the conclusion of this Annual General Meeting. They have furnished a certificate stating that their appointment if made will be within the limits laid down u/s 224 (1B) of the Companies Act, 1956. The Board recommends re-appointment of M/s. Anil Nair & Associates as Statutory Auditors of the Company for the current financial year and to fix their remuneration. AUDITORS' REPORT The notes to the Annual Accounts of the Company, referred to in the Auditor's Report are self - explanatory and do not require any clariication from the Board. DIRECTORS Pursuant to the provisions of the Companies Act, 1956 and Articles of Association of the Company, Mr. S.S. Balakrishnan who has appointed to fill the casual vacancy which was arising out of resignation of Mr. V.S. Narayanan is liable to retire by rotation at the ensuring Annual General Meeting of the Company and being eligible, have offered himself for reappointment. Mr. V. S. Narayanan resigned as Director with effect from 5th December, 2011 due to his personal works. The Board placed on record appreciation of his service to the Company during his tenure of directorship. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirement under section 217 (2AA) of the Companies (Amendment) Act, 2000, with respect to Directors' responsibility statement, it is hereby confirmed: 1. that in the preparation of the accounts for the financial year ended 31st March, 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures; 2. that 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 the period under review; 3. that the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; 4. that the Directors have prepared the accounts for the financial year ended 31st March, 2012 on a going concern basis. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO PARTICULARS UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 Conservation of Energy The Operations of the Company do not consume high levels of energy. Adequate measures have been taken to conserve energy everywhere. Your Company uses latest technology and energy efficient equipments. As energy cost forms a very small part of the total costs, the impact on cost is not material. Technology Absorption, Adaptation and Innovation Your Company is in an Industry, which demands absorption of emerging technologies and trends so as to cater to the needs of its esteemed Clients. Your Company has developed methods for absorption and adaptation of new / emerging / developing technologies, in consonance with the needs of its Clients and its own requirements. Foreign Exchange Earnings and Outgo The Earnings in Foreign Exchange were ? 278.96 lacs (Previous Year ? 61.87 lacs) as against Expenditure incurred in Foreign Currency of ? 238.05 Lacs (Previous Year ? 936.17 lacs). Since the Company does not own any manufacturing facilities, the other particulars under the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are not applicable. PARTICULARS OF EMPLOYEES None of employees has received remuneration/salary exceeding the limit as stated in Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended. ACKNOWLEDGEMENTS Your Directors hereby wish to place on record their appreciation of the significant contribution made by each and every employee of the Company. The Directors also thank all other stakeholders for their support and encouragement. Your Directors look forward to your continued support in the years to come. For and on behalf of the Board of Directors Place : Mumbai Chairman Dated : 4th September, 2012 MANAGEMENT DISCUSSION AND ANALYSIS I. Economic Outlook The growth prospects of the logistics industry are linked to the macro- economic indicators of the country such as GDP, domestic consumption, exports, and imports. With the Indian economy aiming to achieve a GDP growth rate of 9 %, which in turn would augment the growth of its international trade, the logistics industry in the country will grow further in importance. India's Gross Domestic Product at constant prices has almost quadrupled in the last two decades. From a slower average annual growth rate of 5.6% in the 1990s to a moderately faster average annual growth rate of 7.7% in the first decade of 2000, the growth journey has excited many investors both in India and abroad. The latter part of 2000s particularly in the period 2008-09 to 2010-11 recorded an average annual growth of 8.3% The slowdown we witnessed in 2011-12 is expected to be temporary as the fundamentals of Indian economy are evaluated to be strong with high investment rate of 36% and growing domestic demand. IMF Economic Outlook forecasts the Indian GDP to be growing at 8.1% till 2016. Indian Logistics Industry Logistics cost in India is estimated to be 13% of GDP, which is much higher than the developed economies like USA which spends around 10% of its GDP as logistics cost and Japan which spends 11% of its GDP for the same. The reason for this high spending is attributed to poor infrastructure facilities, lack of implementation of IT in logistics and unnecessary check points at the National highways which wastefully increases the transportation costs. India can save upto US$ 7.13 Billion each year in the event of a reduction in logistics cost by 1%. Indian logistics industry is approx. 3% of the global logistics and is highly fragmented so far. Logistics industry comprises of three major segments - transportation, storage and value added services. Based on the analysis of various sub - segments in the Indian context on various comparative factors, Companies in the storage and the value added service segments are well - placed to capitalize on growing Indian economy. Growth Drivers The evolving business landscape and increasing competition across industries, is creating the need for more efficient and reliable logistics services than what exists today. The growth drivers for the Industry can be summarized as follows - * GDP growth and rise of 3PL services - Most companies across industries like automotive, electronics, FMCG and pharmaceutical sectors are increasingly opting to outsource their logistics requirements to specialized 3PLs. This has created a demand for a range of logistics services which will benefit the productivity and eficiency of the customers supply chains. * Investments in infrastructure - Given the current thrust on infrastructure investments, the growth and efficiency of Logistics Service Providers as well as their customers will be positively impacted. The government has planned investments in infrastructure development amounting Rs 20,00,000 Crore in the next 5 years. This will prove to be a major beneit for the logistics industry. * Qualified work force - There has been a sudden transformation in the scale and scope of activities within the logistics sector. This growth rate needs to be supported with a parallel growth of skilled and trained manpower. Attracting and retaining talent is a major problem faced by Companies in the logistics business. There is a need to incorporate a high degree of professionalism in the functioning and approach of the Companies in this business. * GST Implementation to Accelerate India's growth on Logistics front - Goods & Services Tax (GST) to be implemented in FY13 would do away with multiple taxations and other complexities that the logistics providers have to deal with in different states of India. This will boost investments in large warehouses with latest technologies thereby gaining economies of scale. This in turn will increase the attractiveness of integrated logistics companies, which can provide end - to - end logistics solutions. * Emergence of new Storage Models - Several players in India such as Multimodal Logistics Park (MMLP), Mega Food Parks (MFP) and Free Trade Warehousing Zones (FTWZ), have announced next generation storage models. These large scale projects are expected to significantly improve the quality of warehousing and storage space in the Country, while allowing the Customers to reduce costs through economies of scale, government incentives offered and optimal usage of multiple modes of transportation. Risks and Concerns Adequate measures have been adopted by your Company to combat various risks, including business risks (competition, consumer preferences, technology changes), financial risks (cost, credit, liquidity, foreign exchange), operational risks (system, process, people) and regulatory and compliance risks. Your Company has a well-established risk management framework which covers aspects of financial and operational controls. Risks are identified through formal Risk management discussions with the active involvement of functional managers and senior management personnel at both operational and corporate level. Internal Control Systems and their adequacy Your Company has appropriate internal control system for business processes, with regards to efficiency of operations, financial reporting, compliance with applicable laws and regulations. Clearly defined roles and responsibilities down the line for all managerial positions have been institutionalised. All operating parameters are monitored and controlled. The Company has also put in place a well - defined organisation structure, clear authority levels and detailed internal guidelines for conducting business transactions. Material developments in Human Resources People are one of your Company's biggest strength. Your Company has been able to fine-tune talent with modern technologies and ever changing corporate environment. Your Company firmly believes that people make the organisation and that a sense of belonging would inculcate the spirit of dedication and loyalty amongst them. Your Company recruits professionals of high academic achievement, experience and behavioural competencies across operations, supply chain consulting and marketing functions. Cautionary Statement Certain statements made in the Management Discussion and Analysis Report relating to the Company's objectives, projections, outlook, expectations, estimates and other issues may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections, and so on, whether express or implied. Several factors could make a significant difference to the Company's operations. Important development that could affect your Company's operations include climatic conditions, macro-economic conditions affecting demand and supply, government regulations, taxation, natural calamities and so on, over which the Company does not have any direct control.