To the Members of Essar Shipping Limited
Your Directors are pleased to present the Ninth Annual Report and Audited FinancialStatements of the Company for the financial year ended March 31 2019.
The Company's financial performance for the year ended March 31 2019 is summarizedbelow:
|Particulars || |
Rs. in Crore
| || |
| ||For the year ended 31-03-2019 ||For the Year ended 31-03-2018 ||For the year ended 31-03-2019 ||For the Year ended 31-03-2018 |
|Total Income ||1366.48 ||1287.23 ||535.04 ||703.55 |
|Total Expenditure ||977.41 ||961.66 ||417.58 ||488.17 |
|EBITDA ||389.07 ||325.57 ||117.46 ||215.38 |
|Less: Interest & Finance charges ||395.74 ||386.80 ||206.17 ||265.24 |
|Less: Provision for Depreciation ||282.49 ||304.12 ||103.33 ||125.04 |
|Profit / (Loss) before Tax ||(289.16) ||(365.35) ||(192.04) ||(174.90) |
|Profit / (Loss) for the year before share of profit of associate ||(290.61) ||(368.59) ||(193.49) ||(178.14) |
|Add: Exceptional item ||(3486.97) ||(1280.50) ||(1400.00) ||224.31 |
|Less: Provision for Tax ||(1.45) ||(3.24) ||(1.45) ||(3.24) |
|Add: Share of profit of associate ||6.21 ||(35.77) ||- ||- |
|Add: Other Comprehensive Income/loss ||1.48 ||0.88 ||1.42 ||0.75 |
|Profit / (Loss) for the year ||(3769.89) ||(1683.98) ||(1592.07) ||46.92 |
Due to continous losses the Board of Directors are unable to recommended any dividendfor the year under review.
MANAGEMENT DISCUSSION AND ANALYSIS
Performance of your Company
During the year ended on March 31 2019 the Total Income of your company declined fromRs. 703.55 crore to Rs. 535.04 crore representing 23% decline. This decline is mainlyattributable to termination of your company's BBC (Bare Boat Charter) of 6 STX Vessels.This also resulted in EBITDA of the company from Rs. 215.38 crore to Rs. 117.46 crore. TheInterest cost of company declined from Rs. 265.24 crore to Rs. 206.17 crore in FY 2018-19is mainly due to repayment of loans.
During the Financial Year 2018-19 your company evaluated the operational assumptionsimpacting the future cash flows of a subsidiary company and its consequent impact on itsinvestment. Accordingly an impairment of Rs. 1400.00 crores was considered during theyear. Consequently the loss for the year was Rs. 1592.07 crores vis-a-vis profit of Rs.46.92 crores in the Financial Year 2018.
Overview of the World Economy & Shipping Industry
With over 80 per cent of global trade by volume and more than 70 per cent of its valuebeing carried on board ships and handled by seaports worldwide the importance of maritimetransport for trade and development cannot be overemphasized. Thus making ocean shippingthe most important mode of transport for international merchandise trade. Seaborne tradecontinues to expand bringing benefits for consumers across the world through low anddecreasing freight costs. Thanks to the growing efficiency of shipping as a mode oftransport and increased economic liberalization the prospects for the industry's furthergrowth continue to be strong.
The International Monetary Fund (IMF) has published its World Economic Outlook forJanuary 2018 and has subsequently revised its original forecast for global growth in 2018and 2019 - up by 0.2 to 3.9% for both years. The development in global growth is driven bya higher growth from advanced economies than first anticipated. The IMF now expects theGDP for advanced economies to grow by 2.3% in 2018 and 2.2% in 2019 which is an upwardrevision of 0.3 percentage points for 2018 and 0.4 for 2019. This is the highest upwardcumulative revision for advanced economies since January 2010 when we saw a false dawnfor an improvement in the global economy. If this growth materializes it will be highlybeneficial for the shipping industry as growth in advanced economies generates thehighest trade-to-GDP multiplier.
To support this momentum Ministries of transport and planning and maritime and portauthorities worldwide need to understand the determinants of maritime transportconnectivity as well as the associated opportunities and risks to ensure informed policyand decision-making processes and adequate investment plans in shipping ports and theirhinterland connections.
Developments in International Seaborne Trade
In 2016 the maritime transport sector continued to face the prolonged effects of theeconomic downturn of 2009. Seaborne trade remained under pressure owing to continued weakglobal demand and heightened uncertainty stemming from factors such as trade policy andlow commodity and oil prices. World seaborne trade expanded by 2.6 per cent up from 1.8per cent in 2015 which is below the historical average of 3 per cent recorded over thepast four decades. Reflecting the state of the world economy demand for shipping servicesincreased moderately in 2016. World seaborne trade volumes expanded by 2.6 per cent upfrom 1.8 per cent in 2015 reaching 10.3 billion tons reflecting the addition of over 260million tons of cargo about half of which was attributed to tanker trade.
Strong import demand in China in 2016 continued to support world maritime seabornetrade although overall growth was offset by limited expansion in the import demand ofother developing regions.
In 2017 & 2018 the outlook for the world economy and merchandise trade is expectedto improve somewhat. However uncertainty and other factors both positive and negativecontinue to shape this outlook. In this context it is estimated that seaborne trade willincrease by 2.8 per cent with total volumes reaching 10.6 billion tons. Volumes are setto expand across all segments with containerized trade and major dry bulk commoditiestrade recording the fastest growth.
Seaborne dry cargo shipments totaled 7.23 billion tons in 2016 reflecting an increaseof 2 per cent over the previous year .The share of the major bulk commodities (coal ironore grain and bauxite/alumina/phosphate rock) amounted to about 43.9 per cent of totaldry cargo volumes followed by containerized trade (23.8 per cent) and minor bulks (23.7per cent)
In 2016 developing economies grew by 3.7 per cent. However there were considerableregional variations.
In 2017 the world fleet reached 1.9 billion dwt twice the size as it had 12 yearsago. Today bulk carriers account for 43 percent of the fleet followed by oil tankers (29per cent) and container ships (13 per cent). The top five ship owners at the end of 2016were Greece Japan China Germany and Singapore; together they had a market share of 50per cent in dead-weight tons. Only three economies the Republic of Korea China andJapan constructed 92 per cent of world tonnage in 2016. Four economies IndiaBangladesh Pakistan and China together accounted for 95 per cent of ship scrapping in2016.
For the fifth year in a row world fleet growth has been decelerating. The commercialshipping fleet grew by 3.15 per cent in 2016 compared with 3.5 per cent in 2015. Despitethis further decline the supply still increased faster than demand leading to acontinued situation of global overcapacity and downward pressure on freight rates. In thebeginning of 2017 the average age of the commercial fleet was 20.6 years representing aslight increase over the previous year. Fewer newbuildings than at the beginning of thedecade combined with similar scrapping levels have led to an aging fleet.
In 2016 shipbuilding activity contracted by 1.7 per cent while ship scrapping went upby 25.7 per cent. The higher growth of demolition led to a slowdown in world fleet growth.
Overview of the Indian Economy
India is the sixteenth largest maritime country in the world. The Indian government hasinitiated National Maritime Development Programme (NMDP) an initiative to develop themaritime sector; with a planned investment outlay of US$ 11.8 billion.
A consequence of strong GDP growth has been rising energy demand; the country currentlymeets about 75% of total crude oil demand by imports. India's crude imports touched 214.9MMT in FY17 implying a CAGR of 6.7% over FY07-17. Private ports have been especially goodat attracting crude import traffic. - Petroleum Oil and Lubricants (POL) have been themajor contributors to total traffic at ports.
The Central Government is planning to setup logistic hubs near seaports with the helpof private sector players to augment exports from the country. Cargo traffic is expectedto witness growth and is said to reach 2493.1 MMT by 2017. This is against 1806.8 MMTrecorded in 2015. The increase in India's refining capacity will benefit the offshoreshipping lines as demand for their services picks up. As a result of the commissioning oflarge domestic refining capacities the imports are expected to jump in the future. Thiswould benefit shipping majors operating in India. The dry bulk business segment in theshipping industry has been impacted by the global commodity slump. While China's slowdownhas led to a sharp moderation of imports like Iron ore on the other hand emphasis on theenvironment has led to the lower usage of coal. This has impacted coal imports. FurtherIndia's domestic coal production has also improved over the years leading to fewer coalimports. All these factors have led to decline in demand for commodities thereby reducingcommodity moments. The trend is quite visible from the Baltic Dry Index or BDI. If theslowdown in China widens and the movement of coal remain as it is now the futureprospects in this space seem unfavorable.
The shipping industry is impacted by numerous short term and regional factors such aspolitical fallouts weather changes etc. This could result in great amount of volatilityin the freight market.
BUSINESS PERFORMANCE OPPORTUNITIES AND OUTLOOK
Freight rates and Maritime trade by Cargo type
(a) Tanker trade
In 2017 world seaborne tanker trade - crude oil refined petroleum products and gas -continued to grow amid a surplus in oil market supply and low oil prices. Total volumesreached 1.8 billion tons reflecting an increase of 4.2 per cent over the previous year.These positive trends were underpinned by strong demand for crude oil imports in ChinaIndia and the United States and a high level of exported petroleum products from China andIndia. However overcapacity political concerns in the Middle East increase inproduction sanctions by the US government led to a fall in rates Market conditions werealtered with the arrival of new vessels and a slowdown in oil demand growth. This led tosteep declines in freight rates. These imbalances in markets fundamentals had arepercussion on earnings which came under further pressure particularly in the last sixmonths of the year. Overall tanker earnings averaged about $17917 per day in 2017-18 a42 per cent decline compared with 2016. This decline was affected by the rise in crudeoil prices which also had an impact on bunker (ship fuel) costs.
The outlook appears challenging in the short term given expectations for continuedstrong supply growth and numerous risks to the demand side. However one importantregulatory development may reduce fleet supply and support freight rates in the future.New IMO ballast water management standards which became effective in September 2017require ships using ballast water in international trade to be retrofitted with a ballastwater treatment system. This would come at an estimated cost ranging between $1 millionand $5 million (Barry Rogliano Salles 2017) that may push shipowners to increasescrapping of their old tonnage with low earnings potential instead of incurring theadditional cost. This may also lead to better balanced market fundamentals as supply maycontract considerably in particular in the very large oil carrier segment whichconstitutes a big fraction of today's older tonnage.
In the tanker business companies are wary of a dent to oil demand as crude pricesrise. Brent prices have more than doubled since the low of January 2016 with a proposedcut in supplies by the Organization of Petroleum Exporting Countries (OPEC) and non-OPECcountries likely to keep prices elevated in the near term. Also as prices rise demandfor offshore tankers will decline as will the drive to increase strategic reserves.
(b) Dry cargo trade: Major and minor dry bulk commodities and other dry cargo
Overall weak global investment and industrial activity have weighed down on the drybulk trade segment4 which continues to be heavily dependent on developments in China. In2017 world demand for dry bulk commodities grew at a modest rate of 1.3 per cent takingtotal shipments to 4.9 billion tons. China remained the primary source of growth owing tothe positive impact of the stimulus measures introduced during the year. Policy-drivensupport measures helped increase infrastructure and housing market investment and in turnthe demand for commodities and steel.
Within the dry bulk segment trade in the major bulk commodities increased by 1.6 percent. Iron ore trade showed the strongest growth with volumes expanding by 3.4 per centreaching 1.4 billion tons in 2016-17.
Imports into China increased by over 7 per cent reflecting the country's steel outputgrowth falling domestic iron ore production growing stockpiling activity and access toaffordable high-quality iron ore from Australia and Brazil.
Coal trade diminished in 2017 owing to flat demand for coal. Total volumes wereestimated at 1.14 billion tons. Declining imports of thermal coal into India Japan theRepublic of Korea and Europe were offset by a 4 per cent increase in other Asian countriesimports notably China where import volumes surged by over 28 per cent.
2017 was another difficult year for the dry bulk sector which continued to faceovercapacity and weak growth in demand. The industry continued taking steps to limit fleetsupply growth through increased scrapping and postponing or reducing deliveries of newvessels during 2017.
As previously noted the fleet capacity of bulk carriers grew by 2.22 per cent one ofits lowest rates of growth since 1999 (Clarksons Research 2017).
It has been quite some time since macro-economic development has looked this positiveand as supportive of shipping. Political events can undermine the development but 2018appears to bring fewer economic growth "derailing" events compared to 2017. Themost important factors to potentially derail growth are likely to be the US midtermelections in November the renegotiation of the NAFTA and the negotiation of the Brexitdeal. Notwithstanding the sustainability of the all-important Chinese economy.
For sustained economic growth the political deals resulting from these events need todecrease the number of trade barriers and ensure regulatory alignment. This will help toencourage potential growth as restrictive trade measures can discourage trade flows andhave negative knock-on effects on economic growth and job creation.
The World Trade Organization (WTO) has asked all nations to resist from adoptinginward-looking policies and urged its members to show leadership by committing to open andmutually beneficial trade. According to the most recent trade monitoring report this hasbeen embraced. In the period from mid-October 2016 to mid-October 2017 128 measures wereimplemented to facilitate trade compared to 108 trade- restrictive ones.
According to the WTO world merchandise trade has rebounded strongly as volumes grew by3.6% in 2017 compared to 1.3% in 2016. It is expected that this will drop moderately to3.2% in 2018 due to a downside risk arising from trade policy measures and geopoliticaltensions.
The weak trade economy since the 2008 recession and the overcapacity of the shippingindustry have continued to limit growth in shipping. As 2017 dawns it is apparent thatthe shipping industry will continue to face headwinds. The global economy is in uncertainterritory with a new administration taking over in the United States Europe still miredin weak growth and economic activity in China not showing signs of picking up sharply. Totop it all international trade faces a rise in protectionist rhetoric with events suchas Brexit shaking the foundation of free movement of goods services and capital. Alsowith Asian growth outpacing other regions trade growth within Asia will rise therebyimpacting shipping distances.
Rates and demand levels remain low which is why it is important to effectively manageovercapacity. Well-functioning efficient resilient freight transport systems are aprerequisite for successful trade and economic integration. They are also necessary toattract investment develop business and build productive capacities.
There appears to be a rise in tailwinds of late. Metal prices are firming up: Copper isup more than 23 percent since the end of 2015. Fiscal stimulus focusing on infrastructureand investment in China and Japan is likely to aid demand for metals. This augurs well forfreight rates which have also been moving up in recent months as is evident from theBaltic indices. Most importantly the shipping industry can draw comfort from an expectedrise in international trade growth in the near term. The advent of the United States as anenergy exporter with products destined for Asiaa longer routewill aidsentiment. Also the flow of US oil into the global market will likely keep a lid onprices thereby ensuring a ceiling. This will ensure that demand does not falter muchdespite a recent rise in crude oil prices .With key emerging markets and Japan searchingfor fuels cleaner than coal natural gas has seen an upsurge in demand.
This is likely to continue aiding demand for liquefied natural gas tankers.
Oilfields Services Business Offshore Segment:
Looking into 2018 the outlook for the offshore industry is dramatically improved. Oilprices have recovered the industry has significantly restructured and the"obsession" with shale growth is finally waning. At long last an offshore upcycle is poised to begin.
The recovery has unfolded in a predictable manner: The international markets arestaring to re-awaken and now the last frontier - offshore - is showing signs of life. Wecurrently expect global E&P spending to rise in the low double-digits this yearcompared to declines in 2015 and 2016 and flattish conditions throughout most of 2017.
We continue to have a contrarian view on the offshore markets. We believe rigsupply/demand dynamics are better than they appear especially for floaters andharsh-environment capable assets. On the demand side fundamentals appear to havedeteriorated with the working floater count falling below 100 near the end of 2017;however the low working rig count ignores ~30 idle units that will commence new contractsimminently - the highest level since March 2012
Roughly 30 projects were approved in 2017; this is more than double the number ofprojects approved in 2016 and we believe the industry is likely to see another sizeableincrease in offshore FIDs in 2018. All of the offshore companies are reporting an increasein "tire kicking" inquiries and tendering. With the recent move in Brent toabove $60/bbl and another landmark OPEC agreement to limit production through 2018 theanimal spirits are returning to offshore operators which have been dormant for severalyears
Considering the market for onshore drilling services in India it has been highlyskewed towards the customers such as ONGC Oil India Limited and Indian Oil CorporationLtd. In the regime of 12th five year plan the government is expected to focus majorly onE&P activities including intensive exploration of existing hydrocarbon reserves andgeographical focus on the east coast for exploring oil fields. While ONGC and IOC bothupstream companies are expected to spend Rs 1.75 trillion (US$ 32.9 billion) and Rs 190billion (US$ 3.6 billion) respectively primarily in exploration activities it isessential to capitalise upon key opportunities that are put forth to maximise deploymentof land rig assets on longer duration with these companies. Apart from these two in theprivate sector the E&P companies like Cairn Energy & other marginal fieldoperator in India are expected to increase their spending on exploration of wells. Thisapart development of the unconventional energy sources such as shale gas & CBM poseslarger opportunities for the deployment of land rig business.
With continuing uncertainty in macro-economic conditions and a relatively high level ofmarket volatility extending drilling and oilfield services to reach a larger customerbase is becoming very imperative to even out business risk which may be achieved throughvertical integration for e.g providing Integrated Project Management services. Consideringthe existing assets of Oilfields services business and their employability in the currentmarket conditions maximizing the asset utilization and providing greater efficiencies inthe service is very crucial in terms of steady revenue generations without any significantidling of assets. Moreover to remain competitive we have the objective to become morenimble to enhance the performance with the ability to scale resources up and to realizecost savings.
SUBSIDIARIES & ASSOCIATES
Your Company has four direct subsidiaries and two indirect subsidiaries. EssarOilfields Services Limited Mauritius; Energy Transportation International LimitedBermuda; Energy II Limited Bermuda; and Essar Shipping DMCC Dubai UAE are directsubsidiaries of the Company. OGD Services Limited (formerly known as Essar OilfieldServices (India) Limited India Essar Oilfield Middle East DMCC Dubai UAE are step downsubsidiary of the Company.
A report on the performance and financial position of each of the subsidiaries andassociates companies as per the Companies Act 2013 is provided as Annexure to this reportand hence not repeated here for the sake of brevity. The Policy for determining materialsubsidiaries as approved by the Board is available on Company's website www.essar.com.
Arkay Logistics Limited is an Associate Company wherein the Company holds 49% of thetotal equity capital.
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the Companies Act 2013 and Indian Accounting Standard (IND-AS) -110 on Consolidated Financial Statements read with IND-AS - 28 on Accounting forInvestments in Associates the audited Consolidated Financial Statements are provided inthe Annual Report. The audited Consolidated Financial Statements together with Auditors'Report thereon form part of the Annual Report.
Your Company believes that employee competence and motivation are necessary to achieveits business objectives. Your Company has undertaken many training initiatives to enhancetechnical and managerial competence of the employees and to further leverage theircapabilities to enhance their performance. The Company has taken a series of initiativesto enhance emotional and intellectual engagement of employees. During the year underreview the Company held many employee's engagement programs at the Company premises andoutside. Families of employees were invited and attended these programs.
The Company has policies on conduct sexual harassment of women at workplace whistleblower corporate governance insider trading etc. guiding the human assets of theCompany. For the year under review there was no instance of the sexual harassmentreported pursuant to the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013.
Mr. Ranjit Singh Chief Executive Officer (CEO) who was also the Whole Time Director(WTD) has ceased to be the WTD on account of completion of his term w.e.f. September 212019 but continued to be the CEO and has been re-designated as President and CEO of theCompany.
In terms of provisions of Section 152 of the Companies Act 2013 Ms. Neelam Kapoor(DIN: 07895198) Non-Executive Director who is liable to retire by rotation at theMeeting has provided her unwillingness to be re-appointed as Director of the Company dueto health challenges encountered by her.
Further in terms of provisions of Regulation 17(1A) of Securities & Exchange Boardof India (Listing Obligation & Disclosure Requirements) Regulations 2015 no listedentity shall appoint a person or continue the directorship of any person as anon-executive director who has attained the age of seventy-five years unless a specialresolution is passed to that effect. In view of the same approval of members was obtainedby way of postal ballot dated March 22 2019 for continuation of the terms of Mr. P.K.Srivastava Mr. N. Srinivasan & Captain B. S. Kumar.
The Company has received declarations from all the Independent Directors of the Companyconfirming that they meet with the criteria of independence as prescribed both undersub-section (6) and (7) of Section 149 of the Companies Act 2013 and under Regulation 16(b) (iv) of SEBI (LODR) Regulations 2015.
Pursuant to Sections 134 and 178 of the Act and the Regulations 17 and 19 of theListing Regulations Nomination and Remuneration Committee (NRC') has set the policyfor performance evaluation of Independent Directors Board Committees and otherindividual directors; separate meeting of Independent Directors; familiarization programmefor Independent Directors etc. is provided under Corporate Governance Report annexed withthis Report and the relevant policies are also available on the website of the Companywww. essar.com.
Based on the criteria set by NRC the Board has carried out the annual evaluation ofits own performance its committees and individual Directors for FY 2018-19. Thequestionnaires on performance evaluation were prepared in line with the Guidance Note onBoard Evaluation date January 5 2017 issued by SEBI.
The performance of the Board and Individual Directors were evaluated by the Boardseeking inputs from all the Directors. The performance of the Committees was evaluated bythe Board taking input from all the Committee members. NRC reviewed the performance ofindividual Directors separate meetings of Independent Directors was also held to reviewthe performance of Non-Independent Directors and performance of the Board as the whole.Thereafter at the board meeting performance of the Board its committees and individualDirectors was discussed and deliberated.
During the year ended on March 31 2019 Seven (7) meetings of the Board were held onMay 21 2018 May 30 2018 August 14 2018 September 10 2018 November 03 2018January 31 2019 and March 27 2019.
DIRECTORS' RESPONSIBILITY STATEMENT
Your Directors state that:
(a) in the preparation of the annual accounts for the year ended March 31 2019 theapplicable accounting standards had been followed and there are no material departuresfrom the same;
(b) 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 as at March 31 2019 and of the loss ofthe Company for the year ended on that date;
(c) the Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
(d) the Directors had prepared the annual accounts on a going concern basis.
(e) the Directors had laid down internal financial controls followed by the Companyand that such internal financial controls are adequate and were operating effectively asendorsed by Statutory Auditor in their separate report annexed to the Annual Report
(f) the Directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.
Your Company has a Risk Management Policy that outlines the framework and procedures toassess and mitigate the impact of risks and to update the Board and the senior managementon a periodical basis on the risk assessed actions taken for mitigation and efficacy ofmitigation measures. With efficient Risk Management Framework your Company is able tomanage:
(a) Economic Risks by entering into long term contracts with reputed global majors ineach of its divisions thereby ensuring long term profitability of the Company and assuredcash flows;
(b) Interest Rate Risk by undertaking suitable hedging strategies to overcome anyadverse interest rate risks. It has formulated internal target rates at which any openinterest rate risk can be hedged;
(c) Control over the operational matrix of various vessels to reduce cost and reducedowntime of vessels; and
(d) Control over various OPEX cost of the organization.
As per LODR Regulation 2015 Compliance related with Risk Management Committee isrequired to be done only by top 100 Companies as per list released by NSE since ourCompany doesn't fall in that category hence the Compliance of Risk Management was notneeded but our Company do believe in mitigation/minimisation of risk therefore themanagement had put its best effort to minimise/mitigate the risk.
INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY
Your Company has a well-established framework of internal operational and financialcontrols including suitable monitoring procedures systems which are adequate for thenature of its business and the size of its operations. The detailed report is given inCorporate Governance Report. Based on the performance of the internal financial controlwork performed by internal statutory and external consultants and reviews of Managementand the Audit Committee the board is of the opinion that the company's internal financialcontrols were effective and adequate during the FY 2018-19 for ensuring the orderlyefficient conduct of its business including adherence to the company's policiessafeguarding of its assets the prevention and detection of fraud and errors the accuracyand completeness of accounting records an timely preparations of reliable financialdisclosures.
The Company has complied with all mandatory provisions of SEBI (LODR) Regulations 2015relating to Corporate Governance. A separate report on Corporate Governance as stipulatedunder the SEBI (LODR) Regulations 2015 forms part of this Report. The requisitecertificate from the Auditors of the Company regarding compliance with the conditions ofcorporate governance is attached to the report on Corporate Governance.
The Company has in compliance with Section 177 of the Companies Act 2013 andRegulation 18 and 22 of the Listing Regulations established Vigil Mechanism by adoptingthe Whistle Blower Policy' for Directors and Employees. The Whistle Blower Policyprovides for adequate safeguards against victimization of persons who use such mechanismand have provision for direct access to the Chairperson of the Audit Committee inappropriate cases. A copy of the Whistle Blower Policy is available on the website of theCompany www.essar. com.
CORPORATE SOCIAL RESPONSIBILITY
As on March 31 2019 Corporate Social Responsibility Committee comprises of Captain B.S. Kumar - Chairman; Mr. Ranjit Singh; and Ms. Neelam Kapoor. The Annual Report on CSRcontaining the particulars specified under section 135 read with The Companies (CorporateSocial Responsibility Policy) Rules 2014 is enclosed as Annexure A.
EMPLOYEE STOCK OPTION SCHEME
The Company has implemented the "Essar Shipping Employees Stock OptionScheme-2011" ("Scheme") in accordance with the Securities and ExchangeBoard of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)Guidelines 1999 ("the SEBI Guidelines"). The Nomination and RemunerationCommittee of the Board of Directors of the Company administers and monitors the Scheme.The applicable disclosures as stipulated under the SEBI Guidelines as at March 31 2019are provided in the Annexure - B to this Report.
The term of scheme of Employee Stock Option was for a period of seven years which gotcompleted in the year 2018. As the objective of the trust is attained process to settlethe ESOS trust has been initiated.
Your Company's Statutory Auditor M/s. C N K & Associates LLP (Registration No.101961 W/W - 100036) was appointed at 5th AGM of the Company held on September23 2015 to hold the office up to the conclusion of 10th AGM of the Company tobe held on year 2020
Section 139 of the Act has been amended vide the Companies (Amendment) Act 2017 by theMinistry of Corporate Affairs on May 07 2018 and has done away with the requirement ofseeking the ratification of Members for appointment of auditors at every AGM.
As a part of the good governance practice the Company has requested the StatutoryAuditors to confirm their eligibility to continue as Statutory Auditors for the remainingtenure. Thus the Company has received letter from M/s C N K & Associates CharteredAccountants Mumbai to the effect that they fulfill the prescribed criteria / limits laiddown under Section 141 (3)
(g) of the Companies Act2013 and they are not disqualified to continue to act asstatutory auditors under the provisions of applicable laws.
Further with regard to the observations made in Annexure A to the Auditors' Report themanagement explanation is as under:
a) TDS & Service Tax dues:
The Company is making all efforts to clear outstanding statutory dues at earliest.
b) Regarding the dues to the Bank/FI/Debenture-holders
The Company is continuing its negotiation with lenders to restructure the loan toensure that earnings from operations matches with debt service commitments.
c) The Company's Current Liabilities exceed its Currents Assets by Rs. 1426.35 croresas at March 31 2019. The following steps are taken to rectify this mismatch:
1) Loan from public financial institution along with interest accrued thereon amountingto Rs. 1215.32 crores classified as Current Liability is expected to be settled.
2) Advance from a subsidiary for purchase of vessel amounting to Rs. 331.26 crores isto be adjusted upon sale of vessel.
3) Certain loans classified as current owing to defaults are expected to rescheduledsuch that they will not be repayable within one year.
The Board has appointed M/s. Martinho Ferrao & Associates Practising CompanySecretaries to conduct Secretarial Audit for the financial year 2018-19. The SecretarialAudit Report for the financial year ended March 31 2019 is annexed herewith marked asAnnexure - C to this Report. The Secretarial Audit Report does not contain anyqualification reservation or adverse remark.
APPOINTMENT AND REMUNERATION POLICY FOR DIRECTORS AND SENIOR MANAGEMENT
The Board of Directors on recommendation of the Nomination & Remuneration Committeehas adopted a policy for appointment of Directors remuneration of Directors KeyManagerial Personnel and other employees. The brief details on the above are provided inCorporate Governance Report and the policy is available on the website of the Companywww.essar. com. The details of remuneration as required to be disclosed pursuant to theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are annexedas Annexure - D to this Report.
PARTICULARS OF EMPLOYEES
In terms of the provisions of Section 197(12) of the Companies Act 2013 read withRules 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 a statement showing the names and other particulars of theemployees drawing remuneration in excess of the limits set out in the said rules togetherwith disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 are provided in the Annexure - E to thisReport.
CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES
All contracts / arrangements / transactions entered by the Company during the financialyear with related parties were in the ordinary course of business and on an arm's lengthbasis. During the year the Company had entered into one or more contract / arrangement /transaction with Essar Steel India Limited a Fellow Subsidiary which could be consideredmaterial in accordance with the policy of the Company on materiality of related partytransactions.
The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board may be accessed on the Company's websitewww.essar.com. The information on each of the transactions with the related party as perthe Companies Act 2013 is provided in note 28 of notes forming part of the financialstatement and hence not repeated. The disclosure required pursuant to clause (h) ofsub-section (3) of Section 134 of the Companies Act 2013 and Rule 8(2) of the Companies(Accounts) Rules 2014 in Form AOC-2 is annexed herewith as Annexure - F to this Report.
EXTRACT OF ANNUAL RETURN
The extract of the Annual Return in Form MGT 9 is annexed herewith as Annexure - G tothis Report.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
Particulars of Loans Guarantees and Investments covered under the provisions ofSection 186 of the Companies Act 2013 are given in the notes to the financial statements.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS
There are no significant and material orders passed by the regulators or courts ortribunals impacting the going concern status and Company's operations in future.
ENERGY CONSERVATION TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNING AND OUTGO
Conservation of energy and Technology absorption
Your company is committed for continual environmental improvement. The Company hastaken several initiatives towards conservation of energy. The Company initiated theprocess of monitoring carbon emissions as per IMO GHG Guidelines and also exploredopportunities to improve energy efficiency onboard the ships. Due to the nature of thebusiness (transportation) fuel and lubricants are necessary to deliver the services.
Following are few steps taken towards conservation of energy and use of alternatesource of energy:
Ship Energy Efficient Management Plan (SEEMP): In line with current guidelines thathave been established by IMO this plan has been implemented all across fleet vessels. Thecapturing and monitoring of the data on regular basis prompts to take appropriatecorrective measures on a timely basis. Onboard performance monitoring systems will give aholistic approach to ship operations with the aim of reducing fuel consumption andemissions while achieving optimum vessel performance. The Company have already completedenergy efficiency evaluation on our assets and are now in the process of implementing fuelefficiency measures. These include trim speed reduction and weather routing. These fuelefficiency measures will not only reduce energy consumption but also benefit customersthrough lower fuel cost where applicable.
Alternate source ofenergy: In order to reduce fuel consumption the Company's vesselsutilize shore power during repair lay-up period and thereby reduce carbon foot print.Periodical cleaning of ship's hull and propellers apart from routine dry-docking offloating assets is another step which has been taken towards conservation of energy withinsignificant investment or expenses.
The Company has successfully implemented SAP in its financial and budget managementsystems. The Company has also now implemented various methods of automation so as to havegreater visibility and control over its assets and further improve the turnaround timethereby increasing asset utilisation and profitability. Planned maintenance and purchasemanagement system of all the vessels are now being integrated with SAP in order to haveuniform platform. The Company has implemented a robust Document Management System thusimproving the availability of critical information in e-mode thereby reducing the use ofpaper. Ship-staff payroll system has been developed and implemented successfully.
In-house developed software EIS system has now been upgraded to monitor all the aboveenergy conservation measures and is now available online. Various energy and cargo relateddata are available in e-mode and helps in close monitoring and control of energyconservation related matters. Due to in-house developed software your company has notonly saved on investment towards purchase of third party software but also reduceddependency on third party service provide.
The Company is upgrading its ships to meet future requirements of IMO 2020 towardscompliance of burning of 0.5% of sulphur this upgrade will not only aid to compliance butwill also add to revenue of your Company.
Foreign Exchange Earnings and Outgo
The details of Foreign Exchange Earnings and Outgo during the year are as follows:
Foreign Exchanged Earned (including loan receipts sale of ships freight charter hireearnings interest income etc.) :
Rs. 184.52 Crore
Foreign Exchanged Used (including cost of acquisition of ships loan repaymentsinterest Operating expenses etc.) :
Rs. 482.40 Crore
Your Company has not accepted any public deposits under Section 73 of the CompaniesAct 2013 during the Financial Year under report.
APPRECIATION AND ACKNOWLEDGEMENTS
Your Directors express their appreciation of commendable teamwork of all employees.Your Directors express their thanks to all the offices of the Ministry of ShippingDirectorate General of Shipping Ministry of Petroleum and Natural Gas Indian NavyIndian Coast Guard Mercantile Marine Department State Government and Central GovernmentClassification societies Oil Companies and Charterers creditors Banks and FinancialInstitutions for the valuable support help and co-operation extended by them to theCompany.
Your Directors also thanks its other business associates including the Members of theCompany for their continued co-operation and support extended towards the Company.
| ||For and on behalf of the Board |
| ||Sd/- ||Sd/- |
|Mumbai ||Ranjit Singh ||P.K. Srivastava |
|November 13 2019 ||President &CEO ||Chairman |
| || ||(DIN:00843258) |